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In Major Victory for States, Supreme Court Clears the Way for State Health Reform

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Last week, states won a clear path to regulating pharmacy benefit managers (PBMs) in a unanimous US Supreme Court ruling in Rutledge vs. Pharmaceutical Care Management Association (PCMA). At issue was whether federal law preempted an Arkansas law (Act 900) that requires PBMs to reimburse pharmacies at no less than what pharmacies pay to acquire drugs, among other provisions.

PCMA, the trade group representing PBMs, argued the Arkansas law was preempted by the Employee Retirement Income Security Act of 1974 (ERISA), the federal law that governs employee benefits. Enacted to protect employee benefit plans from fraud and mismanagement, the law applies to health benefits and – with few exceptions – preempts all state laws that attempt to regulate those plans. While states may regulate fully-insured health insurance plans, they are barred from regulating – either directly or indirectly – health benefits that are paid for directly by employers, often referred to as self-funded plans. More than 60 percent of employees with employer-based coverage are enrolled in such self-funded plans. 

View all of NASHP’s model laws that help states curb prescription drug pricing here. 

State health policymakers have followed the Rutledge case closely as any ERISA challenge has the potential to impact broader state health care reforms. State health reforms efforts have regularly been subjected to ERISA challenges in the courts, making the acronym ERISA better named in state policy circles as, “Every Roadblock to Innovative State Action.” For example, in Gobeille vs. Liberty Mutual Insurance, the Supreme Court ruled that ERISA preempts states from collecting much-needed data that would improve how they paid for and delivered health care. The Gobeille decision established that self-funded plans do not need to submit health care claims – data needed to advance cost containment efforts – to states. 

The 8-0 decision was unequivocal in its ruling that the Arkansas law was not preempted by ERISA. The opinion, authored by Associate Justice Sonia Sotomayor, characterized Arkansas Act 900 as “a form of cost regulation that does not dictate plan choices” and therefore is not preempted by ERISA. 

The Rutledge decision, rather than rely on Gobeille’s rationale, expands on the 1995 ERISA case, New York State Conference of Blue Cross & Blue Shield Plans vs. Travelers Insurance, that found that a state’s imposition of  surcharges on employer-sponsored health plans was not preempted by ERISA, despite its indirect economic impact on health plans. In that case, the surcharge was assessed on hospital claims. The Rutledge decision extended the Travelers ruling to create a new category of health care cost regulation that surpasses ERISA’ past legal preemptions, paving the way for new state action that exceeds regulation of PBMs that administer benefits for health plans. Protection from ERISA’s preemptions for a broader category of health care cost regulations, as seen in Rutledge, positions states for important and emerging cost containment efforts.

The Rutledge decision is good news for all states, including those that have been recently actively regulating PBMs. Since 2017, 46 states have implemented more than 90 laws regulating PBMs. Some of those laws appear similar to Arkansas’ Act 900, which focused on pharmacy reimbursement, while other laws go further. Examples include laws prohibiting spread pricing – which occurs when PBMs pay pharmacies a lower reimbursement rate for prescriptions and then claim higher rates from a health plan while retaining the difference as profit. Other new laws require PBMs to pass savings from rebates negotiated with drug manufacturers back to health plans and consumers. All of these state PBM regulations are designed to control prescription drug costs. The logic driving the Rutledge decision potentially now shields all of these state laws from ERISA preemption. 

The Rutledge ruling represents an important step in the right direction to clarify the scope of ERISA while also enabling states to exercise the regulatory authority needed to take on drug costs – and broader health care costs – in the absence of federal action.

Supreme Court Hears Arkansas Pharmacy Benefit Manager Challenge Today

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Today, the US Supreme Court is scheduled to hear oral arguments in a legal challenge of an Arkansas law that regulates the reimbursement rates that pharmacy benefit managers (PBMs) pay to pharmacies.

Forty states have enacted legislation regulating PBM reimbursement rates, so a ruling against Arkansas could have a significant impact rolling back PBM regulation, an arena where states have taken needed action in the absence of federal law.

In the case of Rutledge vs. Pharmaceutical Care Management Association (PCMA), the trade group representing PBMs argues that the Arkansas law regulating the reimbursement rates that PBMs pay to pharmacies is preempted by the Employee Retirement Income Security Act of 1974 (ERISA). ERISA is a federal law that preempts any state laws that regulate or “relate to” self-funded employee benefit plans.

In response, Arkansas argues that the law – which protects pharmacies by preventing PBMs from reimbursing them at lower rates than what pharmacies pay to acquire generic drugs – should be viewed as “ordinary state rate regulation” beyond the reach of ERISA preemption. Arkansas’ law was designed to prevent under-reimbursement by PBMs to pharmacies.

What is the Employee Retirement Income Security Act of 1974 (ERISA)?

ERISA is a federal law that preempts any state laws that “relate to” self-funded employee benefit plans. Self-funded employee benefit plans are not considered insurance under ERISA and are therefore exempt from state regulation. Self-funded plans cover more than 60 percent of Americans with employer-based coverage.

The extent of a ruling against Arkansas would depend on key details of the decision. For example, even if the court decides that ERISA preempts Arkansas’ law as applied to PBMs serving self-funded employee plans, that would leave in place rate regulation for PBMs serving state-regulated health plans. This would create a patchwork regulatory scenario in which a state could ensure adequate reimbursement rates for pharmacies for some – but not all – transactions.

Since ERISA was enacted in 1974, Supreme Court rulings have gradually expanded its reach. It is possible that a ruling favoring the PCMA would continue the trend of expanding the reach of ERISA preemption and increase the roadblocks states face when attempting to regulate their insurance markets, with ramifications reaching beyond PBM regulation. A ruling in favor of Arkansas, however, would provide clarity on states’ ability to implement PBM regulations, putting to rest inconsistent lower court rulings on the subject of ERISA preemption. A decision in the case is expected by July 2021.

Arkansas Act 900

PBMs are third parties that organize pharmacy networks, negotiate rebates with drug manufacturers, and process claims for prescription drug coverage. In their contracts with PBMs, pharmacies agree to be reimbursed at a rate set by the PBM. For generic drugs, this rate is called the maximum allowable cost (MAC). Notably, in most PBM contracts, nothing prohibits PBMs from setting a MAC for a drug below a pharmacy’s actual acquisition cost, which can result in under-reimbursement to pharmacies. According to Arkansas’s brief, 12.6 percent of independent pharmacies in the state closed between 2006 and 2014, in part due to systematic below-cost reimbursement from PBMs.

In 2015, Arkansas enacted Act 900 to tie MAC reimbursements to pharmacies’ actual acquisition costs by allowing pharmacists to appeal when a PBM’s reimbursement is lower than a drug’s wholesale acquisition cost. The law also allows pharmacies to decline to dispense a drug if a PBM’s MAC is less than what the pharmacy paid to purchase the drug. The PBM trade group PCMA challenged the law in district court, where a judge ruled that the act was preempted by ERISA. Arkansas appealed the ruling in the Eighth Circuit Court of Appeals, which upheld the lower court’s decision on the grounds that Act 900 was preempted because it implicitly and impermissibly referenced ERISA plans because it regulated PBMs that acted on behalf of plans regulated by federal law under ERISA.

Lower Court Rulings

Lower courts have issued inconsistent rulings on whether ERISA preempts state PBM regulations. PCMA previously challenged two nearly identical PBM laws in circuit courts in Washington, DC and Maine with different outcomes. These laws required PBMs to owe a fiduciary duty to health plan clients, pass payments received from drug manufacturers to health plans, and disclose conflicts of interests. In the Maine case, the court ruled that ERISA did not preempt Maine’s PBM regulations because PBMs do not exercise authority in the management of health plans. However, in the Washington, DC case, the court ruled that laws regulating third-party administrators of an ERISA plan function as a regulation of an ERISA plan itself and were therefore invalid.

PCMA also challenged a MAC pricing regulation in Iowa, where the Eighth Circuit Court of Appeals held that the law’s explicit exclusion of self-funded employee benefit plans was a “reference to” ERISA. The court also ruled that the law implicitly referred to ERISA because it regulated PBMs that administer benefits for plans subject to ERISA. Similar to Rutledge, the court held that ERISA preempted the law. PCMA has also filed an appeal in the Eighth Circuit against two North Dakota laws that regulate PBM conduct after the US District Court of North Dakota rejected ERISA preemption claims. It remains unclear how the court will apply these rulings to Act 900.

The Arguments

In its court filings, Arkansas argues that Act 900 regulates drug reimbursement as a form of rate regulation to ensure PBMs reimburse pharmacies at reasonable rates. In her brief, Arkansas Attorney General Leslie Rutledge argues that the Supreme Court has previously held that ERISA does not shield plans or their third-party administrators from state laws that regulate rates charged for those services, and therefore Act 900 is saved from ERISA preemption.

