States’ Prescription Drug Transparency Laws Open the Black Box of Drug Pricing

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Several states have passed drug price transparency laws that require drug makers to report the reasons behind dramatic price increases. These laws are an important first step to shine a light on why drug prices are rapidly climbing. To address a problem, state health policymakers need to understand it, but transparency laws don’t yet give states much enforcement muscle when it comes to actually halting big price hikes or demanding refunds.

The National Academy for State Health Policy (NASHP) has compiled a chart comparing transparency laws in Vermont, Nevada, California, and Oregon against NASHP’s model transparency legislation and Maryland’s more aggressive anti-price-gouging law that includes strong enforcement measures.

The new transparency laws enable states to collect many common data elements about drug pricing. The new requirements provide a unique opportunity to effectively implement coordinate work across states to capture and analyze important price-related information. Common data elements required by transparency laws usually include:

  • Data about both brand-name and generic drugs;
  • Drug prices and percentage increases over time;
  • Production costs including manufacturing and marketing;
  • Sales revenue and profit; and
  • Amount spent on patient assistance programs.

As states gather this important data to better understand the scope and rationale behind industry price hikes, other states are moving ahead with more aggressive measures that include enforcement against high prices, such as Maryland’s anti-price-gouging law.

The Maryland law takes a step beyond transparency’s information-gathering focus. It empowers its attorney general to ask the circuit court to penalize drug manufacturers that raises the price of generic drugs by 50 percent or more within 12 months by fining the company and returning funds to patients and payers. The pharmaceutical industry is currently challenging Maryland’s new law in federal court, but despite that legal pushback, similar bills have been introduced in other states (WA, CO, MN, WI, IL, LA, MS, VA, NJ, RI, and NH).

The drug industry’s aggressive and well-funded efforts to oppose states’ cost-controlling legislation has led to states taking incremental steps to curb drug price hikes, and transparency laws are effective first steps that can help position states to work to lower drug costs. Transparency provides an important starting point, shining a light on industry practices and potentially revealing whether pricing strategies have more to do with “what the market will bear” than science.

Transparency laws create a great opportunity to coordinate and develop systems to capture and report key drug price data. For example, the ability to track a class of drugs, such as those used to treat HIV, could uncover a pattern that a price increase by one manufacturer is often quickly followed by similar price increases by competitors.

Transparency laws demand explanations for price increases and may open the door for action to address unjustifiable price increases through more effective measures, such as implementing anti-price-gouging laws and drug rate-setting commissions.

Click here to view NASHP’s new chart that compares four states’ transparency legislation with Maryland’s law that penalizes companies for price gouging and requires them to refund overcharges.