Maine – The National Academy for State Health Policy

States’ drug price transparency programs are effectively analyzing and reporting data — an important tool for informing the public, holding drug supply chain entities accountable for high costs, and identifying potential policy approaches. Leading states are highlighting high prices for anti-inflammatory drugs, the impact of pharmacy benefit manager (PBM) regulation on drug spending and the use of rebates, and a discrepancy between prices along the supply chain that reduces the potential savings from decreasing generic costs.

Maine, Washington, and Oregon, three of the 14 states with drug price transparency laws, recently published comprehensive reports analyzing collected data in late 2021 and early 2022. This blog shares some key findings from these reports.

Identifying High Cost Drugs

Drug price transparency laws enable states to identify specific high cost drugs that are creating affordability challenges for consumers and payers. For example, Oregon’s drug price transparency program found that there was more money spent on anti-inflammatory drugs than on any other class in the state, and most of that was spent on AbbVie’s Humira. Anti-inflammatory drugs treat autoimmune conditions, such as arthritis, Crohn’s disease, ulcerative colitis, and plaque psoriasis.

Oregon’s program requires manufacturers to report price increases for drugs with a cost of more than $100 a month that increase greater than 10 percent in the prior calendar year. Although Humira did not meet this threshold in 2021, Oregon’s program looked further into the impact of the drug’s high price because it has been the costliest drug for Oregon’s health system every year since the program began collecting data in 2019.[1]

Oregon’s program also collects patients’ stories on high priced drugs and received submissions about the affordability challenge Humira poses. AbbVie increased Humira’s wholesale acquisition cost (WAC) by 7.3 percent in 2019 and 7.4 percent in 2020, despite no new evidence of safety or efficacy. In total, Oregon carriers reported spending over $153 million on anti-inflammatory drugs in the reporting year.

In Maine, multiple insurers reported that Humira ranked among drugs with the highest plan spending during the reporting year. Similarly, Washington highlighted that drugs treating autoimmune conditions were ranked highest on carriers’ lists of top 25 drugs with the highest net price and top 25 drugs with highest manufacturer rebates retained by the health plan. Other classes of drugs among the highest-priced or with the highest cost increases seen by plans, include those that treat cancer, diabetes, blood clots, and HIV.

Identifying high priced drugs is an essential first step for targeting further efforts to address drug prices, such as establishing a prescription drug affordability board (PDAB). Oregon and Washington are among the six states with PDABs and data emerging from transparency laws will support these new programs. For example, Oregon’s transparency data will inform affordability reviews and policy recommendations for the legislature while Washington’s transparency data will support efforts to establish upper payment limits.

Understanding the Impact of PBM Regulation

Using transparency program data, Maine explored the relationships between PBMs, consumers, and health plans in an analysis of the impact of a 2019 state law which required PBMs to pass rebates on to consumers at the point of sale or for carriers to use retained rebates to offset premium costs. Maine’s transparency program confirmed that PBMs are indeed passing on more savings to plans than before the law went into effect.

The Maine Health Data Organization (MHDO) found that PBMs, on average, retained payments from payers in the form of spread or administrative fees at a rate of 11 percent over what PBMs reimbursed to pharmacies in 2019, before the law went into effect, compared to just 2 percent in 2020 after the law was in place.

The 2019 PBM law also required health plans to count PBM compensation as an administrative cost under medical-loss ratio (MLR) calculations.[2] MHDO found that there was an almost 98 percent correlation between what payers reported as a benefit under the health plan to what PBMs reported as having reimbursed to pharmacies. Before the law went into effect, during 2019, this measure showed only an 88.9 percent correlation. This means that after the law went into effect, plans were more accurately reporting costs associated with providing medical benefits versus administrative costs in compensating their PBM.

Unpacking Prices across a Complex System

Maine’s drug price transparency report identified an unexpected finding: when generic drug prices decrease, payers and consumers may continue paying higher prices. This dynamic is due to the complicated relationship between WAC, the list price set by manufacturers, and average wholesale price (AWP), a benchmark used for pharmacy reimbursement, as well as differentials between pharmacy acquisition costs and AWP-based reimbursement rates for generics versus brand-name drugs. In 2020, about 6% of active NDCs had WAC decreases.

The negotiated price between pharmacies and payers are typically set based on a discount off AWP. For brand-name drugs, AWP is generally a mark-up of 20% above WAC and changes as WAC is changed over time. For generic drugs, AWP is often set as a discount off WAC or AWP for the reference brand product when a drug was first introduced to market. Unlike with brand-name drugs, generic AWP values are not changed as the value of WAC changes over time. This means that while the WAC for generic drugs will differ between manufacturers, the price that payers reimburse pharmacies for, which is highly correlated with AWP, will remain the same even if WAC decreases.

