State Rx Legislative Action – The National Academy for State Health Policy

2022 State Legislative Action to Lower Pharmaceutical Costs

Comparison of State Prescription Drug Affordability Review Initiatives

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

NASHP’s Annual Conference Highlights States Taking Bold Action on Drug Prices

October 20, 2021/in Prescription Drug Pricing Featured News Home Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Sarah Lanford and Jennifer Reck

While Congress continues to consider significant reforms for drug pricing, states have taken bold steps to control drug prices across payers. This legislative session, Colorado followed Maryland’s lead and established a prescription drug affordability board (PDAB) to address high drug prices. PDAB legislation, such as Maryland’s and Colorado’s, that includes authority for a board to set upper payment limits (UPLs) within a state for high cost drugs, represents some of the strongest state efforts to date to rein in drug costs. The National Academy for State Health Policy’s (NASHP) 2021 annual conference featured a session highlighting Colorado and Maryland’s PDAB laws, as well as New York’s experience with enhanced negotiating authority with manufacturers for high cost drugs within its Medicaid program. New York’s success in achieving notable savings offers insights on implementation that can help guide states standing up PDABs.

Maryland’s Prescription Drug Affordability Board

Enacted in 2019, Maryland’s PDAB law was created to study the prescription drug market in Maryland and to protect consumers and the state from the high costs of prescription drugs. The Board has spent the past year analyzing Maryland’s pharmaceutical distribution and payment system and will report findings, along with policy options to lower costs, to the General Assembly by the end of this year. In September, Maryland issued its first round of invoices for the assessment on drug manufacturers and other entities along the supply chain to support the work of the state’s PDAB. Under the legislation, the PDAB can consider setting upper payment limits, implementing a reverse auction marketplace, and establishing a bulk purchasing process. If the Board determines it is in the interest of the state to establish a process for setting UPLs, the Board must create a plan of action for implementing the process that includes the criteria the Board shall use to set UPLs and submit the plan to the Legislative Policy Committee for its approval. If the plan is approved, the Board may begin setting UPLs for state purchasers in 2022, and for all purchasers starting in 2023.

Colorado’s Prescription Drug Affordability Board

In June 2021, lawmakers in Colorado enacted a law to create a PDAB with aggressive timelines that will enable the Board to begin setting upper payment limits for all payers as early as next year. The law has a transparency component that requires insurance carriers and pharmacy benefit managers to report certain cost and utilization information to the Division of Insurance. The Board will use that data to perform affordability reviews of drugs that exceed the wholesale acquisition cost triggers outlined in the law.

Beginning April 1, 2022, the Colorado PDAB may establish UPLs for up to 12 drugs each year. Colorado’s PDAB, unlike Maryland’s, does not require additional legislative authority to set UPLs, and UPLs will apply to all purchases of and payer reimbursements for a drug dispensed or administered in the state. Similar to Maryland, the Colorado PDAB will make policy recommendations to the General Assembly on strategies to improve the affordability of prescription drugs for consumers.

New York Medicaid’s Drug Cost Cap and Enhanced Negotiating Authority in Massachusetts

In 2017, New York enacted a law that gave the Medicaid program the authority to negotiate with drug companies for supplemental rebates if drug spending is projected to exceed an annual spending limit, which is based on a 10-year rolling average of the Consumer Price Index. If the state is unable to reach an agreement with a manufacturer, a drug may be referred to the Drug Utilization Review Board (DURB), which then conducts a value assessment of the product. When conducting a value assessment, the DURB can consider a drug’s affordability and net cost to Medicaid, value-based pricing, significant price increases, and/or the proportionality of price to therapeutic benefit.

Five years later, New York has had success with this approach. Since the law went into effect in 2018, the state has negotiated over 50 new supplemental rebate contracts with manufacturers, which have generated over $500 million in new supplemental rebates. The DURB has also completed three value assessments for the drugs Orkambi, Remicade, and Spinraza. The DURB used value-based pricing benchmarks from the Institute for Clinical and Economic Review (ICER) to guide the Department of Health on target supplemental rebate amounts for Orkambi and Spinraza and a domestic reference pricing approach for Remicade because two comparable biosimilars were on the market. As a result, New York’s drug cap is achieving additional rebates and reducing the growth of spending without limiting access to high-cost drugs.

Massachusetts has a program similar to New York’s which enables enhanced negotiating authority within its Medicaid program. If an agreement cannot be reached and the drug exceeds certain price thresholds, the drug can be referred to the Massachusetts Health Policy Commission (HPC) for review. To date, this approach has been successful in securing additional rebates without the need for HPC review.

For more information about state actions to lower drug costs, explore NASHP’s Comparison of State Prescription Drug Affordability Review Initiatives and legislative tracker.

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

Nine States Advance Prescription Drug Affordability Board Legislation

March 15, 2021/in Prescription Drug Pricing Arizona, Colorado, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Virginia, Wisconsin Blogs, Featured News Home Model Legislation, Newly-Enacted Laws, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck and Trish Riley

More than 200 bills to lower drug prices have been filed across states during this session and nine states are proposing prescription drug affordability board (PDAB) legislation.

PDABs are somewhat analogous to public utility commissions. They investigate high-priced drugs and, when necessary, set more affordable rates for certain drugs for purchasers within a state. Establishing health care provider and hospital payment rates is a common approach states use to ensure services are affordable. State PDABs extend this strategy to a subset of very costly prescription drugs, while avoiding unlawful patent preemption because they establish drug payment rates – not prices. The National Academy for State Health Policy (NASHP) developed model legislation for this approach in 2017 and in 2019 Maryland became the first state in the nation to enact PDAB legislation.

