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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.

State Drug Pricing Laws: 2017-2020

September 4, 2020/in Prescription Drug Pricing Newly-Enacted Laws, Prescription Drug Pricing /by NASHP Staff

An Act to Reduce Prescription Drug Costs Using International Pricing

August 10, 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 (7), 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. Contracts entered into by a State Entity or Health Plan or Particpating ERISA Plan and a third party for the purchase of Prescription Drugs shall expressly provide that rates paid for Referenced Drugs shall not exceed the Referenced Rate.

(b) It is a violation of this Chapter for a retail pharmacy licensed in this state to purchase for sale or distribution to a person whose health care is provided by a State Entity or Health Plan Referenced Drugs for a cost that exceeds the Referenced Rate.

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 determination by the Superintendent of Insurance of which Prescription Drugs to include on the list of Referenced Drugs shall be based upon an analysis of the savings that could be achieved by subjecting those 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.

Section 9. Prohibition on Withdrawal of Referenced Drugs for Sale

(a) It shall be a prohibition 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 of $500,000 on any entity, including any manufacturer or distributor of a Referenced Drug, 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.

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.

August 2020

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 Hospital/Health System Oversight /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.

Q&A: An Act to Protect Consumers from Unsupported Prescription Drug Price Increases

July 28, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

What is this model designed to do?

This model fines pharmaceutical manufacturers for certain price increases that are unsupported by clinical evidence and uses that revenue to provide cost assistance to consumers. The model impacts frequently prescribed, high-cost drugs, such as Humira, whose price doubled from $19,000 to $38,000 between 2012 and 2018. The law is designed to minimize administrative burden of implementation by states.

How does this model address drug price hikes?

This model act uses an existing, publicly available data source to enable a state to easily identify and penalize manufacturers that are significantly increasing drug prices without adequate justification for those price hikes.

Penalties are directed at manufacturers:

That increase the wholesale acquisition cost for a prescription drug at least twice the rate of inflation over two years;
Whose net price increases are responsible for the largest increases in drug spending; and
That have insufficient or no new clinical evidence to justify those price increases.

Manufacturers are required to pay the state a per unit penalty of 80 percent of the unsupported price increase on all units of the drug sold in the state over the past year. The penalty is calculated based on the wholesale acquisition cost, or list price, set by the manufacturer and is applied for two years before sunsetting.

What happens with the revenue generated by the penalties?

Revenues generated by the penalties will be used to offset costs to consumers and to defray costs to the state for implementing the act.

What is an unsupported price increase?

The Institute for Clinical and Economic Research (ICER) publishes an annual report on unsupported price increases. For this report, ICER first reviews drugs with net price increases over the past 24 months that exceed two-times the medical consumer price index. ICER then uses revenue figures for each drug to prioritize those drugs whose net price increases contribute the most to spending increases at the national level by all payers. The methodology also allows states and the public to nominate drugs for review and allows manufacturers to address potential discrepancies in pricing data. Using this methodology, ICER prioritized nine drugs for review in 2019, based on pricing data from 2017-2018, and found that seven of the nine had substantial price increases that were unsupported by adequate new clinical evidence regarding safety or efficacy.

What drugs have had unsupported price increases in the past? What has the impact of those price increases been on spending?

Using the methodology described above, in its 2019 report ICER identified seven drugs with unsupported price increases: Humira, Lyrica, Truvada, Rituxan, Neulasta, Cialis, and Tecfidera. All seven of these drugs also appeared on lists of drugs with the highest total costs and/or highest total cost growth published by states with drug price transparency laws. According to ICER, the net unsupported price increases for these seven drugs was $4.8 billion over the past two years across the United States.

How does a state identify an unsupported price increase and an appropriate penalty?

The model act authorizes a state to leverage ICER’s annual report on unsupported price increases to quickly and easily identify drugs with unsupported price increases that contribute the most to increased spending. Manufacturers must pay a penalty based on their sales volume for the identified drug within the state. To that end, the model act requires manufacturers to report information on sales of a drug within the state, the current and previous year’s list price (wholesale acquisition cost or WAC) for the drug, as well as any additional information needed by the state tax assessor, including any information needed to confirm the accuracy of manufacturer’s report.

How is the penalty determined?

The tax assessor uses the information provided by the manufacturer to determine the penalty. The penalty is equal to 80 percent of the difference between the previous year’s list price adjusted for inflation and the current year’s list price (reflecting the unsupported price increase) times the actual number of units sold in the state.

