PhRMA Sues California Over State's New Drug Pricing Law

The pharmaceutical industry trade and lobbying group Pharmaceutical Research and Manufacturers of America (PhRMA) sued California state officials in federal court on December 8, 2017, over California’s new drug pricing law, Senate Bill 17 (SB 17), which the group states is “unprecedented and unconstitutional.” PhRMA argues that the California law, set to take effect January 1, 2019, “intentionally exports California’s policy choices regarding prescription drug pricing on the entire nation.”

The law, which was signed by Democratic Governor Jerry Brown on October 9, 2017, requires drug makers to provide 60 days’ notice of price increases above 16% when combined with increases from the previous 2 years, and they must also justify those increases. In addition, insurers will have to provide information about how drug costs affect premiums.

The bill would also require the California Office of Statewide Health Planning and Development (OSHPD) to enforce the provisions requiring manufacturer reporting, and would subject a manufacturer to liability for a civil penalty if the information described above is not reported. Some of the pricing information will be available to the public on OSHPD’s website. “Californians have the right to know why their medication costs are out of control, especially when pharmaceutical profits are soaring,” Governor Brown said in a statement.

In its complaint, PhRMA argues that SB 17 “forces drug manufacturers to publicly convey and implicitly endorse the state’s position that the manufacturers are to blame for the allegedly inflated prices of prescription drugs.” Further, the group says the law incorrectly and unfairly singles out drug makers for public condemnation, and will cause market disruptions such as drug stockpiling and reduced competition. The group seeks a court declaration that the law violates the First Amendment, the Fourteenth Amendment, and the Commerce Clause.

The bill’s sponsor, State Senator Ed Hernandez, said he was confident the law would be upheld, and said the lawsuit was another example of pharma refusing to accept any responsibility for the skyrocketing costs of prescription drugs.

Analysts have noted that PhRMA is concerned that the California law has been signed because California is such a large state, and could potentially serve as a model for other states seeking to act on drug prices. Maryland and Nevada are also implementing their own drug pricing legislation. PhRMA spent nearly $17 million in the last several years to oppose SB 17 before it was signed into law.