One week into the 2019 legislative season, lawmakers from 11 states have already submitted 30 bills to address the rising cost of prescription drugs.
The bills submitted to date seek to implement wholesale drug importation programs, increase pharmaceutical pricing transparency, and regulate pharmacy benefit managers (PBMs), along with other drug cost containment initiatives.
Last year, nine states introduced legislation to either study or implement wholesale drug importation, and Vermont became the first state to pass an importation bill. This year, Colorado has reintroduced a bill that would require its Department of Health Care Policy to design a wholesale importation program, and Missouri also reintroduced a bill to study importation.
Requiring transparency into dramatic price hikes to understand better prescription drug pricing is also expected to remain an area of interest for state lawmakers. In 2018, five states enacted laws that require pharmaceutical manufacturers, PBMs, and health plans to share information behind prescription drug costs and their increases. A newly proposed bill in Texas would require greater pricing transparency for essential diabetes medications, following in the footsteps of Nevada, which passed a similar measure in 2017.
One of the most popular, bipartisan drug pricing legislation passed during the last session was regulation of PBMs. More than 90 PBM bills were introduced last year with 20 states enacting 31 of them. In October, following the legislative precedent taken by dozens of states, Congress passed legislation to prevent gag clauses in PBM contracts to allow pharmacists to share pricing information with consumers. While the prohibition on gag clauses now applies throughout the country, states continue to explore innovative ways to contain costs within the drug supply chain.
During the new 2019 season, eight states have filed 16 bills focusing on PBMs. In Montana, legislation would regulate the way health insurers contract with PBMs to prevent spread pricing — a payment model that allows PBMs to profit by charging insurance plan sponsors more for a prescription than the PBM pays the dispensing pharmacy. The lack of transparency in the spread-pricing model makes it difficult for states to identify how much spread pricing contributes to their overall drug costs. Montana’s proposed legislation is designed to lower health plan premiums for consumers.
With 46 states convening their 2019 legislative sessions and 13 states already introducing bills to curb rising prescription drug costs, clearly this a top priority for many state lawmakers. This is not surprising, in 2018 state lawmakers filed more than 170 prescription drug cost containment bills, with 45 enacted.
Drug prices were frequently mentioned by state and national candidates during the 2018 midterm elections. As national attention on drug prices expands, states will continue to explore solutions to curb the rising cost of pharmaceuticals. The National Academy for State Health Policy (NASHP) will continue to track state’s prescription drug cost bills as they are introduced, enacted, and implemented. To learn more about each state’s drug cost containment bills, explore NASHP’s Legislative Tracker.
During the 2018 legislative session, 28 states passed 45 laws to curb the rising cost of prescription drugs. In addition to legislative solutions, states are taking administrative action to better manage state spending on Medicaid pharmacy benefits. Ohio, West Virginia, and Vermont offer examples of states taking innovative administrative approaches to rein in drug costs.
Ohio Medicaid Replaces Spread Pricing with More Transparency
In August, the Ohio Department of Medicaid announced it would require its five managed care plans to end contracts with pharmacy benefit managers (PBMs) that used “spread pricing.” Spread pricing is a payment model that allows PBMs to profit by charging insurance plan sponsors more for a prescription than the PBM pays the dispensing pharmacy. The lack of transparency in the spread-pricing model makes it difficult for states to identify how much spread pricing contributes to their overall drug costs.
Ohio investigated the impact of spread pricing and found it generated an 8.8 percent PBM markup on its Medicaid managed care pharmacy claims, a margin that enabled PBMs to pocket an average of $5.70 per prescription dispensed. In response, starting Jan. 1, 2019, Ohio will require managed care plans to use a transparent, pass-through payment model that requires PBMs to charge Medicaid exactly what they pay the dispensing pharmacy. To compensate PBMs under this pass-through pricing model, Medicaid managed care plans will pay PBMs an administrative fee estimated at 95 cents to $1.90 per prescription. To meet the deadline, managed care plans are working with PBMs to restructure contracts to comply with the pass-through requirement.
In contrast to Ohio’s administrative approach, Louisiana’s 2018 spread pricing law, Act 483, bans PBMs that contract with the state from retaining any revenue in excess of the amount the PBM paid to the pharmacy through spread pricing.
West Virginia Ends Use of PBMs
In 2017, West Virginia stopped using PBMs altogether after an audit revealed that public employee health plans were charged 1 percent more for prescription drug claims than PBMs were paying pharmacies. Lawmakers determined the 1 percent cost the state $10 million per year.
