Administrative Actions – The National Academy for State Health Policy

Comparison of State Prescription Drug Affordability Review Initiatives

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

Manufacturers to Pay Higher Rebates for Drugs with Large Price Increases under the American Rescue Plan

March 22, 2021/in COVID-19 Relief and Recovery Resource Center Blogs, Featured News Home Administrative Actions, Legal Resources, Prescription Drug Pricing, Relief and Recovery, State Rx Legislative Action /by Johanna Butler

In addition to providing critical funding for state COVID-19 response efforts, the American Rescue Plan requires drug manufacturers to pay more in Medicaid rebates for drugs with large price increases. This change, effective in 2024, has the potential to generate significant federal and state savings.

Under the Medicaid Drug Rebate Program (MDRP), manufacturers are required to provide certain rebates to state Medicaid programs in order to have their drugs covered by Medicaid. States and the federal government share these rebates based on the federal medical assistance percentages (FMAP), which is the share of state Medicaid spending paid for by the federal government. The rebate amount a manufacturer provides to states is determined by two federal rebate requirements:

Without the rebate cap in place, manufacturers face a new pricing landscape that requires them to pay larger Medicaid rebates if they significantly increase a drug’s price.

A basic rebate: This rebate amount is based on a percentage of the average manufacturer price (AMP) – 23.1 percent for most brand-name drugs and 13 percent for generic drugs, and
An inflationary rebate: An additional inflationary rebate is applied if the increase in a drug’s AMP exceeds inflation, defined by the urban consumer price index.

Under the current formula, the total rebate amount a state can receive (when the basic plus inflationary rebates are applied) cannot exceed 100 percent of a drug’s AMP. A drug manufacturer typically triggers this cap only if it increases a drug’s price substantially over time and therefore must provide such a large inflationary rebate that the rebates equal the drug’s price. Once the cap is reached, a manufacturer has little incentive to moderate drug price increases as they can charge a higher price to other private plans without paying larger rebates to Medicaid programs.

The American Rescue Plan eliminates the rebate cap, creating incentives for manufacturers to limit price increases and enabling state Medicaid agencies to collect more in rebates when large price increases occur. Without the rebate cap in place, manufacturers face a new pricing landscape that requires them to pay larger Medicaid rebates if they significantly increase a drug’s price.

This change reflects a June 2019 Medicaid and Children’s Health Insurance Program Payment and Access Commission (MACPAC) recommendation. In its recommendation, MACPAC highlighted that the change would result in higher Medicaid rebates and put downward pressure on manufacturer price increases. At the request of MACPAC, the Congressional Budget Office estimated potential savings from this change would be $15 to $20 billion in federal savings over 10 years. States would receive the non-federal share of these savings to their Medicaid programs. MACPAC, however, did caution that this change would only address drugs with large price increases – not drugs with high-launch prices.

MACPAC is currently considering an additional recommendation to change the MDRP related to rebates on drugs that receive accelerated approvals. An accelerated approval is a Food and Drug Administration (FDA) pathway that allows for quicker approval of drugs that treat serious or life-threatening conditions and fill an unmet medical need. MACPAC is considering a proposal to increase rebates required for drugs that receive an accelerated approval until the manufacturer completes the required post-market clinical trials.

The goal of the MDRP change would be to increase rebates on these drugs while there is limited clinical evidence of their effectiveness and to incentivize manufacturers to complete the post-market trials that are often delayed or take a number of years to complete.

Guidance from the Centers for Medicare & Medicaid Services in 2018 made it clear that state Medicaid programs are required to cover drugs approved through the accelerated approval pathway, despite the fact that these drugs often having high prices and unclear evidence of clinical benefit. Recently, indications for two drugs that received accelerated approvals – the cancer drugs Tecentriq and Imfizi – were withdrawn after follow-up trials showed the drugs did not improve overall survival.

MACPAC will vote on the recommendation to increase rebates for drugs with accelerated approvals at its April meeting. The National Academy for State Health Policy will follow its actions.

Comparison of State Prescription Drug Affordability Board Legislation

March 15, 2021/in Prescription Drug Pricing Charts Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

Will Laws to Lower Drug Prices Harm Innovation? The Evidence Says No.

March 8, 2021/in Prescription Drug Pricing Blogs, Featured News Home Administrative Actions, Consumer Affordability, Health System Costs, Legal Resources, Making the Case for Action, Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Sarah Lanford

Drug makers claim high prices are necessary to support new drug development and innovation, but research shows that public investment in drug research and development combined with large industry profits leaves manufacturers room to lower prices while continuing to innovate.

Drug manufacturers have brought new vaccines to market in record speed to stop the spread of COVID-19. That notable achievement was made possible by massive financial investments from the public. More than $19 billion in government funding has been invested in the research, development, manufacturing, and distribution of COVID-19 vaccines. In total, the United States has guaranteed purchase of 900 million doses for a population of approximately 330 million and assumed financial risk so manufacturers don’t have to.

Even companies that did not accept federal funding for research and development have benefited from previous taxpayer-funded research. The Pfizer vaccine contains a publicly-funded, government-developed spike protein technology that rapidly accelerated its development process.

Taxpayer-funded research for each of the 356 drugs approved by the FDA in the last decade totals $230 billion. Despite taxpayers’ investments in drug development, manufacturers face few restrictions on what they can charge for these drugs in the United States.

