In addition to providing critical funding for state COVID-19 response efforts, the American Rescue Plan requires drug manufacturers to pay more in Medicaid rebates for drugs with large price increases. This change, effective in 2024, has the potential to generate significant federal and state savings.
- A basic rebate: This rebate amount is based on a percentage of the average manufacturer price (AMP) – 23.1 percent for most brand-name drugs and 13 percent for generic drugs, and
- An inflationary rebate: An additional inflationary rebate is applied if the increase in a drug’s AMP exceeds inflation, defined by the urban consumer price index.
Under the current formula, the total rebate amount a state can receive (when the basic plus inflationary rebates are applied) cannot exceed 100 percent of a drug’s AMP. A drug manufacturer typically triggers this cap only if it increases a drug’s price substantially over time and therefore must provide such a large inflationary rebate that the rebates equal the drug’s price. Once the cap is reached, a manufacturer has little incentive to moderate drug price increases as they can charge a higher price to other private plans without paying larger rebates to Medicaid programs.
The American Rescue Plan eliminates the rebate cap, creating incentives for manufacturers to limit price increases and enabling state Medicaid agencies to collect more in rebates when large price increases occur. Without the rebate cap in place, manufacturers face a new pricing landscape that requires them to pay larger Medicaid rebates if they significantly increase a drug’s price.
This change reflects a June 2019 Medicaid and Children’s Health Insurance Program Payment and Access Commission (MACPAC) recommendation. In its recommendation, MACPAC highlighted that the change would result in higher Medicaid rebates and put downward pressure on manufacturer price increases. At the request of MACPAC, the Congressional Budget Office estimated potential savings from this change would be $15 to $20 billion in federal savings over 10 years. States would receive the non-federal share of these savings to their Medicaid programs. MACPAC, however, did caution that this change would only address drugs with large price increases – not drugs with high-launch prices.
MACPAC is currently considering an additional recommendation to change the MDRP related to rebates on drugs that receive accelerated approvals. An accelerated approval is a Food and Drug Administration (FDA) pathway that allows for quicker approval of drugs that treat serious or life-threatening conditions and fill an unmet medical need. MACPAC is considering a proposal to increase rebates required for drugs that receive an accelerated approval until the manufacturer completes the required post-market clinical trials.
The goal of the MDRP change would be to increase rebates on these drugs while there is limited clinical evidence of their effectiveness and to incentivize manufacturers to complete the post-market trials that are often delayed or take a number of years to complete.
Guidance from the Centers for Medicare & Medicaid Services in 2018 made it clear that state Medicaid programs are required to cover drugs approved through the accelerated approval pathway, despite the fact that these drugs often having high prices and unclear evidence of clinical benefit. Recently, indications for two drugs that received accelerated approvals – the cancer drugs Tecentriq and Imfizi – were withdrawn after follow-up trials showed the drugs did not improve overall survival.
MACPAC will vote on the recommendation to increase rebates for drugs with accelerated approvals at its April meeting. The National Academy for State Health Policy will follow its actions.
More than 200 bills to lower drug prices have been filed across states during this session and nine states are proposing prescription drug affordability board (PDAB) legislation.
Nine states (AZ, CO, MN, NJ, NM, OR, RI, VA, and WI) are currently advancing PDAB bills in their legislatures. While a number of these bills are similar to Maryland’s approach that phases in upper payment limits by initially limiting them to public purchasers before potentially expanding them to include private purchasers, the majority of the currently proposed bills map more closely to NASHP’s original model legislation, which implements payment limits across all payers (public and private) in a state in a more expedited fashion.
The bills are generally similar in two approaches:
- They use similar price thresholds to identify a drug for investigation by their PDABs, and
- They apply the same factors when setting an upper payment limit for drugs found to be otherwise unaffordable – such as weighing the cost of administering the drug and delivering the drug to consumers.
Minnesota’s bill, however, includes unique language that empowers its PDAB to consider both the “the range of prices at which [a] drug is sold in the United States and the range at which pharmacies are reimbursed [for it] in Canada.” This language creates a bridge between the PDAB model and a newer approach in a recently released NASHP model law that creates payment rates for certain high-priced drugs based on Canadian pricing. This approach, reflected in NASHP’s Act to Reduce Prescription Drug Costs Using International Pricing, offers states a more streamlined approach than establishing a PDAB, which requires the complex task of determining the appropriate value of a drug in order to set an affordable payment rate. Five states (HI, ME, OK, ND, and RI) are currently considering international reference rate bills that use (or “reference”) Canadian prices to set more affordable rates.
