Senator Wiener Introduces Legislative Package to Lower Cost of Insulin & Other Prescription Drugs As California Falls Behind Other States in Addressing Drug Costs

SACRAMENTO – Today, Senator Scott Wiener (D-San Francisco) announced his Prescription Drug Affordability (PDA) Package, Senate Bills 40 and 41. Prescription drugs are a major driver of high costs: three in ten adults ration or skip medications they are prescribed to take due to cost. The problem is particularly acute for seniors and working class families, and California has fallen behind other states that have passed laws to contain these costs.

Senator Wiener’s Prescription Drug Affordability Package will counter these rising costs with two newly introduced bills that: (1) Cap monthly co-pays for insulin at $35 (SB 40) and (2) Rein in abuses by unregulated pharmaceutical middlemen, also known as pharmacy benefit managers or PBMs (SB 41). California is falling behind dozens of other states that have capped the price of insulin and/or regulate pharmacy benefit managers.

“It makes no sense that people with diabetes in states like West Virginia can access affordable insulin while Californians are stuck with higher prices,” said Senator Wiener. “When basic life necessities like medication become unaffordable in blue states, working people pay the price. As Democrats, we should be leading on making people’s lives better and more affordable. It’s past time California caught up with other states and put basic protections in place to contain the astronomical cost of basic medications.”

SB 40, The Insulin Affordability Act

About 4,037,000 adult Californians have diabetes, with an additional 263,000 cases of Type I diabetes diagnosed each year. This rate of new cases is particularly high and disproportionately affects the elderly, men, and low-income people. Insulin is essential for all people living with Type I diabetes and many living with Type II, meaning that millions of Californians rely on the drug.

Research has found that increased insulin costs are being driven by the small number of manufacturers and the rising role of middlemen such as pharmaceutical benefit managers. A 2021 study from the University of Southern California found that the share of insulin expenditures going to middlemen—PBMs, pharmacies, wholesalers, and health plans - had reached 53% by 2018, but from 30% in 2014.

The price of insulin has tripled over the past decade, with most of the increase going to middlemen and rising corporate profits. As a result of the increase, one in four people using insulin has reported insulin underuse because they can’t afford the full dose. Four in five Americans in need of insulin have incurred thousands of dollars in credit card debt to pay for the medication according to a recent survey.

Lawmakers and regulators at all levels of government have attempted to tackle the skyrocketing costs of insulin in recent years. Last August, Congress passed the Inflation Reduction Act, which capped the price of insulin at $35 a month for seniors covered by Medicare. The legislation did not cover private insurers as SB 40 would, and the future of the provision is uncertain with a newly elected Republican majority in Congress.

Christine Fallabel, regional director of state government affairs and advocacy with the American Diabetes Association, the sponsor of SB 40, said, “The ADA has long led the fight to make insulin more affordable, and there has been significant progress. We look forward to building on the momentum across the country to extend the $35 per month insulin cap to include people with state-regulated health plans in California. No one should have to skip their lifesaving insulin due to costs alone.” 

SB 40 would lower the crippling cost of insulin for patients by prohibiting private health insurers and health maintenance organizations (HMO) from imposing deductibles on prescription insulin drugs. It would also require that they and limit co-pays to a maximum payment of $35 for a 30 day supply.

SB 40 would also prohibit step-therapy requirements for insulin.

Theresa Rutherford, President of SEIU 1021 and healthcare worker, said "Working people urgently need relief from predatory corporate profiteering in every aspect of our lives, including healthcare. That's why SEIU members have fought to rein in healthcare prices, and why we support Senator Wiener's bill to ensure affordable access to insulin, which millions of Californians rely upon to stay healthy and alive."

Jamie Court, President of Consumer Watchdog, called SB 40 “a sensible reform to guarantee that people with diabetes are treated preventatively rather than being forced into the hospital because they cannot afford the cost of their medicine.”

SB 41, PBM Reform

Virtually unregulated in California, PBMs have grown to provide drugs to nearly all insured Americans. As the middlemen of the pharmaceutical industry, they buy prescription drugs from manufacturers and wholesalers and then sell them to pharmacies and health plans. In recent years, PBMs have increasingly taken advantage of their position as essential go-betweens to steer patients to higher-cost drugs and pharmacies, charge high administrative fees, and charge pharmacies more – sometimes much more – for drugs than they paid for them. The result is that PBMs – which play no role in producing prescription drugs – are capturing a larger and larger share of total prescription drug spending at a time when prices are rising precipitously.

The result is that the share of total spending on prescription drugs that goes to drug manufacturers has declined, while over half of every dollar spent on brand medicines goes to pharmaceutical industry middlemen like PBMs.

Families in California are struggling to afford the swiftly rising cost of medications. In 2022, drug spending in California grew by 12%–much faster than the overall rate of inflation–while total health premiums rose by just 4%. Last year, more than half of Californians either skipped or postponed mental and physical healthcare due to cost, putting their safety and wellbeing at risk. One in three reported holding medical debt, including half of low-income Californians.