Public funding is not unique to vaccines though. The drug industry relies heavily on public funding for all forms of drug development. Taxpayer-funded research for each of the 356 drugs approved by the US Food and Drug Administration in the last decade totals $230 billion. Despite this level of public investment in drug development, manufacturers face few restrictions on what they can charge for their drugs in the United States despite taxpayers’ investments.

As a result, drug prices are on average 2.5-times higher in the United States than comparable countries, even though those countries also contribute considerably to research and development (R&D) costs. High drug prices in the US market have generated substantial profits for the pharmaceutical industry. Between 2008 and 2018, the profitability of pharmaceutical companies was almost double that of other large, public companies.

Despite the significant amount of taxpayer funding, pharmaceutical industry officials argue that high drug prices reflect the cost of R&D and the risk associated with developing a new drug. However, high US drug prices exceed what is necessary to fund R&D. For example, drug manufacturers Amgen, Biogen, Pfizer, and Teva generated more than double their global R&D budgets from excessive US prices, and three companies covered or nearly covered all of their research spending through high US prices on their top-selling products alone:

AbbVie’s Humira (an immunosuppressant);
Biogen’s Tecfidera (treats multiple sclerosis); and
Teva’s Copaxone (an immunomodulator that treats multiple sclerosis).

Two of these drugs – Humira and Tecfidera – appear on the Institute for Clinical and Economic Review’s 2020 list of drugs that have prices increases unsupported by new clinical evidence.

With little action on drug prices from the federal government, states are considering new ways to control drug spending, and lawmakers have filed more than 200 bills this session, including bills with the potential for real impact on prices. Five states have introduced the National Academy for State Health Policy’s (NASHP) model legislation to establish international reference rates to bring prices in line with Canadian rates, which could result in savings ranging from 60 to 85 percent. Three states have introduced NASHP’s model legislation that fines pharmaceutical manufacturers whose drug price increases are unsupported by new clinical evidence – including Humira and Tecfidera cited above – based on the Institute for Clinical and Economic Review’s research.

As states ramp up their efforts to address excessive drug prices, the industry continues to argue that lower prices would harm innovation. Trail-blazing states can be reassured, however, that there is room for manufacturers to lower prices while still maintaining their profit margins and preserving their capacity for innovation.

Adding Teeth to Transparency: States Take Stronger Steps Against Drug Price Hikes

March 1, 2021/in Prescription Drug Pricing Hawaii, Maine, Washington Blogs, Featured News Home Administrative Actions, Consumer Affordability, Health System Costs, Legislative Tracker, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck

Three states have proposed legislation, based on National Academy for State Health Policy’s model law, that penalizes drug manufacturers for hiking prescription drug prices without new clinical evidence to justify the increase.

More than a dozen states have enacted drug price transparency legislation to better understand the extent of and drivers behind prescription drug price hikes. Now two of those states, Washington and Maine,* along with Hawaii, have proposed legislation to take the next step: penalizing manufacturers for hiking prices on their products without new clinical evidence to support a price increase.

Learn more about NASHP’s model act penalizing “unsupported” prescription drug price increases here.

The legislation is based on a NASHP model bill that is designed to be easy to administer and a low-cost approach. The model bill enables states to utilize an annual report published by the Institute for Economic and Clinical Review (ICER) that identifies a small number of expensive drugs with large unsupported price increases. ICER’s January 2021 report, for example, revealed that US spending on unsupported price increases for just seven drugs led to increased spending of $1.2 billion in 2019.

The model bill penalizes manufacturers for 80 percent of their drug sales from unsupported price increases in a state – representing millions in potential revenue that can be used to help reduce prescription drug costs for consumers. NASHP can work with states to estimate potential revenue from this legislation.

ICER is an independent organization that conducts methodologically rigorous research into the clinical and economic value of prescription drugs. A growing number of states is looking to ICER’s annual analysis of unsupported price increases because it is thorough and transparent. The report reflects research that would be difficult for states to replicate on their own without a large investment of time and resources.

ICER actively engages drug manufacturers in its unsupported price increase report by giving them opportunities to correct the data ICER uses in its analysis and to present alternative explanations that might justify the price increases under investigation. In some cases, engagement with manufacturers has led to removal of a drug that had been identified as having an unsupported price increase from ICER’s list. While some stakeholders have expressed concern with ICER’s use of quality adjusted life years (QALYs) in its separate analyses determining the value of specific drugs, ICER’s unsupported price increase report does not use or reference QALYs in any form.

ICER’s January 2021 report on unsupported price increases identified well-known, frequently used, and high-cost drugs, such as Humira, which is used to treat autoimmune diseases. Another drug, Enbrel, also used to treat autoimmune diseases, was reviewed by ICER after being nominated by states with drug price transparency laws. States tracking drug price increases knew that Enbrel was a problem – and ICER’s exhaustive review of the clinical evidence on Enbrel confirmed that Enbrel’s price increase was not supported by new clinical evidence. Enbrel’s unsupported price increase contributed to more than $400 million in increased spending across the United States last year.

While drug price transparency laws help states detect and report on price increases, NASHP’s Unsupported Price Increase model bill enables states go further to more aggressively discourage price increases and to recoup spending lost to manufacturers that raise their prices – not because their products are in any way improved – but because they can.

