A new, independent analysis of the Montana state employee health plan’s transition to reference-based pricing – which limits hospital prices to a multiple of what Medicare pays – found significant savings for the state in the two years after its implementation. Further, there is no evidence that utilization artificially increased as a result of the new payment model, which could occur if hospitals needlessly push more services onto patients to offset lower reimbursement rates, and, to date, there have been no hospital closures in the state.
Section 1. Statement of Legislative Intent; Purpose
The purpose of this Chapter is to protect the safety, health and economic well-being of [Name the State] people by safeguarding them from the negative and harmful impact of excessive and unconscionable prices for prescription drugs. In enacting this Act, the legislature finds that
Access to prescription drugs is necessary for [Name the State] people to maintain or acquire good health;
- Excessive prices negatively impact the ability of [Name the State] people to obtain prescription drugs and price increases that exceed reasonable levels thereby endanger the health and safety of [Name the State] people to maintain or acquire good health;
- Excessive prices for prescription drugs threaten the economic well-being of [Name the State] people and endanger their ability to pay for other necessary and essential goods and services including housing, food and utilities;
- Excessive prices for prescription drugs contribute significantly to a dramatic and unsustainable rise in health care costs and health insurance that threaten the overall ability of [Name the State] people to obtain health coverage and maintain or acquire good health;
- Excessive prices for prescription drugs contribute significantly to rising state costs for health care provided and paid for through health insurance programs for public employees, including employees of the state, municipalities and counties, school districts, institutions of higher education, and retirees whose health care costs are funded by public programs, thereby threatening the ability of the state to fund those programs adequately and further threatening the ability of the state to fund other programs necessary for the public good and safety, such as public education and public safety;
- Because the costs of prescription drugs and health insurance are tax-deductible, excessive costs for prescription drugs result in a reduction in the tax base and a resultant reduction in state revenue;
- The costs to consumers, health plans, and the state for prescription drug coverage is higher than the costs in other countries because the prices charged by manufacturers and distributors of drugs in [Name of State] are higher; and
- Based on findings (1) through (6), the legislature finds that excessive prices for prescription drugs threaten the safety and well-being of [Name the State] people and find it is necessary to act in order to protect [Name the State] people from the negative impact of excessive costs.
Section 2. Definitions
(a) “Prescription Drug” has the same meaning stated in [Cite to State’s Pharmacy Act].
(b) “Wholesale Acquisition Cost” has the meaning stated in 42 U.S.C. § 1395w-3a.
(c) “State Entity” means any agency of state government that purchases prescription drugs on behalf of the state for a person whose health care is paid for by the state, including any agent, vendor, fiscal agent, contractor, or other party acting on behalf of the state. State Entity does not include the medical assistance program established under 42 U.S.C. §1396 et seq.
(d) “Health Plan” means [State’s definition of health plan as defined in insurance statute].
(e) “ERISA Plan” means a plan qualified under the Employee Retirement Income Security Act of 1974.
(f) “Participating ERISA Plan” means an ERISA plan that has elected to participate in the requirements and restrictions of this subchapter as described in Section 4 below.
(g) “Referenced Rate” means the maximum rate established by the Superintendent of Insurance utilizing the Wholesale Acquisition Cost and other pricing data described in Section 5 below.
(h) “Referenced Drugs” means Prescription Drugs subject to a Referenced Rate.
Section 3. Payment in Excess of Referenced Rate Prohibited
(a) It is a violation of this Chapter for a State Entity or Health Plan or Participating ERISA Plan to purchase Referenced Drugs to be dispensed or delivered to a consumer in the state, whether directly or through a distributor, for a cost higher than the Referenced Rate as determined in Section 5 below.
(b) It is a violation of this Chapter for a retail pharmacy licensed in this state to purchase for sale or distribution Referenced Drugs for a cost that exceeds the Referenced Rate to a person whose health care is provided by a State Entity or Health Plan or Participating ERISA Plan.