This chart highlights nine states’ bills to create prescription drug affordability boards, including their implementation timelines, funding sources, enforcement, and purchasers impacted.

Nine states (AZ, CO, MN, NJ, NM, OR, RI, VA, and WI) are currently advancing PDAB bills in their legislatures. While a number of these bills are similar to Maryland’s approach that phases in upper payment limits by initially limiting them to public purchasers before potentially expanding them to include private purchasers, the majority of the currently proposed bills map more closely to NASHP’s original model legislation, which implements payment limits across all payers (public and private) in a state in a more expedited fashion.

The bills are generally similar in two approaches:

They use similar price thresholds to identify a drug for investigation by their PDABs, and
They apply the same factors when setting an upper payment limit for drugs found to be otherwise unaffordable – such as weighing the cost of administering the drug and delivering the drug to consumers.

Minnesota’s bill, however, includes unique language that empowers its PDAB to consider both the “the range of prices at which [a] drug is sold in the United States and the range at which pharmacies are reimbursed [for it] in Canada.” This language creates a bridge between the PDAB model and a newer approach in a recently released NASHP model law that creates payment rates for certain high-priced drugs based on Canadian pricing. This approach, reflected in NASHP’s Act to Reduce Prescription Drug Costs Using International Pricing, offers states a more streamlined approach than establishing a PDAB, which requires the complex task of determining the appropriate value of a drug in order to set an affordable payment rate. Five states (HI, ME, OK, ND, and RI) are currently considering international reference rate bills that use (or “reference”) Canadian prices to set more affordable rates.

As states consider PDABs and international reference rate approaches to achieve the goal of setting more affordable payment rates for drugs, there are several key factors to consider.

While international reference rates look to Canada’s drug prices when establishing appropriate payment rates, PDABs keep the task of identifying affordable rates within a state.
While PDABs may be conceptually preferable for this reason, the time and resources required to implement this approach may not make PDABs feasible for all states. For those states, using Canadian prices to set rates may be the most viable option.

Minnesota’s bill, however, points to a third option, a hybrid approach in which a PDAB would consider Canadian pricing as part of its process.

Explore this chart to compare the different state approaches and implementation timelines of the nine PDAB bills proposed as of March 9, 2021.

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.

Five Trailblazing States Consider Legislation to Capture Big Rx Savings Using Canadian Reference Rates

February 1, 2021/in Prescription Drug Pricing Hawaii, Maine, North Dakota, Oklahoma, Rhode Island Blogs, Featured News Home Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck and Trish Riley

Burdened by high US drug prices that average 218 percent more than in Canada, innovative states across the country are exploring a range of approaches to give their residents the same access to affordable drugs Canadians have. To date, six leading states have passed laws that enable them to import drugs from Canada pending federal approval of their programs. Now, a second set of trailblazing states are exploring an alternative approach that does not require federal approval – importing Canadian drug prices.

Lawmakers in five states (HI, ME, OK, ND, and RI) have introduced or pre-filed bills based on the National Academy for State Health Policy’s (NASHP) model legislation to establish international reference rates using Canadian pricing.

Establishing payment rates for hospitals’ and providers’ services is common to ensure access to affordable care. The NASHP model extends that practice to prescription drugs, giving states a powerful tool to limit what payers within a state will pay, without running afoul of patent law by setting prices.

What is international reference rate legislation?

International reference rate legislation authorizes a state’s department of insurance to establish international reference rates for the costliest drugs in that state. The department determines the reference rates based on those drugs’ prices in Canada’s four largest provinces. The lowest price would become the legal upper payment limit for those drugs for participating purchasers in the state.

A savings analysis NASHP facilitated for one state considering this legislative approach, showed annual savings of more than $32 million for just 35 drugs purchased by state employees alone. States are proposing setting reference rates for up to 250 drugs for all commercial payers, including Medicare advantage plans (Medicaid and traditional Medicare would be excluded), so total savings would far exceed that initial estimate.

Under the model legislation, any savings generated must be shared with consumers through mechanisms left to the discretion of a state. Options may vary by payer, ranging from reducing premiums for commercial payers, maintaining or expanding access to Medicaid services, and avoiding tax increases for public payers.

Oklahoma state Sen. Greg McCortney identified the potential for savings as key. “I do not believe that we can fix our broken health care system until we address the cost of care,” he said. “This bill, once fully implemented, should reduce insurance premiums for every person in the state by hundreds of dollars each year.”

The model law’s implementation process is designed to be easy for a state to administer and does not require costly infrastructure at a time when states are burdened by the pandemic and budgetary restraints. As a proxy for all commercial payers, the bill uses a state’s employee health plan to identify the costliest 250 drugs, determined by drug price times utilization.

The state employee health plan shares the list of 250 drugs with the Department of Insurance.
The department then establishes references rates by comparing publicly available data on drug prices in Canada’s four most populous provinces. The lowest price becomes the reference rate for payers within the state.
No commercial payer could pay more than the reference price established by the state’s department of insurance, and a manufacturer that withdrew a drug or refused to negotiate in good faith would be subject to significant penalties.

As states move forward in their legislative sessions, states are adapting NASHP’s reference rate model and making it their own. They’re exploring variations in the roles their agencies would play, as well as possibly limiting the number of referenced drugs to a smaller group that would have maximum impact.