Last week, Maine Gov. Janet Mills signed into law a comprehensive package of prescription drug cost control legislation that addresses pharmaceutical prices throughout the supply chain. The four new laws include:
- Stricter requirements on pharmacy benefit managers (PBMs);
- Updates to its drug transparency program to require more prescriptive data collection and enforcement mechanisms;
- Establishment of a drug affordability review board; and
- Support for the state to pursue a wholesale drug importation program.
By developing a comprehensive and integrated package of new laws, Maine is forging new ground in the fight against high drug prices.
Comprehensive PBM Regulation – LD 1504
Maine’s new law regulating PBMs essentially replaces opaque PBM business practices by imposing more transparent, clearly defined fiduciary relationships that include state enforcement and oversight through the health insurance carriers with whom PBMs contract.
As other states have done, the law requires PBMs to obtain a license from the Superintendent of the Bureau of Insurance. Licensure is a critical component of effective PBM regulation because it allows the state to know how many and what entities are operating as PBMs in the state. This also gives the state power to suspend or revoke a license should the PBM break the law or engage in fraudulent activity.
Maine’s new law also includes provisions that haven’t been enacted by any other state. Under the law, if health insurance carriers use PBMs to manage their prescription drug benefits, the carrier is responsible for monitoring all activities performed by its contracted PBM. By tasking carriers with PBM monitoring responsibilities, Maine is leveraging its Bureau of Insurance to enforce these provisions of the law. The law also stipulates that PBMs have a fiduciary duty to their insurance carriers when managing their prescription drug benefits and as such, carriers are empowered to hold PBMs accountable for their financial dealings.
Monitoring PBM financial practices can be challenging. For example, PBMs often use maximum allowable cost (MAC) lists that document the maximum amount a plan will pay for generics and brand-name drugs that have generic alternatives. It is standard industry practice for PBMs to use prices from one MAC list to pay a pharmacy for dispensing a drug to a consumer and then use a different MAC list’s price to bill the carrier. Using multiple MAC lists allows PBMs to practice “spread pricing” — they reimburse pharmacies using a low price from one MAC list while charging the health carrier a higher price from a different MAC list and keeping the difference. To combat this practice, Maine now mandates the use of a single MAC list that must be identified by the PBM so prices are transparent to all parties, including pharmacies and the carrier. Additionally, using a single MAC list provides more clarity to all parties about how MAC pricing is determined and updated and how PBMs select products for inclusion on a MAC list.
To lower costs for consumers, the law requires carriers to use the prescription drug rebates that PBMs negotiate to either lower health plan premiums or to reduce out-of-pocket costs for consumers when they purchase prescription drugs. Without the ability to retain a portion of the rebate, PBMs will now be paid for managing the prescription benefit directly by the carrier. Maine’s law includes provisions that explicitly classify PBM expenses as administrative costs for purposes of calculating a health plan’s anticipated loss ratio. The classification of PBM expenses as administrative rather than as a health benefit encourages carriers to monitor these costs carefully and keep them low. Under federal law, health carriers’ administrative costs are limited to 20 percent of the total amount of premiums collected from consumers.
This law requires carriers to take on a more active role in PBM oversight, provides enforcement authority within the Bureau of Insurance, and requires a fundamental change in PBM business practices to reduce prescription drug costs for consumers.
Drug Affordability Review Board and Pharmaceutical Spending Targets – LD 1449
With this new law, Maine joins the ranks of states working to leverage the purchasing clout of state purchasers. Similar to a law recently passed in Maryland, the Maine law establishes a Drug Affordability Review Board (DARB), charged with setting prescription drug spending targets for public entities including state, municipal, state university, and community college employees and teachers. Each group currently operates its own health plan. The five-member DARB, with advice from a 12-member advisory council representing public payers, will set drug spending targets and monitor how effectively public payers meet them. The law spells out a number of strategies the board can consider to help public purchasers meet their expenditure goals, including collaborating with other states and consortia to purchase drugs in bulk, restructuring formularies for public payers, procuring common expert services for public payers, and securing deeper rebates. Of particular interest, the law also allows the board to consider expanding the purchasing pool for prescription drugs and allowing carriers who cover small businesses and individuals to buy into a public payer drug benefit plan. The first report on drug spending targets is due in 2021.
While the DARB cannot compel a public purchaser to meet its target, it must report whether public purchasers have met their cost targets annually to the state Legislature, which is responsible for approving their budgets. The first report on drug spending targets is due in 2021.
Revamped Drug Transparency Requirements – LD 1162
Using NASHP’s recently released prescription drug transparency model legislation 2.0, Maine revamped its drug pricing transparency program. The law requires drug manufacturers to report to the Maine Health Data Organization (MDHO) — the state’s all-payer claims data program — when they increase the wholesale acquisition cost (WAC) of brand-name and generic drugs by certain thresholds. The law establishing the DARB, noted above, makes reference to using this data base in setting state drug spending targets.
This law also authorizes the MDHO to require pricing component data for specific prescription drugs from manufacturers, wholesale drug distributors, and PBMs and compels those entities to share that data. This bill also has more stringent enforcement mechanisms. If these entities fail to report the requested data, the state has the authority to audit data and can require a reporting entity to submit a corrective action plan for reporting deficiencies.
The NASHP transparency 2.0 model encourages states to adopt a common data set, which will reduce reporter burden and yield standardized, actionable data. The Maine bill goes beyond other states’ transparency bills because it requires reporting from each entity in the supply chain about past and projected costs and revenues at the individual drug level. A more robust set of data from the entire supply chain will help the state identify which players contribute most to drug price increases.
Wholesale Prescription Drug Importation Program – LD 1272
Maine is the fourth state to pass a law seeking implementation of a wholesale importation program, along with Vermont, Florida, and Colorado. Maine’s Department of Health and Human Services must submit a request for approval from the federal government no later than May 1, 2020. This bill is unique in that the program design must consider whether the program can be developed on a multistate basis through collaboration with other states.
Maine has taken a big step to hold the entire supply chain accountable for the rising cost of prescription drugs. Lawmakers have demonstrated their commitment to holding all parties in the prescription drug supply chain accountable for rising drug costs. These four bills will work in conjunction with each other to achieve fair dealings from PBMs, standardize transparency reporting requirements, set pharmaceutical spending targets for public payers, and develop a plan for the importation of prescription drugs from Canada.
For more information about what states are doing to address drug costs, explore NASHP’s legislative tracker and read about newly-enacted laws.