PCMA argues that the Arkansas law “relates to” ERISA because it regulates central matters of plan administration and interferes with nationally uniform plan administration. PCMA also points to the Supreme Court’s decision in Gobeille v. Liberty Mutual Co., which held that ERISA preempted a Vermont law that required health plans or their benefit administrators to submit claims data to the state’s all-payer claims database. PCMA claims that this ruling invalidates the Maine circuit court finding that ERISA does not preempt PBM regulation.

For case filings and additional information about legal challenges to state prescription drug laws, explore NASHP’s legal resources webpage that includes the legal analysis, Navigating Legal Challenges to State Efforts to Control Drug Prices: PBM Regulation, Price Gouging, and Price Transparency.

States Save on Rx Spending by Using Reverse Auctions for Pharmacy Benefit Manager Service Procurement

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A 2016 New Jersey law gave the state flexibility to share bid information submitted by all pharmacy benefit managers (PBMs) in order to incentivize the PBMs to submit lower offers in additional rounds of bidding – a process known as a reverse auction. While reverse auctions have been used historically to procure goods, New Jersey’s first-in-the-nation PBM model represents a new way states can procure services and save millions on prescription drug spending.

New Jersey’s approach, implemented in 2017, is now projected to save $2.5 billion in drug spending for its public employees between 2017 and 2022. These savings were achieved by forcing PBMs to make more competitive offers in new rounds of bidding without reducing drug benefits for the state’s 800,000 public employees.

Most states’ traditional PBM procurement process involves complex proposals containing pricing and terms that can make it difficult for a state to compare bids. The reverse auction procurement model requires all participating PBMs to offer the same contract terms and to compete on price only. A PBM’s participation in the auction is contingent on it agreeing to the terms of the proposed state drug benefit plan* — including formulary control, plan design, and member cost sharing. The winning bid is the least expensive offer with the following included:

A New Jersey official describes how the state implemented a reverse auction model in this webinar recording: How States Can Control Pharmacy Benefit Manager Contract Costs through Reverse Auctions.

The PBM’s requested administrative fees;

  • Ingredient cost discounts;
  • Rebates; and
  • Other financial requirements as requested by the request for proposals (RFP).

An example of New Jersey’s 2019 RFP is available here.

To adopt a reverse auction PBM procurement model, a state may first contract with a vendor to conduct the reverse auction. Bidding is managed through a technology platform that enables each PBM to see how its bid compares with the highest bid in an anonymous fashion. States achieve savings by forcing PBMs to offer the same contract terms but at a lower price than in preliminary rounds of bidding.

New Jersey contracted with one vendor of a reverse auction technology platform to both conduct the reverse auction and oversee the contract to ensure compliance. The state’s request for quotations from vendors is available here. The state had expected to spend $8.3 billion on prescription drugs over three years by staying with its current PBM in a status quo contract. After two rounds of bidding, the state chose a new PBM with a three-year contract totaling $6.7 billion – generating a projected $1.6 billion savings in prescription drug costs for its State Health Benefits Program and School Employees’ Health Benefits Program (SEHP/SEHBP). Traditional PBM procurement typically takes six months, but New Jersey’s reverse auction PBM selection process took less than two months.

During the first nine months of the contract, pharmacy costs for New Jersey and its local governments declined by up to 25 percent. Premiums for Plan Year 2019 decreased by 1.1 percent, compared to the 13 percent cost increase during the previous plan year.

Shortly after completion of New Jersey’s first PBM procurement under a reverse auction, a losing PBM bidder challenged the state’s decision on the grounds that the contract’s terms provided the winning PBM with an unfair competitive advantage. The challenger won a partial victory when the court’s decision caused early termination of the first PBM contract in 2019. New Jersey conducted a second, three-round reverse auction resulting in a new three-year contract with the same PBM, resulting in an additional $485 million in expected savings.

New Jersey also used its reverse auction technology vendor to conduct PBM oversight to ensure contract compliance, which revealed an additional savings of $45.9 million in claim processing issues over an 18-month period.

Several other states have followed New Jersey’s lead. In May 2020, Maryland approved legislation to conduct reverse auctions for PBM procurement. The state expects savings on prescription drug coverage for its State Employee and Retiree Health and Welfare Benefits Program as early as Fiscal Year 2021, but the bill’s net fiscal impact on state expenditures is unknown at this time.

The New Hampshire State Senate has passed similar legislation, but the state’s House of Representatives suspended consideration of the bill in late June 2020. Despite the state’s smaller population compared to New Jersey’s, a study conducted by the Josiah Bartlett Center for Public Policy estimates that New Hampshire could save between $42.5 million and $53.1 million over the life of a three-year PBM contract procured through this model, compared to the state’s current $212.5 million PBM contract.

The National Academy for State Health Policy recently hosted a webinar about the state procurement of PBM’s through reverse auctions. For those interested in learning more about the model, a recording of the webinar can be found here.

* The National Academy for State Health Policy 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.

How Waste-Free Formularies Create Savings on Prescription Drugs

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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.

Model Pharmacy Benefit Manager Contract Terms Help States Achieve Prescription Drug Savings

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As major purchasers of prescription drugs for their public employee drug plans and other entities, states can leverage their buying power by establishing favorable terms in their contracts with pharmacy benefit managers (PBMs).

The National Academy for State Health Policy’s (NASHP) new resource, Model PBM Contract Terms, offers specific language that states can use in their requests for proposals and contracts in order to achieve cost-saving for states, including:

  • Administrative-fee only compensation;
  • Guarantee 100 percent pass-through of rebates and revenue to states;
  • Cost trend and pricing guarantees;
  • Price transparency; and
  • Member cost-sharing protections.

The model PBM contract was developed by NASHP legal consultant Erin Fuse Brown, MPH, JD, in consultation with members of NASHP’s Pharmacy Cost Work Group and others who have experience implementing – and achieving saving from – their state-of-the-art contracts with PBMs.

Establishing favorable PBM contract terms can be a state’s first step toward leveraging additional savings through a second strategy – implementing a state purchasing pool for prescription drugs.

Once a state has established a favorable contract with a PBM for its public employee drug benefit plan, it can allow others – such as individuals and small employers – to join in a purchasing pool. This can be a win-win situation, where the increased negotiating power of the state’s expanded purchasing pool results in lower prices for all pool participants.

Keeping the State Rx Purchasing Pool administratively separate from the state employee drug plan, – though purchasing pool members and the state plan would use the same PBM – effectively avoids multiple legal and regulatory difficulties. Uninsured individuals could be given drug discount cards that allow them to enjoy the discounted drug prices available to purchasing pool members. 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 to secure savings. Instead, the more covered lives a purchasing pool has, the greater the savings due to the increased purchasing power of the plan.

Speakers from Wisconsin and Connecticut will share their experiences with PBM contracting and leveraging state employee drug plan purchasing power during a NASHP webinar, Model PBM Contract Language and State-Buy-In Model,  for states officials only, at noon (ET), Thursday, Feb. 6, 2020. The webinar is for state officials only. Register for the webinar here.

Read NASHP’s new Model Pharmacy Benefit Manager Contract Terms by Erin Fuse Brown, MPH, JD.

Join the webinar, Model PBM Contract Language and State Buy-In Model, for states officials only, at noon (ET), Thursday, Feb. 6, 2020.

Read NASHP’s Proposal for a State Purchasing Pool for Prescription Drugs.

What Are We Learning from State Reporting on Drug Pricing?

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This report summarizes what states are learning from reporting required by prescription drug price transparency laws, which include reports on data submitted by health insurers, manufacturers, and pharmacy benefit managers (PBMs). The review period includes reports published by states through August 2019. The National Academy for State Health Policy’s Center for State Rx Drug Pricing, with support from Arnold Ventures, commissioned this analysis from experts affiliated with Mathematica.

Executive Summary

This report summarizes what states are learning from reporting required by prescription drug price transparency laws, including reports on data submitted by health insurers, manufacturers, and pharmacy benefit managers (PBMs). The review period includes reports published by states through August 2019.

Costliest Drugs across States

Five states — California, Nevada, Maine, Oregon and Vermont — have published reports identifying specific drugs that are high cost, for which costs are rising fastest, and/or that are most frequently prescribed. In Nevada, these drugs include only those related to the treatment of diabetes. California, Maine, Oregon, and Vermont reported up to 126 prescription drugs across therapeutic uses. These states reported many of the same drugs—including five drugs used for treatment of diabetes and four drugs used for treatment of psoriasis, psoriatic arthritis, or rheumatoid arthritis.