As states consider PDABs and international reference rate approaches to achieve the goal of setting more affordable payment rates for drugs, there are several key factors to consider.
- While international reference rates look to Canada’s drug prices when establishing appropriate payment rates, PDABs keep the task of identifying affordable rates within a state.
- While PDABs may be conceptually preferable for this reason, the time and resources required to implement this approach may not make PDABs feasible for all states. For those states, using Canadian prices to set rates may be the most viable option.
Minnesota’s bill, however, points to a third option, a hybrid approach in which a PDAB would consider Canadian pricing as part of its process.
Explore this chart to compare the different state approaches and implementation timelines of the nine PDAB bills proposed as of March 9, 2021.
Drug makers claim high prices are necessary to support new drug development and innovation, but research shows that public investment in drug research and development combined with large industry profits leaves manufacturers room to lower prices while continuing to innovate.
Public funding is not unique to vaccines though. The drug industry relies heavily on public funding for all forms of drug development. Taxpayer-funded research for each of the 356 drugs approved by the US Food and Drug Administration in the last decade totals $230 billion. Despite this level of public investment in drug development, manufacturers face few restrictions on what they can charge for their drugs in the United States despite taxpayers’ investments.
As a result, drug prices are on average 2.5-times higher in the United States than comparable countries, even though those countries also contribute considerably to research and development (R&D) costs. High drug prices in the US market have generated substantial profits for the pharmaceutical industry. Between 2008 and 2018, the profitability of pharmaceutical companies was almost double that of other large, public companies.
Despite the significant amount of taxpayer funding, pharmaceutical industry officials argue that high drug prices reflect the cost of R&D and the risk associated with developing a new drug. However, high US drug prices exceed what is necessary to fund R&D. For example, drug manufacturers Amgen, Biogen, Pfizer, and Teva generated more than double their global R&D budgets from excessive US prices, and three companies covered or nearly covered all of their research spending through high US prices on their top-selling products alone:
- AbbVie’s Humira (an immunosuppressant);
- Biogen’s Tecfidera (treats multiple sclerosis); and
- Teva’s Copaxone (an immunomodulator that treats multiple sclerosis).
Two of these drugs – Humira and Tecfidera – appear on the Institute for Clinical and Economic Review’s 2020 list of drugs that have prices increases unsupported by new clinical evidence.
With little action on drug prices from the federal government, states are considering new ways to control drug spending, and lawmakers have filed more than 200 bills this session, including bills with the potential for real impact on prices. Five states have introduced the National Academy for State Health Policy’s (NASHP) model legislation to establish international reference rates to bring prices in line with Canadian rates, which could result in savings ranging from 60 to 85 percent. Three states have introduced NASHP’s model legislation that fines pharmaceutical manufacturers whose drug price increases are unsupported by new clinical evidence – including Humira and Tecfidera cited above – based on the Institute for Clinical and Economic Review’s research.
As states ramp up their efforts to address excessive drug prices, the industry continues to argue that lower prices would harm innovation. Trail-blazing states can be reassured, however, that there is room for manufacturers to lower prices while still maintaining their profit margins and preserving their capacity for innovation.
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.
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.
- The state employee health plan shares the list of 250 drugs with the Department of Insurance.
- 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.
- 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.
As expected, last week the Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit in US District Court for the District of Columbia to block a new federal rule that allows states to import less costly prescription drugs from Canada. Also last week, the Canadian Minister of Health issued an order prohibiting the bulk export of prescription drugs that face shortages in Canada.
The federal importation rule, slated to go into effect this week, requires states to first obtain certification for their importation programs from the US Secretary of Health and Human Services. To achieve certification, a state program must demonstrate it is safe and has the ability to deliver consumer cost savings.
Rather than leave this certification in the hands of the HHS Secretary, PhRMA along with the Partnership for Safe Medicines and the Council for Affordable Health Coverage asked the federal court to stop the rule, arguing state importation programs cannot be safely implemented while raising questions about their cost-savings.
