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State Drug Pricing Laws: 2017-2021

Recent State Actions that Support and Expand Palliative Care

August 6, 2021/in Palliative Care, Policy Charts, Featured News Home, Maps Building Infrastructure, Chronic and Complex Populations, Chronic Disease Prevention and Management, Framing the Message, Palliative Care, Population Health, Reimbursement Strategies, State Recommended Resources /by Mia Antezzo

Will Laws to Lower Drug Prices Harm Innovation? The Evidence Says No.

March 8, 2021/in Prescription Drug Pricing Blogs, Featured News Home Administrative Actions, Consumer Affordability, Health System Costs, Legal Resources, Making the Case for Action, Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Sarah Lanford

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.

Drug manufacturers have brought new vaccines to market in record speed to stop the spread of COVID-19. That notable achievement was made possible by massive financial investments from the public. More than $19 billion in government funding has been invested in the research, development, manufacturing, and distribution of COVID-19 vaccines. In total, the United States has guaranteed purchase of 900 million doses for a population of approximately 330 million and assumed financial risk so manufacturers don’t have to.

Even companies that did not accept federal funding for research and development have benefited from previous taxpayer-funded research. The Pfizer vaccine contains a publicly-funded, government-developed spike protein technology that rapidly accelerated its development process.

Taxpayer-funded research for each of the 356 drugs approved by the FDA in the last decade totals $230 billion. Despite taxpayers’ investments in drug development, manufacturers face few restrictions on what they can charge for these drugs in the United States.

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.

District Court Judge Upholds California’s Rx Transparency Law, Adding Another Win for States

January 11, 2021/in Prescription Drug Pricing California Blogs, Featured News Home Legal Resources, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck

In late December, a US District Court judge in the Eastern District of California upheld that state’s drug price transparency law. The ruling represents the latest legal victory for states working to curb drug prices following the December Supreme Court decision that upheld an Arkansas law regulating pharmacy benefit managers (PBMs).

California’s drug price transparency law, SB17, requires manufacturers to report and provide information about certain drug price increases. They must give a 60-day advance notice of drug price increases if the wholesale acquisition cost (WAC), or list price, is more than $40 and if the price increased more than 16 percent over the past two years.

The industry trade group, Pharmaceutical Researchers and Manufacturers of America (PhRMA), which challenged the California law in federal court, claimed the law violated the federal dormant Commerce Clause by regulating out-of-state commerce and also the First Amendment by compelling speech. The judge rejected both of the constitutional challenges, denying PhRMA’s request for a summary judgement. The judge’s order establishes that:

SB17 does not regulate out-of-state drug prices simply by requiring reporting on a drug’s WAC, and dormant
The state has sufficient interest to require manufacturers to provide notice of and justification for drug price increases.

Ten states have enacted drug price transparency laws, including Oregon. Oregon’s law is very similar to California’s and currently faces a challenge from PhRMA on the same grounds the trade group used to challenge California’s law.

PhRMA Challenges Federal Importation Rule and Canada Limits Exports, States Continue Work

November 30, 2020/in Prescription Drug Pricing Blogs, Featured News Home Administrative Actions, Legal Resources, Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck and Trish Riley

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.

An Act to Reduce Prescription Drug Costs Using International Pricing

November 3, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Legal Resources, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

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.

12/3/2020

States Can’t Wait – Pennsylvania Leads New Round of State Laws to Tackle Drug Costs

September 14, 2020/in Prescription Drug Pricing Blogs, Featured News Home Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Trish Riley

Last week, Pennsylvania State Sen. Senator Thomas Killion submitted a first-in-the-nation proposal to reduce drug costs in his state using a new international drug pricing model law developed by the National Academy for State Health Policy (NASHP).

The International Reference Rates model law “imports” Canadian prices, which can cost 80 percent less than in the United States, instead of importing actual drugs. The law allows payers in a state to limit the rate they pay for high-cost drugs to what Canadians currently pay, generating immediate savings for states.

For decades, the federal government – regardless of which party was in power – promised to lower prescription drug costs with little agreement or meaningful action. In 2003, Congress enacted reforms to allow state importation of drugs from Canada, but no Administration had issued the needed regulations.

States took action. In 2018, Vermont passed the first importation law to test that provision, and Florida, Colorado, Maine, New Hampshire, and New Mexico followed suit. There are currently three state applications to import drugs from Canada pending before the federal government. In December 2019, the Trump Administration issued draft rules to implement a program, which according to states need considerable revisions to address states’ needs, and the final rules are still pending.

