Reining in Rx Drug Costs: What States Achieved in 2017 and Where They’re Heading in 2018

In a year of tense partisan debate over the future of health care, one issue has achieved rare bipartisan agreement — the need to curb rising prescription drug costs. Polls show again and again that Americans, regardless of political affiliation, view the high costs of drugs as one of their chief health care concerns. Reviews of state budgets show that increased spending on drugs in Medicaid and other public programs is untenable. As often occurs when a political crisis emerges, states led the way in 2017 to tackle rising drug costs and their advance is expected to continue in 2018.

While 2017 was a year of unprecedented legislative action, states will face many challenges in 2018. Some states, such as Nevada and California, that succeeded in passing legislation are now defending their new laws in court, while others are implementing and building new programs despite challenges. In this blog, the National Academy for State Health Policy (NASHP) reviews and explores the trends and challenges that are expected to shape state prescription drug policymaking in the year ahead.

pill bottles rx pixabay 12_14_2017A Year of Progress in State Legislatures

Despite intense pharmaceutical industry opposition, more states than ever passed legislation addressing prescription drug costs in 2017. State legislatures across the country introduced more than 130 bills designed to address the rising cost of drugs. In 2018, NASHP expects there will be an even greater increase in actions to control drug costs as more states look to their neighbors for successful strategies.

Transparency: Transparency legislation was the largest trend in state government policymaking in 2016 and 2017:

  • California SB 17 requires drug manufacturers to provide advance notice and justification for significant price increases.
  • Nevada’s SB 539 specifically targets high-cost diabetes medication, and includes requirements that patient advocate groups disclose sources of funding to expose conflicted lobbying efforts.
  • Maryland’s HB 631 empowers the state’s Attorney General to review the pricing actions of manufacturers who engage in “unconscionable” price increases of off-patent or generic drugs and refer them to the courts as appropriate.

While transparency legislation is a necessary starting point for states to raise awareness and gain a better understanding of what drives rising drug costs, by itself it is ultimately insufficient to fully address the problem. Maryland’s bill, which takes on industry “price gouging” is a step towards greater action, but additional efforts are needed in order to move the cost needle.

Pharmacy Benefit Managers: Another legislative trend NASHP expects to gain momentum in 2018 is an increasing focus on other participants in the drug supply chain, specifically pharmacy benefit managers (PBMs). PBMs administer drug programs for commercial health plans and state government plans, including Medicaid in some states. Nevada’s SB 539 includes provisions that set new standards for PBM business practices, such as requiring them to disclose to their contracted insurers all rebates they receive from manufacturers. In Connecticut, SB 445, which passed in July, prohibits PBMs from inserting gag clauses into their pharmacy network contracts that would bar pharmacists from informing consumers when their copay is actually more than the price of the drug, and then “clawing back” the excess money paid.

Importation: Utah last year passed a bill authorizing a study of prescription drug importation, with the ultimate goal of creating a program to import lower-cost drugs from Canada. The sponsor, state Rep. Norman Thurston, said a bill will be introduced once the legislative session begins in late January 2018. NASHP has released model legislation that would create a wholesale importation program that meets federal criteria in order to certify an importation program. This model act, and other model legislation generated by the Pharmacy Cost Work Group, can be found at NASHP’s website.

Formularies: States are expected to continue to explore ways to achieve better drug pricing deals through their formularies (their list of approved drugs). Massachusetts has a request pending for a Medicaid Section 1115 waiver that would enable it to exclude drugs with high costs and low treatment value from its formulary, and use the formulary as leverage to negotiate larger rebates than can be negotiated today. This year, New York established a cap on its Medicaid drug spending, which when exceeded triggers state action to identify drug products that contribute significantly to the excess spending and either negotiate for an additional, price-lowering rebate or conduct a “value assessment” of the drug. If a supplemental rebate is still not reached after that assessment, the state may remove the drug from its managed care formularies. The fate of the pending Massachusetts waiver, and the implementation and impact of New York’s novel proposal for reigning in Medicaid costs, will be monitored carefully by NASHP and other states in the new year.