Canada Limits Rx Exports in Short Supply
The Canadian order, designed to protect that country’s domestic prescription drug supplies, applies to controlled substances (which US federal law already prohibits importation of under any circumstances) and other prescription drugs. An analysis (Q&A: The Facts about Canadian Drug Shortages) of past drug shortages in Canada indicates the majority of shortages have involved generic drugs, which are not a primary target for US importation. State programs are designed to focus on high-cost, brand-name medications that would generate the greatest savings.
NASHP analyzed more than 60 brand-name drugs that states have identified and evaluated for potential importation and found that fewer than a quarter of them had ever appeared on Canada’s lists of drug shortages between March 2017 and January 2020, with only two of them appearing on the list as of January 2020.
State Importation Work Continues
Vermont, Maine, Colorado, and Florida had already submitted their initial importation program designs to HHS Secretary Alex Azar before he issued his final rule on Sept. 24, 2020. Florida recently submitted a second proposal that responds specifically to the requirements laid out in the final rule. Two other states, New Mexico and New Hampshire, plan to submit applications soon to meet deadlines in their state’s importation statutes.
Two other recently issued federal rules related to drug pricing are also expected to face legal challenges by the pharmaceutical industry:
- One rule lowers Medicare’s prices for certain drugs to the lowest price available internationally, and
- Another ends exemptions allowed by an anti-kickback law that currently protects drug manufacturer rebates.
States have also faced legal challenges for their new laws that prohibit price gouging, regulate pharmacy benefit managers, require drug price transparency, prohibit industry tactics to delay the introduction of generic drugs, tax opioid manufacturers in order to fund state-level efforts to address addiction, and protect consumers from the high cost of insulin.
Despite numerous industry challenges, states are continuing to implement laws and to create new legislative approaches to curb drug costs. As state legislatures reconvene in January, many will continue to press for relief from high drug prices. In the meantime, all eyes are on the federal transition to the Biden Administration and his agenda for drug pricing. States remain active and are eager to partner with the federal government to achieve savings for consumers.
The future of importation may hinge on the Biden Administration’s ability to work with states and the Canadian government to allow importation to succeed while allaying Canadian fears. Meanwhile, states implementing importation continue their hard work. Some states will watch for results while others are pivoting to new strategies such as establishing international reference rates which, in essence, allows a states to import Canadian prices in lieu of importing drugs.
Section 1. Statement of Legislative Intent; Purpose
The purpose of this Chapter is to protect the safety, health and economic well-being of [Name the State] people by safeguarding them from the negative and harmful impact of excessive and unconscionable prices for prescription drugs. In enacting this Act, the legislature finds that
Access to prescription drugs is necessary for [Name the State] people to maintain or acquire good health;
- Excessive prices negatively impact the ability of [Name the State] people to obtain prescription drugs and price increases that exceed reasonable levels thereby endanger the health and safety of [Name the State] people to maintain or acquire good health;
- Excessive prices for prescription drugs threaten the economic well-being of [Name the State] people and endanger their ability to pay for other necessary and essential goods and services including housing, food and utilities;
- Excessive prices for prescription drugs contribute significantly to a dramatic and unsustainable rise in health care costs and health insurance that threaten the overall ability of [Name the State] people to obtain health coverage and maintain or acquire good health;
- Excessive prices for prescription drugs contribute significantly to rising state costs for health care provided and paid for through health insurance programs for public employees, including employees of the state, municipalities and counties, school districts, institutions of higher education, and retirees whose health care costs are funded by public programs, thereby threatening the ability of the state to fund those programs adequately and further threatening the ability of the state to fund other programs necessary for the public good and safety, such as public education and public safety;
- Because the costs of prescription drugs and health insurance are tax-deductible, excessive costs for prescription drugs result in a reduction in the tax base and a resultant reduction in state revenue;
- The costs to consumers, health plans, and the state for prescription drug coverage is higher than the costs in other countries because the prices charged by manufacturers and distributors of drugs in [Name of State] are higher; and
- Based on findings (1) through (6), the legislature finds that excessive prices for prescription drugs threaten the safety and well-being of [Name the State] people and find it is necessary to act in order to protect [Name the State] people from the negative impact of excessive costs.
Section 2. Definitions
(a) “Prescription Drug” has the same meaning stated in [Cite to State’s Pharmacy Act].
(b) “Wholesale Acquisition Cost” has the meaning stated in 42 U.S.C. § 1395w-3a.
