High prices for health care services and prescription drugs are driving health care spending and increasing insurance premiums. To tackle rising health care costs, states have advanced two separate but related initiatives over the past few years:
- cost-growth benchmarks to track and contain overall health care spending; and
- prescription drug affordability boards (PDABs) to conduct reviews of high-cost prescription drugs and set limits on what can be paid for these drugs in the future.
Some states have been considering the similarities and differences in these approaches as well as opportunities for alignment across these initiatives.
Massachusetts first introduced a cost-growth benchmark in 2012 as a way to measure overall health care spending and set a target for annual spending growth. Following Massachusetts, several other states have enacted cost-growth benchmarks – Connecticut, Delaware, New Jersey, Oregon, Rhode Island, and Washington. Current spending growth benchmark levels range from 3.1 – 3.4 percent and most states have a “glide path” towards lower cost growth over time.
In 2017, the National Academy for State Health Policy (NASHP) released model legislation for a prescription drug affordability board (PDAB), comparable to a public utility commission for drugs. Based on the model, a PDAB has the authority to determine if a drug is unaffordable and set an upper payment limit for certain high-cost drugs to ensure no one pays more than that amount in the state. Maryland enacted the first PDAB in 2020 and since then, other states, including Colorado, Maine, New Hampshire, and Oregon, have enacted legislation with similar goals, although slightly different designs.
Key Differences between PDABs and Cost-Growth Benchmarks
While both a PDAB and cost-growth benchmark rely on data to measure and contain health care spending, they use different mechanisms to contain costs. PDABs set upper payment limits on certain prescription drugs the Board determines are unaffordable, which limits how much purchasers can pay for those drugs. In contrast, states use a cost-growth benchmark to set projected growth, but to determine if the benchmark is met the state does a retrospective look back at costs over the past year. This process enables policymakers to compare the previous year’s actual spending against the benchmark, to better understand which actors within the health system may be driving excessive spending, and to make policy recommendations for addressing those drivers.
Cost-growth benchmarks look at total spending in aggregate. The benchmark is generally enforced by noting stakeholders that are responsible for high costs during public meetings and in public reports. In states such as Massachusetts, there is also a threat of a targeted performance improvement plan for entities determined to be cost drivers. In 2021, Oregon enacted a more robust enforcement process for the state’s cost-growth benchmark, adding financial penalties for payers and providers that exceed the benchmark.
PDABs, in contrast to cost-growth benchmarks, focus exclusively on prescription drugs and establish a limit for payment of a specific drug, although the PDAB’s authority and which payers are affected by an upper payment limit varies state-to-state. For example, Maryland’s PDAB will initially set upper payment limits for enrollees in public plans while Colorado’s PDAB affects all consumers in the state, except self-funded plans that elect not to participate.
Similarities Across Policies
Equity Focus: Recognizing that unaffordable care creates and exacerbates health equity challenges, state officials have discussed how to include equity considerations in the work of both PDABs and cost-growth benchmark initiatives. In its 2021 cost trends report, Massachusetts included a new section on measures of health equity as well as policy recommendations for advancing equity, including setting new equity-based targets and improving data collection. As part of Oregon’s recently enacted PDAB law, the criteria to determine which drugs the PDAB will review includes whether a drug has led to health inequities in communities of color.
Engagement of Stakeholders: PDABs and cost-growth benchmarks create a forum for convening and holding accountable the stakeholders involved in the high costs of health care. Most state PDABs are either mandated or have the authority to establish advisory councils made up of stakeholders impacted by rising drug costs. Cost-growth benchmarks use a variety of levers to hold stakeholders accountable to the benchmarks, including annual public hearings to enhance transparency. These initiatives purposefully create a venue for stakeholder feedback and conversation with consumers and state officials to better understand rising costs.
