Maryland Lawmakers Submit Drug Cost Review Bill Based on NASHP’s Model Legislation

Maryland's Statehouse in Annapolis
Maryland’s Statehouse in Annapolis

ANNAPOLIS — State lawmakers are scheduled to introduce a bill today that empowers Maryland to regulate prescription drug costs by evaluating the affordability of certain drugs and imposing limits on what the state and commercial health plans will pay them.

Based on model legislation created by the National Academy for State Health Policy (NASHP), the proposed bill establishes a Drug Cost Review Commission and an advisory board to closely evaluate drug prices to determine if rate-setting oversight is needed, based on a drug’s cost and affordability.

“Consumers continue to be outraged by the price of necessary prescription drugs, and the federal government has not acted to stem the cost of drugs,” NASHP Executive Director Trish Riley observed. “States can be great laboratories for innovation and this is a great opportunity for Maryland to be a national leader and develop new approaches that can be adopted by other states and ultimately by the federal government.”

The drug review commission would play a similar role to Maryland’s Health Services Cost Review Commission (HSCRC), an innovative agency that regulates hospital rates on behalf of all government and private payers in order to curb health care costs. Many states, including Maryland, have been hard hit by escalating drug prices. An estimated 25 percent of state budgets go to fund Medicaid, and spending on Medicaid prescription drugs alone increased 25 percent in 2014 and 14 percent in 2015.

Maryland’s prescription drug rate-setting bill would regulate what the state’s Medicaid program, state employee health insurance plans and commercial health plans pay for certain drugs – not what manufacturers charge for them. States as employers and purchasers of health care have watched the rising and unpredictable growth in pharmaceutical costs impact their budgets. In Maryland and across the nation, spending on Medicaid prescription drugs alone increased 25 percent in 2014 and 14 percent in 2015. As in most examples of health care rate setting, the commission could pressure pharmaceutical wholesalers and distributors to negotiate better deals with drug manufacturers.

According to the legislation, based on NASHP’s Model Drug Price Transparency Act, the commission would first gather information about drug prices when manufacturers first release them or when a drug price increases dramatically to determine if rate-setting oversight is needed. If a drug’s price reaches a certain threshold and poses a financial burden on the state’s health care system, then manufacturers would be called on to justify those prices.

During this affordability review, the commission would gather additional cost information from the manufacturer and get input from the advisory board, payers, providers, and consumers. If the commission determines a drug’s cost was excessive, the commission would have the authority to establish an “upper payment limit” for the product. All commercial and public payers in Maryland would then be prohibited from paying more than this upper limit.

By taking this approach, the commission does not regulate drug prices – it simply establishes the maximum price that payers can pay for the drug.

The proposed act mirrors the same approach that HSCRC takes in controlling hospital costs. HSCRC does not regulate what hospitals charge, instead it imposes a limit on what payers will pay regardless of what the hospital charges. Similarly, all public and private payers in the Maryland health care system would have to abide with the drug commission’s upper payment limits, exactly as all payers must pay the HSCRC’s established hospital rates.

The proposed bill does not stop payers from negotiating better deals through the traditional rebate and other manufacturer price concession models. However, the upper payment limit guarantees that the cost of the drug is limited throughout the health care system – down to the consumer and patient level, which would be an improvement over the current haphazard, back-channel manufacturer discounting to large payer organizations.

“The current back channel rebates are not transparent, and more importantly, do not necessarily benefit consumers,” said Riley. “This legislation would define what health plans pay pharmacies, what consumers pay when paying out-of-pocket, and what pharmacies will pay for drug inventory and what they will be reimbursed by payers. This would be an improvement over the current complicated system of rebates and other price concessions that only benefit some parts of the health care system.”

The promise of lower prescription drug costs has generated strong support from various consumer groups for the bill, spearheaded by the coalition of groups behind the Maryland Citizens Health Initiative.

“Last year, Maryland made history by enacting the first-in-the-nation prohibition on price-gouging by manufacturers of generic and off-patent drugs,” said state Sen. Joan Carter-Conway. “I am thrilled to be the lead Senate sponsor of legislation to build on this success by making all high-cost prescription drugs, including brand name and specialty drugs, more affordable for Marylanders.”

This NASHP model legislation is one of three legislative models created by NASHP’s Pharmacy Costs Work Group and highlighted in its October 2016 report, States and the Rising Cost of Pharmaceuticals: A Call to Action. The report presents 11 different state approaches to address costs of important drug treatments. Click here for more information about NASHP’s transparency legislation model.

###

NASHP’s Center for State Drug Price Action: Provides technical and strategic assistance to states to reduce their prescription drug spending and regularly convenes its Pharmacy Costs Work Group to address policy and strategic issues. The work group is made up of leaders from governors’ staff, state legislatures, Medicaid programs, public employees, attorney generals’ offices, state-based insurance exchanges, comptrollers’ offices, and corrections departments. The group explores new approaches to limit pharmaceutical costs by examining the many levers state governments have as policymakers, regulators, and purchasers.

About NASHP: The National Academy for State Health Policy (NASHP) is an independent academy of state health policymakers. It is dedicated to helping states achieve excellence in health policy and practice. A non-profit and non-partisan organization, NASHP is the “United Nations of state health policy,” providing a forum for constructive work across branches and agencies of state government on critical health issues.