NASHP has developed a template for determining potential revenue from penalizing manufacturers for unsupported price increases and can work with states that want to estimate potential total revenue from implementing unsupported drug price penalties in their states. Please contact Jennifer Reck for more information.

*Maine lawmakers have pre-filed this bill, meaning it has been proposed but has not yet been published as a legislative document by the Maine’s Revisor of Statutes.

States Take Diverse Approaches to Drug Affordability Boards

February 12, 2021/in Policy Maine, Maryland, Massachusetts, New Hampshire, New York, Ohio Blogs, Featured News Home Administrative Actions, Legal Resources, Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Johanna Butler, Jennifer Reck and Trish Riley

As states take important steps to lower prescription drug costs, at least six have implemented prescription drug affordability review initiatives, although approaches vary across states. The National Academy for State Health Policy (NASHP)’s new chart, Comparison of State Prescription Drug Affordability Review Initiatives, provides a road map of the diverse efforts taken by Maryland, Maine, New Hampshire, New York, Massachusetts, and Ohio.

NASHP’s Prescription Drug Affordability Board (PDAB) model legislation, first released in 2017, defines a PDAB as an entity comparable to a public utility commission, with the ability to establish upper payment limits when a state’s PDAB determines a drug is otherwise unaffordable for state health care purchasers and consumers.

This chart compares state prescription drug affordability review initiatives in Maryland, Maine, New Hampshire, New York, Massachusetts, and Ohio.

Maryland’s PDAB Phased-in Approach

Maryland’s PDAB, enacted in 2019, was based on the NASHP model but initially limits the board’s ability to set upper payment limits to only public purchasers, pending approval by the state legislature. The landmark Maryland law also includes a phased-in approach that could eventually establish upper payment limits for all payers in the state, including the commercial market. The start-up cost for the Maryland PDAB is roughly $750,000 and covers five full-time employees. The funding mechanism for Maryland’s board was vetoed by Gov. Larry Hogan, however the General Assembly recently overrode the veto.

In determining whether a drug is unaffordable, the Maryland board can consider a variety of factors, including:

The wholesale acquisition cost (manufacturers’ list price) or another relevant drug cost index;
Average rebates provided to health plans, pharmacies, and pharmacy benefit managers;
Net drug prices; and
Average patient copay.

In its early meetings, the board began to outline a list of potential drug pricing data sources it will need to access in order to determine an appropriate upper payment limit.

State Approaches that Leverage Purchasing Power

Maine and New Hampshire have also enacted laws creating their own unique PDABs. While these boards are called PDABs, it is important to note that, unlike Maryland, they do not have the authority to set payment limits, but are instead focused on leveraging public purchasing power to lower drug costs.

To accomplish that mission, Maine and New Hampshire’s boards are charged with recommending strategies for public purchasers to lower the cost of prescription drugs in order to meet drug spending targets that will be established by the boards. Ohio enacted a law creating a Prescription Drug Transparency and Affordability Council, but the law does not aim to set upper payment limits. Instead, it established a group of stakeholders to provide recommendations to the governor and legislature on actions that could lower drug costs in Ohio.

Medicaid Models

In addition to the models described above, New York and Massachusetts are engaged in affordability review initiatives that focus on drugs purchased by their states’ Medicaid agencies. As NASHP’s new chart shows, New York and Massachusetts use affordability reviews and direct negotiations with drug manufacturers to attain supplemental rebates on high-cost drugs.

Using Canadian Prices to Set Upper Payment Limits

NASHP’s model legislation’s key strategy was to set enforceable upper payment limits for prescription drugs in order to rein in drug prices. However, particularly with COVID-19’s impact on state budgets, not every state has the resources and capacity to establish a new entity to oversee the robust review of drug costs necessary to establish upper payment limits through a PDAB. During the 2020 legislative session, Washington Gov. Jay Inslee vetoed a number of bills based on cost concerns, including a measure that would have established a PDAB.

In the current 2021 legislative session, four states have introduced bills to establish a PDAB but others have refrained due to budget constraints. To support states facing those budget pressures, NASHP has also released a less costly, alternative approach to setting an upper payment limit – NASHP’s international reference rate model.

Using Canadian drug prices, the model allows a state insurance department to set an upper payment limit for up to 250 high-cost drugs (determined by drug price times utilization). A state could revise the model and use an affordability board structure as well. Canadian prices, which are established with reference to prices in various comparable countries, offer a less costly and labor-intensive process of determining upper payment limits.

Lawmakers in five states (HI, ME, OK, ND, and RI) have introduced or pre-filed bills based on the NASHP’s international reference rate model legislation and more bills are expected to be filed. To learn more about NASHP’s legislative models to curb drug costs and estimated savings from each of them, please contact Jennifer Reck.

PhRMA Challenges Federal Importation Rule and Canada Limits Exports, States Continue Work

November 30, 2020/in Prescription Drug Pricing Blogs, Featured News Home Administrative Actions, Legal Resources, Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck and Trish Riley

As expected, last week the Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit in US District Court for the District of Columbia to block a new federal rule that allows states to import less costly prescription drugs from Canada. Also last week, the Canadian Minister of Health issued an order prohibiting the bulk export of prescription drugs that face shortages in Canada.

