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CMS Proposes Rule to Support Value-Based Purchasing for Drugs

June 22, 2020/in Policy Blogs, Featured News Home Administrative Actions, Cost, Payment, and Delivery Reform, Health System Costs, Prescription Drug Pricing, State Employee Health Plans, Value-Based Purchasing /by Jennifer Reck

The Centers for Medicare & Medicaid Services (CMS) has proposed a new rule with provisions designed to advance value-based purchasing (VBP) arrangements with drug manufacturers. Comments about the proposal are due July 20, 2020.

The proposed rule would change certain provisions in the Medicaid Drug Rebate Program that currently require manufacturers to offer “best price” (the lowest price available to any wholesaler, retailer, or provider) to state Medicaid programs. The changes proposed by CMS address manufacturer concerns that VBP arrangements might result in a costly drug being made available at a very low cost or even at no cost in some cases in the commercial sector, which would trigger the “best price” requirement.

Read the CMS proposed rule here, and submit a comment by 5 p.m. (ET) Monday, July 20, 2020.

The rule would create flexibility to avoid that outcome and encourage manufacturer participation by allowing them to report best price under VBP arrangements as a “bundled sale” or to report multiple best prices calculations, including a range of discounts available under VBP arrangements and a separate best price for non-VBP arrangements. Some Medicaid experts have raised concerns, however, that the proposed CMS change is not necessary because many manufacturers already participate in VBP arrangements, and that the change could subject “best price” to gaming by manufacturers that could end up of costing state Medicaid programs more.

Five states (OK, MI, CO, MA, and AL) now have state plan amendments that enable VBP arrangements with drug manufacturers through supplemental Medicaid drug rebates that are already exempt from best price calculations. (Additionally, Louisiana and Washington’s state plan amendments enabling subscription-based payment models for hepatitis C drugs.) To date, evidence that this approach generates savings has been limited, however states do value these payment arrangements as they allow states to capture rebates if the drugs don’t work as promised – a growing concern as more and more drugs enter the market through fast-track and accelerated approval processes.

Oklahoma, a leading state in VBP initiatives whose early work was supported in part by a grant from the National Academy for State Health Policy, has implemented a number of VBP contracts with manufacturers that link payment to a drug’s performance on outcomes such as reductions in hospitalizations or adherence rates. More recently, both Oklahoma and Massachusetts have secured VBP arrangements for Zolgensma, a new, costly gene therapy for treating spinal muscular atrophy in infants. The Massachusetts VBP agreement includes an upfront discount off the $2.1 million per patient price for Zolgensma, and the manufacturer’s commitment to provide rebates to the state if the drug does not perform against agreed upon outcome measures.

Read the proposed rule, Medicaid Program: Establishing Minimum Standards in Medicaid State Drug Utilization Review and Supporting Value-Based Purchasing for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability Requirements, and submit a comment by 5 p.m. (ET) Monday, July 20, 2020.

How Waste-Free Formularies Create Savings on Prescription Drugs

June 22, 2020/in Policy Blogs, Featured News Home Administrative Actions, Consumer Affordability, Health System Costs, Prescription Drug Pricing /by Jennifer Reck

Removing wasteful drugs from formularies and replacing them with drugs that offer the same benefits at a lower cost, helps state employee health plans and other public purchasers reduce spending without sacrificing value – a critical strategy for savings as states face tremendous budget pressures.

A formulary is a list of prescription drugs covered by a health plan. Common categories of wasteful drugs found on formularies include:

High-priced, brand-name drugs for which there is a generic available (Nexium sells for $270 for a month’s supply, versus its generic, esomeprazole, which costs $30 per month);
Combination drugs for which the combined product costs substantially more than the two components would if purchased separately (Duexis, a combination of ibuprofen and famotidine, costs $1,500 a month versus the same drugs, Motrin and Pepcid, purchased over the counter for $20 a month);
Prescription drugs that have over-the-counter options available; and
“Me-too” drugs, which are expensive “new” drugs that offer minor “tweaks” to a generic (e.g., a different strength or extended release) but have no added clinical value, compared to the less expensive original.

Which drugs are wasteful?

To check a drug formulary for potential savings, check to see if any of these wasteful drugs identified in the Johns Hopkins Bloomberg School of Public Health report, Removing Waste from Drug Formularies, are on its list.

If they cost so much more without any added value, why are these wasteful drugs on formularies to begin with? Pharmacy benefit managers (PBMs) use placement on a formulary as leverage when negotiating rebates with drug manufacturers. When PBMs are paid based on a percentage of rebates, higher-cost drugs yield higher rebates, creating an incentive for PBMs to favor wasteful drugs on formularies instead of lower net price, therapeutically equivalent options.

Health plans can change their PBM contract terms so a PBM is reimbursed through an administrative-fee-only model and can require 100 percent pass-through of rebates to realign PBM incentives with the health plan’s interests. The National Academy for State Health Policy (NASHP) has created model PBM contract language for states and other public purchasers working to rein in drug costs to include in their contracts with PBMs.

