Drug price transparency laws enable state policymakers to understand opaque drug pricing and payment systems to formulate appropriate policy solutions to high prices, while also creating the data infrastructure to effectively realize those policy solutions. Since Vermont passed the first state drug price transparency law in 2016, more than a dozen states have enacted and implemented similar laws.
State-level transparency legislation shines light on drug pricing by requiring manufacturers and other supply chain entities such as prescription drug benefit managers (PBMs), health plans, and wholesalers to provide information on drug pricing. Transparency programs also establish accountability around manufacturers’ price increases or high launch prices. Since programs began collecting pricing data, states have seen fewer drug price increases trigger reporting requirements; however, launch prices and overall spending on prescription drugs have continued to increase.
Transparency laws can also create a foundation for additional strategies to lower drug costs. Policies like prescription drug affordability boards (PDABs), rely on having access to and expertise with drug pricing data. This blog provides an update on state drug price transparency laws and their impact.
Current State Transparency Landscape
Vermont passed the first state drug price transparency law in 2016. Since then, 13 other states have passed transparency laws focused on drug manufacturers and other actors within the supply chain – CA, CT, ME, MN, NV, NH, ND, OR, TX, UT, VA, WA, and WV. Most state programs require reporting from manufacturers when they increase the wholesale acquisition cost (WAC) of a drug above a certain threshold or if they introduce a drug with a high launch price. Several states also require reporting from insurers and pharmacy benefit managers. A few states extend reporting to other supply chain actors – pharmacy service administrative organizations (WA) and wholesale distributors (ME, NV, VA).
Transparency programs vary state-by-state regarding which drugs are reported on, the level of data collected (in aggregate or on an individual drug level), and how data is published and analyzed by the state.
- Maine’s transparency program offers one of the more robust approaches to drug price transparency. Maine collects and analyzes data with the goal to identify each supply chain entity’s average net income, including data on manufacturers, PBMs, insurers, pharmacies, and wholesale distributors. This allows the public and policymakers to “follow the money” through the supply chain.
- California’s transparency program posts launch price information and five-year schedules of price increases reported by manufacturers to its website, creating one of the only freely available sources of WAC data.
- Oregon’s transparency program holds an annual public hearing that acts as a forum for sharing data analysis, discussion with stakeholders, and policy recommendations.
- Nevada took a unique approach with its transparency program, first focusing reporting on diabetes drugs when its program was enacted in 2018 and then including asthma medications in 2019. In 2021, the state expanded its program to include all prescription drugs.
Impact of Transparency Programs
As states investigate and work to lower high drug costs, drug price transparency has become an important foundation and launch pad for efforts to lower costs. Data collected by state transparency programs can provide insights into the types of price increases and types of drugs driving high spending in a state. Pricing data can provide policymakers state-specific information to direct policy.
Moderated Price Increases Over Time
Since state transparency laws were first enacted, the number of price increases that trigger reporting based on state thresholds has decreased over time. Vermont’s Medicaid program explained in its 2020 report that compared to 2016, there was a 79 percent decline in the number of drugs reaching the state’s per year price increase threshold. The program report concludes that fewer manufacturers are excessively increasing the price of drugs. Similarly, Oregon’s transparency program reported that compared to its first year of implementation in 2019, the program received 70 percent fewer reports for price increases in 2020. However, during that same time, Oregon saw a 15 percent increase in the number of drugs with high launch prices.
Vermont and Oregon’s findings align with what drug pricing researchers have found – from 2016 to 2020 the amount of WAC price increases have decreased but launch prices have continued to rise. Although the rate of price increases may be moderating, launch prices may still cause increased state spending on prescription drugs.
Accountability for High Launch Prices
Transparency programs can establish accountability around manufacturers’ high drug price increases and high launch prices. For example, manufacturers of Semglee, the first generic insulin product deemed interchangeable by the U.S. Food and Drug Administration, recently announced it will price the new insulin product at almost $270 per vial, only $20 cheaper than Lantus, the brand-name biologic competitor. Based on this launch price, Semglee would trigger Virginia’s reporting requirements under the state’s 2021 transparency law which requires manufacturers to report information on the launch of biosimilar products that are not at least 15 percent below the cost of the reference biologic. While the law is not yet implemented, Virginia’s program would be one of the most immediate tools to create some accountability for Semglee’s high list price.
Data Infrastructure for Policy Solutions
In addition to establishing accountability, transparency programs can provide the necessary data infrastructure for the successful implementation of efforts to lower drug prices. Since 2020, several states have enacted prescription drug affordability boards (PDAB), entities with the authority to review high cost drugs and in some states set an upper payment limit to ensure no one pays more than that amount in the state. A first step for a PDAB to review high drug costs and potentially set payment limits is to gather the necessary drug pricing data – whether that’s leveraging existing data sources or establishing manufacturer or insurer reporting like transparency programs. States without transparency laws already in place must include transparency requirements. For example, Colorado’s PDAB law, enacted in 2021, requires insurers to report top-spend drugs to help inform which drugs the PDAB will review.
States that already have transparency programs in place however, are well-positioned to take steps to rein in high drug costs through a PDAB. Oregon’s new PDAB law leverages the state’s existing drug price transparency programto identify high-cost drugs that should be reviewed by the board. Each quarter the transparency program will provide the PDAB with a list of drugs with high price increases or high launch prices as well as a list of insulin products sold in the state in the previous year. Based on this information, the PDAB will identify nine drugs and one insulin product to review. Oregon’s PDAB will be supported and housed in the same agency that manages the drug price transparency program, the Department of Business and Consumer Services, allowing the PDAB to capitalize on the drug pricing data expertise developed by the transparency program since it was enacted in 2018.
In these ways, transparency can be seen not only as a steppingstone to future action, but often a necessary building block to sustain other efforts. The data gathered and expertise developed by transparency programs could be applied to any number of drug pricing policies beyond PDABs – direct negotiations for supplemental Medicaid rebates, implementing reference rates, or prohibiting price gouging.
Federal Efforts on Transparency
While a variety of federal transparency efforts are in process, state transparency programs go beyond proposed or recently enacted language. The Build Back Better Act that passed the House in November 2021 but continues to be debated in the Senate, would require pharmacy benefit managers to report certain information related to spending, cost, utilization, and formulary placement to health plan sponsors. Additionally, the Centers for Medicare and Medicaid Services (CMS) recently published an interim final rule requiring health plans to report certain information on the most costly drugs, most frequently utilized drugs, and drugs with the greatest year over year spending increases, among other data elements, to the Departments of Health and Human Services, Labor, and the Treasury. This interim final rule is similar to the insurer reporting requirements of many existing state transparency programs. For states that do not have transparency laws, this federal data, if shared with state leaders, could be helpful to identify top-spend drugs in each state and fuel other strategies to lower costs such as a PDAB. However, it’s unclear to what extent the data could be accessed or used by states, though states are eager to coordinate with the federal government to enhance data-sharing on drug prices. Importantly, none of these initiatives focus on requiring reporting from manufactures – who actually set drug prices – leaving state officials to continue this important work.