(c) “State Entity” means any agency of state government that purchases prescription drugs on behalf of the state for a person whose health care is paid for by the state, including any agent, vendor, fiscal agent, contractor, or other party acting on behalf of the state. State Entity does not include the medical assistance program established under 42 U.S.C. §1396 et seq.
(d) “Health Plan” means [State’s definition of health plan as defined in insurance statute].
(e) “ERISA Plan” means a plan qualified under the Employee Retirement Income Security Act of 1974.
(f) “Participating ERISA Plan” means an ERISA plan that has elected to participate in the requirements and restrictions of this subchapter as described in Section 4 below.
(g) “Referenced Rate” means the maximum rate established by the Superintendent of Insurance utilizing the Wholesale Acquisition Cost and other pricing data described in Section 5 below.
(h) “Referenced Drugs” means Prescription Drugs subject to a Referenced Rate.
Section 3. Payment in Excess of Referenced Rate Prohibited
(a) It is a violation of this Chapter for a State Entity or Health Plan or Participating ERISA Plan to purchase Referenced Drugs to be dispensed or delivered to a consumer in the state, whether directly or through a distributor, for a cost higher than the Referenced Rate as determined in Section 5 below.
(b) It is a violation of this Chapter for a retail pharmacy licensed in this state to purchase for sale or distribution Referenced Drugs for a cost that exceeds the Referenced Rate to a person whose health care is provided by a State Entity or Health Plan or Participating ERISA Plan.
Section 4. ERISA Plan Opt-In
An ERISA Plan may elect to participate in the provisions of this chapter. Any ERISA Plan that desires its purchase of Prescription Drugs to be subject to the prohibition described in Section 3 shall notify the Superintendent of Insurance in writing by [PICK A DATE] of each year.
Section 5. Referenced Drugs Determined
(a) As of [PICK A DATE] of each calendar year, the Director of the State Employee Health Insurance Plan shall transmit to the Superintendent of Insurance a list of the 250 most costly Prescription Drugs based upon net price times utilization. For each of these Prescription Drugs, the Director of the State Employee Health Insurance Plan shall also provide the total net spend on each of those Prescription Drugs for the previous calendar year.
(b) Utilizing this information described in subsection (a) above, as of [PICK A DATE] of each year the Superintendent of Insurance shall create and publish a list of 250 Referenced Drugs that shall be subject to the Referenced Rate.
(c) The Superintendent of Insurance shall determine the Referenced Rate by comparing the Wholesale Acquisition Cost to the cost from the: 1) Ontario Ministry of Health and Long Term Care and most recently published on the Ontario Drug Benefit Formulary; 2) Régie de l’Assurance Maladie du Québec and most recently published on the Quebec Public Drug Programs List of Medications; 3) British Columbia Ministry of Health and most recently published on the BC Pharmacare Formulary; and 4) Alberta Ministry of Health and most recently published on the Alberta Drug Benefit List.
(d) The Referenced Rate for each Prescription Drug shall be calculated as the lowest cost among those resources and the Wholesale Acquisition Cost. If a specific Referenced Drug is not included within resources described in subsection (c) above, the Superintendent of Insurance shall utilize for the purpose of determining the Referenced Rate the ceiling price for drugs as reported by the Government of Canada Patented Medicine Prices Review Board.
(e) The Superintendent of Insurance shall calulate annually the savings that are expected to be achieved by subjecting Prescription Drugs to the Referenced Rate. In making this determination the Superintendent of Insurance shall consult with the Director of the State Employee Health Insurance Plan and the Chair of the State Board of Pharmacy.
(f) The Superintendent of Insurance shall have the authority to implement regulations under [Cite state’s Administrative Procedures Act] to fully implement the requirements of this chapter.
Section 6. Registered Agent and Office within the State
Any entity that sells, distributes, delivers, or offers for sale any Prescription Drug in the state is required to maintain a registered agent and office within the state.
Section 7. Use of Savings
(a) Any savings generated as a result of the requirements in Section 3 above must be used to reduce costs to consumers. Any State Entity, Health Plan or Participating ERISA Plan must calculate such savings and utilize such savings directly to reduce costs for its members.
(b) No later than April 1 of each calendar year, each State Entity, Health Plan and Participating ERISA Plan subject to this Chapter shall submit to the Superintendent of Insurance a report describing the savings achieved for each Referenced Drug for the previous calendar year and how those savings were used to achieve the requirements of subsection (a) above.
