The Trump Administration’s Safe Importation Action Plan lays out two pathways to support importation of lower-cost prescription drugs, but raises questions that need responses.
In Pathway 1, the Administration gives a nod to state efforts to create wholesale importation programs for certain high-cost drugs, mirroring the provisions of current state efforts and federal requirements. That’s good news for states, particularly for Vermont, Florida, Colorado, and Maine that have enacted laws and are working together on implementation strategies, but two issues arise.
First, the plan requires the federal government to initiate rule-making – a process that can take years and will delay state action. This is particularly frustrating because the federal government has had about three decades to issue rules after enactment of the law that allows importation.
Second, the plan includes a “poison pill,” which requires that drugs imported under the program must have originally been intended for the Canadian market. The federal law that initially established the importation program did not include such restrictive language. Rather, it simply authorized the importation of prescription drugs from Canada. This is an important distinction. The wholesale drug importation program requires that current US Food and Drug Administration (FDA) protocols be followed. That means that drugs coming from any country through Canada could be imported, provided they meet the same quality, labeling, and approval standards as drugs sold today in the US market – the majority of which are already imported by the pharmaceutical industry.
The drug industry is a global one – 40 percent of drugs sold in the United States today come from other countries and 80 percent of the active product ingredients are made in other countries. The wholesale program envisioned in Pathway 1 will follow all the current FDA rules to assure authenticity, approval status, and safety of the drugs, whether or not the drugs were originally intended to be sold in Canada. Clarifying that the program will comply with current law to import drugs from Canada could alleviate any concerns Canada has about potential drug shortages.
But these are resolvable issues and the Administration has made clear it seeks comments on its plan.
Pathway 2 offers guidance to the pharmaceutical industry and requires no rule-making process. It provides manufacturers the ability to import or reimport FDA-approved versions of drugs they sell in foreign countries to the United States by allowing them to place a new code on the drug and circumvent some of their own costly supply chain. Arguably, drug manufacturers have been legally authorized to implement what is proposed in Pathway 2 for more than 30 years, since the enactment of the Prescription Drug Marketing Act of 1987, yet they have not done so. The Administration’s plan says that manufacturers have stated they have not lowered costs through importation because of their own private contractual obligations with other parties in their own supply chains. Pathway 2 appears to propose a means for the industry to move drugs more directly from their own foreign manufacturers to US markets to create savings in their distribution costs.
Pathway 2 includes none of the detailed provisions assuring safety to which state programs would be held, although it relies on “applicable existing safeguards through the conventional supply chain,” nor does it include the language to which states are held that requires significant savings to consumers or testing of the imported drugs. If the only savings come through lower distribution costs, those savings could be significantly less than through state importation programs – which results in continued higher costs to US consumers.
State models show importation saves 60 to 75 percent off US prices, even after applying a hefty 45 percent markup for supply chain and administrative costs. How would the Department of Health and Human Services, FDA, and manufacturers assure similar consumer savings? Importantly, the Administration asserts that if costs can be lowered significantly through the manufacturer Pathway 2, there may be less need for Pathway 1. In order to make that determination, one needs to compare savings between the two approaches. It may be useful to launch the two pathways simultaneously and initiate a state pilot program now to collect comparable data to make that comparison.
The Administration has initiated a plan to test importation as a means to lower drug prices and states will likely welcome that signal, and any other actions to lower drug prices now.
Explore National Academy for State Health Policy’s Drug Importation Model Legislation and Toolkits for more information about states’ importation of drugs.
Recent legislative committee hearings in Maryland, Florida, and Illinois provide a national snapshot of states’ diverse and innovative proposals to reign in drug costs.
Maryland’s drug affordability review board: Earlier this month, Maryland’s House Health and Government Operations Committee and Senate Finance Committee held lengthy hearings on an innovative bill that creates a state prescription drug affordability review board (see NASHP’s model legislation here.)
The board would review drugs whose price increases met or exceeded a certain threshold and set an upper payment limit if the board found the drug cost to be excessive. During the committee hearings, constituents stressed the urgency of finding a solution for increasing drug prices, and many shared their struggles of choosing between paying bills and purchasing necessary medication. There was also testimony from pharmaceutical industry representatives who voiced their concerns about the bill and said it could hamper innovation.
The committee hearings gave legislators the opportunity to hear details of the proposed bill. One Maryland state senator questioned how the upper payment limit established by the affordability board differed from the state’s anti-price-gouging law that was found to be unconstitutional last year, based on the claim that it regulated commerce beyond state borders. Supporters explained that an affordability review board would not encounter the same legal challenge because it clearly defines its jurisdiction over only drugs sold in the state. Another representative asked whether all drugs would fall under the purview of the board. The sponsor explained that only drugs that meet certain price increase thresholds would be subject to board review. As seven other states explore similar legislation, NASHP has compiled a Drug Affordability Review Board Legislation Q&A that answers many legislators’ questions.
