Every state in the nation has proposed bills to limit pharmaceutical drug prices and the pace of that legislative work increases each year. The usual responses from pharmaceutical manufacturers and their allies is to threaten to reduce their investments in new drug research and development and challenge the new state laws in federal court. In their appeals, they often argue that the new state laws limit the industry’s free speech, breach patent protections, reveal trade secrets, and extend beyond state boundaries, which they claim violates the federal Dormant Commerce Clause.
As state legislators prepare for their 2020 sessions amid growing interest in addressing prescription drug prices, the National Academy for State Health Policy (NASHP) commissioned the University of California’s Hastings School of Law to develop a legal brief to help state lawmakers avoid some of the industry’s legal landmines.
The legal brief, Navigating Legal Challenges to State Efforts to Control Drug Prices: Pharmacy Benefit Manager Regulation, Anti-Price-Gouging Laws, and Price Transparency, focuses particularly on bills most commonly introduced in states – pharmacy benefit management (PBM) oversight and pricing transparency – and provides insights into anti-price-gouging proposals.
The authors, who are health policy experts and attorneys, note that laws that require PBMs to be licensed or registered with states or require pharmacy audits have historically avoided legal challenges. But today, legal challenges are increasing as states seek more accountability and propose or enact laws to prohibit spread pricing, regulate use of certain pricing lists, or require fiduciary responsibility. And, as always with state reform efforts, the Employee Retirement Income Security Act (ERISA) rears its head if laws “relate to” self-funded plans regulated by federal law. In the brief, authors Katie Gudiksen, Sammy Chang, and Jaime King suggest strategies states can consider to strengthen legislative language against legal challenge.
To date, pharmaceutical groups have challenged transparency laws in two states – Nevada and California.
- Nevada reached a settlement by limiting and defining what information could be publically disclosed and what would be held confidential.
- While California moves to implement its law, state officials are awaiting judgment on a lawsuit filed by the industry pending in US District Court in the Eastern District of California.
Industry challenges to transparency laws include alleged violations to trade secret, interstate commerce, and free speech laws. Meanwhile, states are working to thread the needle between consumers’ right to know and protecting industry information.
This new NASHP legal brief is designed to help policymakers navigate the complexity of these laws and help inform their legislative drafting. NASHP’s Center for State Rx Drug Pricing continues to support states as policymakers develop and implement policies to lower drug costs.
NASHP looks forward to its continuing collaboration with colleagues at the University of California’s Hastings College of Law as we advance this important work.
NASHP’s Center for State Rx Drug Pricing, with support from Arnold Ventures, commissioned the analysis from experts affiliated with The Source on Healthcare Price & Competition at the University of California’s Hastings College of Law.
The profound connection between the environment and human health makes headlines primarily when things go wrong: when air pollution triggers asthma attacks, water is tainted by toxins, and tick- and mosquito-borne diseases spread, propelled by a changing climate. But some state leaders see the health of the environment as a critical and continuous state policy priority.
A recent analysis by the National Academy for State Health Policy (NASHP) showed that at least half of the nation’s governors called for environmental protection measures in their 2019 inaugural or state of the state addresses. In addition, 23 state governors signaled their commitment to addressing climate change by joining the US Climate Alliance. Clean water, climate change, and clean and renewable energy goals topped the list of environmental priorities articulated by governors across the country. For example, the governors of Maine and Florida both addressed the environment in their speeches:
- Maine Gov. Janet Mills: “The Gulf of Maine is warming faster than almost any other saltwater body in the world, driving our lobsters up the coast. Our coastal waters are growing acidic, temperatures are fluctuating, and sea levels are rising, endangering our shellfish industry. Our forests are less suitable for spruce and fir and more suitable for ticks. Climate change is threatening our jobs, damaging our health and attacking our historic relationship to the land and sea.”
- Florida Gov. Ron DeSantis: “Our economic potential will be jeopardized if we do not solve the problems afflicting our environment and water resources. …We will fight toxic blue-green algae, we will fight discharges from Lake Okeechobee, we will fight red tide, we will fight for our fishermen, we will fight for our beaches, we will fight to restore our Everglades and we will never ever quit, we won’t be cowed and we won’t let the foot draggers stand in our way.”