Instead of using PBMs to administer pharmacy benefits for state workers and Medicaid beneficiaries, West Virginia now acts as its own PBM under a fee-for-service model run by its Bureau for Medical Services’ Office of Pharmacy Services (OPS). In addition to managing the single state preferred drug list, which had previously been used across managed care plans, OPS developed a Preferred Diabetes Supply List. The state pharmacy board estimates that carving out pharmacy benefits from its Medicaid managed care program will save the state $38 million in the first year. Administrative cost savings and modifications to dispensing cost formulas helped achieve those savings.
Vermont Explores a Direct Relationship with a Wholesaler
The Department of Vermont Health Access (DHVA) released a Request for Information (RFI) in September to explore potential savings from establishing a direct relationship with a drug wholesaler. The RFI was in response to a legislative mandate in Act 193 that requires the state to identify opportunities for saving in the prescription drug supply chain. Under this model, payment for drugs would flow directly from DHVA to the wholesaler. Currently, pharmacies purchase drugs directly from wholesalers and are then reimbursed by DHVA. All publicly-funded prescription benefits in Vermont are reimbursed under a fee-for-service model, and pharmacy reimbursement rates are set by the state, not a pharmacy benefit manager. As a result, DHVA makes all payments to pharmacies directly, and not through a third party.
A direct relationship between a wholesaler and the state would allow DHVA to purchase drugs in a manner similar to the 340B Drug Pricing Program model, which may present savings opportunities. DHVA must report its findings to the Vermont legislature by Nov. 15, 2018.
Recent action, both administrative and legislative, reflects states’ growing demand for more transparent pricing and payment models. Learn more about all state action on curbing drug costs at the National Academy for State Health Policy’s Center for State Rx Drug Pricing, a warehouse of resources, including model legislation, new state laws, and legal analysis.
On the heels of Oklahoma’s first-in-the-nation, value-based purchasing deal to improve adherence to an antipsychotic drug, the state’s Medicaid agency just signed its second value-based contract for a prescription drug used to treat serious bacterial skin infections.
While several private insurers have initiated value-based contracting, which links payments to a drug’s effectiveness and outcome, Oklahoma is the first state Medicaid program to initiate this payment reform innovation.
Oklahoma’s second contract, finalized this month, is with the pharmaceutical company Melinta for oritavancin (Orbativ), a drug used primarily to treat bacterial skin infections. Because oritavancin costs more than other treatments, the state Medicaid program had required prior authorization before paying for the drug. However, under the new value-based contract, prior authorization will no longer be required.
In return for having the drug listed as a first-line treatment, Melinta ensures that oritavancin will not result in a net increase in costs. While other drugs used to treat bacterial skin infections may require hospitalization for administration, oritavancin does not. While its purchase price is higher, oritavancin is not expected to cost the state Medicaid program more because it is expected to eliminate costly hospitalizations required by other drug options.
However, under the terms of the value-based contract, if the state does incur higher costs from oritavancin – despite the avoided hospitalizations — Melinta will be on the hook to cover those costs through additional rebates to the state.
Oklahoma’s contract with Melinta builds on its first-in-the-nation, value-based prescription drug contract signed in July, 2018. That contract is with the drug manufacturer Alkermes for the long-acting injectable, anti-psychotic drug aripiprazole lauroxil (Aristada). The contract is designed to reward increased patient adherence. Under the contract’s terms, as adherence targets are met – which result in greater drug usage, sales, and improved outcomes — the price the state pays for the drug decreases.
Each of these two value-based contracts is a unique, negotiated agreement that required time and trust between the state and drug manufacturer to execute. While Oklahoma initially approached larger drug manufacturers to enter into value-based contracting for high-priced, higher-profile drugs, such as those used to treat hepatitis C, Oklahoma to date has found success with smaller companies, which had greater flexibility to enter into innovative agreements with the state.
Each contract requires extensive data analysis to explore the relevant patient population characteristics and potential, measureable outcomes in order to design a viable agreement. Oklahoma’s groundbreaking work in Medicaid value-based contracting for prescription drugs is expected to pave the way for other states to pursue similar initiatives.
The National Academy for State Health Policy (NASHP) supported Oklahoma’s data analysis to build its contracts through a sub-grant from the Laura and John Arnold Foundation, which also supports NASHP’s Center for State Rx Drug Pricing.