Section 4. ERISA Plan Opt-In
An ERISA Plan may elect to participate in the provisions of this chapter. Any ERISA Plan that desires its purchase of Prescription Drugs to be subject to the prohibition described in Section 3 shall notify the Superintendent of Insurance in writing by [PICK A DATE] of each year.
Section 5. Referenced Drugs Determined
(a) As of [PICK A DATE] of each calendar year, the Director of the State Employee Health Insurance Plan shall transmit to the Superintendent of Insurance a list of the 250 most costly Prescription Drugs based upon net price times utilization. For each of these Prescription Drugs, the Director of the State Employee Health Insurance Plan shall also provide the total net spend on each of those Prescription Drugs for the previous calendar year.
(b) Utilizing this information described in subsection (a) above, as of [PICK A DATE] of each year the Superintendent of Insurance shall create and publish a list of 250 Referenced Drugs that shall be subject to the Referenced Rate.
(c) The Superintendent of Insurance shall determine the Referenced Rate by comparing the Wholesale Acquisition Cost to the cost from the: 1) Ontario Ministry of Health and Long Term Care and most recently published on the Ontario Drug Benefit Formulary; 2) Régie de l’Assurance Maladie du Québec and most recently published on the Quebec Public Drug Programs List of Medications; 3) British Columbia Ministry of Health and most recently published on the BC Pharmacare Formulary; and 4) Alberta Ministry of Health and most recently published on the Alberta Drug Benefit List.
(d) The Referenced Rate for each Prescription Drug shall be calculated as the lowest cost among those resources and the Wholesale Acquisition Cost. If a specific Referenced Drug is not included within resources described in subsection (c) above, the Superintendent of Insurance shall utilize for the purpose of determining the Referenced Rate the ceiling price for drugs as reported by the Government of Canada Patented Medicine Prices Review Board.
(e) The Superintendent of Insurance shall calulate annually the savings that are expected to be achieved by subjecting Prescription Drugs to the Referenced Rate. In making this determination the Superintendent of Insurance shall consult with the Director of the State Employee Health Insurance Plan and the Chair of the State Board of Pharmacy.
(f) The Superintendent of Insurance shall have the authority to implement regulations under [Cite state’s Administrative Procedures Act] to fully implement the requirements of this chapter.
Section 6. Registered Agent and Office within the State
Any entity that sells, distributes, delivers, or offers for sale any Prescription Drug in the state is required to maintain a registered agent and office within the state.
Section 7. Use of Savings
(a) Any savings generated as a result of the requirements in Section 3 above must be used to reduce costs to consumers. Any State Entity, Health Plan or Participating ERISA Plan must calculate such savings and utilize such savings directly to reduce costs for its members.
(b) No later than April 1 of each calendar year, each State Entity, Health Plan and Participating ERISA Plan subject to this Chapter shall submit to the Superintendent of Insurance a report describing the savings achieved for each Referenced Drug for the previous calendar year and how those savings were used to achieve the requirements of subsection (a) above.
Section 8. Enforcement
Each violation of this Chapter shall be subject to a fine of $1,000. Every individual transaction in violation of Section 3 is determined to be a separate violation. The Attorney General is authorized to enforce the provisions of this statute on behalf of any State Entity or consumers of Prescription Drugs. The refusal of a manufacturer or distributor to negotiate in good faith as described in Section 9(d) below shall be a valid affirmative defense in any enforcement action brought under this chapter.
Section 9. Prohibition on Withdrawal of Referenced Drugs for Sale
(a) It shall be a violation of this Chapter for any manufacturer or distributor of a Referenced Drug to withdraw that drug from sale or distribution within this state for the purpose of avoiding the impact of the rate limitations set forth in Section 3 above.
(b) Any manufacturer that intends to withdraw a Referenced Drug from sale or distribution from within the state shall provide a notice of withdrawal in writing to the Superintendent of Insurance and to the Attorney General 180 days prior to such withdrawal.
