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CLSA Wire

PhRMA Files Suit to Stop SB 17, New California Reporting Burdens Law
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Dec. 15, 2017

On Dec. 8, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit in the United States District Court for the Eastern District of California, seeking to have Senate Bill (SB) 17’s manufacturer reporting requirements declared unconstitutional and void.

Under SB 17, manufacturers will be required to provide a 60-day advance notice of any price increase on a drug to all California public agency purchasers, health insurers, and pharmacy benefit managers (PBMs) if that drug’s price has increased 16 percent or more cumulatively over the previous two calendar years, including the current year’s increase.

California’s Office of Statewide Health Planning and Development (OSHPD) recently released its implementation plan for Senate Bill 17 (Hernandez), and the law’s advance notice provisions are set to take effect on January 1, 2018. Additional quarterly reporting by manufacturers to OSHPD would begin on January 1, 2019.

With the lawsuit, PhRMA seeks a permanent injunction from the Court to prevent the State from implementing or enforcing the law’s requirements related to manufacturer reporting and notices.

PhRMA’s complaint in the case states three central claims. First, SB 17 violates the Commerce Clause, which prohibits California from regulating out-of-state drug pricing. Second, it also violates the First Amendment by “compelling speech by manufacturers justifying their price changes.” Finally, it violates the Fourteenth Amendment’s due process clause on account of unconstitutionally vague language. A copy of the Complaint is available here.

Much of the attention has been paid to the alleged violations of the Commerce Clause, which generally has been interpreted by the United States Supreme Court to prohibit direct regulation of interstate commerce by a state. Thus, a central issue for the Court in the case going forward will be whether a 60-day advance notice of a change in a national list price is direct or incidental regulation of interstate commerce. PhRMA’s complaint argues it is direct regulation because, among other things, the notice effectively “imposes a 60-day nationwide ban on price increases,” which is analogous to other laws previously struck down by the Supreme Court.

CLSA and our industry partners will continue to engage the state regarding SB 17 implementation. As we continue to analyze the potential impacts of implementation on our industry, any members who would like further information on SB 17 or any other new California laws are encouraged to reach out to Oliver Rocroi, CLSA’s Senior Director, State Government Relations (orocroi@califesciences.org) or Brett Johnson, CLSA’s Senior Director, Policy & Regulatory Affairs (bjohnson@califesciences.org).