Congratulations to Governor Arnold for vetoing a counterproductive piece of legislation in California that would have imposed new disclosure requirements on pharmaceutical benefits managers. As the FTC noted in an analysis of the bill (from the press release):
The staff analysis finds that AB 1960 is likely to have an adverse effect on consumers in two ways. First, mandated disclosures may actually increase prices. “Whenever PBMs have a credible threat to exclude pharmaceutical manufacturers from their formulary, manufacturers have a powerful incentive to bid aggressively. . . Whenever competitors know the actual prices charged by other firms, tacit collusion – and thus higher prices – may be more likely. It is for this reason that California law requires the state to use sealed bids to procure desired goods and services whose value exceeds $25,000,” the FTC’s letter states.
Second, the bill has a number of provisions that are likely to make drug substitution more expensive. PBMs frequently use drug substitution to reduce costs and promote competition between branded drug makers. Generic substitution is encouraged by the FDA and widely recognized as safe, and California already requires prescriber approval for the substitution of one branded drug for another. Because current safeguards appear sufficient to protect consumers, AB 1960 is likely to increase costs to consumers without providing any additional benefits.
The Governor’s veto message points to the FTC analysis as influencing his decision to veto it.
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