Florida’s drug importation bill: Florida lawmakers are considering implementation of a wholesale drug importation program. Bills filed in both the Florida House and Senate would allow the state to import high-cost drugs from Canada at a lower price. Florida’s legislative process often requires that bills pass through two or three committees before a floor vote, giving lawmakers, stakeholders, and constituents ample time to consider a bill. In March, three House committees met to ask questions about the bill and learn more about importation. During hearings, the bill’s sponsor explained that more than 30 Canadian drug manufacturers are already registered by the US Food and Drug Administration to produce drugs for US markets, and that safety standards in Canada are comparable to those in the United States. Lawmakers had additional questions about cost savings and the supply chain. For more information about importation legislation, read NASHP’s importation Q&A.
Illinois’ prescription drug committee action: The Illinois House of Representatives created a Prescription Drug Affordability and Access Committee to address bills designed to curb drug costs. The committee is currently reviewing 17 bills, including legislation to create a drug affordability review board, similar to Maryland’s, and a wholesale importation program. It is also reviewing a bill that requires health insurers to ensure that at least 25 percent of their plans apply a pre-deductible, flat-dollar copayment structure to their entire drug benefit component. The committee is also considering a proposal to tax drug price increases that exceed the inflation rate. This tax would be paid by businesses that make the first sale in the state and could not be passed through to consumers. Any money collected from the tax will be deposited into a new fund dedicated to prescription drug cost fairness.
To date, the Illinois committee has met multiple times for informational sessions to learn how the drug pricing system works and to hear from consumer advocates and stakeholders. Establishing a specific committee dedicated to identifying solutions to the rising cost of prescription drugs indicates how important this issue is as the state legislature tries to help constituents afford medication and balance the state’s budget.
NASHP is tracking state legislative action across the country as lawmakers schedule more hearings on prescription drug costs. To find out the status of any state’s drug pricing legislation as they move toward enactment, explore NASHP’s Rx State Legislative Tracker. To learn more about NASHP’s prescription drug work, visit its Center for State Rx Drug Pricing.
Just how much are states spending on prescription drugs? And, which drugs account for their greatest expense? As state policymakers grapple with solutions to the problem of rising drug costs, officials are performing research to provide critical evidence and tools needed to inform policy. Two recent state efforts to document their prescription drug costs may provide a roadmap for other states.
In Vermont, a new law approved in 2018 required its Agency for Human Services to research and report back a plan to the state legislature to evaluate and implement wholesale importation of high-cost drugs from Canada. The recently-released report found that significant savings would result from importation. Based on just 17 drugs identified for two of the state’s three major carriers, compared to Canadian prices the savings would range from $1 to $5 million annually.
The National Academy for State Health Policy (NASHP) was pleased to work with the state on the study and developed a new tool and worksheets states can use to identify the drugs that account for the highest “spend” (factoring in cost and volume) for payers in the state and compare their prices to those charged in Canada for the same drug.
Seven states have enacted transparency laws to provide detailed information about high-cost drugs. California led the way and recently the Maine Health Data Organization (MHDO) used its all-payer claims database to respond to a legislative mandate to collect information and report on:
- The 25 most frequently prescribed drugs in the state;
- The 25 costliest drugs, determined by the total amount spent on those drugs in the state; and
- The 25 drugs with the highest year-over-year cost increases as determined by the total amount spent on those drugs in the state.
MHDO has issued its report and made the data available to the public in the form of a dashboard that allows users to toggle between payer types (commercial, Medicaid, Medicare Advantage, and all-payers) and brand-name or generic drugs.
These are just two examples of the value of researching and evaluating drug costs, and they provide strategies and tools other states can adopt to identify high-cost drugs — a critical first step to inform policy choices.
One week into the 2019 legislative season, lawmakers from 11 states have already submitted 30 bills to address the rising cost of prescription drugs.
The bills submitted to date seek to implement wholesale drug importation programs, increase pharmaceutical pricing transparency, and regulate pharmacy benefit managers (PBMs), along with other drug cost containment initiatives.
Last year, nine states introduced legislation to either study or implement wholesale drug importation, and Vermont became the first state to pass an importation bill. This year, Colorado has reintroduced a bill that would require its Department of Health Care Policy to design a wholesale importation program, and Missouri also reintroduced a bill to study importation.
Requiring transparency into dramatic price hikes to understand better prescription drug pricing is also expected to remain an area of interest for state lawmakers. In 2018, five states enacted laws that require pharmaceutical manufacturers, PBMs, and health plans to share information behind prescription drug costs and their increases. A newly proposed bill in Texas would require greater pricing transparency for essential diabetes medications, following in the footsteps of Nevada, which passed a similar measure in 2017.