The federal importation rule, slated to go into effect this week, requires states to first obtain certification for their importation programs from the US Secretary of Health and Human Services. To achieve certification, a state program must demonstrate it is safe and has the ability to deliver consumer cost savings.

Rather than leave this certification in the hands of the HHS Secretary, PhRMA along with the Partnership for Safe Medicines and the Council for Affordable Health Coverage asked the federal court to stop the rule, arguing state importation programs cannot be safely implemented while raising questions about their cost-savings.

Canada Limits Rx Exports in Short Supply

The Canadian order, designed to protect that country’s domestic prescription drug supplies, applies to controlled substances (which US federal law already prohibits importation of under any circumstances) and other prescription drugs. An analysis (Q&A: The Facts about Canadian Drug Shortages) of past drug shortages in Canada indicates the majority of shortages have involved generic drugs, which are not a primary target for US importation. State programs are designed to focus on high-cost, brand-name medications that would generate the greatest savings.

NASHP analyzed more than 60 brand-name drugs that states have identified and evaluated for potential importation and found that fewer than a quarter of them had ever appeared on Canada’s lists of drug shortages between March 2017 and January 2020, with only two of them appearing on the list as of January 2020.

State Importation Work Continues

Vermont, Maine, Colorado, and Florida had already submitted their initial importation program designs to HHS Secretary Alex Azar before he issued his final rule on Sept. 24, 2020. Florida recently submitted a second proposal that responds specifically to the requirements laid out in the final rule. Two other states, New Mexico and New Hampshire, plan to submit applications soon to meet deadlines in their state’s importation statutes.

Two other recently issued federal rules related to drug pricing are also expected to face legal challenges by the pharmaceutical industry:

One rule lowers Medicare’s prices for certain drugs to the lowest price available internationally, and
Another ends exemptions allowed by an anti-kickback law that currently protects drug manufacturer rebates.

States have also faced legal challenges for their new laws that prohibit price gouging, regulate pharmacy benefit managers, require drug price transparency, prohibit industry tactics to delay the introduction of generic drugs, tax opioid manufacturers in order to fund state-level efforts to address addiction, and protect consumers from the high cost of insulin.

Despite numerous industry challenges, states are continuing to implement laws and to create new legislative approaches to curb drug costs. As state legislatures reconvene in January, many will continue to press for relief from high drug prices. In the meantime, all eyes are on the federal transition to the Biden Administration and his agenda for drug pricing. States remain active and are eager to partner with the federal government to achieve savings for consumers.

The future of importation may hinge on the Biden Administration’s ability to work with states and the Canadian government to allow importation to succeed while allaying Canadian fears. Meanwhile, states implementing importation continue their hard work. Some states will watch for results while others are pivoting to new strategies such as establishing international reference rates which, in essence, allows a states to import Canadian prices in lieu of importing drugs.

The Biden Health Plan and States: Opportunities for Collaboration

November 10, 2020/in Policy Blogs, Featured News Home Administrative Actions, Consumer Affordability, COVID-19, Eligibility and Enrollment, Health Coverage and Access, Health Equity, Health System Costs, Model Legislation, Population Health, Prescription Drug Pricing, State Insurance Marketplaces, State Rx Legislative Action /by Trish Riley

As he launched his Covid-19 Task Force this week, President-elect Joe Biden moved quickly to turn his health care campaign promises into policies in preparation for entering the Oval Office in January. In addition to ending the pandemic, Biden plans to build on the Affordable Care Act (ACA) by expanding access to and affordability of insurance coverage, creating a public option, and lowering Medicare eligibility to age 60.

Biden also proposes to lower drug costs, end surprise medical billing, address long-term services, expand mental health services, increase funding to community health centers and state Medicaid programs, address maternal mortality and its impact on Black women, improve rural health care, work with providers to improve health outcomes and quality, and protect consumers against price increases resulting from provider consolidation. But his ambitious agenda will likely face some stiff headwinds.

First, the Supreme Court today began hearing oral arguments in Texas vs. California, which may lead to the overturning of all or portions of the ACA. While many court observers doubt the entire law will be scuttled, the future of the ACA will not be certain until the Supreme Court rules, which could come as late as June 2021. The court’s 2012 decision in NFIB vs. Sebelius is a reminder of the challenges of trying to predict how the court will rule. In that decision, the court upheld the constitutionality of the ACA but surprised the health policy community by nullifying the law’s mandate for Medicaid expansion, making that decision a state option. The uncertainty about the court’s action on the current ACA case will weigh on the Biden Administration, which must be ready for whatever results.

Many of Biden’s proposals require Congressional action and budget approval in a particularly challenging economic and political environment. Should Republicans maintain their Senate majority following the two Senate run-off elections in Georgia, the Biden Administration can expect resistance to many of its proposals. While the President-elect and new Congress will undoubtedly work to address the nation’s first priority of curbing the ongoing pandemic and in so doing so jumpstarting the economy, the new Administration is expected to fight as hard for health care reforms that Biden promoted on the campaign trail.

