Closeup portrait female health care professional, doctor, nurse with stethoscope holding piggy bank, dollar bill, isolated red background. Medical insurance, medicare reimbursement, reform concept.jpegThe battle over drug pricing took an interesting turn here in California this week.  On the heels of such negative publicity about high priced prescription drugs, giant price spikes for certain medications, and general bad behavior among certain high profile biotech executives, it’s not surprising that regulators and government bodies are starting to weigh in on ways to regulate or control drug price increases.

Earlier this year, California state Senator Ed Hernandez introduced Senate Bill 1010 which would have:

… required a manufacturer of a branded prescription drug to notify state purchasers, health care service plans, health insurers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 10% during any 12-month period or if it intends to introduce to market a prescription drug that has a wholesale acquisition cost of $10,000 or more annually or per course of treatment.

Similar bills have been introduced in about a dozen state legislatures, but only Vermont has been successful in passing such a measure.

While SB 1010 successfully passed through the California State Senate committee and floor votes, it was ultimately defeated this week at the State Assembly Appropriations Committee when amendments to the bill were introduced against the wishes of Senator Hernandez.  Those amendments would have increased the reporting threshold from 10% to 25% and stalled the implementation of the rule until 2018.  Instead of accepting those changes and moving forward with the revised bill, Senator Hernandez elected to withdraw it from the approval process.

While pharma is celebrating this win, the glow of victory may be short lived.  Insiders in Sacramento say that the withdrawal of SB 1010 was tied to growing support for a November ballot measure – Proposition 61.  Prop 61, if approved in the fall elections, would effectively regulate drug prices in California by requiring state agencies to pay the same prices paid by the U.S. Department of Veterans Affairs for those prescription drugs.  As on one of the largest purchases of prescription drugs, the VA system is able to negotiate special discounts and rebates – all of which would be built into the cap on pricing in California decreed by Prop 61.

Opponents to Prop 61 include the pharmaceutical lobbying group (PhRMA), many pharmaceutical companies, and medical associations.  Their arguments against the proposition include claims that it would reduce access to certain medications in California, it would harm the VA, and it would lead to more bureaucracy and lawsuits.  That said, the opponent group has already raised $70M to fight Prop 61 and some believe the campaign will end up spending close to $100M trying to defeat the ballot measure – making it the most expensive proposition battle in California history.  With the huge money they are pumping into this fight, pharma is clearly concerned about the impact Prop 61 could have on their ability to price drugs in California and the precedent it could set for other states.

While I’m generally in favor of letting the free market dynamics take care of pricing issues, I don’t believe that free market dynamics really exist in U.S. healthcare.  I’m not sure that Prop 61 is the best solution, but I do think the electorate is fed up with feeling like they are at the mercy of pharmaceutical companies and the healthcare system.  It’s going to be an interesting couple of months watching how this issue plays out.

My hunch is that the days of uncontrolled drug price increases are numbered in California, but the argument over drug costs shouldn’t start and end with front-line pricing.  Total cost of care, efficacy-vs-safety, downstream medical costs from adverse drug events, and value based pricing should factor into the national discussion on healthcare costs.  We look to get value for the products and services we buy in all other domains – why not in healthcare?  But that’s an argument for another blog post.

In the interim, if you’d like to learn more about what we’re doing to help our clients better understand the total cost of care and long term value of medications, click here.


Brian M. Overstreet, President, Advera Health Analytics, Inc.


Topics: Drug Pricing

Brian Overstreet

Written by Brian Overstreet