One of the most popular, bipartisan drug pricing legislation passed during the last session was regulation of PBMs. More than 90 PBM bills were introduced last year with 20 states enacting 31 of them. In October, following the legislative precedent taken by dozens of states, Congress passed legislation to prevent gag clauses in PBM contracts to allow pharmacists to share pricing information with consumers. While the prohibition on gag clauses now applies throughout the country, states continue to explore innovative ways to contain costs within the drug supply chain.
During the new 2019 season, eight states have filed 16 bills focusing on PBMs. In Montana, legislation would regulate the way health insurers contract with PBMs to prevent spread pricing — a payment model that allows PBMs to profit by charging insurance plan sponsors more for a prescription than the PBM pays the dispensing pharmacy. The lack of transparency in the spread-pricing model makes it difficult for states to identify how much spread pricing contributes to their overall drug costs. Montana’s proposed legislation is designed to lower health plan premiums for consumers.
With 46 states convening their 2019 legislative sessions and 13 states already introducing bills to curb rising prescription drug costs, clearly this a top priority for many state lawmakers. This is not surprising, in 2018 state lawmakers filed more than 170 prescription drug cost containment bills, with 45 enacted.
Drug prices were frequently mentioned by state and national candidates during the 2018 midterm elections. As national attention on drug prices expands, states will continue to explore solutions to curb the rising cost of pharmaceuticals. The National Academy for State Health Policy (NASHP) will continue to track state’s prescription drug cost bills as they are introduced, enacted, and implemented. To learn more about each state’s drug cost containment bills, explore NASHP’s Legislative Tracker.
*Updated Oct. 15, 2018
Despite a short legislative season, state lawmakers across the country introduced an unprecedented 174 bills to stem the rising cost of prescription drugs and have enacted 45 into law — with seven state legislatures still in session. Last year, state legislatures introduced 100 Rx cost control bills and passed 27.
States are pursuing a range of strategies to tackle drug costs and below is a summary of their 2018 action to date.
Pharmacy Benefit Managers (PBMs)
Last year, a handful of states passed PBM bills, including Nevada’s Chapter 592, that defined new standards for PBM business practices. These laws addressed their fiduciary responsibilities and banned PBM gag clauses that prevent pharmacists from sharing lower cost drug options with consumers. This year, 36 states drafted PBM legislation and 31 were enacted. These new generation of PBM bills included requirements for more drug cost transparency and disclosure, as well as increased regulation and licensure requirements. For example, Tennessee enacted H.B. 1857 that requires PBMs to obtain a license to operate from the state’s Department of Commerce and Insurance.
Many state legislatures also sought to improve consumer protections by removing gag clauses in contracts between PBMs and pharmacies and pharmacists. Mississippi enacted H.B. 709 to prevent a PBM from prohibiting or penalizing a pharmacy or pharmacist from informing a patient of a lower cost treatment or payment option, including simply paying cash for the drug. Colorado’s H.B. 1284 goes further by banning gag clauses completely and prohibiting PBMs from charging a copayment that exceeds the total charges submitted by the network pharmacy.
Wholesale Drug Importation from Canada
In 2018, eight states introduced wholesale drug importation legislation and Vermont became the first state in the nation to enact a law authorizing wholesale drug purchasing from Canada. The first wholesale importation bill to gain traction occurred last year when Utah’s legislature considered H.B. 163, which would have created a program and reporting requirements for safely importing certain prescription drugs at lower costs from Canada. Despite passing the House, the bill fell short of the necessary votes in the Senate. However, the bill did gain bi-partisan interest and as a result, legislative leadership requested a study from the Utah Department of Health on how to make drug importation work for the state in advance of the next legislative session.
Vermont passed S175 and has become the first state to enact a wholesale prescription drug importation program to purchase some lower-cost prescription drugs from Canada to benefit all Vermont residents. Vermont’s new law is carefully crafted to meet federal requirements by establishing checks and balances to guarantee it meets the federally mandated cost savings and drug safety requirements. Before the state can implement its importation program, Vermont’s Agency for Human Services must seek approval to do so from the US Secretary of Health and Human Services. The state is currently developing its program and will construct a proposal for federal approval.
Twenty-six bills were introduced in 2018 to make prescription drug pricing more transparent and five became law in 2018. Examples include Oregon’s H.B. 4005 and Connecticut’s H.B. 5384, both of which require drug manufacturers to provide additional data justifying price increases over specified thresholds. (Click here for NASHP’s national chart comparing states’ reporting requirements for state transparency laws.) While mandating transparency is a first legislative step to understanding drug pricing , by itself it does little to control prices. NASHP is working with states that enacted transparency laws in 2017 and 2018 to encourage cross-state collaboration and action.
