For many states, the 2021 legislative session has ended. During this past session, 20 states enacted 43 laws to address rising drug costs, an increase from the 17 states that enacted 41 laws last year, despite states’ ongoing focus on COVID-19. Enacted state laws include establishing a prescription drug affordability board (PDAB), limiting patients’ out-of-pocket insulin costs, regulating pharmacy benefit managers (PBMs), and requiring transparency from entities throughout the pharmaceutical supply chain.
Colorado’s Prescription Drug Affordability Board (PDAB)
In June, lawmakers in Colorado enacted a law to create a PDAB that will perform affordability reviews of certain drugs that meet a cost threshold and establish upper payment limits (UPLs) for drugs the Board deems unaffordable. Beginning April 1, 2022, the Board may establish UPLs for up to 12 drugs each year for all payers within the state. Colorado’s PDAB legislation has some similarities to Maryland’s 2019 law establishing a Prescription Drug Affordability Board that may, pending approval of the General Assembly, set upper payment limits for drugs that pose an affordability challenge for public payers starting in 2022, and for all purchasers starting in 2023. The Maryland and Colorado laws extend existing authority states already exercise to set rates for utilities or insurance premiums, providing a direct lever to mitigate the impact of unaffordable drug prices.
This year, Alabama, Kentucky, Oklahoma, and Texas were the latest states to enact an out-of-pocket insulin cap. These laws limit the amount an individual covered by a state-regulated commercial insurance plan is required to pay for insulin at the pharmacy counter. The limits on out-of-pocket cost range from $25 to $100 per 30-day supply. Since Colorado enacted the first insulin out-of-pocket cap in 2019, a total of 17 states have enacted similar legislation.
Building on their insulin out-of-pocket caps, Colorado and Maine also enacted laws to provide an emergency supply of insulin to eligible individuals at low cost, following a Minnesota law enacted last year. To be eligible for these programs, individuals cannot be enrolled in Medicaid or have prescription drug coverage that limits insulin cost sharing below a certain amount. Whereas out-of-pocket insulin caps apply only to the insured population, the emergency access programs in these states also ensure access to insulin for uninsured people.
While out-of-pocket caps bring necessary, immediate relief to consumers, some states are enacting them as short-term strategies while also advancing efforts that can lower list prices themselves, such as setting upper payment limits through a PDAB (as referenced above).
Pharmacy Benefit Managers (PBMs)
Since 2017, states have enacted more than 100 laws to regulate PBMs, making it the most active area of legislation related to drug pricing. Legislators continued that trend in 2021 following the Supreme Court’s landmark ruling in Rutledge vs. Pharmaceutical Care Management Association (PCMA), issued in December 2020. The Rutledge ruling clarified that a 2015 Arkansas PBM law “is a form of cost regulation that does not dictate plan choices” and that state regulation of PBMs is therefore not preempted by the Employee Retirement and Income Security Act of 1974 (ERISA) – the federal law regulating self-funded plans that cover more than 60 percent of individuals with employer-sponsored coverage. Given the timing of the ruling after most states had filed legislation for the 2021 session, the full impact of the ruling will likely not be felt until the 2022 legislative session. Some states, however, have already passed legislation that reflects the ruling’s early impact.
For example, Arkansas and Wisconsin enacted laws during their 2021 sessions that explicitly apply existing PBM regulations to self-funded plans. In West Virginia, a new law requires PBMs to reimburse a pharmacy in an amount that is at least the National Average Drug Acquisition Cost plus a professional dispensing fee. Like the Arkansas law at issue in the Rutledge decision, this law establishes a minimum amount that PBMs must pay pharmacies to ensure adequate reimbursement.
Three states also enacted reverse auction legislation this session as a strategy to generate state savings when contracting with PBMs. Colorado, Louisiana, and Minnesota enacted laws to require state employee health plans to implement reverse auctions for pharmacy benefit services. This approach is designed to increase competition across PBM bidders to get better deals and to monitor PBM performance as they execute contracts. These states join New Jersey, Maryland, and New Hampshire, doubling the number of states using reverse auctions.
Drug Pricing Transparency
This session, North Dakota and Virginia joined 12 other states that have enacted laws to require manufacturers and other entities in the supply chain to report pricing information explaining high prices and price increases for certain drugs. Nevada, which enacted one of the first transparency laws in 2017 that originally applied only to diabetes medications, expanded that law to apply to all drugs. This brings the total number of states with comprehensive transparency reporting requirements to 14. In many states, transparency laws have been an important first step toward informing later state action to lower drug prices.
New Strategies Take Hold
This session, states also explored new policies to directly address manufacturers’ list prices. Lawmakers in Hawaii, Oklahoma, Maine, North Carolina, and Rhode Island introduced the National Academy for State Health Policy’s (NASHP) International Reference Rate model, which authorizes a state’s department of insurance to establish upper payment limits based on Canadian prices for the most costly drugs in the state. This approach has the same goal as a PDAB – to set upper payment limits to improve drug affordability – but it streamlines the process by using Canadian prices for reference rates rather than creating a board tasked with affordability reviews. Hawaii, Maine, and Washington also introduced NASHP’s Unsupported Price Increases model that fines manufactures when costly drug price hikes are not supported by new clinical evidence. During this session, however, these laws were not ultimately enacted. States will likely re-introduce similar legislation next session.