Republican Gov. Brian Sandoval said he will be “proud” to sign into law an expansive piece of pharmaceutical transparency legislation placing extensive disclosure requirements on manufacturers and others in the diabetes drug pricing process when it reaches his desk.

The hybrid diabetes drug bill passed the Legislature in the final two days of the session after most elements of a Democrat-backed pharmaceutical transparency bill vetoed by Sandoval last week were amended late Sunday night into a Republican-sponsored measure tackling transparency in a different portion of the drug pricing spectrum. Sandoval had expressed concerns that the vetoed legislation, Democratic Sen. Yvanna Cancela’s SB265, was too narrow in its approach and could lead to skyrocketing diabetes drug costs in Nevada.

Sandoval mapped out his main points of opposition to Cancela’s bill in a three-page veto letter, much of which made similar arguments to those the pharmaceutical industry has been making since SB265 was introduced in March. He called provisions of the bill “well-intentioned” and “laudable” but said that the bill also posed “serious risks of unintended and potentially detrimental consequences for Nevada’s consumer patients,” such as actually causing the costs of diabetes drugs to go up.

The legislation as amended includes language from both Cancela’s bill and state Senate Minority Leader Roberson’s SB539. It requires manufacturers of diabetes drugs, such as insulin, whose drug prices have increased by more than a certain amount over the previous year, to report the costs of producing and marketing the drug, along with any rebates they offer, while also mandating pharmacy benefit managers — third party administrators who are the go-between for manufacturers, insurers and pharmacies — disclose to the state the total amount of rebates they receive from diabetes drug manufacturers and the total amount of those rebates they retain.

With all of that in mind, here’s a side by side comparison of the concerns spelled out in Sandoval’s SB265 veto message and how that compares to the bill headed to his desk:

“By requiring an advance notice of a change in price before the change is effective, this bill may create a perverse incentive for some market participants to manipulate supply in order to maximize profits … For these reasons, SB 265 threatens to create undesirable incentives that could result in drug stockpiling, artificially inflated drug prices, and an expanded gray market for prescription drugs, thereby perpetuating the very problems SB 265 was meant to solve.”

Cancela’s bill originally included a provision that would have required manufacturers of diabetes drugs to notify the state 90 days ahead of any planned price increases. Pharmaceutical companies have argued that the provision could lead to a stockpiling of drugs and give purchasers, wholesalers and secondary distributors greater financial incentives to restrict access to medically-necessary drugs — a concern that Sandoval also expressed in his veto message.

Sandoval wrote that he was concerned that the price notification requirement could create a “gray market” of diabetes drugs, with sellers distributing drugs to the highest bidders. He said that could lead to “higher costs, fewer choices, and less access” to diabetes drugs.

To address those concerns, SB539 simply does not include the 90-day price notification provision from SB265.

“My understanding is the amendments were made exactly with the veto message in mind,” Sandoval told reporters on Monday. “And so one of my concerns was the 90-day reporting requirements that could cause that gray market. That’s something that has been taken out of the bill.”

“Moreover, SB 265 wholly ignores the role of pharmacy benefit managers (PBMs) and other participants along the prescription drug supply chain … Complete transparency would shed light on every stage of the prescription drug supply process, and require all participants to share the same disclosure responsibility.”

One of the major concerns that Republican expressed leading up to the vote on SB265 was that the bill did not address the role of pharmacy benefit managers in the drug pricing process. Roberson introduced SB539 to tackle PBM transparency, and several Republican senators voted for SB265 with the understanding that Roberson’s bill would get a hearing.

Still, Sandoval indicated in his veto message that he wanted to see PBMs included in any sort of legislation mandating transparency from pharmaceutical manufacturers. In response to mounting pressure over the rising costs of medicine, drug companies often point the finger at PBMs and insurers for why customers are paying higher costs at the pharmacy counter.

The difficulty is that the only two publicly available numbers for prescription drug costs is the list price provided by the manufacturers and what customers pay at the pharmacy. That means it’s difficult to know what discounts PBMs negotiate with manufacturers, what rebates manufacturers give to PBMs and how much of those savings PBMs pass along to insurers.