Impact on Premiums

California, Vermont, and Oregon have reported impacts of retail prescription drug costs on insurance premiums, averaging 13 percent in California (before accounting for manufacturer rebates, which averaged 10.1 percent of insurers’ retail drug costs) in 2017, 15.67 percent of premiums in Vermont in 2018 (before accounting for rebates), and up to 18 percent of premiums in Oregon (after accounting for rebates) in 2018.

Manufacturer and PBM Reporting

Requiring both manufacturers and PBMs to report allows states to track drug pricing along the supply chain. As of August 2019, only Nevada had publicly reported information about manufacturer and PBM costs, focused on essential diabetes drugs. Nevada’s report indicates that:

  • Production costs accounted for 29 percent of manufacturers’ estimated average revenue in 2018 for essential diabetes drugs after rebates. Administrative costs and profit each accounted for 25 percent. On average, manufacturers earned $42 in profits for every $100 spent on production and administrative cost for these drugs.
  • Financial assistance to consumers accounted for 14 percent of the manufacturers’ estimated total revenues after rebates, although most manufacturers reported offering no financial assistance.
  • Most of the rebates that PBMs in Nevada negotiated nationally for essential diabetes drugs were on behalf of private insurers and self-insured employer plans. PBMs retained 6.6 percent of all rebates, whether negotiated on behalf of private third parties or Medicaid.

Early Lessons

The information these states have made public suggests some early lessons:

  • States share concerns about the affordability of many of the same drugs. There may be substantial value in sharing information across states with similar confidentiality protections while reducing the burden of redundant reporting to multiple states.
  • Understanding pricing across the entire supply chain, from the manufacturer to the consumer, is critical. Reporting that uses consistent concepts and measures can foster mutual understanding of facts among policymakers and stakeholders in a complex system.
  • The agency responsible for obtaining data must have the authority and resources to follow up when the data are not complete or credible, if drug transparency laws are to help states develop a fair approach to ensuring that prescription drugs are affordable.

Introduction

This report summarizes what states are learning from reporting required by prescription drug price transparency laws, including data reported by health insurers, manufacturers, and pharmacy benefit managers (PBMs). Since 2017, nine states have enacted drug price transparency legislation that requires such reporting.[1]

Five of these states — California, Nevada, Maine, Oregon, and Vermont — have published reports identifying specific drugs that are high cost (defined by total spending), for which costs are rising fastest (defined as year over year increase), and/or that are most frequently prescribed (so represent high consumer exposure).[2] In Nevada, these drugs include only those related to treatment of diabetes. California, Maine, Oregon, and Vermont included prescription drugs across all therapeutic classes. In Section 1, we present the drugs of interest that these states reported and look, in particular, at the 30 drugs of interest reported by at least three of these states.

In Section 2, we describe the impact of drug prices on health insurance premiums, as reported by three states, California, Oregon, and Vermont. These states have published the dollar amounts and/or the percentage of premiums attributed to retail prescription drugs — in California and Vermont, before manufacturer and other rebates and price discounts to insurers; and in Oregon, after rebates and price discounts.

In Section 3, we describe what Nevada is learning from the reporting required of manufacturers and PBMs. Currently, eight states have enacted laws requiring PBMs to report rebate amounts either for specific drugs or in the aggregate. These laws have taken effect in four states (Connecticut, Nevada, Texas, and Washington) as part of each state’s drug pricing transparency effort, but as of August 2019, only Nevada (for specified essential diabetes drugs) had made summary information public.

Reporting of High-Cost, High Cost-Growth, and Most Prescribed Drugs

California, Maine, Nevada, Oregon, and Vermont have reported drugs that account for high total cost or high cost growth, or because they are frequently prescribed, represent high consumer exposure. Maine derived its lists from analysis of the state’s all-payer claims database (APCD) system; California and Oregon relied on insurer reporting under special statutory authority; and Vermont relied on both insurer and Medicaid reporting. Nevada derived it list of drugs from analysis of a purchased database.

Table 1 lists the number of unique drug names reported in each state. California and Vermont reported the most extensive list of drugs: each reported on more than 120 unique drug names; Nevada, Maine, and Oregon each reported on approximately 50 unique drug names.

Table 1. Number of drugs listed in state public reports, by state

Reporting state Reference period Number of unique drug names reported*
CA CY2017 126
ME FY2018 51
NV CY2018 53
OR CY2018 56
VT CY2018 121

*The number of unique drugs was developed by merging separate lists of drugs, if the state reported separate lists by reason for reporting and/or by insurer.

Source: Mathematica analysis of data reported in these reports: California Department of Managed Health Care (2018); Maine Health Data Organization (2018); Nevada Department of Health and Human Services (2018b); Oregon Department of Consumer and Business Services (2019); and State of Vermont Green Mountain Care Board (2019). See full references at the end of this report.

We matched drugs reported across these states by National Drug Code (NDC) and identified 128 unique NDCs that at least two states selected in common (shown in Appendix 1). The 30 drugs that at least three states selected in common are shown in Table 2.

These 30 drugs span multiple therapeutic classes, but several have similar therapeutic uses. Eight of the drugs are used for treatment of diabetes myelitis — including five drugs, Lantus Solostar, Novolog, Januvia, Metformin, and Victoza, which four of the five states reported in common.

At least three of the four states that did not focus only on essential diabetes drugs — California, Maine, Oregon, and Vermont — selected in common a number of additional drugs that clustered around treatment for asthma (Fluticasone Prop, Ventolin, Proair, and Symbicort); depression (Bupropion Hcl and Sertraline); hepatitis C (Harvoni and Epclusa); multiple sclerosis (Copaxone and Tecfidera); psoriasis, psoriatic arthritis, and/or rheumatoid arthritis (Stelara, Cosentyx, Enbrel, Humira Syringe, and Humira Pen); and a range of cardiovascular concerns (Eliquis, Xarelto, Hydrochlorothiazide, Atorvastatin).

 

Table 2. Drugs reported by three or more states, 2017-2018 (in alphabetic order of primary therapeutic use)

