Legislators Trying Again to Make Drug Costs Transparent

With drug manufacturers charging $1,000 a pill for hepatitis C treatments and raising the price of a longstanding HIV medication 5,000 percent, state lawmakers hope to revive a bill that would demystify prescription drug costs.

Assembly Bill 463 would require pharmaceutical companies to report production and marketing costs associated with any drug treatment priced at $10,000 or more. The bill, called the Pharmaceutical Cost Transparency Act, was initially introduced last February, but floundered in the Legislature. Now the authors are hoping the growing outcry in the last six months over drug prices will help garner new supporters.

“Discontent with drug prices has reached a real breaking point,” said Assemblyman David Chiu, D-San Francisco, author of the bill. “Skyrocketing drug prices are gouging consumers, are costing government billions of dollars, are hitting at the bottom lines of businesses. And this is significantly impacting our health care costs.”

Specifically, the bill would require drug makers to report:

• Profits attributed to the drug
• Costs associated with clinical drug trials, research and development, and manufacturing
• Government grants that supported research
• Marketing and advertising

“I think sunlight on costs will help control costs,” Chiu says. “The data that we do know of, suggests that many of these companies are spending billions of dollars marketing and advertising their drugs, and not as much as they suggest on research and development.”

Drug makers oppose the bill. They say the time and money spent on the new reporting requirements would be better spent on developing new life saving drugs.

“It’s unclear how the bill will actually help patients in the long run,” says Priscilla VanderVeer, spokesperson for the Pharmaceutical Research and Manufacturers of America, a trade group for the industry. “Does it actually lead to lower prices? Once all this information is compiled, then what?”

Drug companies are also concerned that some of the information they would have to report is proprietary.

“For competitive purposes, the company doesn't want extreme specifics to fall into the hands of their competitors,” VanderVeer says.

For example, if companies disclose how much they are spending on a clinical trial, it could signal to a competitor their level of investment in a certain drug or disease, and the competitor might adjust their own practices.

Health insurance companies say they have to disclose proprietary information to regulators to justify hikes in premium rates, and they argue the protections for that information are adequate.

Health plans have been particularly interested in seeing AB 463 pass. Even though they can negotiate what they pay pharmaceutical companies for drugs to some extent, they're limited in how much of the cost they can pass on directly to consumers. A new law in California limits how much plans can charge patients out of pocket for specialty drugs to $250 per month, per prescription.

"At the end of the day, we have to buy these drugs," says Charles Bacchi, president and CEO of the California Association of Health Plans.

Health insurers will have no choice but to raise premium rates for everybody in order to balance the costs, he says.

"When it comes to high priced specialty drugs, the elephant in the room is how much those drugs cost America," Bacchi says. "The pharmaceutical companies want to try to sweep that under the rug, but you can't sweep an elephant under the rug."