More than 50 major health systems, including hospitals in every state, have joined forces to create Civica Rx, a nonprofit drug manufacturer that produces affordable, sustainable supplies of certain generic medications – a mission made more critical than ever by generic shortages related to the COVID-19 pandemic.
Last week, Gov. Gavin Newsom captured national attention when he announced California’s intention to produce its own generic drugs, building on earlier state efforts. Last year, the governor issued an executive order charging public payers to combine their purchasing power to negotiate better prices, and to eventually expand to include other payers in the state.
The idea to produce generics has roots in the efforts of 10 health systems, including Intermountain Healthcare, Mayo Clinic Health System, Providence, and Trinity Health, among others, that came together to address generic drug shortages and rising prices. With support from Arnold Ventures, the Peterson Center on Health Care, and the Gary and Mary West Foundation, they launched the nonprofit Civica Rx in 2018.
The Civica Rx business model currently contracts with foreign drug manufacturers and takes advantage of a new US Food and Drug Administration (FDA) provision – Abbreviated New Drug Applications – that expedites the approval process for certain drugs. Civica Rx has its own National Drug Code and through this process can assure that foreign-manufactured drugs meet FDA standards for safety. Currently, 18 drugs are in production, including naloxone, steroids, drugs to prevent side effects from chemotherapy, and the beta blocker metoprolol tartrate, used to treat high blood pressure.
Through Civica’s contract with London-based Hikima, the third-largest supplier of injectable generic drugs, the anticoagulant drug heparin sodium is now sold to participating hospitals. Through the Danish company Xellia Pharmaceuticals, two injectable antibiotics are also available. Civica reports that it currently serves 1,200 US hospitals and that participating hospitals agree to:
- Pay the same price for each drug;
- Price transparency; and
- The same contract terms.
Civica’s model is designed for and by hospital systems to make sure they have needed generic drugs that they can provide directly to patients. A state model that follows the Civica Rx template is expected to take into consideration costs, distribution channels, and other logistics to assure these generics can be provided safely and at lower costs to payers and consumers.
There are assuredly lessons to learn from the success of Civica Rx, and all eyes are now on California to lead the way for states.
Last week, California enacted the first-in-the-nation state law to combat pay-for-delay deals between brand-name and generic pharmaceutical drug manufacturers. In a pay-for-delay deal, a brand manufacturer pays a generic competitor to settle patent litigation and keep the lower-cost version of the drug off the market. Delaying market entry of generic drugs limits competition and can keep prices for brand-name drugs high.
The Federal Trade Commission estimates these deals cost consumers $3.5 billion in higher drug costs each year.
Under California’s new law, pay-for-delay agreements are presumed to have anticompetitive effects – unless a company can prove otherwise – if a generic manufacturer receives anything of value from a brand-name drug manufacturer that has sued for patent infringement. The law opens these agreements to civil litigation from California’s Attorney General, who can recover up to $20 million or three-times the value given to parties in the agreement, whichever is greater.
This isn’t the first action California has taken to push back against anticompetitive practices by pharmaceutical manufacturers. Earlier this year, the state reached a $70 million settlement with two manufacturers that allegedly entered into pay-for-delay agreements to delay market entry of cheaper generic drugs. Although a 2013 US Supreme Court case found that pay-for-delay settlements could violate antitrust laws, California’s presumption that these types of deals are anticompetitive gives the Attorney General a stronger platform to investigate and prosecute drug makers who enter into these agreements.
To explore all state legislation across the country to curb prescription drug costs, explore the National Academy for State Health Policy’s Legislative Tracker.
The Trump Administration’s effort to address drug prices surfaced unexpectedly in the Department of Health and Human Services (HHS)’s recently issued proposed annual rule that regulates state health insurance markets, including coverage sold through the Affordable Care Act (ACA) marketplaces. The proposal encourages the use of generic drugs over brand-name drugs by both health plans and enrollees in an effort to “bring down overall health plan costs and perhaps premium increases.”
State officials need to consider whether the proposed changes will result in cost shifting from health plan premiums, which are subsidized for many individuals through advance premium tax credits, to consumers’ unsubsidized, out-of-pocket cost responsibilities. If this cost shifting occurs, how would it affect overall individual and small group market affordability? Or, are there ways to implement the proposed changes to minimize cost shifting onto consumers and truly reduce overall health expenditures? Below are some key policy issues that state officials should consider when reviewing the proposed rule.
The proposal allows health plans to eliminate brand-name drugs from essential health benefit (EHB) coverage requirements if a generic equivalent is available.