SMART-D, the State Medicaid Alternative Reimbursement and Purchasing Test for High-Cost Drugs, also helped Oklahoma by supporting its successful application to the federal government for a state plan amendment that enabled it to enter into value-based contracts under its Medicaid Drug Rebate Program.
Earlier this year, more than 50 state leaders joined a session exploring Oklahoma’s value-based contracting at NASHP’s 31st Annual Health Policy Conference. In the coming months, NASHP will write more about value-based purchasing and sponsor a webinar to enable a national discussion on state value-based contracting for prescription drugs.
*Update: On Oct. 10, 2018, President Trump signed two bills designed to increase prescription drug price transparency by prohibiting gag clauses, which prevent pharmacists from disclosing lower-cost drug options to consumers. One bill prohibits gag clauses under Medicare Part D starting in 2020 and the other affects private insurance markets and goes into effect immediately.
As states take the lead implementing dozens of innovative laws to curb the rising costs of prescription drugs, the federal government is following with a recent wave of proposed bills and rule changes designed to rein in drug costs nationally.
This year, state legislatures approved an unprecedented number of measures to curb crippling drug costs, from enacting drug price transparency laws in seven states to addressing objectionable pharmacy benefit manager (PBM) business practices in 20 states. Vermont recently passed a measure enabling the state to pursue federal certification for a wholesale importation program from Canada.
The momentum and range of activity at the state level has parallel, emerging federal action — serving as a reminder of the vital role states play as incubators for innovation. The federal government has recently taken the following action:
- Following passage of Vermont’s wholesale importation law (Act 133), the US Department of Health and Human Services announced in July it would form a work group to study importation of off-patent (generic) drugs. This federal study is not expected to directly impact Vermont’s importation plan. A regulatory channel that permits the Vermont program to move forward already exists within federal law (Section 804 of the Federal Food, Drug, and Cosmetic Act). This provision requires a state to certify the safety and cost-savings of its importation program. Vermont is poised to be the first applicant for federal certification for wholesale importation and, if approved, would serve as the state model for this approach.
- On Aug. 30, 2018, a federal judge dismissed the trade group Pharmaceutical Research and Manufacturers of America’s (PhRMA) complaint against California’s drug price transparency law (SB 17). The court decided PhRMA did not provide sufficient evidence to back its claim that the law attempted to “dictate national health care policy.” The law requires all drug price hikes of 16 percent or more over a two-year period to be subject to state transparency law review. PhRMA now has 30 days to submit new evidence to back its claims. The National Academy for State Health Policy (NASHP) will report updates on court action related to this lawsuit.
- Following in the footsteps of 17 states that have passed laws banning gag clauses in PBM contracts, which prohibit pharmacists from disclosing lower-cost drug options to consumers, the US Senate last week unanimously passed a bipartisan bill to ban gag clauses that impact patients enrolled in Medicare Advantage and Medicare Part D.
- In a parallel move, last week the House Energy and Commerce’s health subcommittee also unanimously advanced their own bill banning PBM gag clauses.
- To underscore that drug prices are a bipartisan issue, in May the Trump Administration released its Blueprint to Lower Drug Costs and recently Congressional Democrats released their own Better Deal proposal that includes many drug price control measures already implemented by states, including:
- Anti-price-gouging legislation that fines manufacturers for “unconscionable” price increases, similar to what Maryland (MD 631) passed, and
- Transparency legislation, similar to what seven state legislatures have approved, which requires manufacturers to justify large price increases.
- To underscore that drug prices are a bipartisan issue, in May the Trump Administration released its Blueprint to Lower Drug Costs and recently Congressional Democrats released their own Better Deal proposal that includes many drug price control measures already implemented by states, including:
- NASHP is also tracking the recent release of a Centers for Medicare & Medicaid Services proposed rule, Regulation to Require Drug Pricing Transparency, and will publish more information about the proposal as it becomes available.
The recent federal legislation and policy proposals demonstrate that when states lead and create innovative policy on important issues such as drug prices, federal action often follows. Learn more about state action on drug prices at NASHP’s Center for State Rx Drug Pricing, a warehouse for resources such as model legislation and legal analysis.