State Administrative Approaches

While most eyes are on state legislative action, states also have a wealth of opportunities available to them through administrative action. In October, NASHP awarded $300,000 in grants to Colorado, Delaware, and Oklahoma to help the states develop innovative policy solutions to tackle high prescription drug prices:

  • Colorado is surveying physicians to better understand acquisition costs for physician-administered drugs (e.g., drugs and therapies administered in hospitals or clinics) and will use that information to implement acquisition–cost reimbursement for physician-administered drugs.
  • Delaware is creating a common, preferred drug list of several classes of drugs for its Medicaid and corrections programs, state employees, and hospitals.
  • Oklahoma is exploring value-based payment contracts for drugs that would allow the state to claim supplemental rebates if the drugs failed to deliver agreed-upon outcomes.

None of these proposals require enabling legislation, yet all have the potential to deliver substantial savings to states. NASHP will continue to report on best practices and lessons learned through these initiatives to empower states to enact prescription drug policies.

Challenges and Opportunities: The Courts

As states implement innovative policies to address drug costs, they will have to contend with persistent legal opposition from the pharmaceutical industry. The complicated prescription drug industry intersects with regulatory and constitutional barriers that can impede state efforts. However, states may be able to preempt legal challenges with carefully-crafted legislation, taking into account lessons from previous lawsuits and the guidance of experts in patent and Commerce Clause law. While many of the laws passed in 2017 have already become embroiled in legal challenges, initial rulings have been positive for states. NASHP will continue to release research documents that delve into the largest legal roadblocks to state innovation.

The pharmaceutical trade group PhRMA has sued to block implementation of the transparency laws in California and Nevada, arguing the laws create such a negative impacts that they should not be implemented. A federal judge has allowed Nevada to move forward and implement its program, meanwhile, arguments about the constitutionality of the law will continue in 2018. A similar story is playing out in Maryland, where the Association for Accessible Medicines, a trade group that lobbies on behalf of generic drug manufactures, is appealing an October ruling that allowed the price-gouging law to take effect.

The Maryland and Nevada court cases both hinge on an argument that the laws unconstitutionally regulate business deals that happen outside the state, a violation of the Commerce Clause. The October, Maryland ruling rejected that portion of the lawsuit, but the pattern indicates that issues surrounding the Dormant Commerce Clause will remain a significant component of legal battles against states. In November, NASHP released The Dormant Commerce Clause: What Impact Does It Have on the Regulation of Pharmaceutical Costs?, a brief that provides insight and analysis into case law and highlights how state policymakers can navigate the legal landmines in this issue. Early next year, NASHP will release more guidance on patent law issues and how states can craft legislation that will hold up under judicial scrutiny.

The Year Ahead

As the prescription drug cost crisis shows no signs of ending, state policymakers will continue to generate new and innovative policies to relieve the pressure on stressed state budgets, and states will continue to serve as laboratories of innovation to inform federal policymakers. Policy trends will, however, be shaped by the ultimate outcomes of the pending lawsuits in Nevada, Maryland, and California. Meanwhile, these and other states, including New York, will move forward to implement their programs. States will also be watching how the federal government responds to Massachusetts’s Section 1115 waiver request. Finally, the upcoming midterm elections may significantly impact this policy area.

As state action continues, NASHP, through its Center for State Rx Drug Pricing, will monitor and track states legislative efforts. Building on the 11 policy recommendations issued by the Pharmacy Costs Work Group, a group of state officials convened in 2016 to identify the most promising  options for states facing drastic increases in drug spending, NASHP will also continue to release model legislation and serve as a resource for state policymakers. To learn more visit our resource center.

This blog, produced by NASHP Pharmacy Costs Work Group, was made possible with support from the Laura and John Arnold Foundation.