State leaders are also taking action on concerns about the environment and climate change through executive orders and budget and legislative proposals. Here is a snapshot of some recent actions state leaders have taken.
A number of new governors have issued executive orders that seek to address climate change, protect clean air or water, and protect residents from toxins:
- Colorado Gov. Jared Polis issued Executive Order B 2019-002, “Supporting a Transition to Zero Emission Vehicles.”
- Florida Gov. Ron DeSantis issued Executive Order 19-12, “Achieving More Now for Florida’s Environment,” which directs the state departments of environmental protection, health, and economic opportunity to protect the state’s water resources through a range of actions, including “adamantly oppos[ing]” all off-shore oil and gas activities, including fracking.
- Florida is not the only state concerned with extraction off its coastline: South Carolina Attorney General Alan Wilson filed a motion on Jan. 7, 2019, to block seismic testing and drilling off South Carolina’s coast. The state joined a lawsuit against the federal government filed by some of the state’s local governments and the South Carolina Small Business Chamber of Commerce.
- Maine Gov. Janet Mills’ executive orders include 5 FY 19/20, “An Order to Study the Threats of PFAS [Per- and polyfluoroalkyl] Contamination to Public Health and the Environment,” which creates a task force to study the risks posed by certain industrial chemicals that have been found in water and soil. Executive Order 3 FY 19/20, “An Order Concluding the Maine Wind Advisory Commission and Wind Permit Moratorium,” ends a moratorium that had prohibited the state from considering new wind turbine permits.
- New Mexico Gov. Michelle Lujan Grisham issued 2019-003, an “Executive Order on Addressing Climate Change and Energy Waste Prevention,” which establishes a Climate Change Task Force. It also directs all state agencies to evaluate the impact of climate change on their operations and integrate into their programs strategies to mitigate climate change.
- Virginia Gov. Ralph Northam’s executive orders include “Increasing Virginia’s Resilience to Sea Level Rise and Natural Hazards,” which directs state agencies to plan for increases in extreme weather and natural disasters attributable to climate change.
Some state legislators across the country are introducing bills designed to protect the environment by promoting clean or renewable energy. A small sample of the bills include the following:
- Colorado’s HB 19-1261, “Climate Action Plan to Reduce Pollution,” would establish greenhouse gas reduction targets, and specify considerations for the state air quality commission to take into account when setting rules and policies to reduce greenhouse gasses. At the time of writing, the bill was awaiting the governor’s signature.
- Maine Gov. Janet Mills signed “An Act to Prohibit the Use of Certain Disposable Food Service Containers,” which bans single-use food containers made of polystyrene, which is also referred to as Styrofoam. She also signed LD 216, which protects water quality in shoreland areas.
- Maryland Gov. Larry Hogan signed the Clean Cars Act of 2019 (HB 1246), which expands the tax credit for purchasing electric vehicles, and doubles the funding for the program to $6 million.
- In Nevada, Gov. Steve Sisolak signed SB358 into law on Earth Day. It requires that 50 percent of electricity generated, acquired, or saved by 2030 come from renewable sources or efficiency measures.
- Virginia Gov. Ralph Northam signed SB 1355 “Coal Combustion Residuals Impoundment; Closure,” into law on March 19, 2019. It requires owners or operators to close coal ash ponds at certain locations within the Chesapeake Bay watershed.
A number of state budget proposals aimed to ensure funding for the environmental priorities governors outlined in their speeches. A small, non-representative sample of these proposals includes:
- The Florida budget, which was awaiting the governor’s signature at the time of writing, includes $682 million to protect the state’s water resources, including Everglades restoration, according to the chair of the House Agriculture and Natural Resources Appropriations Subcommittee.
- Maryland’s enacted budget includes a $20.2 million special fund appropriation for renewable and clean energy programs and incentives, and requires reporting on Chesapeake Bay restoration efforts.
- Utah legislators appropriated more than $28 million for air quality initiatives, according to the state’s department of environmental quality.
- The Wisconsin executive budget act (SB 59), pending at time of writing, would increase general obligation bond authority for the Safe Drinking Water Loan Program for municipal drinking water infrastructure, and for the Clean Water Fund Program, which funds local government pollution and sewage projects.
Cross-Agency Environmental Initiatives
A number of states are establishing environmental task forces or committees that draw on the expertise of a number of agencies and disciplines within each state:
- Florida’s Executive Order 19-12 calls for a Blue-Green Algae Task Force.
