California Enacts Limitations on Copayment Coupons

As prescription drug pricing continues to dominate political headlines, state legislatures are taking action intended to lower drug prices for health plans and patients. Despite industry opposition, California has enacted a law to limit the use of copayment discounts, commonly offered by pharmaceutical manufacturers as copay cards or coupons. California is not the first state pass legislation limiting copay cards; Massachusetts banned copay cards until 2012, when the state loosened restrictions in response to pressure from consumers and the pharmaceutical industry.

California’s new law, AB 265, was signed by Governor Jerry Brown on October 9, 2017. Though the law goes into effect on January 1, 2018, the broadly drafted language raises questions for manufacturers that the state has not yet answered.

The law outlines two prohibitions on copay cards and other discounts:

1. Manufacturers cannot offer discounts that reduce an individual’s out-of-pocket prescription drug expenses (e.g., copayments, coinsurance, or deductibles), if a lower cost generic drug is “covered under the individual’s health insurance, health care service plan, or other health coverage on a lower cost-sharing tier that is designated to be therapeutically equivalent as indicated by the United States Food and Drug Administration’s ‘Approved Drug Products with Therapeutic Equivalence Evaluations.’” This prohibition does not apply to branded drugs that have been nationally available for less than three months. 
2. Manufacturers cannot offer copay discounts for a prescription product if “active ingredients of the drug are contained in products regulated by the federal Food and Drug Administration, are available without prescription at a lower cost, and are not otherwise contraindicated for treatment of the condition for which the prescription drug is approved.”

These restrictions do not apply to certain circumstances outlined in the law:

• Discounts and product vouchers for prescription drugs required under an FDA Risk Evaluation and Mitigation Strategy (REMS) that facilitate the use of the drug in a manner consistent with the drug’s approved labeling 
• Single-tablet HIV or AIDS treatments, under certain conditions 
• Patients who have completed step therapy or prior authorization requirements to receive the branded drug, as required by the patient’s insurance plan 
• Offering reductions in out-of-pocket costs not associated with an individual’s health insurance 
• Rebates received by state agencies

The law does carve out an exception for manufacturers to offer free product through patient assistance programs, as long as the product is free to the patient and the patient’s insurance. The law also exempts “independent charity patient assistance program[s],” clarifying that manufacturers may provide funds to programs that meet certain requirements. In order to be “independent,” the program must:

• Not allow the manufacturer or an affiliate to exert influence or control over the charity or program 
• Award assistance in a “truly independent manner that severs any link between a pharmaceutical manufacturer’s funding and the beneficiary” 
• Award assistance without regard to the manufacturer’s interest or the beneficiary’s choice of product, provider, supplier, or insurance coverage 
• Award assistance based on a “reasonable, verifiable, and uniform measure of financial need that is applied in a consistent manner” 
• Not provide the manufacturer with data that that helps the manufacturer correlate the frequency of donations with the number of prescriptions for its products

AGG Observations

• California’s law uses both the terms “generic,” and “therapeutically equivalent.” The law does not provide a definition of either term, but by deferring to FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly referred to as “the Orange Book,”) the law would capture all therapeutically equivalent products. 
• The prohibition on offering copay coupons when a product’s active ingredients are available without a prescription is drafted broadly; it does not explicitly require that the over-the-counter product be offered in exactly the same dosage form or delivery system, even though these factors would be important in evaluating bioequivalence. 
• An earlier version of the bill provided that the state would take enforcement action “only upon receipt of a complaint that alleges [a] violation.” However, the final version of the bill does not limit the state to reactively pursuing violations of the law. 
• The law does not specify how coupons expiring after the January 1, 2018, effective date should be handled. 
• If the law applies to a manufacturer’s products, that manufacturer should take steps to revise marketing materials and eligibility questions for copay cards to note California’s exclusion. 
• We will continue to closely monitor any further guidance offered by the state, or the development of any regulations that will clarify the scope of this law.