Due to this dynamic, pharmacies are incentivized to buy generic drugs from manufacturers with the lowest WAC to reduce acquisition costs. But payers do not see any benefit from the lower WAC as AWP remains static. Maine found that multisource generic drugs, which made up most of the drugs with price decreases, had an average decrease of 49 percent, but the average amount paid by payers after WAC decreases fell by only 11 percent. After the WAC decreases, AWP for multisource generic drugs had an average markup from WAC of 1,629 percent.

Although it did not highlight the discrepancy between WAC and AWP, Washington showed that reimbursement from the top four PBMs to pharmacies ranged from 0 percent to more than 100 percent of WAC for individual drugs. This aligns with Maine’s findings that pharmacies may be reimbursed at amounts higher than WAC for generics. Some of this disproportionate reimbursement for generics may be used to offset pharmacy losses in case where pharmacies aren’t reimbursed enough to cover brand-name drug acquisition costs.

Public Use of State Drug Price Transparency Program Data

State transparency programs enable states to identify drugs causing affordability challenges to consumers and payers, analyze the impact of PBM regulation, and to better understand pricing across a complex supply chain as described in this blog. Additionally, programs may provide important data sources to the public and researchers. States like Texas and California regularly publish collected price increase and launch WAC data that is accessible for the public and researchers. The Institute for Clinical and Economic Review (ICER) recently announced that it will leverage California’s public data to evaluate whether there is new evidence that could justify manufacturer reported price increases. To learn more about state transparency legislation, review the National Academy for State Health Policy’s state strategy implementation tracker or the Transparency Law Comparison Chart.

[1]According to the research group 46Brooklyn, Humira’s annual median WAC increase rose from 2014 to 2018 when it approached a 9.7 percent annual price increase, before dropping in 2019 and remaining around a 7 percent annual increase in recent years. Since state transparency programs began collecting pricing data, states have seen fewer drug price increases trigger reporting requirements; however, launch prices and overall spending on prescription drugs have continued to increase.

[2] Under federal MLR requirements, health plans must spend 80 or 85 percent of premium dollars on medical care and only 20 or 15 percent on administrative costs.

Comparison of State Prescription Drug Affordability Review Initiatives

March 31, 2022/in Prescription Drug Pricing Maine, Maryland, Massachusetts, New Hampshire, New York, Ohio Charts, Featured News Home Administrative Actions, Legal Resources, Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

Drug Price Transparency Laws Position States to Impact Drug Prices

January 10, 2022/in Prescription Drug Pricing California, Maine, Nevada, Oregon, Vermont Blogs, Featured News Home Prescription Drug Pricing /by Johanna Butler and Jennifer Reck

Drug price transparency laws enable state policymakers to understand opaque drug pricing and payment systems to formulate appropriate policy solutions to high prices, while also creating the data infrastructure to effectively realize those policy solutions. Since Vermont passed the first state drug price transparency law in 2016, more than a dozen states have enacted and implemented similar laws.

State-level transparency legislation shines light on drug pricing by requiring manufacturers and other supply chain entities such as prescription drug benefit managers (PBMs), health plans, and wholesalers to provide information on drug pricing. Transparency programs also establish accountability around manufacturers’ price increases or high launch prices. Since programs began collecting pricing data, states have seen fewer drug price increases trigger reporting requirements; however, launch prices and overall spending on prescription drugs have continued to increase.

Transparency laws can also create a foundation for additional strategies to lower drug costs. Policies like prescription drug affordability boards (PDABs), rely on having access to and expertise with drug pricing data. This blog provides an update on state drug price transparency laws and their impact.

Current State Transparency Landscape

Vermont passed the first state drug price transparency law in 2016. Since then, 13 other states have passed transparency laws focused on drug manufacturers and other actors within the supply chain – CA, CT, ME, MN, NV, NH, ND, OR, TX, UT, VA, WA, and WV. Most state programs require reporting from manufacturers when they increase the wholesale acquisition cost (WAC) of a drug above a certain threshold or if they introduce a drug with a high launch price. Several states also require reporting from insurers and pharmacy benefit managers. A few states extend reporting to other supply chain actors – pharmacy service administrative organizations (WA) and wholesale distributors (ME, NV, VA).

Transparency programs vary state-by-state regarding which drugs are reported on, the level of data collected (in aggregate or on an individual drug level), and how data is published and analyzed by the state.

Maine’s transparency program offers one of the more robust approaches to drug price transparency. Maine collects and analyzes data with the goal to identify each supply chain entity’s average net income, including data on manufacturers, PBMs, insurers, pharmacies, and wholesale distributors. This allows the public and policymakers to “follow the money” through the supply chain.
California’s transparency program posts launch price information and five-year schedules of price increases reported by manufacturers to its website, creating one of the only freely available sources of WAC data.
Oregon’s transparency program holds an annual public hearing that acts as a forum for sharing data analysis, discussion with stakeholders, and policy recommendations.
Nevada took a unique approach with its transparency program, first focusing reporting on diabetes drugs when its program was enacted in 2018 and then including asthma medications in 2019. In 2021, the state expanded its program to include all prescription drugs.