States play critical roles in ensuring that people living with HIV (PLWH) have access to quality care through their Medicaid and Ryan White HIV/AIDS programs. PLWH can be among the most medically complex individuals covered by state health programs, and their care can cost five-times more than the average Medicaid beneficiary. Given limited resources, state policymakers are working to develop policies and strategies to ensure that care to PLWH is accessible, well-coordinated, and effective.
This three-part series explores policy levers and strategies that states are utilizing to focus limited resources and provide comprehensive and accessible care to PLWH.
- State Strategies to Improve Collaboration Between Medicaid and AIDS Drug Assistance Programs: This report explores how Illinois, Louisiana, New Jersey, New York, Oklahoma, Rhode Island, Washington, DC, and Wisconsin are using policy levers to more effectively deploy limited resources and provide better care to PLWH.
- States Strengthen Medicaid-Ryan White Collaboration to Improve Care Coordination for People Living with HIV: This report explores how Medicaid and Ryan White HIV/AIDS Programs in California, New York, Washington, and Wisconsin have partnered to improve care coordination services for people living with HIV.
- Maintaining Access: State Strategies to Coordinate Eligibility between Medicaid and Ryan White Programs: This report examines how Colorado, Illinois, Maryland, Phoenix (AZ), Texas, and Vermont have coordinated eligibility between Medicaid and Ryan White HIV/AIDS Programs in order to help ensure consistent access to care for people living with HIV.
The Centers for Medicare & Medicaid Services (CMS) had a mixed response to two states’ innovative efforts to control Medicaid drug costs in June. The agency denied Massachusetts’ 1115 waiver request to create a closed Medicaid drug formulary, but it approved Oklahoma’s State Plan Amendment that authorizes supplemental rebates for value-based purchasing arrangements with pharmaceutical manufacturers.
Here’s a snapshot of the two applications :
The Massachusetts 1115 waiver request contained a provision that allowed the state to exclude certain low-value drugs – which render fewer benefits relative to their costs — from its Medicaid drug formulary. Currently, states must cover all prescription drugs as a condition of their participation in the federal Medicaid Drug Rebate Program (MDRP). In its denial of Massachusetts’ waiver provision , CMS reiterated that a state would have to fully forgo participation in the MDRP in order to create a closed formulary, and that federal costs from the closed formulary could not exceed costs that would have been incurred otherwise. CMS’s response to Massachusetts mirrors the Trump Administration’s proposal for a five-state demonstration project to test the impact of allowing states to negotiate their own drug formularies outside of the rebate program.
|Learn More at NASHP’s Rx Summit, Aug. 15-17, 2018, Jacksonville, FL
To learn more about these two states’ efforts to control drug costs and other new and emerging state strategies, attend NASHP’s 31st Annual State Health Policy Conference’s Summit on State Strategy and Tactics to Lower Rx Prices on Aug. 17, 2018, in Jacksonville, FL.
The summit, open only to state officials, includes a panel discussion on “New Tools for Medicaid to Cut Drug Costs” with speakers from Massachusetts, Oklahoma, New York, and other states. Learn more about the conference here and register by July 20 to get the early bird discount.
Oklahoma’s State Plan Amendment, which enables value-based purchasing, was approved by CMS, making it the first state plan to incorporate supplemental rebates for value-based purchasing agreements with drug manufacturers. The state will negotiate additional rebates from drug manufacturers for high-cost drugs that do not achieve agreed-upon outcomes. Through support from the Laura and John Arnold Foundation, NASHP awarded Oklahoma a sub-grant in October 2017 to advance value-based purchasing as a solution to rising drug costs. NASHP’s sub-grant to Oklahoma supports the data analytics required to explore the feasibility and design of contracts for value-based purchasing of specific drugs. The results of this value-based purchasing initiative including findings on how to expedite data analytics will be shared with other states interested in following in Oklahoma’s footsteps.
If you’re working to control the cost of prescription drugs, you need to know the lingo used by the pharmaceutical industry. Below is a glossary of terms commonly used by players in the drug research, regulation, manufacturing, distribution, and purchasing worlds.
Drug Product Terms
Brand product: Branded products are not generic drugs or products. A brand can be an innovator (first-in-class) or not. It is protected by a patent or has an expired patent. It is licensed under a New Drug Application by the US Food and Drug Administration (FDA).
Generic drug: Competitors to a branded product that has an expired patent. Generics are considered identical to the brand product. Licensed under an Abbreviated New Drug Application by the FDA.