NDC Drug name States Therapeutic class Primary therapeutic use Reasons for reporting
00054327099 Fluticasone Prop CA, ME, VT Respiratory tract agents Treatment of allergic and non-allergic nasal symptoms; long term management of asthma, COPD Most frequently prescribed (CA, ME, VT)
00173068220 Ventolin CA, ME, OR, VT Autonomic drugs; respiratory tract agents Treatment of asthma, acute bronchitis Most costly (CA); highest cost increase (CA); most frequently prescribed (CA, ME, OR, VT)
59310057922 Proair CA, ME, OR, VT Beta-Adrenergic agents Treatment of asthma, acute bronchitis Most frequently prescribed (CA, ME, OR, VT)
00186037020 Symbicort CA, ME, VT Antiasthmatic and bronchodilator agents Treatment of asthma, chronic obstructive pulmonary disease (COPD) Most frequently prescribed (ME); most costly (ME, CA); highest price (VT)
00003089421 Eliquis CA, ME, OR Blood formation, coagulation, and thrombosis agents Prevention of blood clots/stroke in people with atrial fibrillation. Most frequently prescribed (ME); highest price increase (CA, ME); most costly (CA, ME)
50458057930 Xarelto CA, ME, VT Anticoagulants, coumarin type Treatment/prevention of blood clots Most costly (CA, ME); highest cost increase (CA, ME, VT)
50111078751 Azithromycin CA, ME, OR Antibacterials Treatment of bronchitis; pneumonia, sexually transmitted diseases, and infections of the ears, lungs, sinuses, skin, throat, and reproductive organs. Most frequently prescribed (CA, ME, VT)
45963014205 Bupropion Hcl CA, VT, OR Antidepressants Treatment of depression Most frequently prescribed (VT); most costly (CA); highest price increase (CA)
68180035302 Sertraline CA, ME, OR, VT Antidepressants Treatment of depression, obsessive-compulsive disorder (OCD), posttraumatic stress disorder (PTSD), premenstrual dysphoric disorder (PMDD), social anxiety disorder, panic disorder Most frequently prescribed (CA, ME, OR, VT)
00002771559 Basaglar (Kwikpen) ME, NV, OR Hormones and synthetic substitutes Treatment of diabetes myelitis type 1 and 2 Highest price increase (ME, NV)
00002879959 Humalog (Kwikpen) ME, NV, OR Hormones and synthetic substitutes Treatment of diabetes myelitis type 1 Most costly (CA, ME); highest price increase (CA, ME, NV); most frequently prescribed (CA)
00002751001 Humalog CA, ME, NV, OR Hormones and synthetic substitutes Treatment of diabetes myelitis type 1 Most costly (CA, ME, OR); most frequently prescribed (CA); highest price increase (CA, ME, NV)
00088221905 Lantus Solostar CA, ME, NV, VT Hormones and synthetic substitutes Treatment of diabetes myelitis type 1 and 2 Most costly (CA, ME); highest price (VT); Most commonly prescribed (ME, VT); highest cost increase (NV)
00169633910 Novolog NV, ME, OR, VT Hormones and synthetic substitutes Treatment of diabetes myelitis type 1 and 2 Most costly (ME); highest price (OR, VT); highest cost increase (NV); most frequently prescribed (CA)
00006027731 Januvia CA, ME, NV, VT Blood glucose regulators Treatment of diabetes myelitis type 2 Most costly (CA, ME); highest cost increase (CA, ME, VT); most commonly prescribed (CA)
Multiple NDCs Metformin CA, NV, OR, VT Blood glucose regulators Treatment of diabetes myelitis type 2 Most frequently prescribed (CA, OR); highest cost increase (NV, VT); most costly (CA)
00169406013 Victoza CA. ME, NV, VT Hormones and synthetic substitutes Treatment of diabetes myelitis type 2 Most costly (CA, ME); highest cost increase (CA, NV); most frequently prescribed (CA); highest price (VT)
61958180101 Harvoni CA, ME, VT Anti-infective agents Treatment of hepatitis C Most costly (CA, ME); highest cost increase (CA); highest price (VT)
61958220101 Epclusa CA, ME, OR, VT Antivirals Treatment of hepatitis C Most costly (CA, ME); highest price (OR, VT); highest cost increase (CA)
16729018317 Hydrochlorothiazide CA, ME, OR, VT Diuretics Treatment of high blood pressure, edema, kidney stones Most frequently prescribed (CA, ME, OR, VT)
60505258009 Atorvastatin CA, ME, OR, VT Antihyperlipidemics Treatment of high cholesterol and triglyceride levels Most frequently prescribed (CA, ME, OR, VT); most costly (CA); highest cost increase (CA)
61958200201 Descovy CA, ME, VT Antivirals Treatment of HIV-1 Most costly (CA); highest cost increase (CA, ME, VT); most frequently prescribed (CA)
68546032512 Copaxone CA, ME, OR, VT Miscellaneous therapeutic agents Treatment of multiple sclerosis Most costly (CA, ME); highest cost increase (CA); highest price (OR, VT)
64406000602 Tecfidera CA, ME, OR, VT Psychotherapeutic and neurological agents – misc. Treatment of multiple sclerosis Most costly (CA, ME, OR); highest cost increase (CA); highest price (VT)
57894006103 Stelara CA, ME, VT Immunological agents Treatment of plaque psoriasis, psoriatic arthritis Most costly (CA, ME); highest cost increase (CA, ME, VT); highest price (VT); most frequently prescribed (OR)
Multiple NDCs Cosentyx CA, ME, OR, VT Immunological agents Treatment of plaque psoriasis, psoriatic arthritis, ankylosing spondylitis Highest price (VT); most costly (CA); highest cost increase (CA, ME, OR); most frequently prescribed (OR)
58406044504 Enbrel CA, ME, OR, VT Miscellaneous therapeutic agents Treatment of plaque psoriasis, psoriatic arthritis, ankylosing spondylitis, juvenile idiopathic arthritis Most costly (ME, CA); highest cost increase (CA, OR, VT); most frequently prescribed (CA, OR); highest cost (VT)
00074379902 Humira (Syringe) CA, ME, OR, VT Gastrointestinal drugs; miscellaneous therapeutic agents Treatment of rheumatoid arthritis, plaque psoriasis, ankylosing spondylitis, Crohn’s disease, ulcerative colitis Most costly (CA, ME, OR); highest price (VT); highest cost increase (CA, OR, VT); most frequently prescribed (CA)
00074433902 Humira (Pen) CA, ME, OR, VT Gastrointestinal drugs; miscellaneous therapeutic agents Treatment of rheumatoid arthritis, plaque psoriasis, ankylosing spondylitis, Crohn’s disease, ulcerative colitis Most costly (CA, ME, OR); highest price (VT); highest cost increase (CA, OR, VT); most frequently prescribed (CA)
69097081412 Gabapentin CA, ME, OR, VT Anticonvulsants Treatment/prevention of seizures, pain Most frequently prescribed (CA, ME, OR, VT); highest expenditure (CA)

Source: Mathematica analysis of drug website data and data reported in: California Department of Managed Health Care (2018); Maine Health Data Organization (2018); Nevada Department of Health and Human Services (2018b); Oregon Department of Consumer and Business Services (2019); and State of Vermont Green Mountain Care Board (2019).

Impact on Insurance Premiums

Three states — California, Oregon, and Vermont — have reported impacts of rising drug prices on insurance premiums. California[3] reported that insurer payments for retail prescription drugs totaled $8.7 billion in 2017, accounting for 13.1 percent of health plan premiums that year. Specialty drugs accounted for a small minority of prescriptions (1.6 percent), but more than half (51.5 percent) of all insurer spending on retail prescription drugs.

Manufacturer rebates and consumer cost sharing lessened the impact of retail prescription drugs on premiums in California, compared to what it might otherwise have been. Manufacturer rebates to insurers equaled about 10.5 percent ($915 million) of the $8.7 billion insurers spent on retail prescription drugs. Among the 25 most frequently prescribed drugs (representing 42.8 percent of total spending on retail prescription drugs), health plan enrollees paid approximately 3 percent of the cost overall — ranging from 2.9 percent of the cost of specialty drugs to 56.6 percent of the cost of generics. Enrollees paid about 8.8 percent of the cost of the 25 most costly drugs (91.2 percent of total spending on retail prescription drugs) reported by insurers.

Vermont [4] reported that prescription drugs accounted for 15.67 percent of premium rates in 2018 (before accounting for manufacturer rebates and other price concessions). Expressed as a per member per month (PMPM) amount, that averaged $81.65 PMPM in 2018. Vermont also identified the three drugs contributing the most to premiums: Humira Pen, Harvoni, and Enbrel Sureclick. Specialty drugs as a category contributed most to premium increases, compared with generic or brand name drugs.

Oregon[5] reported the impact of prescription drugs on premium rates PMPM in 2018 after accounting for manufacturer rebates or other price concessions to insurers. Insurers reported impacts that ranged from a low of 2.5 percent of premiums ($13 PMPM, or about $154 per member annually, for one insurer’s small-group plans) to 18 percent of premiums (about $85 PMPM, or more than or $1,000 per member annually, for two insurers’ small group plans, respectively. At the median, prescription drugs accounted for 11.9 percent of the premiums — nearly $53 PMPM in 2018, or about $635 annually.

Manufacturer and PBM Reporting

At present, five states — Nevada, Connecticut, Maine, Texas, and Washington — have enacted laws that require both manufacturers and PBMs to report annually. Manufacturers are required to report information on specified drugs. PBMs are required to report information about the rebates they have obtained from manufacturers — either in the aggregate (for all drugs) or for specified drugs. Requiring both manufacturers and PBMs to report offers the potential for states to track pricing along the supply chain for drugs of interest, if the state aligns the level of information that each must report.

The drug cost transparency reporting requirements in these states are shown in Table 3. Washington will require PBMs to report information for each covered drug—a provision that will enable the Washington Health Care Authority to track prices across the supply chain for each drug.[6] Nevada requests PBM reporting on essential diabetes drugs (collectively), as specifically identified by the Nevada Department of Health and Human Services. Connecticut and Texas will require PBMs to report aggregate rebates obtained across all drugs from pharmaceutical manufacturers. In Maine, the Maine Health Data Organization will adopt rules specifying the data elements to be reported.