Several public purchasers have already put waste-free formularies to the test and experienced savings. For example, Self-Insured Schools of California (SISC), a community of public schools that represents 260,000 members, stopped covering more than 600 drugs that did not provide value. SISC found health care providers were comfortable changing prescriptions to accommodate the changing drug formulary because the alternative drugs were just as safe and effective as the more costly versions that were being excluded from the formulary. One example was removing the 1,000-mg dose version of metformin, which cost $352 for a 30-day supply from the formulary but keeping the more affordable lower-dose option of metformin HCL ER 500-mg pills, which cost $12.68 for 30 days. The same clinical benefits are available from the far less costly 500-mg pills, if two are taken, as are from the far more expensive 1000-mg formulation.

SISC instituted its formulary changes, which focused on covering clinically effective drugs with the lowest net costs, in combination with other strategies to more actively manage its pharmacy benefits. SISC’s approach included working with a pharmacy consultant, with no conflicts of interests with PBMs, to secure a transparent, pass-through contract with a new PBM. SISC’s results show a marked decline in per member per months drug costs from $87.31 in 2013 to $78.65 in 2019 – a time of rapidly rising drug costs.

The New Jersey State Health Benefits Program and the School Employees’ Health Benefits Program (SEHP/SEHBP), representing 800,000 lives, have also been active in removing waste from their formularies. Their initial strategy for 2019 focused on excluding high-cost brands and generics when a therapeutically equivalent, lower-cost generic was available, which generated approximate savings of $12.8 million per year. Their focus for 2020 is removing prescription drugs for which over-the-counter equivalents are available – a category of spending projected to save approximately $12.6 million a year.

Effective communication with plan enrollees is an essential part of the New Jersey SEHP/SEHBP approach. For example, state plan officials work with union leaders to educate their members about why a drug may be removed from the formulary while also providing a list of alternative medications offering the same clinical benefits. Another key message is the importance of eliminating spending on wasteful, low-value drugs in order to free up resources for coverage of new, high-priced, life-saving medications that are coming to the market.

Researchers at the Johns Hopkins Bloomberg School of Public Health have identified a list of wasteful drugs and less-costly therapeutic alternatives in the report, Removing Waste from Drug Formularies, and have created a worksheet that health plans can use to determine their potential savings when removing specific wasteful drugs. Its analysis of 15 self-insured plans and approximately 2.5 million drug claims found potential savings of $63.3 million if the plans were to remove wasteful drugs from their formularies.

For more information, including special access to a June 2020 webinar recording on waste-free formularies limited to state officials only, please contact Jennifer Reck.

Q&A: How Maryland’s First-in-the-Nation Rx Affordability Board Is Faring

March 2, 2020/in Policy Maryland Blogs, Featured News Home Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck

Maryland’s first-in-the-nation Prescription Drug Affordability Board (PDAB), enacted last year, has the authority to set upper payment limits for certain high-cost drugs purchased by state and local government. The board is also tasked with proposing a plan to extend upper payment limits to all purchasers in the state. This Q&A provides an update on Maryland’s implementation of its PDAB.

Who sits on Maryland’s PDAB?

The five appointed members of the PDAB include a pharmacist, clinician, and health policy researchers. They are:

Van Mitchell, President/CEO of MSI, Inc. and, former Secretary, Maryland Department of Health and Mental Hygiene (PDAB Chair);
Eberechukwu Onukwugha, MS, PhD, Associate Professor of Pharmaceutical Health Services Research, University of Maryland School of Pharmacy;
George Malouf, MD, FACS, Optholmalogist in private practice and affiliated with the University of Maryland Capital Region Health Prince George’s Hospital Center;
Gerard Anderson, PhD, Professor, Health Policy and Management, Johns Hopkins Bloomberg School of Public Health;
Joseph Levy, PhD, Assistant Scientist, Health Policy and Management, Johns Hopkins Bloomberg School of Public Health.

When does the Maryland PDAB meet?

The board’s first two meetings were in January and February of 2020. Its initial tasks include hiring an executive director and developing a five-year budget and staffing plan. The staff is likely to consist of four to five people. The board will meet at least four times a year to complete its work.

How is Maryland’s PDAB funded?

The board has proposed legislation for the 2020 Maryland General Assembly session to fund its work through assessments on pharmaceutical manufacturers and other entities within the drug supply chain, including pharmacy benefit managers (PBMs), health plans, and wholesalers. The $800,000 allocated from the state’s General Fund to cover the PDAB’s start-up costs must be repaid to the state with the funding source that the board creates.

When will the PDAB begin setting upper payment limits for drugs?

Maryland’s PDAB has a phased-in approach to setting upper payments, beginning with placing upper payment limits on drugs for state and local purchasers before potentially expanding its reach to include all purchasers in the state. Maryland’s PDAB will begin to set upper payment limits for public payers in 2022 — pending approval by the state’s Legislative Policy Committee.