NASHP’s new international drug pricing model law avoids the delays and complexity of importing drugs from Canada, and imports Canadian prices instead. Under the model, a state law sets a payment rate for certain prescription drugs pegged to Canadian rates and mandates that payers in the state would pay no more than prices established by Canada, following the country’s careful and transparent review and negotiations with manufacturers

This approach does not use a price-setting approach. Instead, the model sets a payment rate for drug purchases, similar to how states now set rates for what is paid to all health care providers, such as hospitals or doctors. The law also protects local pharmacies. It ensures that consumers can access low-cost drugs as they do today, and that pharmacies would pay no more than the Canadian price.

Carefully constructed with expert legal advice and guidance by states this new model law enables a state to set payment rates equivalent to what Canadians pay for 250 high-cost drugs, which would rapidly generate significant savings for states. The model does not require federal approval and can be simply administered by states.

To identify the 250 drugs subject to the new law, state employee health plans could serve as proxies for all payers and identify the 250 highest-cost drugs its members purchase based on net price multiplied by utilization. A state’s department of insurance, or another agency identified by the state, would access the published Canadian prices and use them to set the upper payment limit on what payers should pay for those drugs. If a drug manufacturer fails to comply with the limits or withdraws its products from the market, significant penalties can be levied by the state.

This week, the Trump Administration released an executive order about international pricing, often referred to as “most favored nation,” to limit Medicare Part B payment rates to international drug price rates and to create a demonstration program to test the model in Medicare’s part D drug plan. Should the new pricing strategy be implemented in Medicare, states would have the option of using the Medicare reference pricing index for their payment rates rather than Canada’s.

Across the country, state officials are actively engaged in finding ways to reduce drug costs and other policymakers are expected to join Sen. Killion’s lead. Some are considering another new NASHP model law, which penalizes drug manufacturers for price increases that are not supported by new clinical evidence in order to protect consumers from unsupported price increases. Designed to be simple and low cost for states to administer, the bill uses the independent report of the Institute for Clinical and Economic Review (ICER) to identify high-cost drugs whose price increases exceed inflation and lack sufficient clinical evidence to justify the price hikes.

ICER is collaborating with NASHP and states to make sure that its list of drugs includes those identified by states that have enacted prescription drug price transparency laws. Manufacturers’ whose drugs are included on ICER’s list of unsupported prices would be required to report their total sales in a state to its revenue services department, which could impose hefty fines on the manufacturer equivalent to 80 percent of the revenue from the unsupported price increase from all units of the drug sold in the state. Revenues from these fines would be used to offset costs to consumers and support program administration.

Coupled with other new NASHP model laws that are designed to hold pharmaceutical sales representatives accountable and protect consumers from generic drug price gouging, NASHP anticipates an active 2021 legislative session with these models advancing state action on drug pricing. NASHP will track and report on these new legislative efforts as legislatures open their 2021 sessions. View the latest state legislative action on drug prices at its up-to-date Legislative Tracker.

Why Pay More? NASHP’s New Model Law Uses International Drug Pricing to Lower Costs

August 10, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Blogs, Featured News Home Administrative Actions, Legal Resources, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Trish Riley

Frustrated that their constituents pay far more for prescription drugs than residents of other nations, many state policymakers have embraced Canadian drug importation. Six groundbreaking states, led by Vermont, have enacted laws to enable importation but still need federal approval to begin. Proposed rules, which President Trump recently touted in an Executive Order, still need significant revision to support state plans.

Building on that foundation, a new National Academy for State Health Policy (NASHP) model law provides another option for states – import Canadian drug prices. Currently, other nations very effectively negotiate prices with drug manufacturers and secure significantly lower rates than are available in the United States. NASHP’s new model uses those countries’ established international prices to set a rate – an upper payment limit – for purchasers in a state.

This model, developed with careful legal analysis and expertise, does not violate patent protections because it is not price setting. Rather, it sets a limit on what purchasers pay, leaving manufacturers free to set prices. And by clearly defining that the bill affects only purchases in the state, it steers clear of Commerce Clause conflicts.

This new model law identifies the 250 most costly drugs in the state, defined by net price multiplied by utilization, based on available data from state employee health insurance plans. The law includes biologics and other costly drugs that federal law excludes from drug importation programs. The law’s international reference rate – which becomes a state’s upper payment limit for a drug – is the lowest price found across the four most populous Canadian provinces. When provincial prices are not available, the ceiling price published by Canada’s Patented Medicine Prices Review Board (PMPRB) becomes the reference rate. The PMDRB’s price determination includes reference to median drug prices from a basket of other developed nations.