Table 3. States that require reporting by both manufacturers and PBMs*

State Manufacturers must report:** PBMs must report:
Connecticut ·  Total company level research and development costs for the most recent year ·  The aggregate dollar amount for all rebates concerning drug formularies that PBM collected from pharmaceutical manufacturers, Including those that manufactured outpatient prescription drugs covered by the health carriers and are attributable to patient utilization of such drugs under the health care plan

·  The aggregate dollar amount of all rebates excluding rebates received by health carriers
Nevada ·  Total administrative expenditures (including marketing and advertising costs)

·  Profit earned and percentage of total profit attributable to the drug

·  Total amount of financial assistance provided through patient assistance

·  Cost associated with coupons

·  Wholesale acquisition cost

·  History of any increase over the 5 years including percentage increase, date of increase, and explanation

·  Aggregate amount of all rebates provided to PBM’s

 ·  Total (aggregate) amount of rebates negotiated with manufacturers during the previous year

·  Total amount of rebates retained by the PBM

·  Total amount of rebates negotiated for purchases of drugs for use by Medicare and Medicaid recipients, and persons covered by third parties that are or are not governmental entities
Texas ·  Total company level research and development costs for the previous calendar year ·  Aggregated rebates, fees, price concessions, and other payments from manufacturers

·   Aggregated dollar amount of rebates, fees, price concessions from manufacturers that were (a) passed to insurers, (b) passed to enrollees at point of sale; and (c) retained by the PBM
Washington ·  Annual manufacturing costs

·  Annual marketing and advertising costs

·  Total research and development costs

·  Total costs of clinical trials and regulation

·  Total costs for acquisition of the drug

·  Total financial assistance given by the manufacturer through assistance programs, rebates, and coupons

 ·  All discounts (total dollar amount and percentage discount) and all rebates received from manufacturers for each drug on the PBM’s formularies

·  Total dollar amount of discounts and rebates that are retained by the PBM for each drug

·   Actual total reimbursement amounts for each drug the PBM pays retail pharmacies after all fees

·   Negotiated price health plan pays PBM for each drug

·   Amount, terms, and conditions relating to copayments, reimbursement policies, etc.

·  Disclosure of any ownership interest the PBM has in a pharmacy or health plan with which it conducts business

Sources: Connecticut HB 5384/Public Act 18-41(2018); Nevada Department of Health and Human Services (2018a); Texas HB 2536 (2019); and Washington HB 1224, Chapter 334 (2019).

* Maine also requires reporting from manufacturers and PBMs. The Maine Health Data Organization will adopt rules specifying the data elements to be reported.

** In addition to the items indicated, each state requires manufacturers to report reasons for price increases, if any.

As of August 2019, Nevada was the only state that had publicly reported information about manufacturer costs and the role of PBMs in the final cost of drugs to consumers that are privately insured or enrolled in Medicare or Medicare.[7] Together with manufacturer reporting, reporting by PBMs offers a reasonably complete (if aggregated) picture of factors that contribute to essential diabetes drug costs in Nevada.

Nevada asks both manufacturers and PBMs to report pricing information for essential diabetes drugs in the aggregate and, in general, at the national level. Manufacturers report only one item specific to Nevada: rebates paid to PBMs for essential diabetes drugs in Nevada.

A summary of the information reported by manufacturers and PBMs, as shown in Nevada’s public report, is shown in Table 4. Because Nevada reported PBM-negotiated rebates for essential diabetes drugs ($1.9 billion) at the aggregate national level and manufacturer rebates only in Nevada and as the average aggregated across manufacturers, they cannot be compared. Such discrepancies make it impossible to track the supply chain for these drugs nationally or in Nevada. Nevertheless, some insights can be drawn within the information reported by manufacturers and PBMs, respectively.

Table 4. Summary of data reported by manufacturers and PBMs in Nevada for essential diabetes drugs

Average amount per manufacturer      (simple averages) Percent of estimated average manufacturer revenue after rebates
Manufacturer-reported data for essential diabetes drugs
Estimated total revenue after rebates (national)* $204,353,658 100.0 percent
Production cost $58,934,388 28.8 percent
Administrative expenses $65,548,748 32.1 percent
Profit $51,979,630 25.4 percent
Cost of consumer financial assistance $27,890,892 13.6 percent
Total provided through any patient prescription assistance program $12,874,326 6.3 percent
Consumer coupons and consumer copayment assistance programs $14,036,828 6.9 percent
Manufacturer cost of redeeming coupons and use of consumer copayment assistance programs $979,738 0.5 percent
Aggregate rebates to PBMs in Nevada $3,039,646 1.5 percent
Total amount              (all PBMs) Percent of PBMs’ total negotiated rebates
PBM-reported data for essential diabetes drugs (Nevada only):
Total rebates negotiated with manufacturers $1,922,857,158 100.0 percent
Total rebates negotiated for persons covered by
Medicaid $31,648,939 1.6 percent
3rd party governmental entities, not Medicare or Medicaid $597,759,023 31.1 percent
3rd parties that are not governmental entities (potentially including self-insured employer plans) $1,293,449,196 67.3 percent
Total rebates retained by the PBM $126,754,864 6.6 percent

Source: S. Jones, et al. (2019), Tables 4, 5 and 6.

*Calculated as the sum of all shown manufacturer-reported amounts excluding aggregate rebates to PBMs in Nevada.

  1. Manufacturer cost, profit, and consumer assistance

In 2018, average manufacturer costs and profits for essential diabetes drugs, reported at the national level, totaled nearly $204.4 million (Figure 1). Drug production costs accounted for just 29 percent of the total ($58.9 million).

Figure 1. Reported profits and production and administrative costs for essential diabetes drugs (Nevada)

Source: S. Jones, et al. (2019), Tables 4 and 5.

Manufacturers’ administrative expenditures, which may include executive compensation, accounting and legal fees, marketing, advertising, and other administrative expenses as each manufacturer deems reasonable, accounted for $65.5 million. This amount exceeded their reported average production costs (although the Nevada report indicates multiple drug manufacturers reported $0 for total administrative expenditures, and likely included all their costs for manufacturing the drug in the drug production costs).

Manufacturers reported average profits (nearly $52.0 million) — equal to 25.4 percent of the sum of production cost, administrative cost, consumer assistance, and profit — or 41.8 percent of total production and administrative cost. That is, aggregated across reporting manufacturers, manufacturers of essential diabetes drugs earned $42 in profits for every $100 they spent on production and administrative cost.[8]

Nationally, financial assistance to consumers accounted for an estimated 13.6 percent ($27.9 million) of manufacturers’ estimated average total revenues after rebates for essential diabetes drugs. This financial assistance included patient prescription programs, coupons, or copayment assistance programs. However, more than half of the reporting manufacturers indicated that they provided no financial assistance through patient prescription assistance programs (58 percent), and also provided no rebates to PBMs or pharmacies (55 percent). By inference, the average dollar amount of financial assistance among manufacturers that provided any financial assistance (presumably the larger manufacturers) was more than twice the average across all manufacturers (including those that provided none).

  1. PBM negotiated and retained rebates

PBMs reported negotiating more than $1.9 billion in rebates for essential diabetes drugs for Nevadans (Table 4). Nearly this entire amount was negotiated on behalf of private third parties—predominantly private insurers and self-insured employer plans ($1.3 billion) or other nongovernmental third parties ($598 million). PBMs reported retaining 6.6 percent of all rebates that they negotiated, whether on behalf of private third parties or Medicaid.

Differences in how Nevada’s public report summarized the data obtained from manufacturers and PBMs make it impossible to develop a picture of the supply chain from the information offered—although it seems likely that Nevada has the information necessary to do this. Nevada’s report demonstrates the crucial importance of requiring manufacturers and PBMs to report information at the same level of aggregation—at the state level or nationally (but not either/or), and for the same individual drugs or narrowly specified groups of drugs—in order to build a coherent picture of the factors that contribute to high consumer cost.

Summary

This report summarizes information that five states—California, Maine, Nevada, Oregon, and Vermont—have obtained from insurers, manufacturers, and/or PBMs to achieve greater drug price transparency. Each of these states is in a relatively early stage of obtaining and understanding their data. Nevertheless, the information they have made public suggests some early lessons for states interested in obtaining meaningful reporting for drug price transparency.

  • States share concerns regarding the affordability of many of the same drugs. We identified 120 drugs that concern at least two of the five states—due to high cost, fast-rising cost, and/or the frequency with which the drug is prescribed. The large number of drugs that are of concern across states indicates that there might be substantial value in sharing information across states. State efforts such as Maryland’s recently enacted Drug Affordability Review Board might initially focus on many of these same drugs.[9] States that are developing statutory authority to require manufacturer reporting for these drugs might consider explicitly authorizing data sharing with other states that have compatible confidentiality protections—or else explore other options available in current law or regulation to reduce manufacturers’ burden of redundant reporting to multiple states.
  • There is substantial value in understanding pricing across the entire supply chain, from the manufacturer to the consumer, for drugs that drive increases in health insurance premiums and consumer costs. States that design reporting templates using consistent and compatible concepts and measures, and report those measures publicly, can foster mutual understanding of facts among policymakers and stakeholders in a complex system. However, if rebates and other information are reported collectively for all drugs, it frustrates the ability of policymakers to understand impacts on costs for specific drugs. PBM reporting by manufacturer/product code (if not by NDC) is critical to understanding the supply chain for the specific drugs of interest to the states. Nevada’s PBM reporting requirement — for a list of specified NDCs—demonstrates that PBMs are able to report on specific drugs, not only on their aggregate business.[10]
  • When requiring manufacturers, PBMs, or other entities to report drug price data, it is critical that the responsible agency be given the authority and resources necessary to follow up when reported data are not complete or credible. Especially in the first years of implementation, the reporting entities may be learning how to report, and they may be reluctant to invest in getting the data right. Accurate reporting is essential for drug transparency laws to help states develop a fair approach to ensuring that prescription drugs are affordable.

