Lowering Drug Costs: Transparency Legislation Sets Off Flurry of New State Approaches

Responding to rapidly rising drug costs, 30 states across the country have drafted more than 60 drug price transparency bills designed to:

  • Identify the costs that contribute to drug manufacturer expenses and list prices
  • And unveil the often opaque business practices of pharmacy benefit managers (PBMs).

In addition to promoting pricing transparency, as of early August state legislators had also introduced more than 100 bills addressing different aspects of rising drug costs.

States are large purchasers of prescription drugs for a number of programs and agencies, such as Medicaid, prisons, and state employee benefits. Escalating drug prices have put pressure on states to create legislation to improve the sustainability of their budgets and ensure health care access for their residents.

Some of the more ambitious proposed legislation requires manufacturers to justify prices, particularly for new drugs or for large year-after-year increases for older drugs that strain state budgets. Other states plan to use their authority to take action under long-standing “unfair business practices” laws. By increasing the transparency of prescription drug prices, lawmakers hope to be better equipped to manage costs and lower the burden on taxpayers and health care consumers. Here are brief highlights of state transparency proposals.

Vermont: Policy Innovation with Transparency
Last year, Vermont passed Act 165, the nation’s first drug price transparency law, which has spawned similar legislation across the country. Act 165 requires the Green Mountain Care Board to identify “drugs on which the state spends significant health care dollars and for which the wholesale acquisition price has increased by 50 percent or more over the past five years or by 15 percent or more over the past 12 months.”

The board reports to the state’s Attorney General (AG), who may require manufacturers to submit information and documentation justifying the price. In assessing the impact of the legislation, observers have noted that the law addresses only Medicaid expenditures and does not affect other large purchasers. Also, manufacturer data the law required was not highly detailed, which has made it difficult to gauge if the prices and increases are justified or not.

Nevada: Increased Transparency for Nonprofits and Pharmacy Benefit Managers (PBMs)
Nevada’s Governor recently signed into law Chapter 592, which requires price transparency by manufacturers and revenue transparency from nonprofit patient advocacy organizations. It also sets new standards for PBM business practices. Patient advocacy organizations are now required to report contributions and benefits received from drug manufacturers, insurers and PBMs, or the trade and advocacy groups for such entities. Nevada-based PBMs now have a fiduciary responsibility to their contracted insurers and must disclose all rebates they receive from manufacturers. PBMs are also prohibited from certain anti-competitive business practices, such as gag clauses, that prevent pharmacists from discussing drug prices with their patients.

Maryland: Protecting Consumers from Price Gouging
Earlier this year, Maryland passed HB 631, which seeks to protect payers from “unconscionable” drug prices. The law applies only to off-patent and generic drugs, and it authorizes the state’s AG to take legal action if the AG’s office deems a drug price unconscionable. The courts may impose penalties on the manufacturer if it finds the manufacturer has violated the law.

Slated to take effect Oct. 1, 2017, the bill caused the generic drug trade association to sue in an effort to block the bill. While states await the court’s decision, other states such as New York have already introduced similar legislation.

California: Price Transparency for Manufacturers and Cost Transparency for Payers
California’s transparency proposal, SB 17, requires a 60-day notification of price increases over a specified pricing threshold and mandates that health plans report the percentage of premiums spent on prescription drugs. The bill is being closely watched because it is facing fierce industry opposition but has continued to move forward. Update: On Sept. 11, 2017, the California General Assembly overwhelmingly approved SB and it is expected to be signed into law.

Pennsylvania: Transparency and Alternative Payment Models
Some states have proposed legislation to use information obtained from transparency directives to formulate alternative payment models for prescription drugs. Pennsylvania’s HB 1464 proposes to document a wide array of cost-contributing factors that affect a drug’s wholesale acquisition cost. The bill also studies additional costs incurred from expensive medical interventions or hospitalizations that result because of patients’ inability to afford and maintain access to prescription drugs.

While transparency will not bring all the change that is needed, many agree it provides a necessary foundation on which to build future legislation that will have greater impact on controlling drug costs.

Another Model to Lower Costs: Determining “Excessive Costs” and Working with Payers
Four states recently proposed legislation (MA SB 652, NJ S 3088, NY A 5733, OR HB 2387) that attempted to determine when drug prices create “excessive costs.” The bills generally establish a dedicated commission or board with the authority to work on behalf of a state’s best interest in evaluating and making recommendations about prescription drug prices based on data reported by drug manufacturers.

Oregon HB 2387, which attempted to protect both consumers and payors (who provide the insurance coverage), failed to pass, but it included some novel provisions. The bill proposed a cap on patient costs, which required private or public plans to pay the remainder. To offset this cost, the manufacturer would reimburse those purchasers when costs exceeded specified price thresholds. With a cap on patient costs and only limited reimbursement from manufacturers for any “excess” plan costs resulting from the cap, opponents of the bill were concerned that it would lead to cost shifting onto public and private plans, ultimately increasing the out-of-pocket costs for some consumers. NASHP recognizes these challenges and has developed a Rate Setting Model legislation to address these and other legal and regulatory concerns.

Working to Coordinate and Maximize State Efforts
How effective these early bills will be remains to be seen, but one fact is certain—state legislatures want solutions to the high costs imposed by current drug prices. NASHP’s Center for State Rx Drug Pricing will continue to track states’ legislative efforts and its Rx Cost Workgroup will produce more state resources. For more information read: States and the Rising Cost of Pharmaceuticals: A Call to Action.