Cost savings from this initiative are considerable and administrative expenses are kept low by building on a state’s existing infrastructure. States’ insurance departments, in collaboration with their boards of pharmacy, would develop the list of payment limits for the 250 drugs and require plans to document their compliance. Significant penalties are included in the law for failure to do so. The bill protects local pharmacists by ensuring they can purchase drugs at the payment limit and continue to charge dispensing fees. Health plans must report their savings to the state’s superintendent of insurance and detail how they pass the savings on to consumers.

Below is an example of current drug price comparisons between the United States and Quebec, Canada, which suggest the potential savings for states.

Drug	US Price *(NADAC)**	Canadian Reference Rate	How much more US consumers pay vs. Canadians:
Xeljanz [5 mg] (rheumatoid arthritis)	$76.07	$16.96	448.53%
Eliquis [2.5 mg] (anticoagulant)	$7.53	$1.17	643.59%
Eplcusa [400/100 mg] (hepatitis C)	$869.05	$521.43	166.67%
Zytiga [250 mg] (cancer)	$87.63	$20.68	423.74%

* Prices, effective as of June 2020, represent unit cost (i.e., per tablet, pill, etc.) in US dollars, converted at an exchange rate of $1 CAN = 73 cents USD.

The pharmaceutical industry had made clear its opposition to models that reference international prices. States can expect three common industry responses to this legislative model:

Pharmaceutical manufactures will threaten to withdraw drugs from a state’s market. NASHP’s model act has provisions that require manufacturers to give advance notice to a state if they decide to withdraw a drug and impose significant penalties for doing so.

It’s price fixing. This model does not restrict what a drug company can charge, it simply sets an upper limit on how much payers will pay. This type of rate setting is common in all other parts of the health care industry.

It will eliminate innovation and cut funds for research and development (R&D). The pharmaceutical industry is a global one whose marketing and lobbying spending – as well as its profitability – are well documented. In every other country, drug manufacturers comply with well-developed, evidence-based limits on prices and continue to retain disproportionately large profit margins.

The US Government Accountability Office reports that the average profit margin from 2006 to 2015 for the largest pharmaceutical manufactures was 15 to 20 percent, while the average profit margin across the largest 500 global non-drug businesses was 4 to 9 percent.
According to the Association of the British Pharmaceutical Industry, in 2015 40 percent of global investment in R&D came from countries other than the United States and, while dated, a 2013 analysis reported that 30 percent of R&D investment in the United States is from public sector and 10 percent from private, non-profits, a number that is likely understated because it excludes tax credits and other government subsidies.

The bottom line? Drug companies can afford to give American purchasers the same breaks they give international purchasers while maintaining their investments in R&D and healthy profit margins. This model law allows states to achieve those savings.

The Trump Administration has signaled its interest in a narrow implementation of international pricing for certain Medicare drug purchases, but the President has not released an executive order related to the initiative, citing a planned meeting with pharmaceutical executives to develop alternatives, which did not occur. As the debate continues in the nation’s capital, states can’t wait. States can again work to lower drug costs and once again assert themselves as the “laboratories of experimentation” envisioned by Supreme Court Justice Louis Brandeis. States have the opportunity to test how international reference rates can work to help their consumers and provide evidence for the federal debate.

This Model Act to Reduce Prescription Drug Costs Using International Pricing is the fourth in NASHP’s recent series of new model prescription drug pricing laws. All four new models will be discussed by legal experts at #NASHPCONF20’s State-Only Summit on New Prescriptions to Lower Rx Costs, restricted to state officials and employees only, which is part of NASHP’s virtual annual conference Aug. 17-19, 2020. NASHP and its Pharmacy Cost Workgroup, with funding from Arnold Ventures, looks forward to supporting states as they advance these models in upcoming legislative sessions.

**The examples in this table compare Canadian prices to prices listed in the Centers for Medicare & Medicaid Services’ (CMS) National Average Drug Acquisition Cost (NADAC) database. CMS determines the NADAC prices for outpatient drugs by averaging invoice prices reported to CMS from retail community pharmacies. Canadian prices listed in the provincial formularies represent the prices that public programs will reimburse pharmacies for a certain drug, excluding dispensing fees and in some cases a mark-up for wholesalers. Although NADAC and Canadian formulary prices are not exact equivalents, NADAC pricing is an adequate proxy for estimating potential savings from referenced rates, and may indeed even underestimate savings.

Q&A: A Model Act to Reduce Prescription Drug Costs Using International Pricing

August 10, 2020/in Policy Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

How does this model act use international pricing to reduce prescription drug costs?