References and Appendix

Arkansas

Arkansas SB 520/Act No. 994, 2019. Available at: http://www.arkleg.state.ar.us/assembly/2019/2019R/Acts/Act994.pdf. Accessed August 1, 2019.

California:

California Department of Managed Health Care. “Prescription Drug Cost Transparency Report (SB 17): Measurement Year 2017.” Sacramento, CA: Department of Managed Health Care, December 2018. Available at https://www.dmhc.ca.gov/Portals/0/Docs/DO/sb17.pdf. Accessed July 31, 2019.

California Office of Statewide Health Planning and Development. “Cost Transparency: Prescription Drugs (CTRx),” 2019. Available at https://oshpd.ca.gov/data-and-reports/cost-transparency/rx/. Accessed July 31, 2019.

Connecticut:

State of Connecticut, Substitute House Bill No. 5384/Public Act No. 18-41. Available at https://www.cga.ct.gov/2018/ACT/pa/pdf/2018PA-00041-R00HB-05384-PA.pdf. Accessed July 31, 2019.

Iowa:

Iowa SF 563, 2019. Available at: https://www.legis.iowa.gov/legislation/BillBook?ga= 88&ba=SF percent20563. Accessed August 1, 2019.

Louisiana:

Louisiana SB 283/Act No. 371, 2018. Available at: https://legiscan.com/LA/text/SB283/id/1799999/Louisiana-2018-SB283-Chaptered.pdf. Accessed August 1, 2019.

Maine:

Maine Health Data Organization. “MHDO Prescription Drug Reports,” June 2018. Available at https://mhdo.maine.gov/tableau/prescriptionReports.cshtml. Accessed July 31, 2019.

Minnesota:

Minnesota SF 278, 2019. Available at: https://www.revisor.mn.gov/bills/bill.php?b=senate&f=SF0278&ssn=0&y=2019. Accessed August 1, 2019.

Nevada:

Nevada Department of Health and Human Services, SB539 Reporting Timeline v08.10.2018, August 10, 2018a. Available at: http://dhhs.nv.gov/uploadedFiles/dhhsnvgov/content/HCPWD/SB539 percent20Drug percent20Transparency percent20Reporting percent20Timeline_v08.10.2018_website.pdf. Accessed July 31, 2019.

Nevada Department of Health and Human Services. “Essential Diabetes Drugs Price Increase Report.” Carson City, NV: Division of Public and Behavioral Health, Primary Care Office. September 2018. Available at http://dhhs.nv.gov/uploadedFiles/dhhsnvgov/content/HCPWD/09.11.2018 percent20Nevada percent20Essential percent20Diabetes percent20Drugs percent20Price percent20Increase percent20Report_Final.pdf. Accessed July 31. 2019.

Jones, S., P. Thompson, J. Tucker, H. Mitchell, T. McKnight, H. Wallace, and K. Devine. “Drug Transparency Report 2019 Essential Diabetes Drugs” Carson City, NV: Nevada Department of Health and Human Services, Division of Public and Behavioral Health, May 2019. Available at http://dhhs.nv.gov/uploadedFiles/dhhsnvgov/content/HCPWD/DHHS percent202019 percent20Drug percent20Transparency percent20Report percent205-31-2019(1).pdf. Accessed July 31, 2019.

Oregon:

Oregon Department of Consumer and Business Services. “Insurer Reports on Prescription Drugs Drug Price Transparency Program,” 2019. Available at https://dfr.oregon.gov/drugtransparency/data/Documents/insurer-reports-rx-drugs-2019.pdf. Accessed October 16, 2019.

Texas:

Texas HB 2536, 86th Legislature, 2019-2020. Available at: https://legiscan.com/TX/text/HB2536/id/2027782/Texas-2019-HB2536-Enrolled.html. Accessed July 31, 2019.

Vermont:

Office of the Vermont Attorney General. “Prescription Drug Cost Transparency-Manufacturer and Health Insurer Annual Reporting” (undated). https://ago.vermont.gov/drug-price-transparency-manufacturer-and-health-insurer-annual-reporting/. Accessed July 31, 2019.

State of Vermont Green Mountain Care Board. “Impact of Prescription Drug Costs on Health Insurance Premiums.” Montpelier, VT: State of Vermont Green Mountain Care Board, January 2019. Available at https://legislature.vermont.gov/assets/Legislative-Reports/Act-193-Report-Impact-of-Prescription-Drug-Costs-on-Health-Insurance-Premiums.pdf. Accessed July 31, 2019.

Washington:

Washington HB 1224/Chapter 334, 2019. Available at: http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/House percent20Passed percent20Legislature/1224-S2.PL.pdf

Appendix 1: Drugs reported by two or more states: California, Maine, Nevada, Oregon, and Vermont