Under the proposed rule, if a health plan covers both a brand-name prescription drug and its generic equivalent, the plan could specify that only the generic drug would qualify as EHB, and the brand-name drug would no longer be considered part of EHB coverage. If a plan takes this option, premium tax credits and advanced premium tax credits (APTC) could not be applied to any portion of the premium attributable to coverage of brand-name drugs that are not considered EHB. Issuers would have to calculate that portion of the plan’s premiums and report it to the appropriate health insurance exchange for accurate APTC calculation.
It is also important to remember that lifetime and annual out-of-pocket limits only apply to cost sharing for benefits classified as EHB. Therefore, HHS is seeking comments on whether any portion of enrollees’ out-of-pocket expenditures for brand-name drugs not considered EHB should be counted toward out-of-pocket limits. One HHS proposed strategy would apply the cost of the generic toward the individual’s out-of-pocket limit and the other would not apply any portion of the brand-name drug cost toward an individual’s cost-sharing limit. Issuers pursuing this option would need to establish an appeals process for enrollees to petition for EHB coverage of brand-name drugs.
HHS notes these proposals will provide “additional flexibility for health plans in individual and small group markets that must provide coverage of the EHB to consumers to use more cost-effective generic drugs.” State officials may consider the following questions:
- Would it be possible for a state to carve out brand-name drugs from EHB, and would this rule preempt state laws, particularly in states that have already adopted their own list of essential health benefits in response to ACA challenges?
- Can issuers currently calculate the portion of a qualified health plan’s premiums spent on brand-name drugs excluded from EHB? If not, what would it cost to perform that calculation?
- How would this change be explained to enrollees? Would enrollees receive an advance notice that certain brand-name drugs would not be covered, along with information explaining how to pursue an exception process? Would enrollees be informed at the point of sale? Would enrollees purchasing brand-name drugs receive a summary of benefits that show which costs are attributed to lifetime and annual limits?
The proposal allows health plans to limit prescription drug coupons.
In another effort to encourage generic drug use, HHS proposes that amounts paid toward cost sharing using any manufacturer coupons for a brand-name drugs that have a generic equivalent not be counted toward enrollees’ annual limits on cost sharing. According to HHS, “the proliferation of drug coupons supports higher cost brand drugs when generic drugs are available, which in turn supports higher drug prices and increased costs to all Americans.”
This proposal addresses a concern that coupons can distort the true cost of drugs by offering limited-time cost reductions for enrollees’ out-of-pocket expenses, and manufacturer coupons may inflate drug prices that insurers pay. Limiting the use of coupons for brand-name drugs may steer consumers toward less-costly generic medications with lower cost-sharing responsibilities. Additionally, HHS suggests that not counting coupon amounts toward the annual cost-sharing limit would “promote prudent prescribing and purchasing choices by physicians and patients based on the true costs of drugs [as well as] price competition in the pharmaceutical market.”
HHS seeks comments on whether states should be able to decide how coupons are treated. This proposal reflects state legislative action on coupons. In 2017, California banned the use of manufacturer coupons when a generic equivalent is available. Since the 2019 legislative session began, both New Jersey and New Hampshire have proposed similar measures. State officials may want to consider:
- How difficult would it be for insurers to carve out manufacturer assistance from their pharmacy benefit and the annual limitation on cost sharing (as well as exceptions)?
- Would it be difficult for issuers to differentiate between manufacturer coupons and other types of assistance?
- What consumer education would be required?
The proposal explores implementing reference pricing for prescription drugs.
HHS is also exploring the possibility of implementing reference-based pricing for prescription drugs. Reference-based pricing, as described in the proposed rule, would allow an issuer covering a group of similar drugs (perhaps a therapeutic class of drugs) to set the price that its health plans would pay for those drugs. Enrollees would be responsible for paying the difference between the cost of a drug and the reference price that the health plan sets if enrollees desire a drug that exceeds the reference price. HHS notes that while reference-based pricing could “bring down overall health plan costs, and perhaps premium increases,” it could also increase consumer out-of-pocket costs if an enrollee opts for a drug priced above the reference price. When submitting comments, state officials might consider:
- How would issuers determine the reference prices? Would there be a standard process for selecting reference prices? What role would the states or HHS play in that process?
- Would enrollees’ entire out-of-pocket spending on drugs that exceeds the reference prices go toward their annual cost-sharing limit?
Under the proposed rule, HHS seeks to encourage use of generics over brand-name drugs to decrease overall spending on pharmaceuticals and reduce health plan premium price increases. The proposed rule would likely benefit plans by reducing spending on brand-name drugs, which could in turn lower premiums if savings are passed to enrollees. However, in the short-term, consumers could face increased out-of-pocket spending for brand-name drugs. Are there ways to minimize cost shifting and pursue such proposals to reduce overall costs?