As the debates unfold and Congressional roadblocks arise, states will have new opportunities to advance health care reforms and innovations – giving the new Administration a temporary safe harbor from the headwinds of Congressional opposition. The Biden Administration can, through regulatory reforms, Medicaid and 1332 state innovation waivers, and discretionary funding, enable states to implement some of his proposals and invest in other innovative health policies and programs as states continue to serve as the nation’s laboratories of innovation

Access to Affordable Coverage

State and federal marketplaces: Biden proposes to strengthen the ACA by:

Eliminating the “cliff” that makes individuals with incomes exceeding 400 percent of the federal poverty level (FPL) ineligible for advanced premium tax credits (APTC);
Limiting what people spend on health insurance to 8.5 percent of their incomes; and
Making the benefit plan richer, basing APTC tax credits on gold plans instead of less robust silver plans.

The Biden Administration may provide greater funding for outreach and extend open enrollment and special enrollment periods – now offered by only state-based marketplaces – throughout the federal marketplace (healthcare.gov).

Medicaid enrollment: The federal Public Health Emergency, now set to expire Jan. 20, 2021, is expected to be extended, and with it the mandate enabling states to maintain their current Medicaid enrollment. Biden may use the Public Health Emergency’s authority to temporarily increase APTCs, though that raises questions about the impact on consumers and carriers when the emergency ends. Biden is also expected to seek to help state and local governments by increasing federal funding for Medicaid.

Complementary state strategies: Prior to the pandemic, several states had increased insurance premium subsidies available to consumers, but current revenue shortfalls make that unlikely in most states in the near future. However, the federal government can move quickly to overturn regulations and other guidance that has impeded state-based marketplaces and new coverage initiatives. In the next week, the National Academy for State Health Policy (NASHP) will release a comprehensive document, developed with input from state-based marketplaces, that outlines regulatory fixes that the Biden Administration could implement, including:

Immediate changes that would protect consumers from Internal Revenue Service penalties during the pandemic and restore anti-discrimination protections;
Remove enrollment disincentives for legal immigrants;
Eliminate the double-billing requirement for non-Hyde abortions;
Protect the integrity of the individual insurance market; and
Rescind 2018 federal guidance on 1332 waivers to ensure that all coverage available through the waivers is as comprehensive and affordable as the ACA’s.

Public option: Biden proposes a federal public option, offered through the health insurance marketplaces, that would have the purchasing power to ensure affordable prices and be available to the individual market and employees for whom employer coverage is too costly. The public option would auto-enroll individuals with incomes up to 138 percent of the FPL. States that have expanded Medicaid would have the option of moving individuals into a premium-free public option plan or keeping them in Medicaid.

Complementary state strategies: Washington State has enacted a public option, which is offered on its exchange, that is currently being phased in. New Mexico and Colorado have attempted the same. At issue is how to make sure the plans provide a competitive pricing advantage. NASHP has developed a hospital cost tool to help state officials easily evaluate hospital finances. The tool also provides information to inform discussions about how to set hospital prices as a percent of Medicare under a public option. The Biden Administration has broad authority to use funding through the Center for Medicare & Medicaid Innovation to advance public options and approve 1332 or Medicaid waivers that could support different models, including a Medicaid buy-in initiative.

Impact on Prescription Drug Pricing

Negotiate Medicare drug prices: The Biden plan seeks legislative authorization to use Medicare’s purchasing power to negotiate drug pricing using a model similar to Germany’s, in which insurers and manufacturers negotiate ceiling prices based on comparative effectiveness research or else face binding arbitration.

Limit launch prices for drugs without competition or that are abusively priced. An independent review would determine the value of specialty, high-cost drugs and recommend a price similar to those found in other countries. Medicare, private plans operating in the marketplace, including the public option, would have access to these prices

Limit price increases for bio-similars and generics to medical care inflation rates. Manufacturers would need to adhere to the limits or pay a tax penalty.

Support drug importation from Canada. President-elect Biden supported state initiatives to import drugs. Currently, six states (VT, FL, CO, ME, NM, and NH) have enacted importation laws.

Complementary state strategies: Recently issued federal rules authorizing importation require some revision to support state implementation efforts. Also, states would benefit from federal assistance in communicating with the Canadian government.

NASHP has developed model state laws that mirror the Biden proposals. One uses international pricing to set a ceiling that applies to what commercial payers in a state would pay for certain high-cost drugs and has already been introduced in Pennsylvania. Other states are expected to follow. Should the Biden Administration succeed in pegging Medicare rates to international prices, states could benchmark to those rates.

Another NASHP model law uses the Institute of Clinical Effectiveness Research’s (ICER) list of unsupported drug price increases and establishes tax penalties for manufacturers whose drug prices are not supported by clinical evidence, according to ICER. A third model law gives authority to state attorneys general to take legal action in cases of generic drug price gouging. All three state model laws have been developed with legal guidance but would benefit from collaboration with the US Department of Justice and other federal agencies.

These Biden proposals would significantly expand access to affordable coverage and curb drug prices, but they are expected to face strong headwinds as the new Administration works to manage the pandemic, awaits the Supreme Court’s decision on the future of the ACA, and confronts a possible Senate majority that could oppose much of the Biden agenda.

State actions alone cannot replace nationwide, consistent policy as proposed by the President-elect, but their initiatives and innovations can begin to plant the seeds should the Administration be unable to immediately overcome political and stakeholder opposition, and state efforts can help build momentum for future federal reforms.