NDC Drug States Therapy Class
00173069600 Advair (Diskus) CA, ME Respiratory Tract Agents
Multiple NDCs Amlodipine Besylate CA, OR Antihypertensives
Multiple NDCs Amoxicillin CA, OR Antibacterials
60505258009 Atorvastatin CA, ME, OR, VT, Antihyperlipidemics
60505257909 Atorvastatin CA, OR, VT, Antihyperlipidemics
50111078766 Azithromycin CA, VT Antibacterials
50111078751 Azithromycin CA, ME, OR Antibacterials
00002771559 Basaglar (Kwikpen) ME, NV, OR Hormones and Synthetic Substitutes
00173085910 Breo Ellipta CA, ME Respiratory Tract Agents
45963014205 Bupropion Hcl CA, OR, VT, Antidepressants
10370010150 Bupropion Hcl CA, OR, VT, Antidepressants
00069046903 Chantix CA, VT Antidotes, Deterrents, and Toxicological Agents
00069047103 Chantix CA, VT Antidotes, Deterrents, and Toxicological Agents
68546032512 Copaxone CA, ME, OR, VT, Miscellaneous Therapeutic Agents; Miscellaneous Therapeutic Agents (Platelet-Aggregation Inhibitors)
Cosentyx CA, ME, OR, VT, Immunological Agents
61958200201 Descovy CA, ME, VT Antivirals
00024591401 Dupixent ME, OR Immunological Agents
00003089421 Eliquis CA, ME, OR Blood Formation, Coagulation, and Thrombosis Agents
58406044504 Enbrel CA, ,ME, ,OR, VT Miscellaneous Therapeutic Agents; Miscellaneous Therapeutic Agents (Platelet-Aggregation Inhibitors)
61958220101 Epclusa CA, ME, OR, VT, Antivirals
00173071920 Flovent CA, VT Corticosteroids
Multiple NDCs Fluoxetine CA, OR Antidepressants
00054327099 Fluticasone Prop CA, ME, VT Respiratory Tract Agents
60505082901 Fluticasone Prop CA, VT Respiratory Tract Agents
69097081412 Gabapentin CA, ME, OR, VT, Anticonvulsants
61958190101 Genvoya CA, OR Antivirals
00078060715 Gilenya CA, VT Immunological Agents
68084011201 Glipizide ER CA, NV Blood Glucose Regulators
68084029521 Glipizide ER CA, NV Blood Glucose Regulators
68084011101 Glipizide ER CA, NV Blood Glucose Regulators
61958180101 Harvoni CA, ME, VT Anti-infective Agents
00002879959 Humalog (Kwikpen) ME, NV, OR Hormones and Synthetic Substitutes
00002751001 Humalog CA, ME, OR Hormones and Synthetic Substitutes
00074433902 Humira (Pen) CA, ME, OR, VT, Gastrointestinal Drugs; Miscellaneous Therapeutic Agents; Miscellaneous Therapeutic Agents (Platelet-Aggregation Inhibitors)
00074379902 Humira (Syringe) CA, ME, OR, VT, Gastrointestinal Drugs; Miscellaneous Therapeutic Agents; Miscellaneous Therapeutic Agents (Platelet-Aggregation Inhibitors)
00002880559 Humulin N CA, NV Blood Glucose Regulators
00002831501 Humulin N CA, NV Blood Glucose Regulators
00002831517 Humulin N CA, NV Blood Glucose Regulators
00002821501 Humulin R CA, NV Blood Glucose Regulators
00002821517 Humulin R CA, NV Blood Glucose Regulators
00002882427 Humulin R U-500 KwikPen CA, NV Blood Glucose Regulators
00002850101 Humulin R U-500 CA, NV Blood Glucose Regulators
16729018317 Hydrochlorothiazide CA, ME, OR, VT, Diuretics
00406012301 Hydrocodone/Acetaminophen ME, OR, VT, Analgesics – Opioid
00069018921 Ibrance CA, VT Antineoplastics
50458014030 Invokana CA, NV Blood Glucose Regulators
50458014090 Invokana CA, NV Blood Glucose Regulators
50458014130 Invokana CA, NV Blood Glucose Regulators
50458014190 Invokana CA, NV Blood Glucose Regulators
00006057761 Janumet CA, NV Blood Glucose Regulators
00006057762 Janumet CA, NV Blood Glucose Regulators
00006057782 Janumet CA, NV Blood Glucose Regulators
00006057561 Janumet CA, NV Blood Glucose Regulators
00006057562 Janumet CA, NV Blood Glucose Regulators
00006057582 Janumet CA, NV Blood Glucose Regulators
00006027731 Januvia CA, ME, NV, VT Blood Glucose Regulators
00006011254 Januvia CA, NV Blood Glucose Regulators
00006027733 Januvia CA, NV Blood Glucose Regulators
00006027754 Januvia CA, NV Blood Glucose Regulators
00006027782 Januvia CA, NV Blood Glucose Regulators
00006022128 Januvia CA, NV Blood Glucose Regulators
00006022131 Januvia CA, NV Blood Glucose Regulators
00006022154 Januvia CA, NV Blood Glucose Regulators
00006011228 Januvia CA, NV Blood Glucose Regulators
00006011231 Januvia CA, NV Blood Glucose Regulators
00006027702 Januvia CA, NV Blood Glucose Regulators
00006027728 Januvia CA, NV Blood Glucose Regulators
00597015230 Jardiance CA, NV Blood Glucose Regulators
00597015237 Jardiance CA, NV Blood Glucose Regulators
00597015290 Jardiance CA, NV Blood Glucose Regulators
00597015330 Jardiance CA, NV Blood Glucose Regulators
00597015337 Jardiance CA, NV Blood Glucose Regulators
00597015390 Jardiance CA, NV Blood Glucose Regulators
00088222033 Lantus ME, NV Hormones and Synthetic Substitutes
00088221905 Lantus Solostar CA, ME, NV, VT Hormones and Synthetic Substitutes
00169643810 Levemir ME, NV Hormones and Synthetic Substitutes
00378180310 Levothyroxine Sodium ,CA, OR, VT Hormonal Agents – Thyroid
00185060501 Lisinopril CA, ,OR, VT Antihypertensives
68180098103 Lisinopril CA, ME, OR Antihypertensives
65862020390 Losartan Potassium CA, ,OR, VT Antihypertensives
00071101668 Lyrica CA, VT Neuropathic Pain
60687014301 Metformin HCL CA, NV Blood Glucose Regulators
49483062350 Metformin Hcl Er CA, VT Blood Glucose Regulators
62037083101 Metoprolol Succinate Er CA, ,OR, VT Beta Blockers
Multiple NDCs Montelukast Sodium CA, OR Respiratory Tract Agents, Asthma
55513019001 Neulasta OR, VT Blood products and modifiers (Anti-infective for chemotherapy)
00169633910 Novolog ME, NV, OR, VT, Hormones and Synthetic Substitutes
00052027303 Nuvaring CA, VT Contraceptives, Intravaginal, Systemic
61958210101 Odefsey CA, OR Antivirals (HIV Treatment)
55111015810 Omeprazole ME, ,OR, VT Gastrointestinal Drugs
00378773293 Ondansetron CA, OR Antiemetics
53885024510 Onetouch Ultra Test Strip CA, VT Blood Sugar Diagnostics
Non-matching NDCs Orkambi ME, VT Respiratory Agents – Misc.
59310057922 Proair CA, ME, OR, VT, Beta-Adrenergic Agents
00023530105 Restasis (Multidose) CA, ME Eye, Ear, Nose, and Throat (EENT) Preparations
59572041028 Revlimid CA, ME, OR Antineoplastics
59572041000 Revlimid CA, ME, OR Antineoplastics
68180035302 Sertraline CA, ME, OR, VT, Antidepressants
69097083502 Sertraline CA, VT, OR Antidepressants
65862001305 Sertraline CA, VT, OR Antidepressants
16729000517 Simvastatin CA, VT Antihyperlipidemics
16714068202 Simvastatin CA, VT Antihyperlipidemics
16714068101 Simvastatin CA, VT Antihyperlipidemics
16714068201 Simvastatin CA, VT Antihyperlipidemics
00093715498 Simvastatin CA, VT Antihyperlipidemics
00093715598 Simvastatin CA, VT Antihyperlipidemics
16729000617 Simvastatin CA, VT Antihyperlipidemics
Non-matching NDCs Spiriva (Respimat/Handihaler) ME, VT Autonomic Drugs; Respiratory Tract Agents
12496120803 Suboxone ME, VT Central Nervous System Agents; Miscellaneous Therapeutic Agents; Miscellaneous Therapeutic Agents (Platelet-Aggregation Inhibitors)
52268001201 Suprep Bowel Prep Kit CA, OR Gastrointestinal Agents (Colonoscopy prep)
57894006103 Stelara CA, ME, OR, VT, Immunological Agents
00186037020 Symbicort CA, ME, VT Antiasthmatic And Bronchodilator Agents
64406000602 Tecfidera CA, ME, OR, VT, Psychotherapeutic And Neurological Agents – Misc.
49702022813 Tivicay CA, VT Antivirals, Hiv-Spec, Non-Peptidic Protease Inhib
00597014030 Tradjenta CA, NV Blood Glucose Regulators
00597014061 Tradjenta CA, NV Blood Glucose Regulators
00597014090 Tradjenta CA, NV Blood Glucose Regulators
50111043301 Trazodone ME, OR, VT, Antidepressants
00169255013 Tresiba (Flextouch) ME, NV Hormones and Synthetic Substitutes
49702023113 Triumeq CA, OR, VT, Antivirals
Non-matching NDCs Trulicity ME, NV Hormones and Synthetic Substitutes
61958070101 Truvada CA, OR HIV Treatment
61958070301 Truvada CA, OR HIV Treatment
00173068220 Ventolin CA, ME, OR, VT, Autonomic Drugs; Respiratory Tract Agents
00169406013 Victoza (3-Pak) ME, NV, VT Hormones and Synthetic Substitutes
50458057930 Xarelto CA, ME, VT Anticoagulants,Coumarin Type
54092060601 Xiidra CA, VT Opthalmic Agents
Non-matching NDCs Metformin CA, NV, OR, VT, Blood Glucose Regulators
57894019506 Zytiga ME, OR Antineoplastics

Source: Mathematica analysis of data reported in: California Department of Managed Health Care (2018); Maine Health Data Organization (2018); Nevada Department of Health and Human Services (2018b); Oregon Department of Consumer and Business Services (2019); and State of Vermont Green Mountain Care Board (2019).

Notes

[1] These states are California, Connecticut, Maine, New Hampshire, Nevada, Oregon, Washington, Texas, and Vermont. See: National Academy for State Health Policy Center for State Rx Pricing, Newly Enacted Laws at https://www.oldsite.nashp.org/new-laws/, accessed August 8, 2019.

[2] See:  California Office of Statewide Health Planning and Development (2018), Nevada Department of Health and Human Services (2018b), Maine Health Data Organization (2018), and State of Vermont Green Mountain Care Board (2019).

[3] See: California Department of Managed Health Care (December 2019).

[4] See: Vermont Green Mountain Care Board (January 2019).

[5] See: Oregon Department of Consumer and Business Services (2019).

[6] Washington defines a covered drug as one that  “is currently on the market, is manufactured by a covered manufacturer, and has a wholesale acquisition cost of more than one hundred dollars for a course of treatment lasting less than one month or a thirty-day supply, and … the manufacturer increases the wholesale acquisition cost at least … [20] percent, including the proposed increase and the cumulative increase over one calendar year prior to the date of the proposed increase [or] [50] percent, including the proposed increase and the cumulative increase over three calendar years prior to the date of the proposed increase.” See: Washington HB 1224/Chapter 334 (2019), Section 2.

