PhRMA Challenges Unconstitutional Provisions of California’s SB 17 in Federal Court

Unprecedented State Law Dictates a National Policy that Harms Competition, Ignores the Role of Other Participants in the Cost of Drugs and Offers No Clear Benefit to Patients

Washington, DC (December 08, 2017) – The Pharmaceutical Research and Manufacturers of America (PhRMA) today initiated litigation in the United States District Court for the Eastern District of California challenging SB 17, an unprecedented and unconstitutional California law.

In its complaint, PhRMA argues that SB 17 attempts to dictate national health care policy related to drug prices in violation of the United States Constitution, singles out drug manufacturers as the sole determinant of drug costs despite the significant role many other entities play in the costs patients pay, and will cause market distortions such as drug stockpiling and reduced competition.

PhRMA seeks a declaration from the Court that certain provisions of SB 17 violate the United States Constitution and requests that the Court permanently enjoin the State from implementing or enforcing those provisions of the law. Specifically, the complaint alleges that SB 17 violates:

    1. the Commerce Clause, which prohibits California from regulating drug pricing beyond the State’s borders;
    2. the First Amendment, by compelling speech by manufacturers justifying their price changes; and
    3. the Fourteenth Amendment’s due process clause because the law is unconstitutionally vague.

A copy of the Complaint is available here

“In this time of great innovation and advancement in therapies, we understand how important it is for patients to have affordable access to the medicines they need, but SB 17 is not only poorly conceived, it also misses the mark with its myopic focus on manufacturers and provisions that are in clear violation of the Constitution,” said James C. Stansel, PhRMA Executive Vice President and General Counsel. “The law creates bureaucracy, thwarts private market competition, and ignores the role of insurers, pharmacy benefit managers and hospitals in what patients pay for their medicines.”

SB 17 provides that if a manufacturer has increased certain products’ federally defined nationwide list price (wholesale acquisition cost, or WAC) by 16 percent or more cumulatively over the prior two to three calendar years, then that company may not increase the WAC in the current calendar year unless the company first provides registered purchasers and State purchasers with 60 days’ advance notice of the price increase. The WAC is a publicly available national price, not a price specific to California. This law, therefore, expressly saddles the entire country with California’s misguided drug pricing policy by imposing restrictions on the national list price of manufacturers’ medicines.

The law also does not address the large rebates and discounts insurance companies and pharmacy benefit managers (PBMs) are receiving and that are not always passed on to patients. Further, the advance notice requirement could incentivize prescription-drug arbitrage by effectively creating a “buying window” for selected entities to stockpile products before price increases go into effect, which in turn could create substantial market distortions.

PhRMA recognizes that many people have important questions about their medicine costs. That is why PhRMA has been convening a conversation called Let’s Talk About Cost that takes a broad look at this complex issue, exploring the slowdown in medicine cost growth, the rising cost of chronic disease, insurance coverage of medicine, the role of middlemen, and what our industry can do to make medicine more affordable for patients. For more information, visit: www.letstalkaboutcost.com.

About PhRMA
The Pharmaceutical Research and Manufacturers of America (PhRMA) represents the country’s leading innovative biopharmaceutical research companies, which are devoted to discovering and developing medicines that enable patients to live longer, healthier, and more productive lives. Since 2000, PhRMA member companies have invested more than $600 billion in the search for new treatments and cures, including an estimated $65.5 billion in 2016 alone.

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