The new legislation addresses that concern by mandating disclosure of rebates received and retained by PBMs for diabetes drugs, along with other provisions including requiring PBMs to act in insurers’ best interests and banning PBMs, insurers and other third parties from placing gag orders on pharmacists preventing them from discussing lower-cost alternatives with patients. However, the bill does not require PBMs to be licensed by the state — a component of Roberson’s original bill that would’ve had a fiscal impact on the state.

“The other issue for me was the supply chain and making sure that we had transparency all along the supply chain, that bill accomplishes that,” Sandoval said on Monday.

“In addition, constitutional and other legal concerns have been raised that render the bill problematic. Among other issues, SB 265 could be challenged under theories of federal preemption, the Fifth Amendment’s prohibition on uncompensated takings, and the Dormant Commerce Clause.”

Long before the bill was sent to the governor’s desk, SB265 required manufacturers of diabetes drugs to reimburse patients and insurers if the cost of certain essential diabetes-related drugs increased by more than a certain amount each year. That provision of the bill was amended out after legislative staff informed Cancela of potential constitutional concerns with the legislation.

Legal staff believed that the price control provision could have violated the Interstate Commerce Clause, which restricts the power of states to regulate interstate commerce, and the doctrine of federal preemption as spelled out in the Supremacy Clause, which says that federal law trumps state law when the two are in conflict. An earlier amendment to the bill sought to address another concern over price control provision violating the Fifth Amendment’s Takings Clause, which protects against the government confiscating private property without due process or just compensation.

However, it was legislative legal counsel’s opinion that the concerns manufacturers still had about the version of SB265 sent to the governor would not result in the bill being struck down in court. Manufacturers raised the concerns in a meeting with Cancela and legal staff.

“We found that most of the problems that the industry representatives mentioned in the meeting were policy concerns related to the difficulty of complying with the requirements of the bill and the potential effects of enacting the bill,” wrote Eric Robbins, principal deputy legislative counsel. “These concerns would not result in the bill being struck down in court. To the extent that these concerns expressed by the industry representatives were legal in nature, this office had previously researched those concerns and has determined that all provisions of Senate Bill 265 are legally defensible.”

Still, manufacturers continued to raise concerns about the legality of SB539 during a brief hearing on the bill on Monday on the Assembly floor. A representative from Eli Lilly and Company, one of the major three insulin manufacturers, argued that the bill would have significant fiscal impact on the state from the costs of having to fight lawsuits over the legislation.

Asked how SB539 addresses the legal concerns spelled out in his veto message, the governor's office only generally said that the changes to the bill "mitigated many of the concerns raised in his veto message."

"The legislation now looks at more than one step in the process, the potential for a gray market has been eliminated, and he believes the policy will help achieve the sponsor’s goals of increasing transparency," a Sandoval spokeswoman said in a statement.

“There is insufficient evidence that SB 265 will in fact lead to lower drug costs. While other states are considering policies similar to those reflected in this bill, the results to date are inconclusive. Before I support a bill as uncertain as SB 265, which deals so directly and extensively with the health and well-being of countless Nevadans, there must be compelling evidence that the benefits are worth the risks.”

It is also unclear how the new SB539 addresses Sandoval’s concern that there is “insufficient evidence” that the legislation would lead to lower drug costs. Other states have debated or enacted drug transparency laws over the last year but not specifically for insulin and other diabetes drugs, meaning it is difficult to know what the impact of the legislation will be.

The governor’s office also did not specifically address whether Sandoval had received additional evidence to make him comfortable with SB539 or whether he believed the legislation was just less risky than SB265.

However the new bill does contain a provision directing any fines and penalties imposed on manufacturers, PBMs and others for failing to comply with the bill toward diabetes education programs — something Sandoval said he wanted to see in the original bill.

“Something that was important for me personally that wasn’t in the original bill is there’s a component that includes fines and penalties. If there are fines and penalties, that’s going to go toward insulin education and treatment, so I think those are things that are going to be very important,” Sandoval said. “And now with this new bill it’s a very good policy that I’ll be proud to sign. I’m going to be proud to sign it.”