[7] A number of other states recently passed (but have not yet enacted) legislation that would require PBM reporting. Such states include Arkansas, Iowa, Louisiana, and Minnesota. These states variously would require PBM reporting of total rebates (all states); rebates retained by the PBM (Minnesota—like Nevada, Texas, and Washington); rebates the PBM did (or did not) pass through to insurers (Arkansas, Iowa, Louisiana, and Minnesota—like Connecticut and Texas); rebates passed through to enrollees at point of sale (Arkansas—like Texas); the amount paid for pharmacy services (Arkansas—like Washington); administrative fees received by the PBM (Iowa and Louisiana); and the highest, lowest, and mean aggregate retained rebate percentage (Iowa, Louisiana, and Minnesota). See: Arkansas SB 520/Act No. 994 (2019); Iowa SF 563 (2019), Louisiana SB 283/Act No. 371 (2018); and Minnesota SF 278/Session Law Chapter 39 (2019).

[8] Nevada’s report notes that the variation among manufacturers (and potentially among drugs produced by the same manufacturer) is significant: a simple unweighted average per manufacturer, then calculated across manufacturers, produced an average profit of 152 percent of the sum of production and administrative cost—that is, for every dollar spent on combined production and administrative costs, the manufacturers earned, on average, $1.52 in profit. The report states that larger manufacturers (with lower profit rates) tend to reduce the aggregate profit ratio, as calculated in Figure 1.

[9] Built on the National Academy for State Health Policy’s model legislation, Maryland’s Prescription Drug Affordability Board is an independent body with the authority to review high-cost prescription drugs and identify fair, appropriate rates for Marylanders to pay.

[10] To obtain consistent information from all reporting entities, NASHP’s model legislation and reporting templates call for reporting at the NDC level, and they align national and state-level reporting to support a coherent picture of pricing along the supply chain for each drug. See: https://www.oldsite.nashp.org/policy/prescription-drug-pricing/model-legislation/#toggle-id-1, accessed August 9, 2019.

Acknowledgements: The National Academy for State Healthy Policy’s Center for State Rx Drug Pricing, with support from Arnold Ventures, commissioned this analysis from experts affiliated with Mathematica Policy Research.

States Assert their Drug Purchasing Power to Capture Savings for Medicaid

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In the face of rapidly rising prices, state Medicaid programs are asserting their prescription drug purchasing power through more active oversight of the administration of prescription drug benefits. As major drug purchasers, state Medicaid programs have leverage to lower costs without action from state legislatures. Ohio, Washington, and West Virginia have recently deployed a range of strategies to curb drug costs:

  • Ohio requires Medicaid managed care plans to adopt transparent, pass-through payment models with their pharmacy benefit mangers (PBMs). 
  • To maximize rebate potential and reduce administrative burden, Washington State is implementing a single preferred drug list (PDL) across Medicaid fee-for-service and managed care plans.  
  • West Virginia carved out the prescription drug benefit from its managed care contracts and now acts as its own PBM to increase oversight of drug purchasing and reduce costs.

Below is a detailed explanation of how these three states have implemented innovative purchasing strategies for their Medicaid pharmacy purchases.

Ohio Requires a Transparent, Pass-Through PBM Payment Model

A 2018 report found that PBMs retained profits of $224 million by creating a “spread” between what Medicaid paid PBMs for pharmacy claims versus what PBMs paid pharmacies. In response, Ohio mandated that managed care plans switch to contracts with transparent, pass-through payment models with the PBMs. With a transparent, pass-through model, states can ensure PBMs do not profit off this spread-pricing practice and pass through drug discounts and rebates to managed care plans. PBMs are instead reimbursed more directly through fees. Wisconsin’s state employee health plan requires a similar, fully transparent, pass-through payment model. Through this change in contract terms, Wisconsin’s per member, per month drug costs were more than 10 percent below industry averages from 2016 to 2018. 

Ohio state officials report making significant changes to managed care contracts to increase transparency, reporting, and accountability pertaining to their PBM contracts and drug payments. Through enhanced reporting from managed care plans, officials have been able to confirm the successful implementation of the pass-through model. Ohio’s 2020 budget goes a step farther, requiring all managed care plans to contract with a single PBM, which will be selected by Ohio’s Medicaid department, giving the state more authority over drug purchasing. 

Washington State: Implementing a Single, Standard Medicaid PDL Across MCOs

In January 2018, the Washington Healthcare Authority implemented a single PDL – a list that indicates which drugs are “preferred” by the state and do not require prior authorization. Washington’s Medicaid program transitioned from six different PDLs across managed care organizations (MCO) to one. A single PDL provides a number of advantages, including:

  • Administrative ease for providers, patients, and pharmacies; 
  • Rebate maximization by selecting drugs with the lowest cost or maximum rebate potential;
  • Rebate transparency for more accurate cost management; and
  • Fewer disruptions for patients who may switch between managed care plans.

To transition to a single PDL, Washington submitted two State Plan Amendments – one for the single PDL and one to include managed care plans in its supplemental rebate contracts through a multi-state purchasing pool for drugs on the PDL. Washington also added and amended contracts with a number of vendors to ensure the Medicaid agency and managed care plans had access to the same drug data sources to allow seamless collaboration – an important detail for ensuring care coordination. Officials met with managed care plans weekly to plan and roll out the three phases of implementation, ensuring that drugs added to the PDL were clinically appropriate and cost-effective for the state and the plans. Implementation began with 27 drug classes and is expected to be complete by April 2020 with almost 400 different drug classes included in the PDL. 

West Virginia: Carving Prescription Drugs Out of Managed Care

In 2017, West Virginia Medicaid began acting as its own pharmacy benefit administrator under a fee-for-service model, after carving out prescription drug benefits from its managed care contracts. To accomplish the prescription drug carve-out, West Virginia: 

  • Added an additional pharmacist to its staff; 
  • Stress-tested its existing claims processing system;
  • Increased its capacity for prior authorizations; and
  • Educated the public and its help desk staff about the program change.

West Virginia’s Medicaid program now covers over 550,000 enrollees through a fee-for-service model. State officials report they are able to effectively manage the pharmacy benefit and maintain care coordination across MCOs, while obtaining savings for the state. The prescription drug carve-out led to a savings of $54.5 million in 2018. Additionally, changes to the state’s reimbursement methodology during the carve-out process led to an infusion of $122 million in dispensing fees to the state’s pharmacy community. 

While West Virginia is acting as its own PBM, California is carving out the prescription drug benefit from its managed care contracts and contracting with a single PBM to leverage the state’s immense purchasing power. California will use strict contracting terms to ensure greater transparency and cost savings with the contracted PBM. Michigan is currently considering a drug carve-out and legislatures in Louisiana and Nevada prompted their Medicaid programs to explore a potential carve-out of prescription drugs from managed care.

As states strengthen their oversight of drug purchasing, the National Academy for State Health Policy (NASHP) has created and will soon release a model PBM contract for states. Informed by Ohio and Minnesota’s contracts, NASHP’s model contract is designed to help states ban spread pricing and better understand rebate arrangements with their PBMs. To learn more about other administrative actions to curb rising drug costs, read the Administrative Action section of NASHP’s Prescription Drug Pricing website.

Webinar for State Officials Only: Innovations in Medicaid Pharmacy Benefit Management Policies – A Look at Three States

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Friday, Nov. 1, 2019
3:30-4:30 p.m. (ET)

Faced with rising prescription drug costs, state Medicaid programs are implementing innovative policies to manage their pharmacy benefit and find savings. This webinar, for state officials only, is an opportunity to hear officials from three leading states:

  • West Virginia carved pharmacy benefits out of its Medicaid managed care program in 2017 and reports that its shift to a fee-for-service model saved the state over $54 million in state fiscal year 2018.
  •  In response to a report demonstrating the cost to the state when pharmacy benefit managers (PBMs) profit from “spread pricing,” Ohio began requiring managed care plans’ contracts with PBMs to include a transparent, pass-through payment model and to prohibit spread pricing as of January 2019. Ohio’s recently passed 2020 budget bill goes a step farther, requiring all managed care plans to contract with a single PBM, which is selected by the Ohio’s Medicaid department. 
  • To lower the cost of drugs and maximize rebate potential, Washington’s Medicaid program implemented a single formulary for all managed care and fee-for-service pharmacy benefits on Jan. 1, 2018. 

This webinar is for state officials only and will not be recorded.

Moderator: Trish Riley, Executive Director, National Academy for State Health Policy

Speakers:

  • Brian Thompson, MS, PharmD, Director of Pharmacy Services, Bureau for Medical Services, West Virginia Department of Health and Human Resources
  • Vicki Cunningham, PharmD, former Director of Pharmacy Services, Bureau for Medical Services, West Virginia Department of Health and Human Resources
  • Maureen Corcoran, MBA, MSN, Director, Ohio Department of Medicaid
  • Donna Sullivan, MS, PharmD, Chief Pharmacy Officer, Washington Health Care Authority

 

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

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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.

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

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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.

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