A hypothetical example of a drug with an unsupported price increase of $360 would be fined as follows:

2018 – The list price (WAC) for a month’s supply was $3,000.

2019 – The list price (WAC) for a month’s supply was $3,360 (For purpose of this example, this price increase represents an unsupported price increase.)

The 2018 price adjusted for inflation at 2.3 percent would have been approximately $3,070, so the penalty to the manufacturer for the unsupported price increase in 2019 would be calculated as follows:

$3,360-$3070 = $290 x 10,000 prescriptions x 12 months = $34,800,000 x .8 (80 percent) = $27,840,000

How does this model act lower costs for consumers?

Due to federal patent law, states cannot directly limit prices manufacturers set for their drugs. Under this model, manufacturers are encouraged to avoid unsupported price increases in order to avoid paying a penalty. Should a manufacturer maintain its unsupported price hike and pay the penalty, the revenue from the penalty would be used to offset costs to consumers.

What is ICER and how is it funded?

ICER is an independent research organization that serves as a watchdog on drug pricing by evaluating how prescription drug prices compare to their actual clinical and economic value. All ICER reports are supported exclusively by funding from nonprofit foundations and other sources that are free from industry or insurer conflicts of interest. ICER reports have been used regularly by Medicaid programs, the Veterans Affairs, as well as many private payers to inform their drug price negotiations.

Are stakeholders involved? If so, how?

ICER develops its protocol and reports on unsupported price increases through a public, transparent process with input from an advisory group with representatives from patient groups, drug makers, and insurers representing Medicaid and the private market. Manufacturers with drugs identified for review were also able to provide public comments. ICER addresses each comment through a robust, transparent process that includes sharing the comments and ICER’s response in an appendix to their report.

There has been some controversy surrounding ICER’s use of quality adjusted life years (QALYs). Are QALYs used in determining unsupported price increases?

No. ICER’s report on unsupported price increases does not use QALYs nor does it make any determinations regarding quality of life. The unsupported price increase report is restricted to a review of whether there is any new clinical evidence that is potentially adequate to support price hikes.

Maryland’s anti-price-gouging law was struck down, is this approach constitutional?

Maryland’s anti-price-gouging law was struck down for violating the dormant Commerce Clause that regulates interstate trade. This model act takes a completely different approach however, using state tax authority, and limiting penalties to transactions that occur within the state.

July 2020

NASHP’s New Model Law Penalizes Drug Manufacturers for Unsupported Price Hikes

July 28, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Blogs, Featured News Home Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Trish Riley and Jennifer Reck

Unpredictable and unrelenting drug price increases drive up health insurance premiums and challenge states’ public purchasers as they weigh escalating costs against balanced budget requirements. The National Academy for State Health Policy’s (NASHP) newest model law, an Act to Protect Consumers from Unsupported Price Increases on Prescription Drugs, levies hefty fines on manufacturers that impose unjustified price increases and then uses the fines’ revenues to lower costs for consumers.

According to findings from the independent, non-profit Institute for Clinical Effectiveness Research (ICER), a sampling of seven frequently prescribed and high-cost medicines, including Humira and Lyrica, had net unsupported price increases that resulted in additional spending of $4.8 billion over two years – billions of dollars that went to manufacturers’ profit at the expense of consumers.

Read and download a copy of NASHP’s Act to Protect Consumers from Unsupported Price Increases on Prescription Drugs and a Q&A on the model law.

Each year, ICER identifies and evaluates high-use, high-cost drugs and issues a report identifying those whose net price increases are unsupported by evidence. The drugs selected to date mirror the list of drugs identified by states with drug transparency laws and ICER has formalized a process for other states and stakeholders to identify additional drugs for future review. NASHP’s new model law, developed in collaboration with its Pharmacy Cost Work Group, uses ICER’s annual list to identify unsupported price increases and requires manufacturers of the drugs identified to report:

The total sales of the drug in that state to the state’s tax assessor, and
The list price of the drug for the current and previous year, and other relevant information.

A resulting fine will be assessed on 80 percent of the difference between the previous list price, adjusted for inflation, and the current list price. Audits may be conducted by the state tax assessor, and manufacturers who fail to make timely reports are subject to penalties.

ICER is currently working with advocates for people with disabilities to address their concerns with ICER’s analytics used to establish fair pricing and its use of quality-adjusted life years (QALYs). However, ICER’s methodology used to determine unsupported price increases does not rely on QALY assessments. Instead, the unsupported price increase report focuses more narrowly on determining whether or not a price increase is supported by new clinical evidence on safety and efficacy.