In 2023, the PDAB will recommend whether the assembly should pass legislation to expand the board’s authority to make high-cost drugs more affordable by setting upper payment limits on drugs for all purchasers (both public and private). The law also authorizes the board to explore other strategies to improve drug affordability, including bulk purchasing of drugs and reverse auction, a procurement method in which bidders compete by decreasing prices in response to an invitation to bid until a specified deadline.

Which drugs will the PDAB set upper payments for?

If authorized by the Legislative Policy Committee, the PDAB will begin setting upper payment limits in 2022 for certain high-cost drugs that surpass the price thresholds identified in the 2019 law. The Maryland PDAB will work with other states that are already collecting drug price data through transparency laws in order to establish memorandums of understanding for obtaining information to determine which drugs the PDAB should consider for review. While the thresholds specified in the law that trigger mandatory reviews focus on very high-cost drugs, the board also has the authority to review any drug deemed to cause an affordability issue for Maryland’s health care system or patients.

How are other stakeholders involved?

In addition to establishing the five-member PDAB, the Maryland law also establishes a 26-member advisory council that includes a diverse range of stakeholder opinions. Advisory council members represent brand-name and generic drug manufacturers, PBMs, health care advocates, labor unions, employers, researchers, clinicians, pharmacists, and hospitals. The public will have the opportunity to review and provide comments on proposed upper payment limits before any payment limits are finalized.

Has Maryland’s PDAB faced a legal challenge?

Maryland’s PDAB law has not been challenged as of March 3, 2020. However, once the PDAB begins to set upper payment limits, a legal challenge is expected. Unlike Maryland’s anti-price-gouging law, which was struck down for regulating prices outside the state, the PDAB is clearly limited to setting upper payment limits for purchasers within the state only.

Are other states enacting or considering PDABs?

Maine enacted a PDAB law in 2019. Rather than setting upper payment limits, the Maine PDAB establishes a spending target for prescription drugs for public payers and advances strategies to leverage public purchasing power to meet that target. Strategies can include establishing a common drug formulary, bulk purchasing of drugs, collaborating with other states, and other approaches.

Twelve states are currently considering PDAB legislation, including Arizona, Florida, Illinois, Massachusetts, Minnesota, Missouri, New Jersey, Pennsylvania, Rhode Island, Virginia, Vermont, and Washington.

The National Academy for State Health Policy (NASHP) released the original Model Act to establish a PDAB several years ago, and is currently working on new approaches to setting upper payment limits without having to establish a PDAB. These more streamlined models may be necessary alternatives for states when establishing a PDAB is not feasible.

Q&A: A Model Act to Allow Buy-In into a State Purchasing Pool for Prescription Drugs

February 3, 2020/in Policy Blogs, Featured News Home Administrative Actions, Model Legislation, Prescription Drug Pricing, State Employee Health Plans, State Rx Legislative Action /by NASHP Staff

Why is creating a state purchasing pool for prescription drugs a good strategy for states?

State purchasing pools for prescription drugs leverage public buying power to reduce drug costs. Today, every state purchases prescription drugs for its employees through its state employee health benefit plan. States are among the largest employers in the state and therefore the state employee health plan – or any other public plan a state administers – can leverage the size of its prescription drug purchasing pool to negotiate better prices for entities participating in a state purchasing pool for prescription drugs.

NASHP’s proposal for a state purchasing pool for prescription drugs provides additional details about this approach. NASHP has also developed model legislation to establish a state purchasing pool for prescription drugs.

How does creating a state purchasing pool for prescription drugs save money?

By expanding the number of people buying prescriptions through a plan, the pool’s purchasing and bargaining power grows to benefit both current state employee health plan enrollees and those who join the prescription purchasing pool.

What about adverse selection?

Concerns about adverse selection, which would be relevant to medical benefits, are not a factor for this model because prescription drug plans do not “pool risk”. Unlike health insurance plans – in which the health of enrollees influences premium costs – prescription drug prices are based on the volume of drugs purchased, not individuals’ health status. The discounts for prescription drug plans are based on the number of covered lives so the more covered lives in a purchasing pool, the greater the savings due to the increased purchasing power of the plan.

Who could join a state purchasing pool for prescription drugs?

Health insurance carriers offering plans to individuals and small and large businesses could all participate in a state purchasing pool for prescription drugs. Self-funded employer plans could also participate.

Non-state public employers such as municipalities, counties, state universities, and public school teachers could also participate.

Could the uninsured participate?

Uninsured individuals could be given access to a drug discount card to allow them to access the discounted drug prices available to state employees and other members of the purchasing pool. While the state would enable access to the discounted prices it negotiates, it would not pay for the drugs purchased by the uninsured who use the discount card. Uninsured individuals using the discount card would pay for their own prescription drug costs, but they would benefit from the deep discounts the state was able to negotiate via the purchasing pool.

Would a state employee prescription drug plan lose its ERISA-exemption if it allowed non-state employers to participate in the purchasing pool?

