Prescription Drug Pricing Reform Is a Hot Topic in the United States

The federal government continues to debate Medicare Part D benefit reform and potential changes to payment for physician-administered drugs covered under Medicare Part B, while state legislatures have been implementing policies to reduce drug pricing. During a session at AMCP Nexus 2020 Virtual, Melissa Andel, MPP, principal at CommonHealth Solutions, LLC, gave an overview of major policies under consideration and how they are impacting prescription drug prices and access.

States have authority to regulate prescription drug spending in Medicaid, state employee benefit plans, and individual and small group commercial markets. States do not have regulatory authority over self-insured or large group health plans certified under the Employee Retirement Income Security Act (ERISA) but do have regulatory authority over full-insured ERISA plans.

There has been increasing pressure on state legislatures to lower prescription drug costs. But a 2018 U.S. Fourth Circuit Court of Appeals invalidated a Maryland law that would regulate off-patent drug wholesale acquisition costs on the grounds that the state lacks the ability to regulate interstate commerce. This decision could potentially threaten similar legislation; alternatively, the courts could reverse course in the future and introduce the possibility of broader state authorities.

Ms. Andel then discussed some state initiatives. In 2015, California enacted legislation that placed multiple requirements on health plans regulated by the state, including:

  • Capping copayments for a 30-day supply of prescriptions to $250 once deductible is met ($500 for bronze-level plans)
  • Limiting pharmacy deductibles to $500/$1,000 (two times the cap) for non-high deductible health plans
  • Limiting formularies to four tiers

Other states have followed suit, but for insulin only—10 states have passed legislation capping insulin copayments.

In 2017, California banned the use of copay coupons when a generic equivalent is available. New York has also launched budget caps and reviews for high-cost drugs. As of April 2020, newly launched high-cost drugs must meet one of the following criteria:

  1. Launch price >$30,000 WAC or price increase >$3,000 in 12-month period
  2. Biosimilar with a launch WAC >85% of reference WAC
  3. Generic launch WAC >$100
  4. Gene therapy

Despite this, rate-setting policies have had limited success in New York, with relatively small savings. A lack of tools to restrict access to a drug in Medicaid complicates a state’s negotiating position.

Transparency laws generally require manufacturers to submit price information on new drugs, and drugs for which the manufacturer is taking a price increase, in advance of launch or price increase. Pharmacy benefit managers (PBMs) may be required to disclose information on rebates and other fees, reimbursement amounts for retail pharmacies, cost-sharing terms and conditions, and any ownership in a pharmacy or health plan with which the PBM conducts business. Pharmacy service organizations may also be required to report negotiated reimbursement rates for a specified set of drugs and fee schedules for participating pharmacies.

A 2019 review of transparency laws found that while 35 states had passed transparency laws, only six states’ laws were considered “effective.” The primary weakness in legislation is that no law required the release of real transaction prices at each stage of the supply chain.

To be effective, laws must require disclosure from all supply chain participants and must include net prices. However, the regulatory burden of reporting and disclosure, plus

trade secret laws protecting net price information, complicates these efforts. Thus far, ineffective laws and limited state budgets have hampered attempts to increase transparency, but states have recently passed more expansive legislation that is in the process of being implemented.

In August 2020, the National Academy of State Health Policy unveiled model legislation that uses Canadian reference pricing. Similar to legislation passed by the U.S. House of Representatives, the language establishes an upper limit for drug prices for the 250 most costly drugs in the state. Prices are capped at the lowest WAC or a price negotiated by a Canadian provincial health agency. The legislation levies penalties on manufacturers who withdraw drugs for sale within the state, but this does not apply to Medicaid.

In conclusion, Ms. Andel said, as lack of action on prescription drug prices at the federal level continues, states will feel pressure to continue to innovate individually.

Presentation: L2 The State of Prescription Drug Pricing Reform: Are States Leading the Way for the US? AMCP Nexus 2020 Virtual.