Burdened by high US drug prices that average 218 percent more than in Canada, innovative states across the country are exploring a range of approaches to give their residents the same access to affordable drugs Canadians have. To date, six leading states have passed laws that enable them to import drugs from Canada pending federal approval of their programs. Now, a second set of trailblazing states are exploring an alternative approach that does not require federal approval – importing Canadian drug prices.

Lawmakers in five states (HI, ME, OK, ND, and RI) have introduced or pre-filed bills based on the National Academy for State Health Policy’s (NASHP) model legislation to establish international reference rates using Canadian pricing.

Establishing payment rates for hospitals’ and providers’ services is common to ensure access to affordable care. The NASHP model extends that practice to prescription drugs, giving states a powerful tool to limit what payers within a state will pay, without running afoul of patent law by setting prices.

What is international reference rate legislation?

International reference rate legislation authorizes a state’s department of insurance to establish international reference rates for the costliest drugs in that state. The department determines the reference rates based on those drugs’ prices in Canada’s four largest provinces. The lowest price would become the legal upper payment limit for those drugs for participating purchasers in the state.

A savings analysis NASHP facilitated for one state considering this legislative approach, showed annual savings of more than $32 million for just 35 drugs purchased by state employees alone.  States are proposing setting reference rates for up to 250 drugs for all commercial payers, including Medicare advantage plans (Medicaid and traditional Medicare would be excluded), so total savings would far exceed that initial estimate.

Under the model legislation, any savings generated must be shared with consumers through mechanisms left to the discretion of a state. Options may vary by payer, ranging from reducing premiums for commercial payers, maintaining or expanding access to Medicaid services, and avoiding tax increases for public payers.

Oklahoma state Sen. Greg McCortney identified the potential for savings as key. “I do not believe that we can fix our broken health care system until we address the cost of care,” he said. “This bill, once fully implemented, should reduce insurance premiums for every person in the state by hundreds of dollars each year.”

The model law’s implementation process is designed to be easy for a state to administer and does not require costly infrastructure at a time when states are burdened by the pandemic and budgetary restraints. As a proxy for all commercial payers, the bill uses a state’s employee health plan to identify the costliest 250 drugs, determined by drug price times utilization.

1. The state employee health plan shares the list of 250 drugs with the Department of Insurance.
2. The department then establishes references rates by comparing publicly available data on drug prices in Canada’s four most populous provinces. The lowest price becomes the reference rate for payers within the state.
3. No commercial payer could pay more than the reference price established by the state’s department of insurance, and a manufacturer that withdrew a drug or refused to negotiate in good faith would be subject to significant penalties.

As states move forward in their legislative sessions, states are adapting NASHP’s reference rate model and making it their own. They’re exploring variations in the roles their agencies would play, as well as possibly limiting the number of referenced drugs to a smaller group that would have maximum impact.