“On behalf of the Californians we serve who live with chronic and rare diseases, we are grateful to Senator Wiener for his commitment and attempt to hold pharmacy middlemen accountable for their anti-patient and anti-pharmacy practices," stated Liz Helms, California Chronic Care Coalition President & CEO.  “Health care costs continue to rise when patients cannot afford medically necessary medications. We are committed to bringing transparency and oversight to PBMs, and look forward to continuing our work with Senator Wiener, our advocacy partners, and welcome others to join us in this fight.”

Jamie Court, President of Consumer Watchdog, said “Senator Wiener’s legislation to reform the unscrupulous practices of pharmacy benefit managers is long needed RX to protect consumers. The ban on steering patients to affiliated pharmacies and spread pricing, where PBMs charge health insurers more for a drug than it pays to reimburse pharmacies, will reduce consumers’ costs and restore fairness to the system.

“A poster child for this reform is the case Consumer Watchdog is currently prosecuting against CVS in federal court in San Francisco because the PBM was aware of the threat its prescription drug mail-order program posed to individuals living with HIV yet still chose to implement the program in order to increase its revenue. Increasingly what is best for PBMs is not best for patients or the health care system. Read more about the CVS case here.

“This bill addresses some of the worst abuses by pharmacy benefit managers: lack of transparency, unfair business practices, steering, and price gouging.”

Unregulated PBMs Have Become Big Business

The PBM industry is highly concentrated, with the three largest PBMs – CVS Caremark, Express Scripts, and OptumRx controlling 79% of the PBM market. They operate under the umbrellas of large insurers Aetna CVS Health, Cigna, and UnitedHealth Group, creating a conflict of interest.

"The California Pharmacists Association (CPhA) is proud to once again collaborate with Senator Weiner and an esteemed group of dedicated patient advocates,” said Susan Bonilla, CEO, California Pharmacists Association. “It is imperative that we continue to address the pressing issue of the record number of pharmacy closures driven by the bad business practices of the major Pharmacy Benefit Managers (PBMs) and the significant implications these closures have on patient care." Cost-Raising Practices

Because they buy medications in bulk, PBMs negotiate large rebates with drug manufacturers. However, instead of passing the cost savings on to consumers, PBMs keep part of the rebate as profit. It appears that they often keep a large portion of the rebates as profit, but patients and regulators have very little visibility into the practice because the deals are negotiated behind closed doors.

PBMs frequently charge insurance companies more for prescription drugs than they pay to reimburse pharmacies, a practice known as spread pricing.

Researchers at University of Southern California found that PBMs often steer patients away from low-cost generic drugs and towards higher-priced branded medications that the PBMs have negotiated profitable deals with. As a result,“[g]enerics accounted for 90% of U.S. prescriptions but only 18% of drug expenditures—and about 3% of all U.S. healthcare spending in 2020.

Some PBMs own and operate pharmacies and specialty pharmacies that allow them to steer patients to pharmacies that will further increase their profits, a practice known as patient steering. For example, PBMs offer to purchase a pharmacy, and then deny the pharmacy’s credentials and declare them out of network when they refuse. The PBM then notifies patients their pharmacies are no longer in-network, and offers them alternatives that are owned by the PBM. Such practices deny patients the right to choose their providers and are blatantly anti competitive.

PBMs Are Going Unregulated in California

PBMs have become a major focus of regulation in recent years, with the Federal Trade Commission investigating anticompetitive practices in the industry and multiple bipartisan efforts moving through Congress. PBMs are staffing up their teams of lobbyists to navigate the heightened scrutiny.

States across the country have taken action to combat the growing challenge presented by PBMs, with Michigan and Florida enacting recent landmark packages. Fifteen states ban spread pricing, while California does not. 

One challenge is the lack of a clear regulator for PBMs. 25 states PBMs to be licensed by state boards, but California requires a less stringent form of registration. 

SB 41 Reins In PBM Abuses

SB 41 requires that all PBMs be licensed and disclose basic information regarding their business practices to the licensing entity. In addition, SB 41 enacts other pro-consumer requirements and prohibitions:

• Requires all PBMs to be licensed through the California Department of Insurance
• Prohibits steering patients to affiliated pharmacies and instead allows patients to choose which in-network pharmacy best meets their needs.
• Prohibits spread pricing, where PBMs charge a plan more for a drug than it pays a pharmacy.
• Requires that the PBM pass through all negotiated drug rebates to the payers or patients.
• Outlaws making any untrue, deceptive, or misleading statements.
• Prohibits PBMs from negotiating exclusive arrangements with manufacturers for drugs, devices, or other products.
• Limits how fees may be charged and requires transparency in fees.

SB 41 is sponsored by the California Pharmacists Association, the San Francisco AIDS Foundation, the Los Angeles LGBT Center, and the California Chronic Care Coalition.

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