For more information, read this summary of all of the provisions in the federal proposed rule. HHS is accepting comments on the rule until Tuesday, Feb. 19, 2019.
Earlier this year, Illinois state Rep. Will Guzzardi proposed an aggressive, anti-price-gouging bill that banned manufacturers from excessively hiking the costs of generic drugs sold to Illinois residents for his first foray into prescription cost control legislation. Guzzardi’s bill was one of a dozen anti-price gouging measures introduced in state legislature this year.
The bill easily passed the Illinois House, but it stalled in the Senate after a federal appeals court ruled that Maryland’s first-in-the-nation, anti-price-gouging law was unconstitutional. Like many state lawmakers working to craft innovative solutions to rein in drug costs, Guzzardi, a two-term legislator representing the Northwest Side of Chicago, is already prepping for Round 2 in the next legislative season.
Why did you choose anti-price-gouging legislation, which is a political heavyweight compared to transparency or regulating pharmacy benefit managers, for your first foray into curbing drug costs?
We had heard about Maryland’s law, which implemented anti-price-gouging safeguards, and we were interested in it. We also thought it had newsworthiness and timeliness to it because Martin Shkreli [former Turing Pharmaceutical CEO who raised one generic drug’s price 5,000 percent after buying the company] had been in the news as well as the price-gouging on EpiPens. We had also been talking about the need to keep drugs such as Narcan, used to counter-act opioid overdoses, affordable in the future. So, we reached out to Maryland state officials to explore their anti-price-gouging bill.
How was your bill different than Maryland’s?
I believe Maryland’s bill applied to drugs sold in Maryland. We added language that specified that our bill would only apply to drugs sold to Illinois residents. The distinction comes in the language in House Amendment 1, which inserts the words “that is ultimately sold in Illinois” into the definition of what drugs are covered. This language creates a nexus in Illinois, which we believe gives us a stronger case for the legality of regulation.
Who opposed the legislation?
Only the generic drug manufacturer’s association opposed it. They made red herring arguments, that the problem was not generics but brand-name drugs and that the state would lose jobs. While we’re happy to see lower-priced generics, there are still egregious cases where generic prices are hiked without manufacturers adding any value in terms of product development. Ultimately, it became a philosophical question for Republicans in the House and Senate, who viewed the legislation as Soviet-style price controls. They argued that a free market naturally guarantees the cheapest prices. But with generics, more than 50 percent of them have fewer than three manufacturers and a large number of generic manufacturers are monopolies or operate in a quasi-monopoly environments, which allows a huge opportunity for price increases and taking advantage of consumers. And, government regulates prices in all types of monopolies, including public utilities. It’s not unheard of for a state government to step in and prevent monopolies from extorting people.
Democrats were the majority party in both the House and Senate, why didn’t it pass?
It passed 65-38, mostly along party lines, in the House. Then we had a couple of things happen. The generic manufacturers’ association lobbyist had much more access and influence in the state senate, where there are fewer members. Specifically, he had very close relationships with several senators.
And then, there was the unfortunate timing of the Maryland court decision in April, just when the Senate was going to vote on it. Senators worried they would be voting on something that would end up in court.
The federal court panel in the Maryland decision ruled against the bill in ways that are indefensible. They said the Dormant Commerce Clause prevented regulation of upstream (out-of-state) transactions, but there are all kinds of regulations made at a state level that affect products sold by out-of-state manufacturers, such as state food labeling requirements or product safety and quality requirements. A lot of things we think of as normal state legislation would be considered unconstitutional under that view.
What are your plans for drug cost control legislation in the next session? [Guzzardi, a Democrat, faces no Republican opponent in the November election.]
I and my colleagues are looking into this now. This was my first year looking into prescription costs and I’ve discovered an appetite for it. I am learning that there is plenty of room for states to engage in this area, such as an insulin-for-all programs, or pharmacy benefit manager oversight laws or drug cost transparency mandates. We also need to see if it’s better to introduce several bills at once that tackle drug costs using different strategies or whether it’s better to focus on one approach. We’re also waiting to see what the federal court decides in the Maryland case, to see if we revive the anti-price-gouging bill.
I also intend to work on building a nonpartisan coalition to support this, involving AARP and other organizations. I truly believe there is a lot of pent-up demand for this.
Is outrage over drug prices gaining enough traction in Illinois that the legislation could succeed next session?
My district is a very diverse community. It’s roughly half white and half Latino, and it’s largely working-class. I think it’s hard for people to break out who the individual players are in the drug supply chain and what their responsibilities are, but they do know that drug prices are so high that they’re splitting pills, not filling prescriptions, and skipping doses. They may not know whom to blame, but they know they’re being taken advantage of.