(c) The Superintendent of Insurance shall assess a penalty on any manufacturer or distributor that it determines has withdrawn a Referenced Drug from distribution or sale in the state in violation of subsection (a) or (b) of this section. With respect to each Referenced Drug for which the Superintendent of Insurance has determined the manufacturer or distributor has withdrawn from the market, the penalty shall be equal to 1) $500,000; or 2) the amount of annual savings determined by the Superintendent of Insurance as described in Subsection 5(e) above, whichever is greater.
(d) It shall be a violation of this Chapter to for any manufacturer or distributor of a referenced Drug to refuse to negotiate in good faith with any payor or seller of Prescription Drugs a price that is within the Referenced Rate as determined in Section 5 above.
(e) The Superintendent of Insurance shall assess a penalty on any manufacturer or distributor that it determines has failed to negotiate in good faith in violation of Subsection 9(d). With respect to each Referenced Drug for which the Superintendent of Insurance has determined the manufacturer or distributor has failed to negotiate in good faith, the penalty shall be equal to 1) $500,000; or 2) the amount of annual savings determined by the Superintendent of Insurance as described in Subsection 5(e) above, whichever is greater.
Section 10. Severability Clause
If any provision of this Chapter or the application thereof is determined to be invalid, the invalidity does not affect other provisions or applications of this subchapter which can be given effect without the invalid provision or application, and to this end the provisions of this Chapter are severable.
Last week, Pennsylvania State Sen. Senator Thomas Killion submitted a first-in-the-nation proposal to reduce drug costs in his state using a new international drug pricing model law developed by the National Academy for State Health Policy (NASHP).
The International Reference Rates model law “imports” Canadian prices, which can cost 80 percent less than in the United States, instead of importing actual drugs. The law allows payers in a state to limit the rate they pay for high-cost drugs to what Canadians currently pay, generating immediate savings for states.
For decades, the federal government – regardless of which party was in power – promised to lower prescription drug costs with little agreement or meaningful action. In 2003, Congress enacted reforms to allow state importation of drugs from Canada, but no Administration had issued the needed regulations.
States took action. In 2018, Vermont passed the first importation law to test that provision, and Florida, Colorado, Maine, New Hampshire, and New Mexico followed suit. There are currently three state applications to import drugs from Canada pending before the federal government. In December 2019, the Trump Administration issued draft rules to implement a program, which according to states need considerable revisions to address states’ needs, and the final rules are still pending.
NASHP’s new international drug pricing model law avoids the delays and complexity of importing drugs from Canada, and imports Canadian prices instead. Under the model, a state law sets a payment rate for certain prescription drugs pegged to Canadian rates and mandates that payers in the state would pay no more than prices established by Canada, following the country’s careful and transparent review and negotiations with manufacturers
This approach does not use a price-setting approach. Instead, the model sets a payment rate for drug purchases, similar to how states now set rates for what is paid to all health care providers, such as hospitals or doctors. The law also protects local pharmacies. It ensures that consumers can access low-cost drugs as they do today, and that pharmacies would pay no more than the Canadian price.
Carefully constructed with expert legal advice and guidance by states this new model law enables a state to set payment rates equivalent to what Canadians pay for 250 high-cost drugs, which would rapidly generate significant savings for states. The model does not require federal approval and can be simply administered by states.
To identify the 250 drugs subject to the new law, state employee health plans could serve as proxies for all payers and identify the 250 highest-cost drugs its members purchase based on net price multiplied by utilization. A state’s department of insurance, or another agency identified by the state, would access the published Canadian prices and use them to set the upper payment limit on what payers should pay for those drugs. If a drug manufacturer fails to comply with the limits or withdraws its products from the market, significant penalties can be levied by the state.
This week, the Trump Administration released an executive order about international pricing, often referred to as “most favored nation,” to limit Medicare Part B payment rates to international drug price rates and to create a demonstration program to test the model in Medicare’s part D drug plan. Should the new pricing strategy be implemented in Medicare, states would have the option of using the Medicare reference pricing index for their payment rates rather than Canada’s.