This proposal differs from NASHP’s earlier approaches. Its anti-price-gouging model law (An Act to Prevent Excessive and Unconscionable Prices for Prescription Drugs) empowers state attorneys general to take action on generic drug prices that meet a threshold of excess price increases. This new model includes both generic and brand-name drugs and minimizes the administrative burden of implementation by states.

NASHP’s earlier Drug Affordability Review Board model law required states to establish an administrative apparatus and a complex process to evaluate certain drugs to determine an upper payment limit to protect payers from excessive prices. Maryland’s landmark, first-in-the-nation review board is currently being implemented incrementally, first effective for state employee plans and later, if approved by its legislature, extended to other payers. While an override is anticipated, its funding has been vetoed by the governor. In Washington State a similar measure was vetoed again citing cost concerns. Maine and New Hampshire have enacted much modified review boards for state employee health plans.

NASHP continues to support these efforts but recognizes the extraordinary pressures on state budgets and the limited capacity to launch new administrative structures. In this model, NASHP presents a less-costly, easy-to-administer plan that:

Makes use of existing and respected analytic evidence to document unsupported price increases;
Empowers existing state agencies to administer it; and
Allows a portion of revenues generated from manufacturers’ fines to support any additional administrative costs.

NASHP anticipated opposition from the pharmaceutical industry and engaged legal experts in crafting this model to assure it does not run afoul of patent law or Commerce Clause concerns

An Act to Protect Consumers from Unsupported Price Increases on Prescription Drugs (link) is the third in NASHP’s recent series of new model prescription drug pricing laws. Additional model laws are being introduced this summer and 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.

A Model Act to License Pharmaceutical Representatives

July 20, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

Section 1. Statement of Legislative Intent; Purpose

Whereas pharmaceutical marketing impacts clinical decision-making, outcomes, and resource utilization;

Whereas marketing strategies may keep prescription drug prices high by aggressively marketing patented products to limit generic competition;

Whereas aggressive marketing of opioids fueled the opioid epidemic;

Whereas evidence-based prescribing can reduce health care costs and save lives;

Therefore, be it resolved that [State] will require Pharmaceutical Representatives to obtain a license to conduct business in [State]. Pharmaceutical Representatives must participate in professional education, including training on ethical standards, and Pharmaceutical Representatives must disclose information about the extent and nature of their interactions with health professionals as conditions of licensure.

Section 2. Definitions

For the purposes of this section, the following terms will have the following meanings:

(a) “Health care professional” shall mean any physician or other health care practitioner who

is licensed to provide health care services or to prescribe pharmaceutical or biologic products.

(b) “Pharmaceutical” means a medication that may legally be dispensed only with a valid prescription from a health care professional.

(c) “Pharmaceutical Representative” means a person who markets or promotes pharmaceuticals to health care professionals on behalf of a pharmaceutical manufacturer for a fee. Pharmaceutical representatives include pharmaceutical sales representatives and medical science liaisons.

Section 3. Licensure of Pharmaceutical Representatives

(a) License – Required.

(1) No person shall act as a pharmaceutical representative in [State] without first having obtained a pharmaceutical representative license.

(2) In order to become initially licensed, a pharmaceutical representative shall complete a professional education course as determined by the [State Agency responsible for professional regulation] prior to application for the license and affirm that this training was completed on the application for the license.

(3) To maintain a license, a pharmaceutical representative must complete minimum continuing education in accordance with subsection (e).

(b) License – Non-transferability. No transfer of ownership shall be allowed on any license issued under this section.

(c) License – Application. An application for a pharmaceutical representative license shall be made to the [State Agency responsible for professional regulation] on a form accessible at the [State Agency responsible for professional regulation] website, and shall include the following:

(1) The applicant’s full name, residence address, residence telephone number, business address and business telephone number;

(2) A description of the type of work in which the applicant will engage;

(3) The license fee;

(4) An attestation of professional education:

(A) In the case of an initial license, attest that the applicant has completed a professional education course in compliance with subsection (e); or

(B) In the case of a renewal, attest that the applicant has completed at least five hours of continuing professional education in the previous year in compliance with subsection (e);

(5) Proof that the applicant has paid any assessed penalties and fees; and

(6) Any other information that the [State Agency responsible for professional regulation] may reasonably require.

(7) Any changes made to the information submitted on the application or any material changes made to the licensee’s personal or businesses operations or to any information provided under this section must be reported, in writing, to the [State Agency responsible for professional regulation] within four business days of the change.