Section 8. Enforcement
Each violation of this Chapter shall be subject to a fine of $1,000. Every individual transaction in violation of Section 3 is determined to be a separate violation. The Attorney General is authorized to enforce the provisions of this statute on behalf of any State Entity or consumers of Prescription Drugs. The refusal of a manufacturer or distributor to negotiate in good faith as described in Section 9(d) below shall be a valid affirmative defense in any enforcement action brought under this chapter.
Section 9. Prohibition on Withdrawal of Referenced Drugs for Sale
(a) It shall be a violation of this Chapter for any manufacturer or distributor of a Referenced Drug to withdraw that drug from sale or distribution within this state for the purpose of avoiding the impact of the rate limitations set forth in Section 3 above.
(b) Any manufacturer that intends to withdraw a Referenced Drug from sale or distribution from within the state shall provide a notice of withdrawal in writing to the Superintendent of Insurance and to the Attorney General 180 days prior to such withdrawal.
(c) The Superintendent of Insurance shall assess a penalty on any manufacturer or distributor that it determines has withdrawn a Referenced Drug from distribution or sale in the state in violation of subsection (a) or (b) of this section. With respect to each Referenced Drug for which the Superintendent of Insurance has determined the manufacturer or distributor has withdrawn from the market, the penalty shall be equal to 1) $500,000; or 2) the amount of annual savings determined by the Superintendent of Insurance as described in Subsection 5(e) above, whichever is greater.
(d) It shall be a violation of this Chapter to for any manufacturer or distributor of a referenced Drug to refuse to negotiate in good faith with any payor or seller of Prescription Drugs a price that is within the Referenced Rate as determined in Section 5 above.
(e) The Superintendent of Insurance shall assess a penalty on any manufacturer or distributor that it determines has failed to negotiate in good faith in violation of Subsection 9(d). With respect to each Referenced Drug for which the Superintendent of Insurance has determined the manufacturer or distributor has failed to negotiate in good faith, the penalty shall be equal to 1) $500,000; or 2) the amount of annual savings determined by the Superintendent of Insurance as described in Subsection 5(e) above, whichever is greater.
Section 10. Severability Clause
If any provision of this Chapter or the application thereof is determined to be invalid, the invalidity does not affect other provisions or applications of this subchapter which can be given effect without the invalid provision or application, and to this end the provisions of this Chapter are severable.
Earlier this month, the Health and Human Services (HHS) Secretary published the final rule for state importation of prescription drugs from Canada. To receive federal approval for their Section 804 importation programs (SIPs), the six states with laws enabling importation (VT, FL, ME, CO, NM, and NH) must meet the rule’s safety and cost-savings requirements and also navigate the rule’s implementation challenges.
While HHS made some of the states’ requested changes in the rule’s final version, such as giving states the flexibility to designate the agency responsible for administering a SIP, several concerns that states raised in their comments on the draft rule to ensure efficient and effective programs, were not reflected in the final rule.
Key among those concerns are issues relating to the role of the “foreign seller” (Canadian wholesaler) that purchases eligible prescription drugs from manufacturers in order to sell to the state “importer” in the United States. The final rule specifies that a SIP may work with just one foreign seller initially. Though the logic of the rule is to maintain a tight supply chain, limiting SIPs to just one foreign seller creates the risk that a manufacturer opposed to state importation may cut off its supplies to a single foreign seller that would be easily identified due to its increased demand for prescription drugs to supply a SIP.
Limiting SIPs to one foreign seller may also preempt normal forces of market competition that would otherwise help states maximize savings from importation.
Additionally, though the final rule gives states up to six months to identify a foreign seller after submitting their importation program applications to HHS, states may still be required to identify their foreign seller prior to federal approval of their SIPs. States had requested that the step of identifying a foreign seller come after program approval because foreign sellers may not choose to participate in a program that has not yet gained federal approval, especially when their participation may put them in a drug manufacturer’s crosshairs.
The final rule is scheduled to go into effect Nov. 30, 2020 – at which time a legal challenge from drug manufacturers is widely anticipated. Despite states’ request, the final rule did not include a severability clause – a provision that allows a law to stand even if a portion of the law is struck down by the courts. As a result, the federal framework for Canadian importation is vulnerable to being struck down if drug manufacturers successfully challenge even a minor provision of the rule.
