California Drug Price Transparency: Reporting, SB 41, and Penalties

California’s drug price transparency laws require pharmaceutical manufacturers, health plans, insurers, and pharmacy benefit managers to publicly disclose how prescription drug prices are set, how they change, and how those costs flow through to premiums. The framework began with Senate Bill 17 in 2017 and was significantly expanded by Senate Bill 41, which Governor Newsom signed on October 11, 2025.¹ Three state agencies administer overlapping reporting obligations, each covering a different link in the supply chain.

When Manufacturers Must Report a Price Increase

A price change triggers reporting only when two conditions are met at the same time. The drug’s wholesale acquisition cost must exceed $40 for a course of therapy, and the cumulative increase must top 16% compared to the wholesale acquisition cost on December 31 of the calendar year three years earlier.² The wholesale acquisition cost is essentially the list price a manufacturer charges wholesalers before any discounts or rebates.

Once both thresholds are crossed, the manufacturer must send written notice to each affected purchaser at least 60 days before the new price takes effect. Purchasers here means state agencies, health plans, health insurers, and pharmacy benefit managers.³ That lead time lets purchasers adjust formularies or negotiate before the cost hits.

What the Quarterly Report Must Contain

The advance notice is only the first step. Manufacturers must also file a detailed quarterly report with the Department of Health Care Access and Information, which runs the Cost Transparency: Prescription Drugs program (CTRx). The report is due within one month after the end of the quarter in which the price increase took effect.⁴

Each report must spell out the specific financial and non-financial reasons behind the increase, including what drove the decision and why the increase was set at that amount. The manufacturer must also provide a five-year pricing history, showing every wholesale acquisition cost change and its effective date over that period.² If the manufacturer acquired the drug from another company within the past five years, the report must include the acquisition price and the name of the seller. That disclosure lets regulators and the public connect ownership changes to pricing patterns.

New Drug Launch Notifications

Expensive new drugs face a faster reporting track. When a manufacturer introduces a drug at a wholesale acquisition cost exceeding the specialty drug threshold set under the Medicare Part D program, it must file a notice with HCAI within three days of market launch.⁵ The initial notice is brief: the drug’s national drug code, launch date, and wholesale acquisition cost.

A detailed follow-up report is due within 30 days. It must cover the drug’s marketing and pricing strategy for both U.S. and international markets, the estimated number of patients expected to use it, and, if the drug was acquired rather than developed in-house, the acquisition date and price.⁴ The tight three-day window means HCAI learns about high-cost launches in close to real time.

Health Plan and Insurer Reporting

Manufacturers are not the only ones on the hook. Health plans regulated by the Department of Managed Health Care and health insurers regulated by the Department of Insurance must report annually on how prescription drug costs affect premiums. Insurer reports are due to the Department of Insurance by October 1 each year.⁶

The required data breaks drug spending into categories: generic drugs excluding specialty generics, brand-name drugs excluding specialty brands, and specialty drugs in both generic and brand-name form. For each category, the plan or insurer must disclose the percentage of the premium driven by drug costs, the year-over-year change in per-member spending, and how drug price growth compares to other components of the premium.⁶ Plans must also identify their pharmacy benefit manager and disclose which parts of drug coverage the PBM manages.

On top of the category-level data, plans must report the 25 most frequently prescribed drugs, the 25 most costly drugs by total annual plan spending, and the 25 drugs with the highest year-over-year increase in spending.⁷ Those lists let regulators pinpoint specific products driving premium increases rather than relying on aggregate trends.

What SB 41 Changed for Pharmacy Benefit Managers

Pharmacy benefit managers sit between manufacturers, pharmacies, and the plans that pay for drugs. SB 41 imposes the most sweeping PBM rules California has enacted and fundamentally changes how PBMs earn money and handle manufacturer rebates.