- Maine introduced LD 1284/HP 926, “An Act to Create the Science and Policy Advisory Council on the Impact of Climate Change on Maine’s Marine Species.”
- New Mexico’s Executive Order 2019-003 established an interagency Climate Change Task Force.
- Virginia’s Executive Order 29 established the Virginia Council on Environmental Justice.
- Wisconsin established the Speaker’s Task Force on Water Quality.
These examples demonstrate how states are taking concrete policy steps to further environmental protection agendas. They also illustrate how states can use their policy levers to tackle one of the thorniest health issues facing states, the nation, and the world.
This is the first in a series exploring how state leaders can improve the upstream factors affecting health, such as clean air, safe housing, and quality early education.
This series is produced in partnership with the de Beaumont Foundation.
State policymakers spent their summer crafting policies to educate and protect consumers in response to federal actions that threaten to alter state individual insurance markets. In recent months, the federal government issued new rules expanding the availability and sale of association health plans and short-term, limited duration plans and passed legislation effectively eliminating the individual mandate that required all consumers to purchase insurance.
While proponents claim the sale of these new association and short-term plans provide more low-cost choices for consumers, opponents express concerns that the plans do not comply with Affordable Care Act (ACA) mandates and may provide significantly fewer benefits (such as coverage of pre-existing conditions) that could destabilize state’s individual markets. (For more information, read The New Association Health Plan Rule: What Are the Issues and Options for States and Lower-Cost, Short-Term Insurance Plan Approved, But at What Cost to State Markets and Consumers?)
Below is a summary of recent state administrative and legislation actions taken in response to new federal changes:
Short-term Insurance Policies
- California’s legislature passed a bill to prohibit the sale of short-term, limited duration health insurance in the state. The bill is expected to be signed by the governor.
- Iowa issued proposed rules to align Iowa regulations with the new federal regulation granting longer terms and renewability of short-term plans. The regulation adds benefit, coinsurance, and dollar limit, minimum requirements for short-term plans. The rule establishes a 10-day cancellation period during which an enrollee can cancel coverage after enrollment, and it prohibits rescissions (when insurers rescind a plan and don’t have to make payments) and underwriting based on claims made after-enrollment. It also includes explicit language defining the warning information short-term plans must communicate to enrollees about their coverage.
- Washington State’s Insurance Commissioner Mike Kreidler has filed proposed rules to restrict the sale of short-term, limited duration insurance medical plans. The rule outlines specific benefits that must be covered by short-term plans, stipulates that plans can only cover a three-month period, prohibits plan renewals, prevents rescissions except in cases of fraudulent activity by the enrollee, and requires that all short-term plans are filed and approved by the insurance commissioner. The rule also includes specific and comprehensive language that all short-term plan carriers must include in their disclosure notices to all consumers who apply for a short-term plan.
- Connecticut issued a bulletin asserting the applicability of essential health benefits (mandated by the ACA) and pre-existing condition protection requirements to short-term plans as specified under Connecticut law.
- Pennsylvania’s Insurance Commissioner Jessica Altman announced filing requirements for short-term plans, so the state is able to review short-term plans that are offered under the new federal rules. The announcement also included a caution to consumers about the limits of these plans, with links to an educational brochure to help consumers compare short-term plans with other forms of coverage.
- The Colorado Department of Regulatory Agencies issued a consumer advisory on short-term plans, including a comparison of ACA-compliant insurance and short-term plans, an explanation of the risks from out-of-pocket spending that can accompany short-term plans, and resources for consumers to consult to help them understand their insurance options.
- Montana published guidance summarizing the new federal rule on short-term plans, with links to applicable state legislation and regulation governing short-term plans.
- Indiana and South Carolina issued similar educational bulletins, clarifying that federal regulations do not pre-empt existing state laws that regulate short-term plans.
- The Minnesota Commerce Department issued an FAQ for consumers about short-term plans, explaining the new federal rule and Minnesota law.
Association Health Plans (AHPs)
- Vermont issued emergency and proposed rules in response to the new federal AHP. The new rules impose regulations on AHPs, including:
- A prohibition on AHP rating based on demographic, or health status;
- A requirement that AHPs offer coverage to all people and dependents within an association;
- A mandate that AHPs meet Medical Loss Ratio rebate requirements; and
- Minimum benefit offerings.