Drug prices in other countries are often many times lower than in the United States. This model legislation link determines payment rates for certain prescription drugs based on international prices, and establishes the referenced rate as the upper payment limit for payers within a state.

Isn’t that price fixing?

No. Setting a payment rate in reference to international prices does not dictate what a manufacturer can charge for a drug – but it does limit how much payers in a state pay.

A law enacted in Washington, DC that did attempt to use international reference pricing to set prices for costly drugs was struck down in a 2007 Federal Court of Appeals ruling for violating federal patent law. Unlike that law, this model act does not run afoul of patent law because it does not limit a manufacturer’s ability to set their own prices.

Furthermore, because the model act focuses strictly on rates paid by selected purchasers within a state, it does not impact interstate commerce – an issue that led to the demise of Maryland’s 2017 anti-price-gouging law. A legal analysis link of this model act, commissioned by the National Academy for State Health Policy (NASHP), provides additional details about how this act avoids legal pitfalls related to patent preemption and regulating commerce across state laws.

Which country/countries does this model use to determine international reference rates? How do states access the pricing information they need?

This model act uses price data from the four most populous Canadian provinces (Ontario, Quebec, British Columbia, and Alberta) to compare drug prices between the United States and Canada. It then takes the lowest drug price as the referenced rate for payers in a state. If prices are not available for the provinces, the model act instead refers to the ceiling price set by Canada’s Patented Medicine Prices Review Board (PMPRB) for referenced rates, which are posted online.

How does Canada determine prices?

Canada’s PMPRB uses international reference pricing, among other factors, to establish maximum prices that set a ceiling for brand-name drug prices in Canada. As of January 2021, the basket of countries referenced by the PMPRB will include Australia, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, and the United Kingdom. Provinces negotiate their own prices with manufacturers, which are under the ceiling price established by the PMPRB.

Because collecting and comparing prices across a basket of countries is time- and resource-intensive, states can instead rely on Canadian provincial prices that are determined in reference to other international prices.

How much will states save on their drug spending if they use this approach?

Prices in Canada can be dramatically lower than in the United States. While a number of states have passed laws to import drugs from Canada in order to capture those savings, this model act allows a state to “import” the drugs’ prices instead of the actual drugs. For example, the rheumatoid arthritis drug Xeljanz is $76.07 for a 5-mg tablet in the United States, while the lowest price for the drug across Canada’s four largest provinces is $16.96. The table below provides additional comparisons, with savings ranging from 60 to 85 percent off US prices, for an average savings of 75 percent for these examples.

Drug*	US (NADAC)**	Quebec	Alberta	Ontario	British Columbia	Canadian PMPRB Maximum Price
Xeljanz [5 mg] (rheumatoid arthritis)	$76.07	$16.96	$ 17.49	$17.59	$ 18.47	$21.28
Eliquis [2.5 mg] (anticoagulant)	$7.53	$1.17	$1.19	$1.19	$1.29	$2.78
Eplcusa [400/100 mg] (hepatitis C)	$869.05	$521.43	$521.43	$521.43	$531.86	$722.86
Zytiga [250 mg] (cancer)	$87.63	$20.68	⁺	⁺	⁺	$36.96

* Prices, effective as of June 2020, represent unit cost (i.e., per tablet, pill, etc.) in US dollars, converted at an exchange rate of $1 CAN = 73 cents USD.

+ Price not available online.

States considering this model act can work with NASHP to determine their savings by comparing Canadian referenced rates to current drug prices and utilization rates in their states. NASHP has a savings worksheet that it can provide, along with assistance, for states to use for this analysis.

Won’t this hurt state efforts to import drugs from Canada?

The federal government is currently scheduled to issue a final rule enabling importation from Canada by December 2020. The draft rule had several significant barriers that must be addressed in the final rule to make importation feasible. As states await the final rule, applying international referenced rates is another cost savings strategy, allowing states to import more affordable drug payment rates from Canada as an alternative to importing actual drugs. Furthermore, federal law prohibits the importation of several major classes of drugs, such as controlled substances, biological products, infused and parenteral drugs, intravenously injected drugs, and drugs inhaled during surgery. International referenced rates can help reduce costs for drugs that are ineligible for importation – including well-known examples, such as Humira, a medication for rheumatoid arthritis.

Is rate setting already in use?

Yes – determining maximum payment levels or payment rates for health care and other public goods is a state practice that has existed for decades. States regulate insurers and other public goods and services in markets with little or no market competition and set payment rates for health services through their public purchasing. This model act extends that precedent to prescription drugs by using international prices as reference points to set fair payment rates.

