New California Drug Pricing Data Shines Light On Rising Costs

Updated: 5:56 p.m.

California is getting a first look at increases in the list price of prescription medications. 

State data released last month show a median increase of 26 percent over the last three years. The numbers come from a California law that went into full effect this year. The law requires pharmaceutical companies to report any price hikes over 16 percent that occurred during the past five years. 

The report looks at the wholesale acquisition cost, or the cost that purchasers such as health plans and the state pay for drugs. It does not consider discounts, rebates and other factors that can change what patients pay. 

Still, consumer advocates say price hikes at the top ultimately trickle down. The list price for the pain reliever Tetracaine jumped 110 percent. One blood pressure medication, Guanfacine, increased from $28 a tablet to $87, a 200 percent spike. 

But drugmakers say it costs a lot to produce pharmaceuticals, and more of those costs should fall on  the government and health plans, and not consumers. 

“You’re looking at a list price that, unfortunately, patients are being forced to pay, but the government and private health plans are not paying,” said Priscilla VanderVeer with the trade association Pharmaceutical Research and Manufacturers of America.

The organization is suing the state of California over the law, known as SB 17, arguing it violates the First Amendment. 

The new law also requires drugmakers to give purchasers a 60-day heads up about price increases in the future. Some experts are calling it the most comprehensive drug pricing transparency bill in the nation. 

Mary Ellen Grant, spokesperson for the California Association of Health Plans, said the new requirements could incentivize drug companies to keep costs down. 

“Year after year drug prices kept skyrocketing, and the entire health care industry and lawmakers needed to come together to find solutions for bringing down these costs,” she said. 

The law requires drug companies to provide an explanation for the price increases, if the information is already publicly available. Two thirds of drugmakers declined to provide reason for the price hikes. Those who did gave examples such as “improvements in the manufacturing process” or “market conditions.”

Reports on list price increases will continue to come out quarterly.

California is using other strategies to regulate drug pricing. Gov. Gavin Newsom signed a bill Monday, sponsored by Attorney General Xavier Becerra, that aims to deter certain agreements between brand name and generic drug manufacturers.

According to the bill's author, Democratic Assemblymember Jim Wood, the makers of brand-name drugs sometimes pay manufacturers to keep the generics off the market for a set period of time. This practice is already illegal, but the bill is designed to expand the attorney general's ability to scrutinize drug companies accused of these deals.

“When drug companies use these quiet pay-for-delay agreements with generic drug manufacturers it hurts consumers twice – once by delaying the introduction of an equivalent generic drug that is almost always cheaper than the brand name and again by stifling additional competition that results when multiple generic companies begin producing even less expensive generic equivalents,” Wood said.