(d) License – Fee. The annual fee for a pharmaceutical representative license shall be $750.00.

(e) Professional education.

(1) The [State Agency responsible for professional regulation] shall establish by rule education requirements as a condition for an initial or a renewal pharmaceutical representative license. All pharmaceutical representatives shall complete a minimum of five hours of continuing professional education prior to renewing their license. The initial and continuing professional education must include training in ethical standards, whistleblower protections, laws and regulations applicable to pharmaceutical marketing, and other areas that the [State Agency responsible for professional regulation] shall designate by rule.

(2) Upon request, pharmaceutical representatives shall provide proof of completion of the professional education requirements to the [State Agency responsible for professional regulation].

(3) The [State Agency responsible for professional regulation] shall designate and publish a list of institutions that provide courses that meet the education requirements. The [State Agency responsible for professional regulation] shall also designate the courses that satisfy the education requirements. A professional education provider shall not be a pharmaceutical representative’s employer. Education providers must disclose conflicts of interests. Funding for education courses shall not be provided by the pharmaceutical industry or by a third-party funded by the pharmaceutical industry.

Section 4. Disclosure to State

(a) No later than June 1 of each calendar year, pharmaceutical representatives shall provide the following information from the previous calendar year, to the [State Agency responsible for professional regulation]:

(1) The aggregate number of times health care professionals in [State] were contacted;

(2) The specialties of the health care professionals contacted;

(3) The location and duration of contact, including telephone, in-person, and on-line contact;

(4) The pharmaceuticals promoted;

(5) Whether product samples, materials, or gifts of any value were provided to the health care professional;

(6) The value of any products, materials, gifts, or compensation provided;

(b) The [State Agency responsible for professional regulation] shall make this information publicly available on the [State Agency responsible for professional regulation] website in a manner in which individual health care professionals are not identifiable by name or other identifiers such as National Provider Identifiers.

(c) The [State Agency responsible for professional regulation] shall produce a public annual report to the legislature summarizing the disclosures and identifying trends. The report is due November 1 each calendar year.

(d) A model disclosure form may be issued to facilitate compliance with the disclosure requirements of this section.

Section 5. Disclosure to Health Care Professionals

(a) Pharmaceutical representatives must disclose the following information during each visit with a health care professional:

The wholesale acquisition cost of a prescription drug when the pharmaceutical representative provides information concerning the drug to the prescriber.
The names of at least three generic prescription drugs from the same therapeutic class, or if three are not available, as many are available for prescriptive use.

Section 6. Ethical Standards

(a) The [State Agency responsible for professional regulation] shall produce a list of ethical standards for pharmaceutical representatives that shall be incorporated into the rules and published on the [State Agency responsible for professional regulation] website. In addition to those rules, a pharmaceutical representative shall not:

(1) Engage in any deceptive or misleading marketing of a pharmaceutical product, including the knowing concealment, suppression, omission, misleading representation, or misstatement of any material fact;

(2) Use a title or designation that could reasonably lead a licensed health professional, or an employee or representative of a licensed health professional, to believe that the pharmaceutical detailer is licensed to practice medicine, nursing, dentistry, optometry, pharmacy, or other similar health occupation, in [State], unless the pharmaceutical detailer currently holds such a license; or

(3) Attend patient examinations without the consent of the patient.

Section 7. Enforcement

(a) Pharmaceutical representatives must display their license during each visit with a health care professional. Health care professionals that meet with a pharmaceutical representative not displaying a license may report the unlicensed pharmaceutical representative to the [State Agency responsible for professional regulation] for further action.

(b) Health care professionals who meet with a pharmaceutical representative not sharing the information required in Section 5(a) may report the pharmaceutical representative to the [State Agency responsible for professional regulation] for further action.

(c) Fine: Any person violating any of the provisions of this chapter shall be fined not less than $1,000 nor more than $3,000 for each offense. Every day such violation continues shall constitute a separate and distinct offense.

(d) License Suspension and Revocation: A violation of any of the provisions of this chapter may result in license suspension or revocation in accordance with [cite relevant State Statute]. No license suspended or revoked pursuant to this section shall be reinstated until all code violations related to the suspension or revocation have been remedied and all assessed penalties and fees have been paid. No person whose pharmaceutical license under this chapter is revoked for any cause shall be granted a license under this section for a period of two years from the date of revocation.

(e) Rules – The [State Agency responsible for professional regulation] shall have the authority to promulgate rules necessary to implement their respective powers and duties under this Article.

