Implementing Rx Drug Transparency: States Are Shining a Light on High-Cost Drugs and their Impact on Premiums

As health plans prepare to submit rate filings, a new report from Oregon’s Division of Financial Regulation’s Prescription Drug Price Transparency Program illuminates just how much prescription drug prices impact insurance premiums.

To increase health care cost transparency, Oregon requires health insurance companies to report on the impact of prescription drug prices on insurance plan costs, calculated on a per member, per month basis (PMPM). Based on 2018 data, drug costs per PMPM ranged from a low of $12.81 PMPM to a high of $50.42 PMPM, representing 2.5 to 42 percent of premium rates, or a 14 percent average.

In addition to assessing drug costs’ impact on premiums, Oregon requires health plans to report on:

  • The top 25 drugs responsible for the greatest increase in plan spending;
  • The top 25 most costly prescription drugs; and
  • The top 25 most frequently prescribed drugs.

The drugs appearing most frequently on these lists included agents to treat diabetes, HIV, hepatitis C, and autoimmune diseases. Topping the list of both most costly and contributing to the greatest increase in plan spending was Abbvie’s Humira, a biologic agent used to treat various autoimmune diseases, including rheumatoid arthritis and Crohn’s disease.

In January 2019, the National Academy for State Health Policy (NASHP) published a blog, New Tools Help States Document Rx Costs and Identify Potential Savings, about a similar state report published by Maine, which was based on an analysis of its all-payer claims database. Humira also topped Maine’s list of the top 25 costliest drugs. A report now being prepared by Mathematica for NASHP will compare similar “top 25” drug lists across states collecting this type of information, which includes Maine, Vermont, California, Nevada, and Oregon.

NASHP worked with these “early adopter” states to capture insights from their experience implementing transparency laws during the design of its model drug price transparency legislation. The model legislation includes:

  • A common data set designed to align reporting across states and minimize reporting burden;
  • Detailed reporting requirements across the entire supply chain; and
  • Strong penalties for pharmaceutical companies that fail to report or submit insufficient reports.

Drug price transparency laws, such as Oregon’s, help states gain an accurate understanding of the factors driving pharmaceutical drug price increases and their high launch prices. The transparency also helps states gain a better understanding of precisely which drugs and types of drugs create the greatest affordability challenges for consumers and have the biggest impact on premiums.

Establishing this foundation opens up the door for states to take effective regulatory action for relief from high prices, including measures such as creating drug affordability review boards, which have the ability to set upper payment limits or spending targets on drugs, such as those established in Maryland and Maine this year. (View new state drug cost laws here.) State transparency laws are also advancing the national debate on drug pricing, highlighting the need for effective federal action.