Use of Data: Both cost-growth benchmarks and PDABs use existing and newly collected data to drive cost containment efforts. For example, Colorado’s PDAB legislation includes new reporting requirements for insurers, pharmacy benefit managers, and manufacturers. Insurers will report to the board on top-spend drugs to help inform which drugs the PDAB will review. Similarly, Oregon’s PDAB will leverage the state’s existing drug price transparency program to identify high-cost drugs that should be reviewed.
Cost-growth benchmark programs use public and private payer data to understand total health care spending in the state. For example, states use total medical expenses (TME) for Medicaid, CHIP and Medicare as well as per member, per year TME reported by commercial insurers to measure total cost of care. In part because of these data needs, but also out of a consideration for establishing independent processes, PDABs and cost-growth benchmarks require a degree of new state infrastructure to implement.
State Infrastructure Needed for Cost Containment Strategies
Both PDABs and cost-growth benchmarks are an effort to leverage health policymaking to contain costs by using data to limit future expenditures, but what kind of state infrastructure do they require? Interested states may ask if the same state agency or board could conduct both the drug affordability review work of a PDAB and cost-growth benchmark analyses. While the work related to these efforts is connected and in fact may be improved by coordinating across policies, there is likely different expertise needed for the implementation of a PDAB versus a cost-growth benchmark.
PDABs and other drug affordability review work requires a degree of expertise in complex pharmacy pricing. Across states, PDABs are generally independent or semi-independent boards that are supported by state agency staff. For example, Maryland’s PDAB includes providers as well as academics and former state officials with expertise on a range of topics – cost-effectiveness research, pharmaceutical costs, pharmacoeconomic analysis, and the existing drug distribution and payment system. The staff supporting the board also has a range of pharmacy knowledge, legal expertise, and experience collecting and/or analyzing drug pricing data.
Like PDABs, in most states, a cost-growth benchmark is overseen by a board or commission with support from state agencies for data collection and analyses. For example, in Massachusetts, the state created a new agency, the Health Policy Commission (HPC), to carry out the work related to the cost-growth benchmark. Massachusetts’ efforts are guided by the HPC’s 11-member board and supported by the Center for Health Information and Analysis, the state’s all-payer claims database (APCD). Other states have placed their cost-growth benchmark in existing agencies such as Rhode Island’s Office of the Health Insurance Commissioner or Connecticut’s Office of Health Strategy. Each of these agencies, new or existing, must have access to and expertise in handling health care spending data. This expertise would likely differ from that of a PDAB as expertise for a cost-growth benchmark would require a broader understanding and melding of spending information across health care sectors as well as a strong understanding of the provider and insurer market in a state.
Some states have started to establish central offices focused more generally on health care affordability. These more central offices or agencies could support both hospital and drug focused cost containment strategies, but the boards or stakeholders tapped to discuss these issues may need to be different. The Massachusetts Health Policy Commission is an early example of this – not only does the agency support the cost-growth benchmark, but it also does some drug affordability review work for MassHealth that is relevant to PDABs. In the 2021 legislative session, Maine created an Office for Affordable Health Care which will support the state’s PDAB. The Maine office is also tasked with monitoring health care cost growth.
As states craft solutions to the health care cost conundrum, the efforts focused on prescription drugs, hospital care, and other health care sectors may overlap. As states consider possibilities to align these approaches together, officials should consider:
- Could the same agency or office support these different initiatives even if there are separate external stakeholders?
- How will these initiatives be funded? Could these activities be funded by a universal fee on health care actors (providers, drug manufacturers, health plans, etc.), including both drug supply chain entities and providers and payers? Or should funding for a PDAB and cost-growth benchmark be collected and used separately?
- How can these initiatives be linked in more substantive ways beyond implementation logistics?
- For example, for states that include pharmacy spending as part of a cost-growth benchmark or annual cost growth reporting, is there a way to link this information to the work of a PDAB?
- Could a PDAB review a greater or fewer number of drugs, or different types of drugs, in response to a state exceeding its cost-growth benchmark if growth in pharmacy spend played a role?
- How can each of these initiatives be best aligned and added to a number of other ongoing state strategies to achieve more affordable health care?