Across the country, state officials are actively engaged in finding ways to reduce drug costs and other policymakers are expected to join Sen. Killion’s lead. Some are considering another new NASHP model law, which penalizes drug manufacturers for price increases that are not supported by new clinical evidence in order to protect consumers from unsupported price increases. Designed to be simple and low cost for states to administer, the bill uses the independent report of the Institute for Clinical and Economic Review (ICER) to identify high-cost drugs whose price increases exceed inflation and lack sufficient clinical evidence to justify the price hikes.
ICER is collaborating with NASHP and states to make sure that its list of drugs includes those identified by states that have enacted prescription drug price transparency laws. Manufacturers’ whose drugs are included on ICER’s list of unsupported prices would be required to report their total sales in a state to its revenue services department, which could impose hefty fines on the manufacturer equivalent to 80 percent of the revenue from the unsupported price increase from all units of the drug sold in the state. Revenues from these fines would be used to offset costs to consumers and support program administration.
Coupled with other new NASHP model laws that are designed to hold pharmaceutical sales representatives accountable and protect consumers from generic drug price gouging, NASHP anticipates an active 2021 legislative session with these models advancing state action on drug pricing. NASHP will track and report on these new legislative efforts as legislatures open their 2021 sessions. View the latest state legislative action on drug prices at its up-to-date Legislative Tracker.
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.
State spending on health care for employees, retirees and health plans for teachers, university and municipal employees continues to challenge state budgets and raises questions about how best to allocate resources. It is also known that prices in the United States exceed those in other developed nations and that there is significant variation in prices paid by payers. In this webinar, we will hear from state health policy officials who are working to standardize prices paid to hospitals to maintain access and keep spending in check. This webinar will provide descriptions of two state models, and provide an opportunity to discuss the challenges these initiatives face and how they may be overcome. Panelists will answer your questions during this lively and substantive exchange.
Facilitated by Trish Riley, NASHP Executive Director
Marilyn Bartlett, Special Projects Coordinator, Office of the Montana State Auditor, will provide an overview of Montana’s success in implementing reference-based pricing, the savings it has achieved, and discuss whether other purchasers might join the effort.
Dee Jones, Executive Director, State Health Plan, State of North Carolina, will describe developing plans in North Carolina to implement reference-based pricing and the move to direct contracting.
Supported by Kaiser Permanente
The Trump Administration’s effort to address drug prices surfaced unexpectedly in the Department of Health and Human Services (HHS)’s recently issued proposed annual rule that regulates state health insurance markets, including coverage sold through the Affordable Care Act (ACA) marketplaces. The proposal encourages the use of generic drugs over brand-name drugs by both health plans and enrollees in an effort to “bring down overall health plan costs and perhaps premium increases.”
State officials need to consider whether the proposed changes will result in cost shifting from health plan premiums, which are subsidized for many individuals through advance premium tax credits, to consumers’ unsubsidized, out-of-pocket cost responsibilities. If this cost shifting occurs, how would it affect overall individual and small group market affordability? Or, are there ways to implement the proposed changes to minimize cost shifting onto consumers and truly reduce overall health expenditures? Below are some key policy issues that state officials should consider when reviewing the proposed rule.
The proposal allows health plans to eliminate brand-name drugs from essential health benefit (EHB) coverage requirements if a generic equivalent is available.
Under the proposed rule, if a health plan covers both a brand-name prescription drug and its generic equivalent, the plan could specify that only the generic drug would qualify as EHB, and the brand-name drug would no longer be considered part of EHB coverage. If a plan takes this option, premium tax credits and advanced premium tax credits (APTC) could not be applied to any portion of the premium attributable to coverage of brand-name drugs that are not considered EHB. Issuers would have to calculate that portion of the plan’s premiums and report it to the appropriate health insurance exchange for accurate APTC calculation.
It is also important to remember that lifetime and annual out-of-pocket limits only apply to cost sharing for benefits classified as EHB. Therefore, HHS is seeking comments on whether any portion of enrollees’ out-of-pocket expenditures for brand-name drugs not considered EHB should be counted toward out-of-pocket limits. One HHS proposed strategy would apply the cost of the generic toward the individual’s out-of-pocket limit and the other would not apply any portion of the brand-name drug cost toward an individual’s cost-sharing limit. Issuers pursuing this option would need to establish an appeals process for enrollees to petition for EHB coverage of brand-name drugs.
