4 minute read 10 May 2018
How state drug pricing laws are changing

How state drug pricing laws are changing

Authors

Heather Meade

Principal, Washington Council Ernst & Young

WCEY health care principal, health & tax-exempt policy, former Congressional staffer, recovering ERISA attorney, coalition builder, teacher of civics and math through games. Sideline soccer fan.

Tara Bradshaw

Executive Director in Washington Council Ernst & Young

Change maker. Story teller. Passionate about helping clients achieve their policy goals through strategic communications.

Laura Dillon

Washington Council Ernst & Young (WCEY) Manager

WCEY member focusing on health care policy and legislative and regulatory affairs.

4 minute read 10 May 2018

Amid complexity and challenges, hundreds of drug pricing proposals have been introduced in state legislatures across the US.

The drug pricing debate was front and center during the 2016 presidential election, with Donald Trump calling for significant changes to current US drug pricing policy. Voters continue to identify the high cost of pharmaceuticals as a top health care concern, with 80% of the public perceiving prescription drug costs as “unreasonable” according to a Kaiser Health Tracking Poll. 

Measures intended to rein in costs also poll very favorably among voters of both political parties, with half of the public saying that passing legislation to bring down the price of prescription drugs should be a “top priority” for President Trump and Congress.

The Administration is focused on solutions aimed at addressing high list prices, seniors and government programs overpaying for drugs due to lack of negotiating tools, rising out-of-pocket costs for consumers and foreign governments ‘freeriding’ off of American investment in innovation.

Yet, despite all of the attention, change has been slow at the federal level. Federal legislators and regulators continue to struggle to find the right balance between creating affordability without limiting access or stifling innovation. Only 39% of the public is confident that President Trump and his administration will be able to deliver on the promise that Americans will pay less for prescription drugs than they pay now.

The complexity and range of challenges, from high-cost generic and specialty drugs to aggressive use of patent protections, the role of insurers and pharmacy benefit managers (PBMs) and the complex supply chain, mean that there is no single policy solution that can address all consumer pricing concerns.

In the face of federal uncertainty, consumer pressure has spurred states into the policy void. Since 2016, hundreds of drug pricing proposals have been introduced in state legislatures across the US.

Emerging legislative themes include:

  • Price transparency
  • So-called price gouging
  • Spending targets
  • PBM and rebate practices
  • Out-of-pocket spending
  • Utilization management
  • Biosimilar substitution

Pharmaceutical companies have raised concerns about the fairness, efficacy and challenges of complying with new legislation. This patchwork of state efforts is challenging for pharmaceutical companies and other stakeholders to navigate and monitor.

Sample enacted legislation, by theme

  1. Price transparency and price gouging bills: Price transparency bills require manufacturers, PBMs and others in the drug supply chain to report to the state information aimed at explaining certain manufacturer price increase or launch price decisions. Some bills also impose penalties on manufacturers for price increases over a certain amount over a specified period of time.
  2. Spending targets: Bills allow states to set annual spending targets for prescription drugs and to negotiate additional rebates with manufacturers if they exceed the target amount.
  3. PBM and rebate practices: Bills regulating PBMs focus on greater transparency and new standards for pharmacy reimbursement, customer charges, rebate revenue and limitations on pharmacist communication with customers about costs (i.e., “gag clauses”). Other bills are aimed at tamping down practices that reduce patient incentives to choose lower-cost drugs through rebates.
  4. Out-of-pocket spending: Bills that impose limits on the amount that a person must pay in copayment, coinsurance or other out-of-pocket spending through a health benefit plan, often focused on specialty drugs.
  5. Utilization management: Bills to regulate how health plans implement utilization management tools to control costs and ensure appropriate prescription drug use.
  6. Biosimilar substitution: Bills to regulate pharmacists’ substitution of biosimilar drugs.

Sample proposed legislation, by theme

  1. Importation: Bills that seek to allow the importation of prescription drugs from Canada.
  2. Manufacturer gifts: Bills that seek to place restrictions on gifts from manufactures to physicians.
  3. Group purchasing: These bills would instruct state agencies to explore different approaches to drug purchasing and drug price negotiations, often through multiagency collaboration and/or through the work of task forces.

State experimentation with drug pricing proposals is expected to continue, and early lessons from state efforts are beginning to emerge amid concerns from pharmaceutical stakeholders about the effects on access, cost containment and incentive for innovation.

The Trump Administration continues to announce efforts to address the challenge of high drug cost at the federal level, but most observers are not expecting eminent congressional action. The Administration’s early efforts focused on the supply chain and the roles that insurers, PBMs and hospitals play in the challenge of rising drug prices. These moves raise questions about how far the Administration will go in its next steps to address the public’s concerns about the high cost of pharmaceuticals.

This leaves companies, stakeholders and consumers watching to see which state and federal proposals move forward, how compliance and enforcement will be managed, what lessons have been learned, and what effect (if any) these state initiatives will have on pharmaceutical pricing trends and patient access.

Summary

Enacted and proposed state legislation intends to rein in drug costs. This provides an overview of such legislation and other solutions aimed at controlling prescription drug costs.

About this article

Authors

Heather Meade

Principal, Washington Council Ernst & Young

WCEY health care principal, health & tax-exempt policy, former Congressional staffer, recovering ERISA attorney, coalition builder, teacher of civics and math through games. Sideline soccer fan.

Tara Bradshaw

Executive Director in Washington Council Ernst & Young

Change maker. Story teller. Passionate about helping clients achieve their policy goals through strategic communications.

Laura Dillon

Washington Council Ernst & Young (WCEY) Manager

WCEY member focusing on health care policy and legislative and regulatory affairs.