As prescription drug price increases greatly outpace inflation and new specialty drugs priced in the millions of dollars enter the market, several states have led the way as early adopters of drug price transparency legislation and are taking the first steps to curb costs with the help of transparent drug pricing information.
A new National Academy for State Health Policy (NASHP) report, What Are We Learning from State Reporting on Drug Pricing?, offers a cross-state analysis of drug price transparency findings through August 2019, based on reports from California, Maine, Nevada, Oregon, and Vermont. States are:
- Learning which drugs cost the most – and are the best targets for focused strategies;
- Tracking the percentage of health premiums attributed to drug spending – and identifying opportunities to leverage reporting on drug spending, such as implementing spending caps; and
- Beginning to capture information on net price – and profit – along the supply chain to inform fair and balanced policy approaches to ensure affordability.
Honing in on the Costliest Drugs to Take Action Where It Matters Most
States with transparency laws are identifying the drugs creating the greatest affordability challenges for both payers and consumers. State transparency laws require gathering data from a variety of sources, including through required reporting by public and private health plans (California, Oregon, Vermont), or through all-payer claims databases (Maine), or proprietary databases (Nevada), in order to report lists of:
- The costliest drugs in the state based on price and utilization;
- The drugs with the highest year-over-year cost growth; and
- The most commonly prescribed drugs.
A cross-state analysis of these reports identified 30 drugs that appear in common across drugs reported in three of five states. Many of the drugs reported are used for the treatment of diabetes, including Humalog, Lantus Solar, Novolog, Januvia, Metformin, and Victoza. Multiple drugs for the treatment of arthritis were also identified across states: Stelara, Cosentyx, Enbrel, and Humira.
Identifying the classes of drugs – and specific drugs within those categories – that are creating the greatest affordability challenges can help states hone in on strategies to address drug costs. For example, states working to leverage their purchasing power across agencies are seeking this type of information to guide potential approaches such as bulk purchasing or establishing single preferred drug list. State officials from Nevada have credited their transparency law, initially limited to diabetes medications and since expanded to include asthma medications, with bringing payers to the table to leverage their purchasing power through Nevada’s Silver State Scripts program.
Illuminating the Link between Rising Drug and Insurance Premium Costs
Several states (California, Vermont, and Oregon) require commercial health plans subject to state regulation to submit information on the impact of prescription drug spending on premiums rates. Results shared publicly to date include a range of prescription drug spending accounting for, on average, 13 percent in California, 15.67 percent in Vermont, and up to 18 percent of premiums in Oregon. Tracking prescription drug spending, as part of rate review or other initiatives, represents an important leverage point for states to take action on drug spending. Doing so can enable, for example, monitoring and enforcement of prescription drug spending caps. Several states, including New York, Massachusetts, and Maine, have established caps for drug spending – New York and Massachusetts have the authority to negotiate supplemental rebates to meet their caps while Maine tasks its Drug Affordability Review Board with identifying strategies to meet its voluntary cap on drug spending for public plans.
Uncovering the Factors Driving Up Prices along the Drug Supply Chain
One of the questions at the heart of drug price transparency laws is: What factors are driving high price increases and high launch prices? The only way for a state to determine the actual causes of high drug prices – and the relative profit accrued by players in the supply chain – is by requiring reporting across the entire supply chain, including manufacturers, pharmacy benefit managers (PBMs), wholesalers, and health plans. In order to be meaningful, this information must shed light on the net cost of drugs – an otherwise closely guarded secret behind a black box of secret rebate negotiations between manufacturers and PBMs.
Some of the early adopter states, while laying the foundation for future transparency efforts, enacted laws with limitations in terms of their ability to shine a light on net prices or to uncover the interplay between players in the drug supply chain. California, for example, limits manufacturer reporting to information that is already in the public domain. While Nevada did require reporting of some information considered to be trade secrets, and required reporting by both manufacturers and PBMs, the lack of alignment in reporting requirements (e.g., state versus national level) makes it difficult to “follow the money” across the supply chain.
A new wave of tougher state transparency measures, including a 2019 Maine law, An Act To Further Expand Drug Price Transparency, will have the ability to shine a light on net drug prices – and profits – in order to guide fair and effective state policy solutions. The Maine law, based on NASHP’s model legislation, requires reporting by entities across the entire drug supply chain, including manufacturers, PBMs, wholesalers, and health plans.
In addition to establishing reporting requirements with the ability to produce meaningful, actionable data, states must also have the ability to enforce reporting their new requirements. Early efforts at collecting data from manufacturers have yielded imperfect compliance at best. California received data justifying price increase from only one-third of manufacturers required to report, and Nevada recently levied $17.4 million in fines on manufacturers for failure to report in that state. While non-reporters in Nevada face fines up to $5,000 a day, Maine’s new law increases that penalty to up to $30,000 a day.
Taking Action on What Transparency Reveals
As actionable information on net drug prices and profits across the supply chain becomes available, states will use the data to make informed, impactful policy decisions. Though state policymakers are challenged by a number of limits on their authority to regulate drug prices, and meaningful action at the federal level currently remains pending, states are advancing a number of policy options to address drug prices building on what transparency laws are revealing. One model is a state Drug Affordability Review Board (DARB) with the authority to review data on drugs deemed unaffordable, and if warranted, set an upper payment limit for that drug within the state. Transparency data is essential to DARBs and related efforts. Such approaches do not seek to prohibit profit along the supply chain, but to ensure that those profits are reasonably balanced with the need to preserve access to essential drugs by ensuring their affordability.