Biologic: A therapeutic drug or a vaccine, made from living organisms — human, animal, yeast, or microorganisms — licensed under a Biologic License Application by the FDA.
Biosimilar: Competitors to the first-in-class biologic product that has an expired patent. These drugs are not currently considered to be identical to the original product (because of the nature of manufacturing with live products), but are considered to be therapeutic alternatives.
Retail drugs: Any kind of drug typically available at a pharmacy counter. Usually billed on a pharmacy claim.
Physician-administered drugs: Any kind of drug that cannot typically be self-administered. Usually billed on an office visit claim.
Specialty drug: A drug that is costly, requires special supply chain features (such as freezing or cold storage), typically indicated for a small group of patients, and where the patients may need special case management services. This is the broadest definition. There is no single agreed-upon definition, so sometimes specialty drug will only mean high-cost. For instance, specialty drugs in the Medicare Part D program are only defined by cost – currently $670/month (2018) – and indexed annually.
Innovator drug: The drug from which generics or biosimilars are made – the first product of its type.
Multisource drugs: Any and all the generic drugs (included the innovator) which are competing against each other.
Small molecule products: These are capsules, tablets, powders, ointments, sprays – that are generally self-administered and available at retail pharmacies with no live ingredients.
Large molecule products: These are known as ‘biologics’ – and contain live active ingredients. They are infused or injected and are not typically self-administered.
Pipeline drugs: Drugs (small or large molecule) under development by a manufacturer.
In-line or post-market drugs: Products that are licensed and in the market.
Distribution System Terms
Wholesaler: In a simple distribution system, the wholesaler is the first purchaser of a drug product – direct from the manufacturer. Wholesalers buy very large quantities and then resell either direct to provider-purchasers (like a large health system, pharmacy or pharmacy chain), or resell to smaller, regional distributors for regional or local distribution to retail pharmacies and hospitals.
Specialty pharmacy: These organizations may or may not take ownership of the drug product. Their clients are drug manufacturers that want or need limited distribution of specialty drugs. Specialty drugs are typically (but not always) high cost, require special shipping and storage (freezing or cold storage), are indicated for relatively small patient populations treated by physician specialists. Manufacturers have been accused of using specialty pharmacies to limit access to a drug by potential generic or biosimilar competitors (limited distribution can make it difficult to obtain a drug sample if the entity is not a treating provider on a list approved by the manufacturer). Specialty pharmacy can deliver ‘just in time’ products by working with treating providers to supply the appropriate drug in time for a patient visit at the location where the drug will be used.
Administrative Organizations in the Supply and Payment Chain Terms
Health plan: Health insurance coverage provided by an individual or group that provides or pays the cost of medical care. Health plans can be provided by public (Medicaid) or private (an employer) entities.
Payers: The entity responsible for processing insurance claims. It can handle eligibility, enrollment, and premium payment oversight.
Pharmacy benefit manager (PBM): PBM clients are health plans. PBMs handle some or all of the pharmacy benefit for health plans (formulary design, cost sharing and tiers, pharmacist networks and contracts, price concession negotiation with manufacturers). PBMs may own mail order pharmacies and/or specialty pharmacies. Unless the PBM owns a pharmacy, it is not part of the drug distribution/supply chain.
Group purchasing organization (GPO): These entities represent groups of drug purchasers, such as hospitals and health systems. A GPO negotiates on behalf of its clients for either up-front, on-invoice discounts or back-end rebates. Importantly, GPOs do not take ownership of a drug; they are not part of the supply chain. GPOs essentially negotiate a purchase-order from which members of the buying group can purchase in whatever quantities needed. Wholesalers supplying to GPO members typically provide the drug at the discounted price on the invoice and then are compensated by the manufacturer after the fact. GPOs may provide additional client administrative services as well.
Pharmacy services administration organization (PSAO): Similar to a GPO, but it serves independent pharmacies. In addition to price negotiation with PBMs, PSAOs offer a variety of administrative services to pharmacies. PSAOs are often owned by wholesalers or PBMs.
Wholesale acquisition cost (WAC): The price the wholesaler pays the manufacturer. Generally considered the ‘list’ price. This price is under the control of a manufacturer.