The rule also extends the authority of Vermont’s insurance commissioner to conduct oversight over AHPs.
- Pennsylvania sent a letter to the US Department of Health and Human Services outlining the state’s interpretation of its authority in governing AHPs given existing state laws under the new federal AHP regulation. The US Department of Labor later affirmed Pennsylvania’s existing authority to regulate AHPs, as interpreted in the letter.
- Iowa issued new rules to assert “membership stability” requirements for associations, intended to protect consumers who participate in an AHP.
- New Hampshire announced plans to convene a working group of stakeholders to develop legislation that will set clear standards for AHPs sold in the state. It also released guidance to clarify the relationship between AHPs and the Employee Retirement Income Security Act (ERISA).
- Connecticut, Idaho, Louisiana, Maryland, and New Hampshire issued bulletins or guidance clarifying how state law works to regulate AHPs in conjunction with the new federal AHP rule, primarily clarifying where state law is not preempted by the new federal AHP rule.
- California’s legislature has passed a bill that prohibits the sale of group health insurance plans (such as AHPs) to a sole proprietorship or partnership without employees, limiting the effects of the new federal regulation which does allow for these sales. SB 1375 now awaits the governor’s signature.
- Washington, DC enacted an individual responsibility requirement, largely modeled after the ACA. The requirement, included as part of its 2019 Budget Support Act, will go into effect in January 2019. (For details, see DC Health Benefit Exchange Authority Executive Director Mila Kofman’s slides from the National Academy for State Health Policy’s (NASHP) 2018 annual conference.
NASHP will continue to track and report on new developments as states continue to weigh options and strategies to stabilize their markets and offer choice and affordable coverage to their consumers.
Last week, the Department of Labor released its final rule regulating association health plans (AHPs). The rule is part of the Trump Administration’s multi-pronged strategy to revise regulations governing AHPs, short-term insurance, and health reimbursement arrangements (HRAs) to promote health care competition and choice.
The rule is expected to reshape state insurance markets and impact enrollment in health insurance marketplaces. Below, the National Academy for State Health Policy (NASHP) highlights significant issues and options for state policymakers as they consider their response to the new rule. NASHP will continue to monitor states’ responses to the AHP rule. A more detailed summary of the rule is available in the journal Health Affairs.
The rule eases requirements on associations that can lead to an increase in AHP enrollment and a disruption in state insurance markets.
The primary goal of the AHP rule is to increase access to AHPs. The rule increases flexibility over what constitutes an association, which allows for more associations to form. The burgeoning associations can then offer AHPs to their members. The rule:
- Allows associations to form for the primarily purpose of offering health insurance, which was previously prohibited;
- Revises the “commonality of interest standard” so that associations can be composed of members who are in the same trade, industry, line of business, or who have a principal place of business within the same state or metropolitan area; and
- Allows “working owners” — self-employed individuals or individuals who have ownership rights in a trade or business that earn income and work at least 80 hours a month — to participate in a group AHP. These sole proprietors previously purchased health insurance in the individual market, a market regulated by states.
In most cases, AHPs are exempt from many of the regulatory requirements imposed on other health plans. While regulation of AHPs varies from state to state, AHPs that qualify for large-group status are exempt from meeting many minimum federal requirements, including the requirement that plans cover all 10 essential health benefits (e.g., hospitalization, maternity care, mental health and substance use services, and prescription drugs). These AHPs would also be exempt from adhering to non-discrimination protections, such as some community rating restrictions that require individuals to pay the same premium rate for insurance regardless of factors such as age, gender, or geographic location.
|Non-discrimination protections for health status
To partially address concerns about related to discriminating based on health status, the rule prohibits associations from conditioning membership in that association based on any health factor. It also prohibits AHPs from adjusting eligibility, enrollment, benefits, or premiums for an individual based on a health factor.
The rule does allow an AHP to vary benefits, premiums, etc. between groups of individuals in the AHP. AHPs have broad discretion in defining these groups; for example, groups may be created based on geographic regions, professional categories (e.g., job types), or hourly status (e,g., part-time and full-time workers). An AHP is prohibited from making group distinctions based on a health factor, although the loose definitions used to define groups opens the AHP to de facto discrimination based on health status, even if that is not the stated intent of the grouping structure.