A state employee prescription drug plan can maintain its government exemption under the Employee Retirement Income Security Act (ERISA) by creating an administratively separate – but coordinated – state drug purchasing pool in which both the state employee prescription drug plan and self-funded employers can participate. NASHP’s proposal for a purchasing pool provides details on strategies for structuring and implementing a state drug purchasing pool to avoid potential legal and regulatory challenges.

How could potential purchasing pool participants determine if they would save money?

Potential purchasing pool participants could share information about specific drugs and quantities they currently purchase for their members with the administrator of the purchasing pool, such as a sample claims file for a given period of time. All information would be treated as confidential. Proprietary information about pricing for specific drugs would not be required.

The administrator of the state purchasing pool could run the prospective participant’s sample claims experience through the pool’s cost model and the state could then offer aggregate information detailing what the potential pool participant would spend for those drugs if they joined the pool. The potential pool participants could then compare that number to their current costs in order to determine whether they would save by joining the pool.

Would it be necessary to align prescription drug benefits and formularies to participate in the drug purchasing pool?

Depending on the pharmacy benefit manager (PBM) and the plans in question, it may not be necessary to align benefits (e.g., copays, deductibles, and coinsurance) and formularies, in order to achieve savings. However, an even deeper level of savings could be realized if participants do elect to align benefits and formularies.

Are there examples of this approach working successfully?

The City of Hartford joined a prescription drug purchasing pool with the Connecticut state employee drug benefit plan in 2012 after legislative authority opened up the state employee drug plan to municipalities and other public employers. Hartford maintained its own drug benefit design. The contract between Hartford and the PBM was separate from the state’s, but included the same base contract terms found in the PBM and state employees’ contract. This alignment allowed Hartford to access the larger drug discounts available to state employees and to realize significant savings – more than $1 million annually – or about 10 percent of its prescription drug spend.

As more entities join a drug purchasing pool, the increase in participants creates a win-win scenario. As the volume of drugs purchased grows, the purchasing pool’s negotiating power increases, resulting in lower drug prices for all participants.

How does the purchasing pool model fit in with NASHP’s model PBM contract terms?

The efficacy of NASHP’s model legislation to allow buy-in into state purchasing pools for prescription drugs depends on the ability of a state’s employee drug plan to secure favorable contact terms with its PBM in order to secure the best pricing deals for participants. The first step in implementing this model is to ensure that the state’s contract with the PBM managing its drug benefit reflects best practices in PBM contracting. NASHP has released model PBM contract terms for that purpose. NASHP developed the model PBM contract terms based on input from states that have secured favorable terms in their PBM contracts to maximize cost-savings on prescription drugs. Key provisions include:

Administrative-fee only compensation;
100 percent pass-through of rebates and revenues;
Cost-trend and pricing guarantees;
Transparency; and
Member cost-sharing protections.

Once a state has established a favorable contract with a PBM that includes these terms, the next step is to allow other purchasers (insurance carriers, self-funded employers, and other public employers) to benefit by establishing a state prescription drug purchasing pool.

NASHP helps state leaders advance legislation to contain prescription drug prices and tracks states’ efforts at its Rx State Legislative Tracker. State officials who are interested in developing a state purchasing pool for prescription drugs can contact Jennifer Reck (jreck@nashp.org) for additional information.

New NASHP Tool Helps States Leverage Public Purchasing of Prescription Drugs

November 5, 2019/in Policy California, Delaware, New Mexico Blogs, Featured News Home Administrative Actions, Cost, Payment, and Delivery Reform, Health System Costs, Prescription Drug Pricing, State Rx Legislative Action /by Johanna Butler and Jennifer Reck

As state officials investigate reducing costs by leveraging their collective buying power to purchase prescription drugs, the National Academy for State Health Policy (NASHP) has developed a Checklist for Coordinating Public Purchasing of Prescription Drugs to help states establish baseline data across public purchasers and identify effective strategies to coordinate purchasing.

The checklist is designed to help states gather data on purchasers’ contract terms with pharmacy benefit managers (PBMs), how much is spent on drugs based on net cost and utilization, and plan benefit design.

Following California’s leading effort to implement bulk purchasing across state agencies, New Mexico, Delaware, and Minnesota have established interagency work groups of public purchasers, including those representing state government, state university, and public school employees and retirees as well as departments of corrections, state hospitals, and Medicaid programs.

These groups’ early meetings have focused on understanding current drug spending and plan design across purchasers. To help guide this work, NASHP’s checklist captures important information about these plans’ contracts with PBMs, including contract expiration dates and the inclusion of transparency provisions that:

Prohibit spread pricing – when a PBM pays a pharmacy a lower rate than the rate the PBM claims for reimbursement from the health plan; or
Require rebates to be passed through to the plan.

Once this data is established, interagency groups can identify cost and contract variations and explore various opportunities, including aligning PBM contracts across payers, which creates the potential to pool prescription drug purchasing to achieve savings.