Average wholesale price (AWP): The price at which a wholesaler sells product to others in the supply chain (hospitals or pharmacies for example). AWP is independent of whatever price concession deals a manufacturer might make with hospitals or other purchasers. AWP is generally estimated by companies that provide “pricing files” to insurers or PBMs so they can know how much to reimburse pharmacies, hospitals, clinics, etc. for dispensed drugs. AWP of the pricing files is thought to be higher than what dispensers actually pay. Therefore, many payers reimburse pharmacies something like AWP-17 percent or lower – reflecting what they believe to be the cost that needs to be reimbursed.
Actual acquisition cost (AAC): Increasingly health plans and other large payers are trying to ascertain what pharmacies and other dispensers actually paid to get the drug in stock. Payers want to reduce the extent to which dispensers profit on the drug price and move profit or revenue to the professional fees associated with the dispensing of the drug.
Types of Manufacturer Price Concessions
Rebates: These are provided by manufacturers and are typically based on the ability of a payer to move market share for the manufacturer’s product. Rebates are confidential. Rebates are billed periodically by the insurer or PBM based on drug utilization subject to the rebate. Rebates allow the manufacturer to retain a high list price (which can be important to the manufacturer so any US price that might wind up in the reference pricing system of another country is high).
On-invoice discounts: Whatever price concession agreement a manufacturer has with a purchaser, the discount is on the invoice (rather than a post-sale rebate).
Coupons: These are given to consumers for use at the point of service (the pharmacy counter). Coupons mitigate the impact of insurance coverage cost sharing for a manufacturer’s product. A coupon might cover the full deductible cost, copays or coinsurance. Pharmacies redeem the coupons with the manufacturer or its coupon administration vendor. There are different views about coupons. They provide patient out of pocket cost relief for drugs where insurance benefits require significant cost sharing on high cost drugs. They also can undermine insurer efforts to control utilization (and costs) by encouraging a patient to move to less costly generics or alternative branded treatments. Coupons are not permitted in Medicaid or Medicare because of the effect on program costs. They are restricted in the commercial markets of California and Massachusetts.
Medicaid Rebate Terms
Average manufacturer price (AMP): This is a Medicaid term and does not have any meaning or use outside the Medicaid program at this time. It is calculated by the manufacturer and provided to CMS, which uses it to let state Medicaid programs know the unit rebate amount for billing manufacturers. It is the average of manufacturer prices to the wholesale and retail class of trade (does not include sales from wholesalers to retailers but only the prices in any direct agreement between manufacturer and a retail seller). The Medicaid rebate is 23.1% of the AMP. AMP is confidential and not publicly available.
Best price (BP): Is a Medicaid term and does not have any meaning or use outside the Medicaid program at this time. It this best price the manufacturer offers to any purchaser in the U.S.; this could be a clinic, a hospital, a health plan, a PBM, and so on. Generally speaking, if the BP is greater than 23.1% of the AMP, all state programs will get the BP rebate. BP is confidential and not publicly available.
Provider Drug Reimbursement Payment Limit Methods
Average sales price (ASP): This is a Medicare Part B reimbursement term used to pay for Medicare Part B drugs (which are typically physician-administered drugs). This is the weighted average manufacturer price for a product in the market. This applies to multi source drugs and patented products. Medicare reimburses physicians ASP+ 6 percent for Part B drugs.
Maximum allowable cost (MAC) and federal upper limits (FUL): Briefly, these payment limit methods apply only to multisource drugs (including the off-patent brand). The approach appears to be used by almost all payers. MAC/FUL is the average price of all the multisource drugs in a group. The frequency the MAC/FUL is recalculated is at the discretion of the payer. The multi-source drugs to which a MAC is applied is also at the discretion of the payer.
Actual acquisition cost (AAC): Discussed elsewhere, payers increasingly are moving to an AAC model, which is calculated using provider cost survey data.
Some percentage of average wholesale price (AWP): Payers assume that a published AWP is higher than what a pharmacy or provider actually pays for a drug, so payers reimburse pharmacies and other providers some percentage less than AWP, for instance AWP – 17 percent.
Reference price: This is generally not used in the US at this time for drugs. A reference price limits the amount the insurer will pay for one product to the price of a similar product in the market. There are a number of ways to structure reference pricing, an example would be to tie the amount an insurer will pay (to a doctor or pharmacy for instance) to the lowest price of any drug in the therapeutic class, or limit the insurer payment to the average price of drugs in a class. If the consumer choses a product that exceeds the reference price, the consumer pays — to the provider or pharmacy– the difference between what the insurer will reimburse the pharmacy and the pharmacy’s costs/charge of the more expensive drug.