The rule allows that AHPs may continue to exist under the definitions and regulations in place prior to the effective date of this rule, meaning that any new or existing AHPs that meet prior AHP standards do not have to adopt new non-discrimination protections.
Because AHPs do not have to meet these requirements, they are able to offer cheaper products with skimpier coverage to consumers — products that may be especially attractive to younger and healthier individuals. Because AHPs can be sold across state lines, they can locate their headquarters in (and therefore leverage) states with less restrictive insurance rules and/or form in ways that “cherry pick” healthy populations from across states. (This practice may proliferate due to the rule’s allowance that associations can form based on common metro-areas, even when they cross state boundaries.) These features, collectively, are expected to siphon healthy consumers out of state markets. While estimates indicate that some of these individuals who purchase AHPs will have been uninsured, the majority will be drawn out of states’ individual and small group insurance markets, causing market segmentation and disruption, in turn leading to cost increases and instability. This rule makes it possible, for the first time, for self-employed individuals to leave the individual market and buy an AHP.
Lax rules diminish consumer protections and weaken long-term market stability.
The AHP changes do not consider long-term impacts on market risk, which requires a balance of consumers to ensure that premiums stay as low as possible over the lifetime of a population. These changes also add fragility to states’ individual markets, which have already been weakened by Congressional elimination of the individual mandate penalty.
Beyond the issues raised by market segmentation, experts have also raised concerns that lack of minimum benefit standards will leave consumers vulnerable to high out-of-pockets costs. Moreover, lax-rating rules promote discriminatory pricing practices based on factors such as age, gender, or other population characteristics. The rule does include a new provision designed to protect against discrimination based on health status (see Box), however these protections are loosely defined and are not extended to all AHPs. Without sufficient oversight, experts predict it could be easy for some associations to bypass these protections.
The new rule affirms a state’s role in regulating AHPs and conducting AHP oversight.
State authority to regulate AHPs is limited and varies depending on whether the AHP meets “large-group status” and whether the association is fully- or self- insured. (For example, whether the association contracts with an insurer to provide insurance policies to its members, or whether the association develops and offers its own policy direct to members). AHP regulation largely falls under the Employee Retirement Income Security Act (ERISA). The law defines specific ways that states can regulate multiple employer welfare arrangements (MEWAs) — benefit arrangements provided to multiple employers (including the self-employed) in an association — which includes AHPs. States have authority to regulate self-insured MEWAs, as long as state laws are “not inconsistent” with ERISA. States can regulate fully-insured MEWAs on issues related to financial accountability, state licensure, registration, certification, auditing, and maintenance of specific contribution and reserve standards. States also have the authority to regulate the insurers that sell policies to associations and the policies themselves.
The rule repeatedly affirms that it “does not modify or otherwise limit existing state authority” to regulate AHPs. The rule also claims that it “broaden[s] the flexibility of states to tailor their laws and regulations to their local market conditions and preferences,” suggesting that states can use their regulatory authority to “optimize” the role of AHPs in their markets. The rule underscores:
- States’ abilities to regulate self-insured MEWAs;
- States’ capacities to enact policies to prevent risk segmentation; and
- States’ abilities to mandate benefits and rating rules for policies procured by fully-insured AHPs and self-insured MEWAs, including requirements “similar to those applicable to the small group and individual” markets.
Contrary to these assertions, the rule notes an ERISA provision that allows the federal government to preempt state laws over fully-insured AHPs that “go too far… in ways that interfere with the important policy goals advanced by this final rule.” This gives the federal government wide latitude to intervene if a state tries to implement policies restricting fully-insured AHPs from operating in their markets.
In addition to emphasizing the role of states in regulating AHPs, the rule also stresses the role states will play in oversight and enforcement efforts to protect consumers against fraud, abuse, and mismanagement of AHPs. The rule offers vague language describing actions the federal government may perform to oversee AHPs, stating that the Department of Labor “anticipates close cooperation” with state regulators in areas of oversight. The rule also expresses intent by the Department of Labor to review AHP reporting requirements and to consider developing AHP audit requirements “if necessary.” Without additional specifics about the federal role, questions arise about what role states should play in oversight and how states can best target their limited resources to avoid duplicating possible federal action.