Q&A: A Model Act to License Pharmaceutical Representatives

July 20, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

What is a pharmaceutical representative?

A pharmaceutical representative markets brand-name prescription drugs directly to health care professionals who decide whether or not to prescribe them. Pharmaceutical representatives include pharmaceutical sales representatives as well as more specialized medical science liaisons.

Why should states license pharmaceutical representatives?

A sales force focused on influencing health care professionals’ prescribing decisions should be subject to licensure, as are the health professionals they seek to influence.

The goal of a pharmaceutical representative is to increase prescribing for the product(s) they are marketing. Indeed, the pharmaceutical industry’s reimbursement model for their representatives incentivizes higher sales, not evidence-based sales. Pharmaceutical representatives actively work to influence clinical decision-making to increase their sales and may thereby impact clinical outcomes and resource utilization in ways contrary to the interests of patients and third-party payers. The role of pharmaceutical representatives in encouraging the over-prescribing of opioids is a key example and is the subject of ongoing litigation.*

Licensure creates the opportunity to establish and enforce professional and ethical standards for pharmaceutical representatives. Furthermore, understanding the extent of marketing activity by pharmaceutical representatives in a state, as well as the strategies and tactics they use, can enable a state to take further, informed action based on that information.

Isn’t direct-to-consumer advertising the real problem?

No – not as indicated by where the pharmaceutical industry is investing its marketing dollars.

Though direct-to-consumer advertising is a highly visible outlet for pharmaceutical marketing, the industry actually spends far more marketing directly to health care professionals versus consumers. In 2016, pharmaceutical companies spent $20.3 billion to market to providers versus $6 billion for direct-to-consumer marketing.*

What are the conditions of licensure?

To be licensed, National Academy for State Health Policy’s Model Act to License Pharmaceutical Representatives (link to web model law page) requires pharmaceutical representatives to pay an annual licensing fee and to undergo five hours of annual professional continuing education – including training in ethical standards, whistleblower protections, and laws and regulations applicable to pharmaceutical marketing. The continuing education program must be independent of industry funding. Pharmaceutical representatives must also disclose specific information about the extent and nature of their interactions with health care professionals. Finally, when in contact with health care professionals, pharmaceutical representatives must also disclose the wholesale acquisition cost of drugs they promote, as well as the names of up to three generic drug alternatives within the same therapeutic class, if available.

Doesn’t the federal government already do this with its Open Payments program?

Open Payments is a federal program enacted as part of the Affordable Care Act. It requires pharmaceutical manufacturers to report on payments to health care providers. The information on payments is made available in a public database searchable by provider name. While Open Payments increases transparency of payments made to individual health care professionals, questions have been raised by health care providers regarding the accuracy of the data reported.

In contrast to Open Payments’ focus on payments to individual providers, this model act enables direct oversight of pharmaceutical representatives, including the extent and focus of their marketing activity at the state level, through the establishment of a licensing program including ethical standards.

What state agencies are involved in implementing this model act to license pharmaceutical representatives?

Under the model law, the state agency responsible for professional licensure is tasked with:

Establishing and monitoring licensing of pharmaceutical representatives as well as collecting the information that pharmaceutical representatives must disclose;
Making that information publicly available in a manner that de-identifies providers; and
Providing an annual report to the state legislature that summarizes the information and identifies trends.

The state agency responsible for professional licensure must also certify which courses meet the continuing professional education requirement and may elect to contract with a public university for oversight of the continuing professional education component.

How is the state’s implementation and administration of the act funded?

This model act is self-funded through the income generated by the licensure fees. States with relatively smaller populations with proportionally smaller forces of pharmaceutical representatives may wish to explore increasing the $750 licensing fee, if necessary, to cover implementation costs.

How is this model act enforced?

Pharmaceutical representatives would be required to display their license during each in-person or virtual visit with a health care professional. Health care professionals who encounter pharmaceutical representatives who do not display a license or fail to provide the information required on the wholesale acquisition cost of the drug and generic alternatives would voluntarily report the pharmaceutical representative to the state agency responsible for professional licensure for further action. Failure to meet the provisions set force in the model act results in fines and the revocation of a pharmaceutical representative’s license.

*Kaiser Permanente Institute for Health Policy, “Drug Policy 101: Pharmaceutical Marketing Tactics,” January 2020, Available at: https://www.kpihp.org/wp-content/uploads/2020/02/drug_policy_pharmaceutical_marketing_101_FINAL.pdf, accessed June 14, 2020.