The law requires PBMs to use a passthrough pricing model. They must direct 100 percent of manufacturer rebates to the health plan or program rather than retaining any portion. PBM income is limited to flat, disclosed management fees that reflect fair market value and cannot be tied to drug prices, rebate amounts, or formulary placement.⁸ Before SB 41, PBMs could negotiate rebates with manufacturers and keep a portion of the difference, which created an incentive to favor higher-priced drugs that generated larger rebates.

The law also bans spread pricing, the practice of charging a health plan more for a drug than the PBM actually reimburses the pharmacy and pocketing the difference. For contracts executed, amended, or renewed on or after January 1, 2026, spread pricing is prohibited outright.⁸ PBMs are further barred from requiring the use of affiliated pharmacies and from discriminating against independent pharmacies through restrictive network conditions.

Self-insured employer plans operate primarily under federal ERISA rules, which can preempt parts of state PBM regulation. Employers in that position should not assume every provision of SB 41 reaches their PBM contracts.

Where to Find the Reported Data

HCAI publishes the manufacturer data it collects through CTRx on a quarterly basis, with updates posted within 60 days of receipt. The data covers both price increase reports and new drug launch notifications. Monthly updated datasets are available for download through the California Health and Human Services Open Data Portal, and HCAI maintains a public reporting dashboard with visualizations of pricing trends.⁴

The downloadable files contain 27 data elements per report, split in two: one covering the price increase details and the manufacturer’s stated rationale, and another covering the five-year pricing history.² Anyone can access these files. You don’t need credentials or a professional affiliation. If your medication’s price jumped and you want to know why the manufacturer says it happened, the quarterly reports contain that explanation in the manufacturer’s own words.

The Department of Managed Health Care separately publishes an annual report analyzing how drug costs affect health plan premiums. The most recent report covers measurement year 2024.⁷

Penalties for Noncompliance

Manufacturers that miss a deadline for a quarterly report or a new drug launch notice face a civil penalty of $1,000 for each day the information is late. The penalty begins the day after the deadline passes and continues until the manufacturer files what it owes.⁴ A manufacturer that receives a penalty notice can file a written appeal with HCAI within 30 days, and HCAI may reduce or waive the penalty for good cause.

For pharmacy benefit managers, enforcement works differently. The Attorney General has authority to bring civil actions for violations of the PBM licensing and conduct provisions, with penalties ranging from $1,000 to $7,500 per violation.⁸ The Attorney General can also seek injunctive relief, meaning a court could order a PBM to stop a prohibited practice immediately rather than simply paying a fine.

What the Framework Does Not Do

The transparency laws generate a substantial amount of data, but they have structural limits. No state agency has authority to block a price increase or declare it unreasonable. A manufacturer can raise a drug’s price by 25%, file the required explanation, and HCAI will publish it. The reporting requirement itself is the enforcement tool.⁹ The $1,000-per-day penalty is meaningful for smaller manufacturers but modest for a company generating billions in annual drug revenue.

The 16% threshold over three years also means a manufacturer can raise prices by just under 16% every three-year cycle without triggering any reporting obligation, as long as the drug’s wholesale acquisition cost stays above $40. Drugs priced at $40 or below are entirely exempt regardless of percentage increase. And the requirements apply only to drugs purchased or reimbursed by the specified entities. If a drug is sold exclusively through channels outside those categories, the reporting obligation may not attach.

1
Office of the Governor. Governor Newsom Signs SB 41 to Lower the Cost of Prescription Drugs
2
California Health and Human Services Open Data Portal. Prescription Drug Wholesale Acquisition Cost (WAC) Increases
3
California Legislative Information. SB-17 Health Care Prescription Drug Costs
4
Department of Health Care Access and Information. Cost Transparency Prescription Drugs (CTRx)
5
New York Codes, Rules and Regulations. California Code of Regulations Title 22 Section 96075 – New Drug Notice
6
California Legislative Information. California Insurance Code INS 10181.45
7
California Department of Managed Health Care. Prescription Drug Cost Transparency Report Measurement Year 2024
8
California Legislative Information. California Bill Text SB-41 – Pharmacy Benefits
9
California State Library. Prescription Drug Pricing and Cost Transparency in California