Maryland Passes Nation’s First Prescription Drug Affordability Board Legislation

On April 8, 2019, the Maryland General Assembly passed legislation that which would create the first state Prescription Drug Affordability Board (PDAB) to address the costs of certain high-priced drugs in Maryland. Gov. Larry Hogan has until May 31, 2019, to sign or veto the bill. If he signs the bill or does nothing, the measure will take effect on July 1, 2019.

This effort, initiated during last year’s legislative session, began with the introduction of the National Academy for State Health Policy’s Drug Affordability Review Board Model Legislation. The concept is akin to states’ regulation of consumer payment rates for essential services, such as clean drinking water, safe and consistent electricity, and public transportation. Like prescription drugs, these services are necessary for a safe and healthy life. States act to ensure that these necessary services are affordable to the public without regard to the actual dollar value of their importance to modern life. A prescription drug affordability board looks at valuable drugs and determines at what cost they are affordable – at what cost will everyone who needs the drug be able to afford the drug.

The Maryland legislation that passed is a notable step towards establishing a board that could make informed recommendations to state leadership on future action Maryland may take to address prescription drug costs, even though it represents compromises resulting in changes to the original proposal. As many know, this is how the legislative process typically works. The legislation does create the new Maryland PDAB, which must report to a committee of key legislative leaders for the first several years to get approval to move forward with key phases of its work. The timeline for Maryland’s PDAB activity is as follows:

July 1, 2019: The PDAB is established using state general funds and begins its work.

On or before Dec. 31, 2020, the board must:

  • Study the entire pharmaceutical distribution and payment system, as well as policy options used by other states and countries to lower the list price of pharmaceuticals, including:
    • Setting upper payment limits;
    • Using a reverse auction marketplace; and
    • Bulk purchasing of drugs.

Submit findings and make recommendations, as well as provide any legislative language that may be necessary to implement its recommendations, to the state’s Senate Finance and House Health and Government Operations Committees.

  • Identify circumstances under which the cost of a prescription drug product may create or has create affordability challenges for the state health care system and patients.
  • Promulgate regulations that specify data sources the PDAB will use for its work, including establishing memoranda of understanding (MOU) with states that currently collect data from drug manufacturers and the rest of supply chain, insurers, and PBMs.
  • Identify drugs that create affordability challenges in the state by applying the established criteria and deciding whether to do a full review of any of those drugs.
  • Produce annual reports for House and Senate committees on drug price trends, the number of drugs subject to PDAB review, and any additional legislation that might be needed to facilitate drug cost containment.
  • Make a recommendation for a funding source to sustain the board.

On or before July 1, 2021: If the work of the PDAB in 2020 results in a recommendation that the state pursue imposing upper payment limits to make drugs affordable, the board is required to draft and submit a plan of action to implement upper payment limits for state, local, and county government payers and purchasers to the Legislative Policy Committee of the General Assembly.

On or after Jan. 1, 2022: If the plan of action for upper payment limits is approved, the board may begin to set upper payment limits or establish other approaches  to constrain costs of prescription drug products purchased or paid for by state, county, and local governments, including state hospitals, government employee plans, corrections, and Medicaid, etc. The board must also study the impact on availability of drugs subject to the upper payment limit.

On or before Dec. 1, 2023: If the plan of action for upper payment limits was implemented for the drugs purchased or paid for the state, local, and county governments, the board must report to the Assembly its recommendations regarding whether the board’s authority to set upper payment limits should be expanded statewide to all purchases and payer reimbursements.

The legislation also includes appeal and judicial rights for anyone aggrieved by a decision of the PDAB.

One reason for the phase-in of board  authority starting with government drug purchases and payments was the concern in Maryland about a possible constitutional challenge after the federal Fourth Circuit Court of Appeals ruled that the state’s 2017 anti-price-gouging drug legislation (HB 631) violated the Dormant Commerce Clause (DCC) of the US Constitution. Although the PDAB is designed specifically to prevail in a DCC challenge, the issue resurfaced during Maryland’s legislative session when the US Supreme Court declined to take up the 2017 case. There are a number of reasons the Supreme Court might not take up a case – including if there is no conflict in opinions among the federal Circuits Courts (which was the situation with anti-price-gouging law, there was only one case and one decision). NASHP and Maryland have documentation and legal analysis of why a PDAB with upper payment limit authority does not violate the DCC.

There may be an advantage to being the first state pursuing an upper payment limit for costly drugs to do so in a phased approach. Maryland’s board will build its analytic capacity to determine the benefit and calculation of the upper payment limit for certain drugs, which is important. The board can apply the process of determining if a specific drug should be reviewed for affordability and then determine whether or not the drug should be subject to a upper payment level and what it should be – even if there is not authority to apply the limit statewide during the first few years.

Using upper payment limits with government-purchased drugs before expanding to all payers may be an appropriate way to pilot the approach in Maryland. However, establishing a PDAB with limited authority and requiring state leadership approval to advance the primary mission of the board is a risk. Another phase-in approach discussed in Maryland before the DCC concerns were raised was to limit PDAB authority to set upper payment limits to a specific number of drugs.

NASHP Note: NASHP will closely follow Maryland’s experience in establishing the PDAB and will receive continued support from the state’s leadership for its mission to implement mechanisms to ensure necessary prescriptions are affordable. For more information, explore NASHP’s Center for Rx Drug Pricing.