Will international prices be used for setting payment rates for all drugs within a state?

No. In order to limit the administrative activity necessary to implement this model while also maximizing its impact, the model act limits international referenced rates to the most costly 250 drugs sold within a state based on net price multiplied by utilization.

How would it work?

The state’s superintendent of insurance, in consultation with the board of pharmacy and the state’s employee health insurance plan, would generate a list of the state’s 250 costliest drugs which would be subject to international referenced rates. The costliest drugs would be determined by looking at net price multiplied by utilization for the state employee health insurance plan.

The superintendent of insurance would determine the equivalent Canadian prices for the 250 drugs in the top four most populous Canadian provinces and the PMPRB’s ceiling price. The lowest drug price, which in some cases may be the current US wholesale acquisition price or list price, would be published as the legal upper payment limit for those drugs for participating purchasers within a state.

What about self-funded plans?

States cannot compel self-funded plans regulated under ERISA to participate, however, this model act creates an opt-in option for self-funded plans. Many plans may elect to participate in order to benefit from savings captured by paying lower rates.

How are savings passed on to consumers?

The model act directs participating plans to utilize savings to reduce costs for their members. Participating plans must submit a report to the superintendent of insurance indicating how much they saved by participating and how they passed those savings on to consumers. Self-insured plans that elect to opt-in to the program must also accept these terms as conditions for their voluntary participation.

What about Medicaid?

Because Medicaid is a federal/state partnership subject to unique and complex policies, the model act excludes Medicaid programs. Medicaid programs are already able to access deeply discounted prices for prescription drugs under the Medicaid Drug Rebate Program.

Won’t pharmacies end up getting penalized if list prices for drugs are higher than payment rates?

The model act protects pharmacies from getting squeezed between payers and manufacturers by prohibiting pharmacies from purchasing drugs at a rate higher than the international referenced rate. Pharmacies are still free to charge reasonable dispensing fees.

What about rebates?

Setting an international reference rate does not limit rebates or other price concessions negotiated between payers and drug manufacturers. Rebates and other price concessions would certainly continue for drugs that are not subject to international reference rates. For high-priced drugs affected by this model act, the rebate mechanism should no longer be necessary – however it is not prohibited.

How is this model act enforced?

Payers are subject to a fine of $1,000 for each individual transactions in which payment for a referenced drug exceeds the referenced rate.

What happens if a manufacturer refuses to sell a drug that is subject to an international reference rate in the state?

Any manufacturer that withdraws a drug from sale in a state in response to this model act must notify the state 180 days before doing so. The superintendent of insurance may assess a penalty on a manufacturer for withdrawing the drug from the state and use the funds – and the advance warning – to ensure continued access to the drug for the state’s consumers.

August 2020

Model Legislation and Reporting Template for Hospital Financial Transparency

July 31, 2020/in Hospital/Health System Oversight Blogs, Featured News Home Consumer Affordability, COVID-19, Health System Costs, Hospital/Health System Oversight, Population Health /by NASHP Staff

Year after year, hospitals account for the largest expenditure of US health care dollars, followed by physician and clinical services, of which over half are owned by a hospital or a hospital-affiliated health system. To address rising health care costs, state policymakers and the public need detailed hospital financial information to understand a hospital’s assets as well as its expenses and liabilities.

The National Academy for State Health Policy’s (NASHP) hospital financial transparency model legislation identifies what data must be collected, which hospital documents should be used to obtain the information, and underscores that a state agency or office must be responsible for analyzing the data. NASHP also provides a reporting template to help states implement the law and collect the information needed to evaluate the vitality of a state’s hospitals.

Model Legislation: Model Act to Ensure Financial Transparency in [Name of State]’s Hospitals and Health Care Systems, August 2020.

Model Template: Hospital Financial Transparency Report Template, August 2020. Download this reporting template to use or adapt to implement the hospital financial transparency law. The template is designed to capture the data required by NASHP’s model legislation.

Q&A: How to Use NASHP’s Model Law and Template to Increase Hospital and Health Care System Financial Transparency, August 2020.

The Access Project: A Community Leader’s Guide to Hospital Finance, 2020. This report, prepared by Sarah Gunther Lane, MS, Elizabeth Longstreth, BA, Victoria Nixon, MS, and Nancy Kane, DBA, provides an overview of the key questions policymakers can ask to understand hospital financial performance, including background on hospital revenues and expenses, sources of financial information, and evaluations of financial health.