Law Mandates Prescription Drug Price Transparency

On Oct. 9, 2017, Gov. Brown signed SB 17 into law. This new legislation generally requires prior notice of prescription drug rate increases and better understanding of prescription drug costs for health plans and insurers.

Specifically, this law requires pharmaceutical companies to notify health insurers and issuers at least 60 days prior to the effective date of a price increase that exceeds 16 percent over a two-year period. This requirement will apply to prescription drugs that have a wholesale price of at least $40 for the course of therapy.

Manufacturers must also provide information to justify drug price increases, such as factors that lead to such a decision and documentation of increased clinical effectiveness (if any). Health plans and insurers must also annually report the 25 most frequently prescribed medications, the 25 most expensive drugs by total annual spending and the 25 drugs with the highest year over year increase in total annual spending. Lastly, regulators must assemble this data to create a consumer-friendly report that illustrates the overall impact of drug costs on health care premiums.

No employer action is required, but employers in California should be aware of this legislation’s effects on group health plans. This law becomes effective on Jan. 1, 2019.

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