An Act to Reduce Prescription Drug Costs Using International Pricing

November 3, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Legal Resources, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

Section 1. Statement of Legislative Intent; Purpose

The purpose of this Chapter is to protect the safety, health and economic well-being of [Name the State] people by safeguarding them from the negative and harmful impact of excessive and unconscionable prices for prescription drugs. In enacting this Act, the legislature finds that

Access to prescription drugs is necessary for [Name the State] people to maintain or acquire good health;

Excessive prices negatively impact the ability of [Name the State] people to obtain prescription drugs and price increases that exceed reasonable levels thereby endanger the health and safety of [Name the State] people to maintain or acquire good health;
Excessive prices for prescription drugs threaten the economic well-being of [Name the State] people and endanger their ability to pay for other necessary and essential goods and services including housing, food and utilities;
Excessive prices for prescription drugs contribute significantly to a dramatic and unsustainable rise in health care costs and health insurance that threaten the overall ability of [Name the State] people to obtain health coverage and maintain or acquire good health;
Excessive prices for prescription drugs contribute significantly to rising state costs for health care provided and paid for through health insurance programs for public employees, including employees of the state, municipalities and counties, school districts, institutions of higher education, and retirees whose health care costs are funded by public programs, thereby threatening the ability of the state to fund those programs adequately and further threatening the ability of the state to fund other programs necessary for the public good and safety, such as public education and public safety;
Because the costs of prescription drugs and health insurance are tax-deductible, excessive costs for prescription drugs result in a reduction in the tax base and a resultant reduction in state revenue;
The costs to consumers, health plans, and the state for prescription drug coverage is higher than the costs in other countries because the prices charged by manufacturers and distributors of drugs in [Name of State] are higher; and
Based on findings (1) through (6), the legislature finds that excessive prices for prescription drugs threaten the safety and well-being of [Name the State] people and find it is necessary to act in order to protect [Name the State] people from the negative impact of excessive costs.

Section 2. Definitions

(a) “Prescription Drug” has the same meaning stated in [Cite to State’s Pharmacy Act].

(b) “Wholesale Acquisition Cost” has the meaning stated in 42 U.S.C. § 1395w-3a.

(c) “State Entity” means any agency of state government that purchases prescription drugs on behalf of the state for a person whose health care is paid for by the state, including any agent, vendor, fiscal agent, contractor, or other party acting on behalf of the state. State Entity does not include the medical assistance program established under 42 U.S.C. §1396 et seq.

(d) “Health Plan” means [State’s definition of health plan as defined in insurance statute].

(e) “ERISA Plan” means a plan qualified under the Employee Retirement Income Security Act of 1974.

(f) “Participating ERISA Plan” means an ERISA plan that has elected to participate in the requirements and restrictions of this subchapter as described in Section 4 below.

(g) “Referenced Rate” means the maximum rate established by the Superintendent of Insurance utilizing the Wholesale Acquisition Cost and other pricing data described in Section 5 below.

(h) “Referenced Drugs” means Prescription Drugs subject to a Referenced Rate.

Section 3. Payment in Excess of Referenced Rate Prohibited

(a) It is a violation of this Chapter for a State Entity or Health Plan or Participating ERISA Plan to purchase Referenced Drugs to be dispensed or delivered to a consumer in the state, whether directly or through a distributor, for a cost higher than the Referenced Rate as determined in Section 5 below.

(b) It is a violation of this Chapter for a retail pharmacy licensed in this state to purchase for sale or distribution Referenced Drugs for a cost that exceeds the Referenced Rate to a person whose health care is provided by a State Entity or Health Plan or Participating ERISA Plan.

Section 4. ERISA Plan Opt-In

An ERISA Plan may elect to participate in the provisions of this chapter. Any ERISA Plan that desires its purchase of Prescription Drugs to be subject to the prohibition described in Section 3 shall notify the Superintendent of Insurance in writing by [PICK A DATE] of each year.

Section 5. Referenced Drugs Determined

(a) As of [PICK A DATE] of each calendar year, the Director of the State Employee Health Insurance Plan shall transmit to the Superintendent of Insurance a list of the 250 most costly Prescription Drugs based upon net price times utilization. For each of these Prescription Drugs, the Director of the State Employee Health Insurance Plan shall also provide the total net spend on each of those Prescription Drugs for the previous calendar year.

(b) Utilizing this information described in subsection (a) above, as of [PICK A DATE] of each year the Superintendent of Insurance shall create and publish a list of 250 Referenced Drugs that shall be subject to the Referenced Rate.

(c) The Superintendent of Insurance shall determine the Referenced Rate by comparing the Wholesale Acquisition Cost to the cost from the: 1) Ontario Ministry of Health and Long Term Care and most recently published on the Ontario Drug Benefit Formulary; 2) Régie de l’Assurance Maladie du Québec and most recently published on the Quebec Public Drug Programs List of Medications; 3) British Columbia Ministry of Health and most recently published on the BC Pharmacare Formulary; and 4) Alberta Ministry of Health and most recently published on the Alberta Drug Benefit List.

(d) The Referenced Rate for each Prescription Drug shall be calculated as the lowest cost among those resources and the Wholesale Acquisition Cost. If a specific Referenced Drug is not included within resources described in subsection (c) above, the Superintendent of Insurance shall utilize for the purpose of determining the Referenced Rate the ceiling price for drugs as reported by the Government of Canada Patented Medicine Prices Review Board.