NASHP’s checklist also asks purchasers to identify the 10 drugs with the highest net cost to health plans and the 10 most frequently prescribed drugs. Understanding the highest cost and highest use drugs across purchasers can guide the work of interagency groups, allowing them to prioritize efforts around specific drugs.

Interagency purchasing groups in New Mexico and Delaware have identified high-cost specialty drugs, such as Humira, as a major cost driver and a growing area of concern for public purchasers. Armed with this data, states working to leverage their purchasing power may be better positioned to respond to future drug spikes and the high cost of specialty drugs.

NASHP continues to develop model policies to help states address drug costs. See its latest proposal for a state purchasing pool for prescription drugs, which would allow individuals and businesses to join a public drug plan, increase the size of the state purchasing pools, and secure lower costs. Learn more about Delaware and New Mexico’s leveraging efforts in these NASHP blogs.

Implementing Rx Drug Transparency: States Are Shining a Light on High-Cost Drugs and their Impact on Premiums

September 17, 2019/in Policy Maine, Oregon Blogs Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck

As health plans prepare to submit rate filings, a new report from Oregon’s Division of Financial Regulation’s Prescription Drug Price Transparency Program illuminates just how much prescription drug prices impact insurance premiums.

To increase health care cost transparency, Oregon requires health insurance companies to report on the impact of prescription drug prices on insurance plan costs, calculated on a per member, per month basis (PMPM). Based on 2018 data, drug costs per PMPM ranged from a low of $12.81 PMPM to a high of $50.42 PMPM, representing 2.5 to 42 percent of premium rates, or a 14 percent average.

In addition to assessing drug costs’ impact on premiums, Oregon requires health plans to report on:

The top 25 drugs responsible for the greatest increase in plan spending;
The top 25 most costly prescription drugs; and
The top 25 most frequently prescribed drugs.

The drugs appearing most frequently on these lists included agents to treat diabetes, HIV, hepatitis C, and autoimmune diseases. Topping the list of both most costly and contributing to the greatest increase in plan spending was Abbvie’s Humira, a biologic agent used to treat various autoimmune diseases, including rheumatoid arthritis and Crohn’s disease.

In January 2019, the National Academy for State Health Policy (NASHP) published a blog, New Tools Help States Document Rx Costs and Identify Potential Savings, about a similar state report published by Maine, which was based on an analysis of its all-payer claims database. Humira also topped Maine’s list of the top 25 costliest drugs. A report now being prepared by Mathematica for NASHP will compare similar “top 25” drug lists across states collecting this type of information, which includes Maine, Vermont, California, Nevada, and Oregon.

NASHP worked with these “early adopter” states to capture insights from their experience implementing transparency laws during the design of its model drug price transparency legislation. The model legislation includes:

A common data set designed to align reporting across states and minimize reporting burden;
Detailed reporting requirements across the entire supply chain; and
Strong penalties for pharmaceutical companies that fail to report or submit insufficient reports.

Drug price transparency laws, such as Oregon’s, help states gain an accurate understanding of the factors driving pharmaceutical drug price increases and their high launch prices. The transparency also helps states gain a better understanding of precisely which drugs and types of drugs create the greatest affordability challenges for consumers and have the biggest impact on premiums.

Establishing this foundation opens up the door for states to take effective regulatory action for relief from high prices, including measures such as creating drug affordability review boards, which have the ability to set upper payment limits or spending targets on drugs, such as those established in Maryland and Maine this year. (View new state drug cost laws here.) State transparency laws are also advancing the national debate on drug pricing, highlighting the need for effective federal action.

New PBM Laws Reflect States’ Targeted Approaches to Curb Prescription Drug Costs

August 12, 2019/in Policy Blogs Cost, Payment, and Delivery Reform, Health System Costs, Medicaid Managed Care, Model Legislation, Prescription Drug Pricing, Quality and Measurement, State Rx Legislative Action /by Sarah Lanford and Maureen Hensley-Quinn

In 2019, states built on the momentum that had been gaining in recent years and passed targeted legislation to address the role harmful pharmacy benefit manager (PBM) business practices play in escalating prescription drug prices. The laws supporting these approaches, described below, give states enforcement mechanisms to ensure that the discounts that PBMs recoup are ultimately used to lower drug and premium costs for consumers.

#NASHPCONF19: New Recipes to Control Rx Pricing
10-11:30 a.m. Thursday, Aug. 22, 2019

New state PBM laws will be among the topics discussed at this session at NASHP’s 32nd Annual State Health Policy Conference, Aug. 21-23 in Chicago.

There is still time to register, learn more here.

During the 2017 and 2018 legislative sessions, states increasingly passed laws focused on PBMs, often referred to as the “middleman” in the drug supply chain. Health plans contract with PBMs to manage their pharmacy benefit, which includes negotiating rebates with manufacturers and ensuring pharmacies have medications to dispense.

