Opinion: Shining a narrow but necessary beam of light on drug price hikes

The mounting cost of prescription drugs led California Gov. Jerry Brown Monday to sign SB 17, a bill to bring some transparency to how drug companies price their products.
The mounting cost of prescription drugs led California Gov. Jerry Brown Monday to sign SB 17, a bill to bring some transparency to how drug companies price their products.
(Rich Pedroncelli / Associated Press)

Pharmaceutical companies have so much power over their customers, it’s practically an abusive relationship. Maybe that’s why consumer advocates are heralding what might otherwise seem like a minor legislative win over Big Pharma.

SB 17, which Gov. Jerry Brown signed Monday morning, would not stop drug companies from making a brand new drug costlier than a college education, or from driving the price of an existing drug up faster than a hot tech stock. It wouldn’t place anything that even vaguely resembles a price control on pharmaceutical companies.

Instead, it tries to discourage big price hikes by shining a light on which drug companies are imposing big price hikes and why. In short, it’s naming and shaming.


The steps mandated by SB 17 are modest, but at this point we don’t know enough about how drugs are priced to craft a more forceful (and effective) response.

In the big scheme of things, that might seem like small beer. But the fiery opposition from drug makers — it took multiple years for lead author Sen. Ed Hernandez (D-Azusa) to push the bill through the Legislature — reflects the fact that public outrage is just about the only thing that’s brought down a skyrocketing drug price.

Witness what happened with the EpiPen, a patented device that injects a generic drug to counter life-threatening allergic reactions, after Mylan purchased the rights and raised the price 500% in less than a decade. Its CEO was summoned to Congress for hearings, it was hit with a wave of lawsuits (and settled one brought by federal and state officials for $465 million), and eventually it offered bigger discounts for low-income consumers and some of those with insurance. It also introduced a generic version of the EpiPen with a list price half that of the (grossly inflated) branded version.

Thanks to SB 17, insurers will have to start disclosing how much of their premium revenue is spent on prescription drugs, the increase in drug spending year over year, and which drugs are consuming the largest amounts of that money. They’ll also report the drugs with the biggest price increases. State officials will have to distill all this information into a consumer-friendly report that makes it easy to see the effect rising drug prices are having on premiums, along with the names of the drugs that are the biggest offenders.

Meanwhile, drug manufacturers that seek to hike prices more than 16% over a two-year period will have to notify insurers and other bulk buyers 60 days in advance of a new increase, while also providing the state with a somewhat detailed rationale for the price hike — including any evidence of improved effectiveness. For pricey new drugs, the measure would require manufacturers to disclose its marketing and pricing plans, as well as the estimated size of the market.

“Californians have a right to know why their medication costs are out of control, especially when pharmaceutical profits are soaring,” Brown said in a statement Monday.


That’s the hope. But the measure doesn’t require drug makers to disclose anything they haven’t already revealed to the public, so it’s real value is its ability to highlight information that might otherwise be buried in filings with the Food and Drug Administration or the Securities and Exchange Commission. And even then, the law appears to leave manufacturers plenty of room to cast their pricing decisions in a light most favorable to themselves.

Nor will the new law offer any insight into the role played by pharmacy benefit managers — middlemen that negotiate discounts with drug manufacturers on behalf of insurers or self-insured businesses, but don’t necessarily pass those savings on to consumers. A bill that would have provided a bit more information about these players (AB 315) stalled in the state Senate.

So again, the steps mandated by SB 17 are modest, but at this point we don’t know enough about how drugs are priced to craft a more forceful (and effective) response. And we can’t afford a policy misstep that makes life-saving drugs scarce or unavailable in the state.

For understandable reasons, the United States has made it difficult and costly to get a new drug approved. So it’s very much in consumers’ interests to make sure pharmaceutical companies have a powerful incentive to keep searching for miracle cures, in spite of the financial risk involved in getting one approved for sale. That’s why federal law allows drugs to be patented, gives manufacturers a temporary monopoly (20 years from the date the patent application is filed), and with a few notable exceptions, lets them charge whatever they wish for their products while they’re immune from competition.

The state obviously wants to tread carefully so as not to dry up the pipeline of new medicines. Yet some of the most egregious increases have been by companies selling generic drugs (see, e.g., the work of “pharma bro” Martin Shkreli at Valeant Pharmaceuticals) or treatments they bought from other companies post-Food and Drug Administration approval (again, see Mylan’s EpiPen).


With SB 17, lawmakers should have a clearer picture of which drugs are driving the ever-increasing cost of prescription drugs, what factors are going into those price increases and, potentially, how to rein them in. More important, it will be harder for manufacturers to jack up prices without attracting public scrutiny and outrage. For the time being, that’s the best hope for helping consumers in the short term without hurting them in the long run.

Twitter: @jcahealey