HHS notes these proposals will provide “additional flexibility for health plans in individual and small group markets that must provide coverage of the EHB to consumers to use more cost-effective generic drugs.” State officials may consider the following questions:
- Would it be possible for a state to carve out brand-name drugs from EHB, and would this rule preempt state laws, particularly in states that have already adopted their own list of essential health benefits in response to ACA challenges?
- Can issuers currently calculate the portion of a qualified health plan’s premiums spent on brand-name drugs excluded from EHB? If not, what would it cost to perform that calculation?
- How would this change be explained to enrollees? Would enrollees receive an advance notice that certain brand-name drugs would not be covered, along with information explaining how to pursue an exception process? Would enrollees be informed at the point of sale? Would enrollees purchasing brand-name drugs receive a summary of benefits that show which costs are attributed to lifetime and annual limits?
The proposal allows health plans to limit prescription drug coupons.
In another effort to encourage generic drug use, HHS proposes that amounts paid toward cost sharing using any manufacturer coupons for a brand-name drugs that have a generic equivalent not be counted toward enrollees’ annual limits on cost sharing. According to HHS, “the proliferation of drug coupons supports higher cost brand drugs when generic drugs are available, which in turn supports higher drug prices and increased costs to all Americans.”
This proposal addresses a concern that coupons can distort the true cost of drugs by offering limited-time cost reductions for enrollees’ out-of-pocket expenses, and manufacturer coupons may inflate drug prices that insurers pay. Limiting the use of coupons for brand-name drugs may steer consumers toward less-costly generic medications with lower cost-sharing responsibilities. Additionally, HHS suggests that not counting coupon amounts toward the annual cost-sharing limit would “promote prudent prescribing and purchasing choices by physicians and patients based on the true costs of drugs [as well as] price competition in the pharmaceutical market.”
HHS seeks comments on whether states should be able to decide how coupons are treated. This proposal reflects state legislative action on coupons. In 2017, California banned the use of manufacturer coupons when a generic equivalent is available. Since the 2019 legislative session began, both New Jersey and New Hampshire have proposed similar measures. State officials may want to consider:
- How difficult would it be for insurers to carve out manufacturer assistance from their pharmacy benefit and the annual limitation on cost sharing (as well as exceptions)?
- Would it be difficult for issuers to differentiate between manufacturer coupons and other types of assistance?
- What consumer education would be required?
The proposal explores implementing reference pricing for prescription drugs.
HHS is also exploring the possibility of implementing reference-based pricing for prescription drugs. Reference-based pricing, as described in the proposed rule, would allow an issuer covering a group of similar drugs (perhaps a therapeutic class of drugs) to set the price that its health plans would pay for those drugs. Enrollees would be responsible for paying the difference between the cost of a drug and the reference price that the health plan sets if enrollees desire a drug that exceeds the reference price. HHS notes that while reference-based pricing could “bring down overall health plan costs, and perhaps premium increases,” it could also increase consumer out-of-pocket costs if an enrollee opts for a drug priced above the reference price. When submitting comments, state officials might consider:
- How would issuers determine the reference prices? Would there be a standard process for selecting reference prices? What role would the states or HHS play in that process?
- Would enrollees’ entire out-of-pocket spending on drugs that exceeds the reference prices go toward their annual cost-sharing limit?
Under the proposed rule, HHS seeks to encourage use of generics over brand-name drugs to decrease overall spending on pharmaceuticals and reduce health plan premium price increases. The proposed rule would likely benefit plans by reducing spending on brand-name drugs, which could in turn lower premiums if savings are passed to enrollees. However, in the short-term, consumers could face increased out-of-pocket spending for brand-name drugs. Are there ways to minimize cost shifting and pursue such proposals to reduce overall costs?
For more information, read this summary of all of the provisions in the federal proposed rule. HHS is accepting comments on the rule until Tuesday, Feb. 19, 2019.
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.