State Laws Help Spur Congressional Action on Drug Prices

Unrelenting and unpredictable increases in prescription drug prices have spurred states to try to unlock the black box of manufacturer pricing strategies by requiring disclosure of how prices are set and how rebates are handled throughout the supply chain.

Six states already have transparency laws on their books and almost two dozen more have introduced transparency bills during the 2019 session. In 2017, Maryland enacted a first-in-the-nation law prohibiting price gouging by drug manufacturers. Though the law is tied up in legal challenges, other states have introduced related bills to curb rapid and large drug price increases.

On the heels of ongoing state actions, federal lawmakers introduced a number of similar bills in Congress this month. These bills are able to leverage enforcement mechanisms beyond those available to states. For example, Sen. Richard Durbin (IL) and Rep. Jared Golden (ME) have introduced the Forcing Limits on Abusive and Tumultuous (FLAT) Prices Act. FLAT would require companies to report price hikes and would limit the market exclusivity period granted with a drug patent if the price of the drug goes up more than 10 percent in one year, 18 percent in two years, or 25 percent in three years. Failure to report price hikes would limit a drug’s exclusivity period further.

Sen. Ron Wyden (OR) also introduced several transparency bills. The Stopping the Pharmaceutical Industry from Keeping Drugs Expensive (SPIKE) Act requires the Health and Human Services secretary to request price justifications from manufacturers if prices increases surpass a threshold of 100 percent over one year or 300 percent over five years. Justification is also required if a drug has a more modest price increase yet falls within the top 50th percentile of Medicare or Medicaid spending. The bill allows manufacturers to forego reporting if they lower their prices.

Wyden also followed states’ leads in pursuing transparency around undisclosed rebates that pharmacy benefit managers (PBMs) negotiate with manufacturers. (Click here for a comparison of 31 PBM laws passed by 20 states.) Wyden’s Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act requires reporting by PBMs on the total amount of rebates they receive. Following an initial two years of reporting on these rebates, the law would establish a yet-to-be-determined percentage of rebates that PBMs must pass through to health plans in order to lower premiums or other consumer cost sharing.

Last October, Congressional legislation mirrored state laws when two federal bills regulating PBMs became law. Both federal laws prohibit gag clauses — once common provisions in PBM’s contracts with pharmacists that prevented them from disclosing lower-cost drug options to consumers. One bill prohibits gag clauses under Medicare Part D starting in 2020 and the other, affecting private insurance markets, went into effect immediately.

Thirty-three states had outlawed gag clauses before passage of the federal ban, another example of how state initiatives are now reflected in federal law. To track state activity to bring down drug costs, visit the National Academy for State Health Policy’s Center for State Rx Drug Pricing.