(e) The Superintendent of Insurance shall calulate annually the savings that are expected to be achieved by subjecting Prescription Drugs to the Referenced Rate. In making this determination the Superintendent of Insurance shall consult with the Director of the State Employee Health Insurance Plan and the Chair of the State Board of Pharmacy.

(f) The Superintendent of Insurance shall have the authority to implement regulations under [Cite state’s Administrative Procedures Act] to fully implement the requirements of this chapter.

Section 6. Registered Agent and Office within the State

Any entity that sells, distributes, delivers, or offers for sale any Prescription Drug in the state is required to maintain a registered agent and office within the state.

Section 7. Use of Savings

(a) Any savings generated as a result of the requirements in Section 3 above must be used to reduce costs to consumers. Any State Entity, Health Plan or Participating ERISA Plan must calculate such savings and utilize such savings directly to reduce costs for its members.

(b) No later than April 1 of each calendar year, each State Entity, Health Plan and Participating ERISA Plan subject to this Chapter shall submit to the Superintendent of Insurance a report describing the savings achieved for each Referenced Drug for the previous calendar year and how those savings were used to achieve the requirements of subsection (a) above.

Section 8. Enforcement

Each violation of this Chapter shall be subject to a fine of $1,000. Every individual transaction in violation of Section 3 is determined to be a separate violation. The Attorney General is authorized to enforce the provisions of this statute on behalf of any State Entity or consumers of Prescription Drugs. The refusal of a manufacturer or distributor to negotiate in good faith as described in Section 9(d) below shall be a valid affirmative defense in any enforcement action brought under this chapter.

Section 9. Prohibition on Withdrawal of Referenced Drugs for Sale

(a) It shall be a violation of this Chapter for any manufacturer or distributor of a Referenced Drug to withdraw that drug from sale or distribution within this state for the purpose of avoiding the impact of the rate limitations set forth in Section 3 above.

(b) Any manufacturer that intends to withdraw a Referenced Drug from sale or distribution from within the state shall provide a notice of withdrawal in writing to the Superintendent of Insurance and to the Attorney General 180 days prior to such withdrawal.

(c) The Superintendent of Insurance shall assess a penalty on any manufacturer or distributor that it determines has withdrawn a Referenced Drug from distribution or sale in the state in violation of subsection (a) or (b) of this section. With respect to each Referenced Drug for which the Superintendent of Insurance has determined the manufacturer or distributor has withdrawn from the market, the penalty shall be equal to 1) $500,000; or 2) the amount of annual savings determined by the Superintendent of Insurance as described in Subsection 5(e) above, whichever is greater.

(d) It shall be a violation of this Chapter to for any manufacturer or distributor of a referenced Drug to refuse to negotiate in good faith with any payor or seller of Prescription Drugs a price that is within the Referenced Rate as determined in Section 5 above.

(e) The Superintendent of Insurance shall assess a penalty on any manufacturer or distributor that it determines has failed to negotiate in good faith in violation of Subsection 9(d). With respect to each Referenced Drug for which the Superintendent of Insurance has determined the manufacturer or distributor has failed to negotiate in good faith, the penalty shall be equal to 1) $500,000; or 2) the amount of annual savings determined by the Superintendent of Insurance as described in Subsection 5(e) above, whichever is greater.

Section 10. Severability Clause

If any provision of this Chapter or the application thereof is determined to be invalid, the invalidity does not affect other provisions or applications of this subchapter which can be given effect without the invalid provision or application, and to this end the provisions of this Chapter are severable.

12/3/2020

States Curb Racial Inequities in Rx Drug Affordability with Targeted Legislation

October 26, 2020/in Prescription Drug Pricing California, Colorado, Minnesota Blogs, Featured News Home Administrative Actions, Chronic Disease Prevention and Management, Consumer Affordability, Health Equity, Health System Costs, Population Health, Prescription Drug Pricing, State Rx Legislative Action /by Amanda Attiya and Jennifer Reck

Low-income individuals and communities of color, already besieged by poor access to health care, limited insurance coverage, and other health inequities exposed by COVID-19, also suffer another health disparity – they are among the hardest hit by continually rising prescription drug prices.

Since 2017, states across the nation have taken action to lower rising drug costs, enacting 163 laws that include regulating pharmacy benefit managers, increasing drug cost transparency, importing drugs from Canada, and limiting cost-sharing by consumers. Many of these laws are most likely to combat rising drug costs for individuals covered by public and private insurance plans.

Because high drug prices disproportionately affect low-income, uninsured, and people of color, state laws that work to lower drug costs for these communities are important. Recent examples include a Minnesota law that extends insulin affordability measures to uninsured individuals, and states laws that target a discriminatory practice within insurance benefit design known as adverse tiering. Adverse tiering occurs when insurers place drugs – including those used to treat HIV/AIDS and hepatitis B and C that predominantly affect communities of color – in a drug formulary’s highest cost-sharing tier, forcing patients to pay more even when the drug is a generic.

