Bill would require drug companies to reveal operational costs

March 2, 2015

A bill has been introduced in California which will require drug companies to reveal operational costs in order to better understand pricing for ultra-high-priced drugs.

California assembly member David Chiu (D-San Francisco) introduced a bill, which, for the first time, will require drug companies to reveal operational costs in order to better understand pricing for ultra-high-priced drugs.

AB 463 would require pharmaceutical manufacturers to provide the Office of Statewide Health Planning and Development (OSHPD) with annual cost reporting on the most expensive drugs. OSHPD would compile the data into an annual report submitted to the Legislature and publicly posted online. 

Related:Operational changes can reign in spirialing healthcare costs

Specifically, the manufacturer of any drug or course of treatment that costs more than $10,000 per year, must report production costs for the drug, including:

  • Research and development costs paid by the manufacturer or predecessor;

  • Any research and development grants associated with the drug, including those from any governmental agency or other source;

  • Clinical trials and other regulatory costs;

  • Manufacturing costs;

  • Marketing and advertising costs;

  • Acquisition costs, including patents, licensing or purchase of a corporation owning the rights to the drug during development;

  • Profit attributed to the drug;

Financial assistance provided to patients through patient prescription assistance programs.

“[This bill] would make the drugs more affordable for the hospitals to put on their formularies,” says Elan Katz, CEO of CURE Urgent Care and CEO of QuickRx.

KatzAs a pharmacist by profession and an owner of a chain of pharmacies for 15 years, Katz has witnessed rising drug prices. 

“We all know it is crucial to keep investing in R&D-the main reason for growing medicine costs-and trying to find new and better ways to battle current health conditions as well as developing new medications for the treatment and possible cure of diseases that not too long ago were a death sentence [e.g. HIV, multiple sclerosis, hepatitis-C],” Katz says. “However, we need to figure out a way to curb the growing costs that are financially hurting the patients, in the process.”

The first major way patients are getting hit with these spiraling costs is based on the costs of copayments and deductibles increases, with the growth in the drug prices.

“This is especially painful for the most vulnerable population, our seniors,” Katz says. “Most Medicare Part D plans have a period where their coverage stops paying prescriptions, named the doughnut hole, and they are responsible for 100% of the cost of the drugs during that time. It is precisely here that the rising drug prices lead to a much faster reaching of their doughnut hole.”

Related:Limiting drug insurance not the answer to controlling healthcare costs, study says

The second way the higher medicine costs negatively impact patients’ lives is with insurance companies removing high cost drugs from their formularies lists and leaving patients with less choices that they cover, according to Katz.

“Once again, the patients are left paying higher copays for ‘non-preferred’ drugs, or often having to pay full prices, without coverage at all,” he says. 

Restructuring and making healthcare more affordable is of outmost importance, Katz says. “For pharmacists, this will align them with the patients to focus on their needs, as opposed to spending their time on getting prior authorizations for medicine from the doctors and insurance companies for expensive drugs,” he says.

The core elements that formulary decision-makers take into consideration are safety, efficacy, comparative effectiveness to existing therapeutic options, and net economic considerations -drug costs less rebates and all other medical/ancillary care & monitoring costs, according to Ruth Ann C. Opdycke, PharmD, MS, president, TPG Healthcare Consulting LLC.

"Requiring manufacturers to annually report select financial components that may or may not be used to determine the market costs of high cost drugs will not impact the formulary decision making process, nor will it motivate manufacturers to modify their market-based pricing models,” Opdycke says. "The pharmaceutical lobbyists will work hard to prevent passage of this bill.  This is a band-aid approach to the much larger problem of an extraordinarily wide and deep specialty drug pipeline with many agents that are no longer focused only on rare diseases.  The uproar over the market pricing of Sovaldi, Harvoni, and Viekira Pak resulted in the PBM-pharma negotiations which brought about formulary exclusions and upward to 50% reductions in the ‘sticker price’ for some major purchasers of these products. We will see broader acceptance of formulary exclusions and other strict utilization management tools as a more effective message to pharma that the sky is not the limit when it comes to US drug prices.”