Staggered effective dates and next steps for states.
The rule sets staggered implementation dates for the rule, depending on the type of AHP that adopts the new standards. Any association may establish a fully-insured AHP as soon as Sept. 1, 2018. Associations in existence at the time of the release of this rule may establish a self-funded AHP on Jan. 1, 2019, and new associations may establish a self-funded AHP on April 1, 2019. These dates give little time for states to act before new AHPs enter their markets. The timing is also noteworthy as the rule was released in the middle of states’ 2019 rate-filing deadlines. Officials expect that negotiations will factor in the assumption that AHPs will enter states’ markets in 2019, leading to additional rate increases before premiums are finalized in September, 2018.
The ultimate effect of the AHP rule will vary based on each state’s insurance markets and regulatory capacity. As states analyze the rule and its projected impact, future actions and considerations for policymakers and regulators include:
Review and development of state-level mandates. As noted earlier, states vary in how state-level mandates for insurance are applied to AHPs, or insurers that sell policies to associations. In order to promote fair market competition and guarantee that consumers are guaranteed similar protections across their markets, states may seek to revise or strengthen their regulation of AHPs. Moreover, rising health care costs, including prescription drugs, expose consumers to added financial risk, especially if drug coverage and other services are not covered by an insurance plan. States may look to develop solutions (such as benefit mandates or development of high-risk pools) that will help shield consumers who become underinsured by purchasing an AHP. During a recent NASHP webinar, experts discussed other state options to limit AHPs, including prohibiting new MEWAs and actions to assert jurisdiction over plans sold in their markets, even when the plans are based in another state.
Boosting state capacity for AHP oversight. While federal rules indicate that the Department of Labor and states have joint-responsibility over AHP oversight, historically, oversight of AHPs has been lax, allowing for fraud, abuse, and insolvency. To effectively protect consumers, states may need to bolster their insurance regulators’ capacity to review and audit AHPs. States may also consider increasing the ability of their state agencies to collect and respond to consumer complaints about unregulated or fraudulent products entering their markets. However, without additional funding, states may have limited capacity to devote the resources necessary to conduct robust oversight. Consumer education will also be critical to make sure consumers are aware that if they buy AHPs that do not provide full coverage of essential benefits that they cannot purchase an Affordable Care Act-compliant plan with full coverage until the annual open enrollment period.
While most state legislative sessions have ended for 2018, states may direct their agencies to implement regulatory changes that could be used to protect consumers and strengthen their markets. In the months ahead, NASHP will continue to track state actions to address the AHP rule, especially as legislators prepare for 2019 sessions following the November 2018 election.
Experts and state officials share what impact this rule will have on their insurance markets and what actions they are taking to protect consumers during two sessions at NASHP’s annual conference. Register today!
Making Waves in the Individual Market: How Did We Get Here?
The individual insurance market is experiencing seismic shifts due to the effective repeal of the individual insurance mandate and new federal policies that promote association health plans and short-term insurance policies. Kevin Lucia of the Georgetown University Center on Health Insurance Reforms reviews some of the major changes affecting insurance markets, including trends in rate filings and enrollment estimates. State officials reflect on what the changes have meant for their insurance markets, and what they expect to see during the 2019 open enrollment season.
Sailing the Seas: State Efforts to Stabilize the Individual Market
In the face of rising health insurance costs and unstable markets, states are exploring a wide assortment of strategies to stabilize markets, reduce costs, and improve coverage choices for consumers. Building on the earlier Making Waves in the Individual Market session, state panelists take a deep dive into the strategies they are advancing to bolster their markets, including passage of state-based individual mandates, reinsurance programs, and regulation of insurance products sold within or outside of the Affordable Care Act insurance marketplaces.
When states pass laws designed to control prescription drug costs, the pharmaceutical industry often responds with lawsuits claiming states are hindering interstate commerce and violating the federal Dormant Commerce Clause (DCC). NASHP’s legal experts believe states can craft drug cost policies that can withstand industry challenges.
This brief by Anna Zaret and Darien Shankse provides insight and analysis about DCC case law and highlights what state policymakers need to consider when drafting drug cost polices.
Click here to read NASHP’s blog to learn more about the Dormant Commerce Clause and drug cost regulation.
Click here to view NASHP’s easy-to-understand table featuring Dormant Commerce Clause’s “Dos and Don’ts.”