Background

People of color are disproportionately impacted by chronic illnesses and certain health conditions, such as diabetes, HIV/AIDs, hepatitis B and C, hypertension, cardiovascular diseases, obesity, and asthma. Today’s increased rate of chronic conditions found in communities of color can be traced back to numerous discriminatory policies, including employment, education, and the practice of redlining, which placed loans and insurance out of the reach of residents of certain areas based on race or ethnicity. Systemic discriminatory practices have resulted in poorer households and neighborhoods, higher incidences of adverse childhood experiences, and limited access to quality health care, healthy food, parks, and public transportation. The combination of poor environmental quality, food scarcity, and limited access to health care increases the risk of asthma, obesity, and diabetes.

Not only are people of color more likely to suffer from chronic illness, they are also more likely to be uninsured and are therefore disproportionately hit hardest by ongoing rises in the list prices for prescription drugs. While insured individuals benefit from drug rebates negotiated for plans and drug coverage, the uninsured face higher prices for the same drugs – though they may be eligible for manufacturer coupons to help subsidize high costs. Other programs that help low-income patients obtain lower cost medications, such as MedAccess, require time-consuming applications, income verification, the cooperation of their providers, and computer access. The lack of ability to afford medication can result in under-usage of needed medications and overall poorer health outcomes.

In one study of Medicare beneficiaries without drug coverage, Black and Latinx individuals used 10 to 40 percent fewer medications than their White counterparts did for the same illnesses. Disparities are also seen in the under-use of insulin for the treatment of diabetes, a disease that is 60 percent more likely to impact Black adults than non-Latinx White adults.

Insulin Spending Caps

To make insulin more affordable and accessible, 11 states* have adopted legislation to impose spending caps on insulin for consumers. In most states, insulin spending caps affect only those covered by state-regulated drug plans. However, Minnesota’s recently enacted legislation also extends assistance to uninsured patients who cannot afford treatment for their diabetes.

Signed into law in April 2020, Minnesota’s Alec Smith Insulin Affordability Act caps insulin costs both in the commercial market and for the uninsured or under-insured. The legislation establishes two plans:

An emergency plan that allows for a once-per-year, 30-day supply of insulin with a payment cap of $35; and
A long-term plan that provides insulin supplies in 90-day increments for a capped payment of $50.

Both the urgent-need plan and the continuing safety net program are targeted towards uninsured populations, with the latter program requiring a household income less than 400 percent of federal poverty guidelines. Manufacturers who fail to comply with this bill face an administrative penalty of $200,000 per month for noncompliance, with the penalty increasing over time. Since passage of the Minnesota law, the Pharmaceutical Research and Manufacturers of America (PhRMA) has filed suit, claiming the act confiscates private property for public use without proper compensation to manufacturers.**

Adverse Tiering

People of color requiring expensive drugs to treat chronic illness also face a discriminatory practice within insurance markets known as adverse tiering. Adverse tiering occurs when insurance plans structure their drug formularies to require substantial out-of-pocket cost-sharing for drugs in a certain class, particularly for expensive-to-treat conditions such as HIV/AIDS. This discourages patients needing those drugs from selecting an insurance plan with adverse tiering, and forces those who do buy into the plan to pay hefty out-of-pocket co-pays for expensive, life-saving medications. Adverse tiering can cost HIV-positive individuals (of whom 87 percent were Latinx, Black, or of multiple races in 2018) enrolled in such a plan an additional $3,000 each year.

Adverse tiering became more prevalent between 2014 and 2015 for conditions such as HIV/AIDs, hepatitis B and C, and multiple sclerosis. In 2016, the US Department of Health and Human Services (HHS) released a regulation extending consumer protections from discriminatory practices found in the Affordable Care Act (ACA) to:

All health entities receiving HHS funding;
HHS-administered health programs; and
Insurers participating in health insurance marketplaces.

The final rule also affirms the broad definition of “disability,” allowing for the inclusion of persons with chronic conditions that affect major life activities and bodily functions. In the final rule’s preamble, HHS lays out factors that the Office of Civil Rights (OCR) will consider when assessing potential discriminatory practices in plan benefit design on a case-by-case basis. One notable consideration is whether or not the covered entity utilized a nondiscriminatory rule or principle when adopting a certain plan design feature.

Insurers have taken advantage of this language by justifying their placement of all drugs in a given class on specialty tiers as resulting from high drug costs. While this approach avoids the regulation’s definition of discrimination, it none-the-less has the effect of deterring low-income patients needing high-cost drugs for chronic conditions from enrolling in their plans.

Because the chronically ill population is disproportionately made up by people of color, this practice is most likely to impact minority populations. Some states have taken direct action to combat adverse tiering:

Delaware implemented legislation that prohibits insurers from placing all drugs in a given class on a specialty tier; and
Both California and Colorado prohibit formulary designs that discourage enrollment by individuals with certain health conditions.

These laws, in addition to Minnesota’s insulin affordability law, provide first steps for policymakers who want to address drug affordability through a lens of racial justice by ensuring that affordability is extended to individuals beyond the commercially-insured market, and that benefit designs within commercial insurance markets do not have discriminatory impacts.

*States with insulin caps include New Hampshire, Colorado, Delaware, Illinois, Maine, Minnesota, New Mexico, Utah, Virginia, Washington, and West Virginia

**Track the status of this case and others on NASHP’s Rx Legal Resources page.