Impact of Transparency Programs

As states investigate and work to lower high drug costs, drug price transparency has become an important foundation and launch pad for efforts to lower costs. Data collected by state transparency programs can provide insights into the types of price increases and types of drugs driving high spending in a state. Pricing data can provide policymakers state-specific information to direct policy.

Moderated Price Increases Over Time

Since state transparency laws were first enacted, the number of price increases that trigger reporting based on state thresholds has decreased over time. Vermont’s Medicaid program explained in its 2020 report that compared to 2016, there was a 79 percent decline in the number of drugs reaching the state’s per year price increase threshold. The program report concludes that fewer manufacturers are excessively increasing the price of drugs. Similarly, Oregon’s transparency program reported that compared to its first year of implementation in 2019, the program received 70 percent fewer reports for price increases in 2020. However, during that same time, Oregon saw a 15 percent increase in the number of drugs with high launch prices.

Vermont and Oregon’s findings align with what drug pricing researchers have found – from 2016 to 2020 the amount of WAC price increases have decreased but launch prices have continued to rise. Although the rate of price increases may be moderating, launch prices may still cause increased state spending on prescription drugs.

Accountability for High Launch Prices

Transparency programs can establish accountability around manufacturers’ high drug price increases and high launch prices. For example, manufacturers of Semglee, the first generic insulin product deemed interchangeable by the U.S. Food and Drug Administration, recently announced it will price the new insulin product at almost $270 per vial, only $20 cheaper than Lantus, the brand-name biologic competitor. Based on this launch price, Semglee would trigger Virginia’s reporting requirements under the state’s 2021 transparency law which requires manufacturers to report information on the launch of biosimilar products that are not at least 15 percent below the cost of the reference biologic. While the law is not yet implemented, Virginia’s program would be one of the most immediate tools to create some accountability for Semglee’s high list price.

Data Infrastructure for Policy Solutions

In addition to establishing accountability, transparency programs can provide the necessary data infrastructure for the successful implementation of efforts to lower drug prices. Since 2020, several states have enacted prescription drug affordability boards (PDAB), entities with the authority to review high cost drugs and in some states set an upper payment limit to ensure no one pays more than that amount in the state. A first step for a PDAB to review high drug costs and potentially set payment limits is to gather the necessary drug pricing data – whether that’s leveraging existing data sources or establishing manufacturer or insurer reporting like transparency programs. States without transparency laws already in place must include transparency requirements. For example, Colorado’s PDAB law, enacted in 2021, requires insurers to report top-spend drugs to help inform which drugs the PDAB will review.

States that already have transparency programs in place however, are well-positioned to take steps to rein in high drug costs through a PDAB. Oregon’s new PDAB law leverages the state’s existing drug price transparency programto identify high-cost drugs that should be reviewed by the board. Each quarter the transparency program will provide the PDAB with a list of drugs with high price increases or high launch prices as well as a list of insulin products sold in the state in the previous year. Based on this information, the PDAB will identify nine drugs and one insulin product to review. Oregon’s PDAB will be supported and housed in the same agency that manages the drug price transparency program, the Department of Business and Consumer Services, allowing the PDAB to capitalize on the drug pricing data expertise developed by the transparency program since it was enacted in 2018.

In these ways, transparency can be seen not only as a steppingstone to future action, but often a necessary building block to sustain other efforts. The data gathered and expertise developed by transparency programs could be applied to any number of drug pricing policies beyond PDABs – direct negotiations for supplemental Medicaid rebates, implementing reference rates, or prohibiting price gouging.

Federal Efforts on Transparency

While a variety of federal transparency efforts are in process, state transparency programs go beyond proposed or recently enacted language. The Build Back Better Act that passed the House in November 2021 but continues to be debated in the Senate, would require pharmacy benefit managers to report certain information related to spending, cost, utilization, and formulary placement to health plan sponsors. Additionally, the Centers for Medicare and Medicaid Services (CMS) recently published an interim final rule requiring health plans to report certain information on the most costly drugs, most frequently utilized drugs, and drugs with the greatest year over year spending increases, among other data elements, to the Departments of Health and Human Services, Labor, and the Treasury. This interim final rule is similar to the insurer reporting requirements of many existing state transparency programs. For states that do not have transparency laws, this federal data, if shared with state leaders, could be helpful to identify top-spend drugs in each state and fuel other strategies to lower costs such as a PDAB. However, it’s unclear to what extent the data could be accessed or used by states, though states are eager to coordinate with the federal government to enhance data-sharing on drug prices. Importantly, none of these initiatives focus on requiring reporting from manufactures – who actually set drug prices – leaving state officials to continue this important work.

To learn more about state transparency legislation, review the National Academy for State Health Policy’s state strategy implementation tracker or the Transparency Law Comparison Chart.

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