New state laws designed to control the costs of brand-name and generic prescription drugs often face legal challenges from the pharmaceutical industry. These lawsuits can vary depending on the individual state law, but recent industry lawsuits analyzed by the National Academy for State Health Policy (NASHP) share a common legal thread – drug manufacturers and their trade organizations contend these new state laws violate the federal Dormant Commerce Clause (DCC) case law.
The Constitution’s Interstate Commerce Clause gives Congress the authority to regulate commerce between states, and industry lawsuits have created a body of federal case law that guides what states may and may not do to interstate commerce. Essentially, federal case law has created DCC to make sure states don’t create policies that have the unintended consequence of hindering, affecting, or shaping industry business practices in other states, or that “unduly burden” the multi-state operations of national businesses. This issue – the extent to which a state law or policy can impinge on federal interstate commerce authority – has been shaped by years of federal court cases.
The pharmaceutical industry has used DCC as one way to challenge recent state laws that attempt to eradicate price gouging or bring more transparency to how the industry establishes drug prices. Here are two examples of legislation that pharmaceutical trade groups are now challenging:
- Maryland’s anti-price gouging law: Earlier this year, Maryland became the first state to enact a law protecting consumers from generic prescription drug price-gouging. The law, which went into effect Oct. 1, 2017, prevents manufacturers of generic and off-patent drugs from price gouging or imposing “excessive and not justified” increases in drug prices.
In July, the Association for Accessible Medicines, the trade association that represents generic and biosimilar drugs, filed a lawsuit charging that the law was unconstitutional.
- Nevada’s drug transparency law: Among other provisions, a new Nevada law aims to bring transparency to diabetes drug pricing by forcing manufacturers to provide information about the costs of manufacturing and marketing diabetes drugs, including company’s profits. Two pharmaceutical industry trade groups have filed a lawsuit to block the recently-enacted law, arguing it is unconstitutional.
In the cases of both Maryland and Nevada, the industry has alleged that these laws have ripple effects impacting how the industry conducts business in other states. A judge has already ruled against the industry’s DCC complaint in Maryland. The Maryland Attorney General’s response to the industry lawsuit is an important read for any state policymaker concerned about the industry’s potential legal challenges.
The Pharmaceutical Research and Manufacturers of America and the Biotechnology Innovation Organization filed a lawsuit against Nevada’s law in September, arguing the new law is preempted by federal statute and is unconstitutional. While the final outcome of the various legal aspects of the court challenges in Nevada and Maryland are not known yet, the decisions will shape how states approach drug cost control policies.
In the meantime, NASHP believes states can craft strong and effective drug cost regulations that have good potential to avoid an industry challenge based on the DCC. There may, however, be other legal challenges to these laws, even if DCC is not invoked in the legal challenges.
NASHP’s white paper by Anna Zaret and Darien Shanske provides insight and analysis to explain the issues in DCC case law that will help states craft policy that avoids running afoul of existing DCC case law. In addition to the paper, NASHP has a table featuring policy guidelines (see below) that state policymakers can consider as they develop drug cost policies.
NASHP also has a longer DCC research document available to state officials only upon request. For a copy of that DCC white paper, please contact Jennifer Reck.
Earlier this month, the U.S. Department of Health and Human Services released its latest omnibus rule proposing a series of changes impacting insurance markets and the health insurance marketplaces. Our latest blog and accompanying memo break down a few key concerns for states as they finalize their comments due on October 6, 2016.
Memo: Proposed HHS Notice of Benefit and Payment Parameters for 2018
Blog post: Five Things to Watch from HHS’s Latest ACA Proposed Regulations
This report explores the political and economic forces that have resulted in recent changes in SCHIP programs in three states: Texas, Utah, and Virginia. The report is based on site visits to each of these states and provides a framework for better understanding the dynamics that shape all SCHIP programs.
The manual offers detailed analysis and source materials related to the federal Employee Retirement Income Security Act of 1974 (ERISA) and its implications for state health care initiatives. State efforts to expand health care coverage and regulate insurance markets are affected by ERISA’s national standards for employee benefit plans. Though court decisions have narrowed the scope of ERISA, the reach of this federal law remains extensive. Published in conjunction with the Alpha Center and State Coverage Initiatives.