Determined to achieve savings on prescription drugs for consumers despite the challenges presented by the final rule, states are continuing to do the groundwork necessary to design effective SIPs. For example, earlier this month, both Colorado and New Mexico convened stakeholder meetings in order to share information, solicit feedback, and answer questions. Four states – Vermont, Colorado, Maine, and Florida – had already submitted SIP applications for federal approval prior to publication of the final federal rule in order to meet timelines specified in their state statutes.
Florida issued an “Invitation to Negotiate” (ITN) to start the process of contracting with a vendor for a $30 million, three-year contract to manage its SIP. That contract was scheduled to be awarded in December 2020, however, Florida withdrew the ITN last week because no organizations responded to the ITN. While Florida sought a single contractor to fill multiple roles required to implement its SIP, Colorado, which is currently designing its own ITN for release in December, is taking an alternate approach by allowing diverse roles to be fill by multiple contractors as needed. The fact that Florida’s importation program is limited to public payers may have also made the contract less appealing to bidders from a market perspective, whereas Colorado’s program is directed at the commercial market. Florida also released its ITN prior to publication of the final federal rule, another consideration that may have inhibited potential respondents.
The National Academy for State Health Policy is continuing to work with states to advance their SIP plans and will provide updates about their progress.
Last week, California Gov. Gavin Newsom signed SB 852, a law enabling California to become the first state to produce its own generic prescription drugs, an idea first proposed in the Governor’s 2020-2021 budget. The new law aims to reduce the cost of generic drugs by boosting competition and increase patient access to certain generics, such as drugs prone to shortages when manufacturers stop producing less-profitable drugs.
California will not initially directly manufacture generic drugs, instead it will contract with other entities, such as manufacturers, that will work with the state to produce drugs. The law requires the California Health and Human Services Agency (CHHSA) to enter into partnerships to produce or distribute generic prescription drugs that will:
- Generate savings for state purchasers, private payers, and consumers;
- Address generic drug shortages; and
- Improve patient access.
Generic drugs produced under these partnerships will be made available at a transparent prices and without rebates.
California’s next steps will be to analyze the possibility of generic drug production and determine which drugs it intends to target for manufacturing. In determining which generic drugs to produce, CHHSA must consider, among other things, information reported by health plans on the 25 most frequently prescribed drugs in the state, the 25 most costly drugs, and the 25 drugs with highest year-over-year spending increases.
This reporting requirement was established by another California landmark drug pricing bill, SB 17, the state’s drug pricing transparency law. Other considerations for determining which generics the state will produce include:
- Producing at least one form of insulin;
- Prioritizing drugs for chronic and high-cost conditions; and
- Highlighting drugs delivered by mail.
The new law includes a lengthy implementation timeline. CHHSA must submit an initial report to the state legislature by July 1, 2022 that describes the status of all targeted drugs, and an analysis on how California’s efforts may impact competition, access, and costs. Although California will initially produce generics through contracted partnerships, CHHSA must submit a separate report on the feasibility of directly manufacturing drugs by July 1, 2023.
California is one of many stakeholders, including other states, nonprofits, hospitals, and the federal government, interested in generic drug manufacturing as a vehicle to reduce costs and ensure access to a consistent supply of low-cost generics that manufacturers may not be “incentivized” to produce. One potential partner in California’s efforts may be Civica Rx, the nonprofit drug manufacturer launched in 2018 that focuses on affordable, sustainable generic drug manufacturing.
As detailed in the National Academy for State Health Policy (NASHP) blog, How States Can Join Civica Rx and Blue Cross Blue Shield’s Partnership for an Affordable, Sustainable Supply of Generics, there are a number of ways that states can engage with Civica Rx. While the original Civica Rx venture focused on drugs provided in hospital settings, Civica Rx and 18 Blue Cross Blue Shield (BCBS) plans announced a partnership in January 2020 to expand Civica Rx generics to outpatient settings. State purchasers, such as state employee health plans, can explore membership in the Civica Rx/BCBS partnership, which is open to all health plans, employers, and retailers. Civica Rx is also open to exploring other ways of partnering with states.
For more information about Civica Rx, its partnership with BCBS, and opportunities for states, view the April 2, 2020 webinar BCBS Plans and Civica Rx Partner to Produce Lower-Cost Generic Drugs – Opportunities for States or contact Jennifer Reck at NASHP.