Dispensing fee/Professional fee: There are two parts to pharmacy payment: ingredient cost and dispensing fee. The ingredient cost is where payers apply MAC, AWP, AAC etc. The dispensing fee remunerates for the professional services of the pharmacist. Dispensing fees have trended upward in recent years as payers try to move from pharmacy profits on the ingredient cost to profits on the dispensing fee and as pharmacists have taken on a greater role in case management type services for some health plans.
(Last updated June 2018)
The Trump Administration announced a series of initiatives earlier this month to reduce prescription drug prices and patient drug costs. Its American Patients First provides an outline of ideas for future action and reprises initiatives the Administration recently began. The Administration is now seeking public input on many of these proposed policies.
The Administration’s Request for Information (RFI) — entitled HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs — seeks responses to questions about a great variety of policy ideas described in the Patients First document.
While there are many ideas on the table, the National Academy for State Health Policy (NASHP) is examining proposals to expand US Department of Health and Human Services (HHS) data collection and transparency. If expanded and made current, this data could bolster drug price transparency initiatives, which are of great interest to states and have been recently approved by several state legislatures.
As part of its initiative, the Administration took a significant step last week by rolling out its revised Medicare and Medicaid drug spending dashboards. To date, the dashboards provided information about past program spending, but now they include specific drug prices with annual price changes dating back to 2012. This is a great new transparency tool for states and researchers. In its RFI, the Administration asks how this drug price-tracking effort can be improved.
How to Improve Drug Cost Data
The current dashboards use insurance claims information. While offering a great tool for price transparency tracking, years-old information will not help states that are trying to develop strategies to lower drug prices in real time, as new state transparency efforts do. HHS should take additional steps to provide more current list prices and price changes on its website, which would create efficiencies for states. If that information was readily available, states would not have to recreate systems to track price increases and could instead focus their resources on collecting manufacturer price increase justifications as new state transparency laws now require.
The RFI also asks for input on improving other HHS data about prescription drug costs. For example, the RFI asks if it would more informative to publish information on national gross (before rebates) and net (after rebates) spending. Providing gross and net prescription drug spending would certainly assist the industry in demonstrating that their net prices are lower than the public understands. However, it will be even more helpful for the public to understand how prescription drug costs impact health care coverage and spending. Currently, the Centers for Medicare & Medicaid Services’ Office of the Actuary presents prescription drug spending as a portion of total national health expenditures (NHE).
NHE includes spending on health and medical research, long-term services and supports, and other important health expenditure categories. In the context of all national health spending, spending on drugs may not appear as significant as it does when examined in the context of personal medical service spending or health care coverage.
A separate, annual analysis of prescription drug spending as a percentage of federal, federal/state, and commercial health coverage spending would give policymakers an informative representation of the significance of prescription drug spending and spending increases where it counts most.
NASHP’s Pharmacy Costs Working Group will be responding to the HHS RFI about these and other ideas, and will feature the responses on its Center for State Rx Drug Pricing website.
Vermont is the first state in the nation to approve a wholesale program to import lower-cost prescription drugs from Canada, following Gov. Phil Scott’s signing of the landmark law last week. Vermont now begins the task of winning approval from the secretary of the US Department of Health and Human Services (HHS) and implementing its program.
|What federal requirements must Vermont’s importation law meet to win approval?
Vermont carefully crafted its importation law to meet federal requirements. HHS allows programs of wholesale importation of drug from Canada, as long as consumers benefit from lower drug costs, drug safety is assured, and opioids are not among the drugs imported.
The new law establishes checks and balances to guarantee it meets the federally-mandated cost savings and drug safety requirements by:
Guaranteeing safety: Vermont can only purchase drugs only from Canadian government-regulated suppliers.
Achieving savings: Vermont will only import drugs that are expected to generate substantial savings for its consumers. The imported drugs cannot be sold outside Vermont.
Sustainable funding: Vermont will charge a nominal fee on each prescription, or establish another financing mechanism, to ensure that the program is funded in a way that does not jeopardize consumer savings.
Careful oversight: The law requires a “robust” audit and oversight process to guarantee cost savings. The state attorney general will monitor the program for “anticompetitive behavior” by industries that are affected by a wholesale prescription drug importation program.