Anti-Price-Gouging and Rate-Setting Legislation
Transparency helps states understand how the pharmaceutical industry sets prices, but anti-price-gouging and rate-setting legislation are two strategies states are exploring to make information gleaned from transparency laws useful in efforts to protect consumers from excessive price increases imposed by pharmaceutical manufacturers. Maryland enacted the nation’s first anti-price-gouging law designed to address excessive price increases and give the state the power to seek civil penalties and fines for unconscionable increases. Though the pharmaceutical industry has challenged Maryland’s law in federal court, across the country states introduced 13 anti-price-gouging bills. Despite strong support, no other state has passed an anti-price-gouging bill to date. Illinois’s version, H.B. 4900, did pass in its House of Representatives, and as of Oct. 15, 2018, the New Jersey state legislation was still considering its anti-price-gouging bill.
A bill in New Jersey was still under consideration as of October 15, 2018.
NASHP’s Rate-Setting Model Legislation goes beyond transparency and anti-price-gouging laws to protect payers from high drug costs by limiting how much payers can pay for a drug. Similar to a public utility commission or hospital rate-setting, a state can establish a payment rate for certain high-cost drugs and require all payers to pay no more than that ceiling. Minnesota and Maryland proposed rate-setting bills this session but were unable to enact them into law. A bill in New Jersey was still under consideration as of July 24, 2018.
NASHP tracks state legislative and executive branch efforts to control prescription drug prices and spending and will continue to develop resources to help states curb rising prescription drug costs. To get a complete overview of newly-enacted laws, visit NASHP’s Center for Rx Drug Pricing website.
Vermont is the first state in the nation to approve importation of less-costly prescription drugs from Canada.
For the first time in the United States, obtaining low-cost prescription drugs from Canada is one step closer to reality today following the Vermont state legislature’s landmark enactment of S.175. Vermont Gov. Philip Scott signed the bill into law on May 16, 2018.
Based on the National Academy for State Health Policy’s (NASHP) model importation legislation, S.175 creates a wholesale importation program to purchase high-cost drugs through authorized wholesalers, who will purchase the drugs in Canada and make them available to Vermonters through an existing supply chain that includes local pharmacies.
The bill passed the Vermont House by a 141-2 vote and the Senate unanimously approved it yesterday.
Vermont Senate President Pro Tem Tim Ashe commented, “It is outrageous that a commonly used medicine like Lipitor costs 46-times more per pill in the United States than in Canada. In fact, legislative staff determined that importing just two diabetes drugs from Canada would save the state’s teacher health insurance plan more than $500,000 each year.
State Sen. Claire Ayers and state Rep. Bill Lippert and Ashe worked to carefully shepherd the bill through both houses. The bill requires Vermont’s Agency for Human Services, in consultation with stakeholders and the federal government, to design and submit an importation proposal to the state legislature on or before Jan. 1, 2019 and further requires the agency to submit its proposal to the federal government on or before July 1, 2019, for final approval. The importation program must be operational within six months of approval of the financing strategy, certification, and federal government sign-off.
The proposal will identify the high-cost drugs to be imported from Canada and detail how the program will be implemented. The legislation directs the agency to recommend a financing mechanism, either through a per-prescription charge or another method, to ensure the program is funded in a manner that does not jeopardize the significant consumer savings that are expected. Based on that recommendation, the legislature will enact a funding mechanism during its next session.
Giving the Agency for Human Services time to develop an implementation plan guarantees the legislature will have the information needed to establish the funding mechanism and address questions that arose during legislative deliberations, including what provisions can be in adopted to make sure that Vermont’s eligibility for the federal 340B drug discount program, which requires drug manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices, is not jeopardized.
“In the absence of federal action to control the cost of prescription drugs, states can’t wait, they need to control drug costs now for all of their citizens,” said NASHP Executive Director Trish Riley. “Vermont’s legislature has taken an important step in lowering prescription drug prices that we hope will serve Vermonters well and inform the federal policy debate.”
Across the country, a total of nine legislatures introduced drug importation bills this year. While Utah did not enact its proposed importation law, its legislature requested the state’s executive branch to develop a proposal so the legislature could, based on the proposal, re-introduce a wholesale importation bill next session. Utah’s study and Vermont’s implementation planning process are similar in their design and approach.
NASHP is working with states to advance wholesale importation programs that can be approved by the federal government and implemented to generate savings and guarantee safety to the citizens they serve.
For more information on drug importation, read Is It Safe and Cost-Effective to Import Drugs from Canada?