Pharmaceutical prices are rising, driving up premiums and out-of-pocket costs. Today, 21 percent of spending in employer-sponsored plans goes to retail prescription drugs.[i] State budgets – which by law must be balanced- are reeling from high and unpredictable pharmaceutical increases for corrections, state employees and retirees, K-12 and public university employees, and, of course, Medicaid. To address these rapidly rising prescription drug prices, purchasers and policymakers need to know why they are so high. Transparency has become the watchword and states are eager to advance proposals to achieve it. But transparency is not a silver bullet and laws need to be carefully constructed to give states and purchasers the information they need to fashion effective strategies to manage these budget pressures.
NASHP, with guidance from its Pharmacy Costs Work Group, has developed a model transparency bill for states that wish to take a comprehensive approach to unlock the black box of pharmacy pricing and increase consumer awareness.
Why this comprehensive approach?
Pharmaceutical pricing is complex and all purchasers do not pay the same price for the same drug. To understand pricing we need to look at both how the industry sets its prices and at the role of “middlemen” in the system. Pharmacy Benefits Managers (PBMs), for example, negotiate discounts on behalf of purchasers with whom they contract. But those purchasers often do not know what price PBMs paid for the drugs, what discount they received, or how much of that discount was passed on to them.
In addition to federally required Medicaid discounts, state Medicaid agencies negotiate additional discounts. Medicaid-level price discounts are available to safety net providers through the Public Health Services Act “340B” program. The 340B discounts provided to certain hospitals have grown dramatically in recent years. At the same time, the organizational structure of some of those hospitals have changed as they affiliate with larger health systems or purchase community services like oncology practices, raising questions about discounts and how they are passed on to consumers
Finally, consumers themselves directly receive discounts through patient assistance programs. For example, coupons offered to patients to reduce their out-of-pocket costs may be for a limited duration, yet consumers rarely know the conditions attached to those programs. While manufacturer coupons may cover the patient cost sharing obligation, the insurer is obligated to pay its share for the high cost product when other, less costly treatments may be available.
Getting the information states need to protect consumers and understand the costs along the pharmaceutical supply chain requires transparency but the system is complex. Pharmaceutical manufacturing is a competitive business and much of the information states and purchasers seek from manufacturers is arguably proprietary. Insurance departments receive and hold confidential information from insurance companies regarding how their products are priced, allowing states to protect proprietary information from pharmaceutical manufacturers while still providing important public information.
What does this model bill do?
- Requires pharmaceutical companies to provide information about how a drug is priced.
- Identifies the size and volume of discounts in the state health care market, as well as whether and how those discounts reach the consumer.
- Report how many pharmacies may not inform consumers when the price of a drug is less than the cost sharing they are required to pay.
- Includes penalties for pharmaceutical manufacturers and certain 340B entities that do not comply with the law’s provisions.
- Protects proprietary discount information but requires a state agency to aggregate the data, report annually on drug price trends and hold a hearing for public review and comment.
- Publishes price justification documents obtained from pharmaceutical manufacturers.
- Determines and reports on whether coupons help or hurt consumers.
What does the bill not do?
- Does not require additional reporting from Medicaid or Medicare beyond what is already available to the state agency because this bill is primarily focused on the commercial market.
- Does not require disclosure of manufacturer research and development costs because these are not built into the pricing of any one drug.
What are the next steps?
NASHP and its Work Group will identify and support states to advance transparency legislation and will track those efforts on our website. States interested in this model legislation will have access to a legislator’s guide and additional background materials as they become available. Please contact Jennifer Reck if you wish to receive this state-only material.
This work is supported by the Laura and John Arnold Foundation
[i] Cox, C. Anthony Damico, Gary Claxton, Larry Levitt. “Examining high prescription drug spending for people with employer sponsored health insurance.” Peterson-Kaiser Health System Tracker. October 27,2016. Accessed online.
