Push for Transparency Adds Pressure on Pharmacy Benefit Managers (PBM) and Pharma
Repeal and replace may be dead for now, but the debate over affordable health care isn’t going away, especially with respect to drug pricing and access to high-cost drugs. It’s a hot point for both parties and multiple proposals to curb costs have been made, from drug importation to increasing drug price transparency. Notably, the recently unveiled platform from Democrats called “A Better Deal” is a three-pronged approach that aims to lower the cost of prescription drugs and curtail inappropriate price increases while giving the federal government more authority to influence Medicare payment models.
While no concrete action plan has been put in place at the federal level, most of the action to curtail inappropriate drug pricing is taking place in the states. According to DRG’s Formulary Insights reports, which track state-level policies that could potentially impact formulary decisions, more than 30 states have either passed or are considering bills related to price transparency. Three states (Nevada, Maryland, and Vermont) have already passed price transparency bills, 10 states (New York, Pennsylvania, Maryland, Ohio, Nevada, Oregon, Maine, Vermont, New Jersey and Rhode Island) are considering price-control related programs, 18 states (including Puerto Rico) are debating decisions pertaining to drug transparency, and three are in the process of banning drug coupon programs (California, New Jersey, and New Hampshire).
Drug price transparency laws, unlike price control regulations, are not intended to directly lower drug costs; they aim to pressure drug makers and PBMs by making the public aware of drug-related profit margins. Generally, drug price transparency laws can be classified into three categories:
- Laws like one passed in Maryland that require drug companies to disclose input costs, including R&D and marketing.
- Those that require PBMs to disclose rebates and price concessions (Nevada).
- Mandates that require pharma to notify state regulators when they expect to launch drugs or increase prices beyond a certain threshold (California).
States, which bear the health expenditures for millions of people (including Medicaid beneficiaries), are highly sensitive to drug price increases, as well as to the launch new expensive therapies, such as drugs for hepatitis C. Rather than wait for Congress to act, several states have passed laws aimed at pricing. Here’s a look at some notable examples:
Vermont became the first state in the nation to pass a law that requires drug manufacturers to explain large price increases. Enacted in 2016, the law requires state officials to identify 15 drugs for which “significant health care dollars” are spent, and where list prices rose by 50 percent or more over the previous five-year period. According to Vermont state officials, drug spending in the state increased more than 19 percent from 2014 to 2015, and covering a single drug to treat cystic fibrosis is expected to cost its Medicaid program more than $3 million.
Pharma industry proponents argued that measuring price increases using WAC (wholesale acquisition cost) is misleading as it does not give the correct picture given that actual cost paid to manufacturers after the discounts, price concessions and rebates are much less inflated. Nevertheless, this law has put additional pressure on drug manufacturers and their pricing strategies in the state.
Maryland's House passed a bill in March 2017 that would mandate detailed disclosure of information by pharma manufacturers for any drug with a WAC of $2,500 or more annually, or per course of therapy. Information requirements include R&D costs, patent information, production costs, marketing expenditure, comparative effectiveness data as well as patient-assistance programs such as co-pay coupons. State regulators have also said that, per the bill requirements, all the data submitted by the pharma companies will be compiled into an annual pricing report and this report will be audited by third parties.
This bill could have a major impact on pharma industry in the state and could increase competition among pharma players and possibly lead to more value-based contracting. This could also mean that the formulary decisions could become aggressive in the state as a result of the availability of large datasets pertaining to drug’s costs as well as comparative effectiveness.
In April 2017, New York became the first state to set an annual cap on Medicaid drug spending, limiting total spending to the sum of medical inflation plus 5 percent. If drug makers refuse to voluntarily rebate money back to the state when Medicaid expenditure exceed pre-set levels, they will be subject to multiple reviews regarding the effectiveness of drugs. The state authorities can also use other sources of information in order to evaluate whether certain drugs are priced proportionately to the clinical benefit they claim to produce.
Although the law does not directly question drug companies’ pricing methodology, it does put pressure on them. To prevent their drugs from being scrutinized, manufacturers may choose to provide additional discounts. New York state regulators expect to save around $55 million in 2017 and $85 million in 2018 if the law is successfully implemented.
In June 2017, Nevada’s lawmakers passed a pharmaceutical transparency bill that focuses on diabetes drugs. The law requires companies, including drug makers, pharmacy benefit managers (PBMs) and nonprofit organizations to disclose pricing information when diabetes drug costs increase significantly.
Specifically, drug manufacturers must disclose information on profits, manufacturing costs, marketing and advertising costs, and financial aid given to patients, data on copay coupons and a history of wholesale acquisition costs. PBMs must report data on drugs for which pharma companies raise prices significantly, the total of rebates they negotiate with pharma, and percentage of those rebates that they retain. The bill also requires nonprofits to disclose funding they receive from drug manufacturers, PBMs, insurers, and other trade groups. Penalties for violating the law can cost as much as $5,000 a day. As it stands, the bill mandates that pharma companies should notify state officials and insurance companies 90 days before raising the price of insulin products.
In response to state level laws as well as anticipated national level scrutiny, many drug makers have pledged publicly to keep drug price increases to an acceptable level. For example, in May 2017, Sanofi announced that it will keep drug price hikes at or below the health care inflation rate, meaning that the company will keep price increases below 6 percent until at least 2025. Other firms making similar pledges, such as Allergan, Novo Nordisk and AbbVie, have agreed to keep drug price increases below 10 percent annually.
In May 2017, the Council for Affordable Health Coverage (a coalition of pharma companies, pharmacy benefit managers, and insurers) proposed a list of actions that they believe will bring down drug prices. The list includes: exempting value-based contracts from reporting requirements and protecting those deals from anti-kickback laws; requesting the FDA to provide priority review vouchers for specific generic molecules and allow more communication between pharma industry and payers; the coalition also promotes frequent communication regarding post-approval clinical and economic outcomes of drugs among healthcare stakeholders. The council believes that these reforms could potentially reduce national health expenditure by as much as $36 billion to $71 billion by 2026.
Absent a federal blueprint with consensus across affected stakeholders (the FDA, providers, pharma, insurers, and PBMs), states are showing that they are unwilling to wait for federal action. The result for pharma and the industry as a whole is a patchwork of regulations that will be hard, at best, to navigate.
About Formulary Insights
The Formulary Insights report series provides analysis of the trends and market dynamics affecting formulary decisions and product opportunity in each U.S. state, Washington, D.C., and Puerto Rico. Each report includes our proprietary Opportunity Index, analysis of Value-Based and Innovative Contracting, and regulatory and policy matters. Formulary Insights are an enhancement of DRG’s Health Plan Analysis portfolio.