As states address prescription drug prices, there have been many questions raised about PBM practices. Where do the negotiated manufacturer rebates go? How much is the PBM keeping versus what is passed along to help consumers pay for prescriptions? Also, what about the differing amounts health plans pay for prescription drugs – compared to the often lower reimbursement amount paid to pharmacies? How much of that “spread in pricing” do PBMs keep as profit? Could opaque PBM payment practices be contributing to the overall high costs of prescription drugs?

Explore NASHP’s Pharmacy Benefit Manager Model Legislation and Resources page for more information.

Last year, Ohio’s state auditor released a report revealing that PBMs charged Medicaid managed care organizations (MCOs) a “spread” of more than 31 percent for generic drugs, which cost the state $208 million – all of which PBMs pocketed as profit. This issue is not unique to Ohio. Lack of defined regulations allow PBMs to pocket portions of manufacturer rebates or use spread pricing models instead of passing negotiated discounts back to health plans and their consumers.

To address those opaque practices, in 2019 several states enacted laws to:

More clearly define PBM practices;
Require transparency of specific prices, costs, and rebates; and
Take steps to explicitly define fiduciary responsibilities of health plans for their contracted PBMs.

Licensure Requirements

To date, 27 states require PBMs to obtain licensure from their states’ departments of insurance prior to operating in the state. This year, Minnesota, South Carolina, West Virginia, and Utah enacted laws to require PBM licensure. Licensure is a critical component of effective PBM regulation because it allows a state to know how many and what entities are operating as PBMs. This also gives the state power to suspend or revoke a license should the PBM break the law or engage in fraudulent activity.

Transparency Requirements

States also passed stronger transparency reporting requirements for PBMs. New York passed and Minnesota enacted measures requiring transparency reporting to both health plans and relevant state agencies. Notably, under the New York bill, a health plan will have access to all financial and utilization information of a PBM in relation to pharmacy benefit management services provided to the plan. Access to a PBM’s financial information will allow health plans in New York to monitor their contracted PBMs for fraudulent activity and deceptive acts. It also empowers health plans to enforce provisions of its contract with a PBM. The measure passed the legislature with broad support and now awaits action by New York Gov. Andrew Cuomo.

The Minnesota law goes beyond other states’ transparency bills by requiring PBMs to submit de-identified claims level information to their plan sponsors. Under this law, PBMs must report any spread collected on a claim, along with the amount paid to the pharmacy for each prescription. The law also requires PBMs give information to plan sponsors that differentiates between payments made to pharmacies owned or controlled by the PBMs and those not affiliated with the PBM. Data reported to plans will highlight any PBM conflicts of interest and deceptive business practices. Health plans and the state can use this data to create a clearer picture of how PBMs make their profits and identify additional actions the state can take to rein in bad practices.

Health Plan Oversight

States are also increasingly focused on requiring health plans to take more responsibility for monitoring the PBMs they contract with. For example, under Maine’s new law, if a health insurance carrier uses a PBM to manage its prescription drug benefits, the carrier is responsible for monitoring all activities performed by the contracted PBM. By tasking carriers with PBM monitoring responsibilities, Maine is leveraging its Bureau of Insurance to enforce these provisions of the law. The law also stipulates that PBMs have a fiduciary duty to their insurance carriers when managing their prescription drug benefits and as such, carriers are empowered to hold PBMs accountable for their financial dealings. This law may be protected from an Employee Retirement Income Security Act of 1974 (ERISA) legal challenge because lawmakers purposefully used an existing definition of “carrier” in state law that imposes requirements on state-regulated insurance carriers only. Therefore, the law does not apply to plans governed by ERISA. (Read Maine Forges New Ground and Enacts Comprehensive Drug Package for more information about Maine’s comprehensive PBM law.)

The New York measure stipulates that in addition to health plans, PBMs have a duty and obligation to covered individuals to perform their services with care, diligence, and professionalism. Under this measure, all funds received by the PBM, including funds derived from spread pricing, must be used on behalf of the health plan and can only be used pursuant to the PBM’s contract with the plan. Medical loss ratio rules require health plans to spend 80 percent of a beneficiary’s premium on medical claims and the remaining 20 percent on overhead expenses, including profits. This means that any manufacturer discounts passed from PBMs to a health plan will be used to lower spending on pharmacy benefits, which will in turn decrease premium costs for beneficiaries.

Medicaid Managed Care Contracts

States are also increasing their Medicaid agencies’ oversight of PBMs. Informed by Ohio’s report last summer, lawmakers included provisions in their budget that require the state to contract with a single PBM for the entire Medicaid managed care program. The “state PBM” will have strict transparency reporting requirements and will be prohibited from requiring a Medicaid recipient to obtain a specialty drug from a specialty pharmacy owned by or associated with that state PBM. This will end the practice of “self direction,” which benefits PBMs but typically increases out-of-pocket costs for consumers. Conflicts of interest language along with transparency requirements limit anti-competitive practices and give state officials more control over how PBMs operate in the Ohio.