Vermont’s Agency for Human Services is responsible for applying to HHS for approvals needed to initiate the program, and it will begin implementation within six months of getting state funding and federal approval. Its implementation plan includes the following steps:
Step 1: The state will either become licensed as a drug wholesaler itself or it will contract with a Vermont-licensed wholesaler. Next, it will contract with one or more Vermont-licensed drug distributors who will use existing drug supply chains to provide proper distribution of drugs throughout the state.
Step 2: Vermont will create a registration process for health insurance plans, pharmacies, and health care providers that want to participate in the program.
Step 3: The state will work with payers and others to identify which high-cost drugs are expected to yield the greatest cost-savings to consumers if they’re imported from Canada. It then arranges to import those drugs in bulk from licensed Canadian suppliers.
Step 4: To guarantee pricing transparency and accountability, Vermont will publicize the prices of imported prescription drugs widely, create a marketing and outreach plan, and set up a hotline to answer questions and address the needs of consumers, employers, health insurance plans, pharmacies, health care providers, and others.
Step 5: Vermont will audit the program and report annually to the House Committee on Health Care and the Senate Health and Welfare and Finance committees about which drugs are imported and the number of participating pharmacies, health care providers, and insurance plans. The law also requires detailed reporting from insurance plans about their drug costs and the savings achieved through importation.
NASHP will work with Vermont officials and continue to report on Vermont’s application to HHS and its implementation of the landmark importation initiative.
Read NASHP’s model drug importation legislation, on which Vermont’s new law is based.
View an easy-to-read infographic on the steps required to implement wholesale importation.
Vermont is the first state in the nation to approve importation of less-costly prescription drugs from Canada.
For the first time in the United States, obtaining low-cost prescription drugs from Canada is one step closer to reality today following the Vermont state legislature’s landmark enactment of S.175. Vermont Gov. Philip Scott signed the bill into law on May 16, 2018.
Based on the National Academy for State Health Policy’s (NASHP) model importation legislation, S.175 creates a wholesale importation program to purchase high-cost drugs through authorized wholesalers, who will purchase the drugs in Canada and make them available to Vermonters through an existing supply chain that includes local pharmacies.
The bill passed the Vermont House by a 141-2 vote and the Senate unanimously approved it yesterday.
Vermont Senate President Pro Tem Tim Ashe commented, “It is outrageous that a commonly used medicine like Lipitor costs 46-times more per pill in the United States than in Canada. In fact, legislative staff determined that importing just two diabetes drugs from Canada would save the state’s teacher health insurance plan more than $500,000 each year.
State Sen. Claire Ayers and state Rep. Bill Lippert and Ashe worked to carefully shepherd the bill through both houses. The bill requires Vermont’s Agency for Human Services, in consultation with stakeholders and the federal government, to design and submit an importation proposal to the state legislature on or before Jan. 1, 2019 and further requires the agency to submit its proposal to the federal government on or before July 1, 2019, for final approval. The importation program must be operational within six months of approval of the financing strategy, certification, and federal government sign-off.
The proposal will identify the high-cost drugs to be imported from Canada and detail how the program will be implemented. The legislation directs the agency to recommend a financing mechanism, either through a per-prescription charge or another method, to ensure the program is funded in a manner that does not jeopardize the significant consumer savings that are expected. Based on that recommendation, the legislature will enact a funding mechanism during its next session.
Giving the Agency for Human Services time to develop an implementation plan guarantees the legislature will have the information needed to establish the funding mechanism and address questions that arose during legislative deliberations, including what provisions can be in adopted to make sure that Vermont’s eligibility for the federal 340B drug discount program, which requires drug manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices, is not jeopardized.
“In the absence of federal action to control the cost of prescription drugs, states can’t wait, they need to control drug costs now for all of their citizens,” said NASHP Executive Director Trish Riley. “Vermont’s legislature has taken an important step in lowering prescription drug prices that we hope will serve Vermonters well and inform the federal policy debate.”
Across the country, a total of nine legislatures introduced drug importation bills this year. While Utah did not enact its proposed importation law, its legislature requested the state’s executive branch to develop a proposal so the legislature could, based on the proposal, re-introduce a wholesale importation bill next session. Utah’s study and Vermont’s implementation planning process are similar in their design and approach.
NASHP is working with states to advance wholesale importation programs that can be approved by the federal government and implemented to generate savings and guarantee safety to the citizens they serve.
For more information on drug importation, read Is It Safe and Cost-Effective to Import Drugs from Canada?