Similarly, a new law in Louisiana authorizes its Department of Health to carve out pharmacy services from Medicaid MCO contracts and assume direct responsibility for all pharmacy services. If the department chooses to use a PBM to administer the pharmacy benefit, the PBM can only be reimbursed with a transaction fee and cannot retain any portion of spread pricing or state supplemental rebates. This ensures the state will get all of the discounts the PBM negotiates with drug manufacturers. The transaction fee will be the only payment to the PBM, which prevents it from pocketing a spread or a portion of discounts intended for the state.

States cannot control which new drugs come to market or what their list prices will be, but they can impose Medicaid contracting requirements to ensure PBMs are working in the interest of the state. Through these laws, Ohio and Louisiana can take active roles in monitoring PBM practices and administering pharmacy benefits to ensure protections for the state.

The laws passed during the 2019 legislative session are the result of states’ iterative policymaking processes – lawmakers first work with state agencies to identify problems, build on prior legislation, and then develop legislative solutions. Targeted approaches like the ones highlighted here can help stem drug spending, but PBMs are only one part of the supply chain contributing to rising drug costs. To see all types of legislation to address drug costs, explore NASHP’s state Legislative Tracker and learn about other new laws states have enacted this year.

A New State Tool to Manage Drug Costs: Experts Share Insights into Outcome-Based Contracts for Medicaid Pharmacy Claims

May 27, 2019/in Policy Colorado, Michigan, Oklahoma Blogs Administrative Actions, Chronic and Complex Populations, Chronic Disease Prevention and Management, Cost, Payment, and Delivery Reform, Health Coverage and Access, Health IT/Data, Medicaid Managed Care, Population Health, Prescription Drug Pricing, Quality and Measurement, Value-Based Purchasing /by Jennifer Reck

Colorado and Michigan have joined Oklahoma to become the nation’s pioneering states with approved State Plan Amendments (SPAs) that enable Medicaid alternative payment models (APMs) for prescription drugs in the form of outcome-based contracts with pharmaceutical manufacturers.
In early May, state experts from Oklahoma, Colorado, and Michigan shared their experiences implementing their APMs during a NASHP webinar. A recording of the webinar is available here.

Experts from Oklahoma, Colorado, and Michigan shared their experiences implementing their outcome-based Medicaid alternative payment models during a recent NASHP webinar. Listen to the webinar here.

The SPAs enable states to negotiate contracts based on agreed-upon outcome measures tailored for specific drugs. Outcomes measures vary but may include measures such as patient adherence or reduced hospitalizations. If the drug’s performance fails to meet agreed-upon outcomes and triggers the need for additional manufacturer payments to the state, those payments are made in the form of supplemental rebates. The contract template was developed with the support of the State Medicaid Alternative Reimbursement and Purchasing Test for High-cost Drugs (SMART-D).
Though these outcomes-based APMs are valuable tools for states to manage escalating drug costs, APMs are best understood as “one more tool in our toolbox,” which are most effective when used in tandem with other strategies rather than in isolation, explained Cathy Traugott, pharmacy office director of the Colorado Department of Health Care Policy and Financing. Though these APMs may help states manage payment for high-cost drugs, the high-list prices themselves remain a problem that states are also attempting to address head on. During this year’s state legislative session alone, 47 states have filed 254 drug-cost-related bills (as of May 22, 2019).
Executing and implementing outcome-based contracting can be a time-consuming endeavor for states because of the necessity for state officials to engage with multiple manufacturers in exploratory discussions to identify drug candidates, followed by the data analysis necessary to design, and then track the outcome-based measures.
Oklahoma, whose work NASHP supported through a subgrant from the Laura and John Arnold Foundation, found that the process took longer than anticipated. Terry Cothran, director of the University of Oklahoma’s College of Pharmacy, advised states that pursue outcomes-based contracting to consider dedicating a project coordinator to execute the work most effectively.
To date, these contracts are with state Medicaid agencies only, and have not included inter-agency efforts. Rita Subhedar, state assistant administrator for Michigan’s Department of Health and Human Services, stressed the importance of broad engagement within a Medicaid department to effectively implement these APMs, including pharmacy, medical, and behavioral health staff. A separate, subscription-based payment approach, known as the “Netflix” model, utilizes a cross-agency approach engaging both Medicaid and a state corrections department. This approach was explored in another NASHP webinar, How States Pay for Hep C Drugs Using a “Netflix-style” Subscription Model.
The first results from outcome-based contracting will come from Oklahoma, whose first, one-year contract is scheduled to end July 2019, with three other contracts concluding soon after. Colorado and Michigan have not yet executed contracts.

NASHP Updates Model Drug Price Transparency Legislation, Featuring a Common Data Set for Cross-State Comparisons and Stronger Enforcement

April 23, 2019/in Policy Maine Blogs Legislative Tracker, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck

Maine state Sen. Eloise Vitelli presents legislation, based on NASHP’s new drug cost transparency model legislation, to the joint Committee on Health Coverage, Insurance and Financial Services.

As drug price transparency measures proliferate across states, the National Academy of State Health Policy (NASHP) has released revised model transparency legislation featuring a common data set to reduce reporter burden and yield standardized, actionable data that will be comparable across states. The data — to be reported by manufacturers, pharmacy benefit managers (PBMs), wholesalers, and insurers — will help state policymakers understand what is driving high drug prices through a comprehensive look across the entire drug supply chain.
This 2.0 version of NASHP’s model transparency bill also contains stronger penalties for failure to report. States will have the ability to audit any data submitted, and require a reporting entity to submit a corrective action plan for reporting deficiencies. If reporting entities do not provide the required data or if the data they provided is inadequate, the model bill allows states to invoke subpoena authority.
NASHP developed the model bill and common data set in collaboration with a work group of states currently implementing or considering transparency laws and Mathematica Policy Research. Last week, Maine State Sen. Eloise Vitelli introduced legislation based on NASHP’s updated model transparency legislation. The model bill is available in a streamlined formed as enabling legislation, as well in a longer, comprehensive version that includes in-depth information detailing the reporting requirements of the minimum data set. Additional information about the legislation, including reporting thresholds and data elements that must be reported, are available in this Q&A document. In coming weeks, NASHP will also publish customized reporting templates for manufacturers, PBMs, wholesalers, and insurers.
While NASHP’s model transparency bill builds off existing transparency measures, the common data set requires the collection of additional information not otherwise publically available, including specific information about past and projected costs and revenues at the individual drug level. Some of this information may be considered proprietary, and the model bill includes language to protect it while still requiring an annual report and public hearing to share and explore findings – although in a manner that does not reveal information specific to any one reporting entity. This reporting will provide states with more information to determine what drives high prices – and how to take effective action to address them.
States interested in this model legislation will have access to NASHP’s technical assistance. Please contact Jennifer Reck for more information.

New Law Enables New Mexico to Leverage State Purchasing Power to Lower Rx Spending

April 22, 2019/in Policy New Mexico Blogs Cost, Payment, and Delivery Reform, Health System Costs, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Trish Riley

New Mexico Gov. Lujan Grisham recently signed into law SB 131, establishing a state Interagency Pharmacy Purchasing Council to leverage public purchasing power by reviewing and coordinating cost-containment strategies through procurement of pharmaceuticals, pharmaceutical benefits, and pooling of risk among state agencies.
Cosponsored by state Sen. Jeff Steinborn* and Rep. Joanne Farrary, the law also identifies private-sector opportunities to help residents not covered by state plans, either through existing private-sector discount programs or by leveraging the government’s drug spending. Importantly, the legislature appropriated $400,000 to support the council’s work. The council will include the department heads or their designees of these state agencies and groups:

Departments of human services, health, children, youth, and families, and corrections;
The Risk Management Division of the General Services Department;
The New Mexico Retiree Health Care Authority;
Public schools and the University of New Mexico; and
Two members appointed by the governor who are officers or designees of organizations that represent county, municipal, and local governments.

The secretary of the state’s General Services Department will direct the council, which must hold its first meeting by Sept. 1, 2019.
The law preserves the authority of state agencies to make their own procurement decisions and lays out a list of strategies that the council can examine and possibly deploy, including:

Benchmarking health care costs to Medicaid, with the understanding that federal authority may be needed for changes to the Medicaid program;
Establishing a common drug formulary to be shared by state agencies;
A single-purchasing agreement;
Common procurement practices for expert services (e.g., a pharmacy benefit manager or actuarial services);
Identifying opportunities to consolidate purchasing and pool risk between two or more state agencies;
Negotiating advantageous pricing and incentives throughout the drug supply chain;
Partnering with other multi-state purchasing collaboratives; and
Identifying ways to leverage public purchasing to benefit residents who purchase services/drugs in the private sector.

The council will vote on which strategies to pursue and they will next be evaluated by the legislature’s Finance Committee, with the goal of incorporating agency savings into budget deliberations and measuring the council’s effectiveness and progress.
“I am thrilled that New Mexico has taken this important step to pursue greater cost containment of prescription drug costs,” said Sen. Steinborn. “We have crafted a bill intended to aggressively explore cost-containment options, while at the same allow flexibility and oversight. It has the potential to save our state a significant amount of money and I’m excited to have the council get to work.”
New Mexico is on the leading edge of a new wave of states’ efforts to more aggressively coordinate public purchasers and leverage their considerable buying power to lower pharmacy and other health care costs. By engaging key state agency leaders and requiring accountability and oversight by the legislature’s Budget Committee, New Mexico’s important initiative bears close watching by other states.
For more insights into states’ collaborative purchasing and cost control initiatives, read: Cross-Agency Strategies to Curb Health Care Costs: Leveraging State Purchasing Power.
*State Sen. Steinborn serves on the National Academy for State Health Policy’s Health System Performance and Public Health Steering Committee