- Several new state drug pricing transparency laws were passed this year that will require life sciences companies to consider compliance responses now.
- Reporting requirements differ from state-to-state and failure to report may result in monetary penalties.
Over the past several years, states have been steadily churning out bills focused on elements of health system pricing disclosure and, in some cases, those bills have been enacted and implemented. Several new drug pricing transparency laws were enacted during 2019, requiring state-specific compliance adjustments for life sciences companies to consider before January 2020.
This summer has witnessed a lot of movement on drug pricing transparency policy at the federal level, linked to the broader debate on how to address the high cost of drugs and biologics and the related economic burden to patients. The August congressional recess has hardly slowed the pacing. Some items of particular note include the introduction of new federal bipartisan drug pricing legislation, potential requirements for hospital pricing transparency, and a federal court blocking the Trump Administration rule requiring life sciences companies to list their drug prices in their television commercials. And that is only a partial list. With so much happening at the federal level, it can be easy to forget what is happening at the state level.
Indeed, states have been leading the way for several years on drug pricing transparency. As patients have faced increasing drug price exposure due to some dramatic hikes in the price of certain generics and the regular introduction of novel therapies with high costs, the states have acted where the federal government has largely failed to move the needle. At their core, the state efforts are focused on discouraging life sciences companies from raising their drug prices beyond a certain threshold and reducing costs to the state, along with patient out-of-pocket burden. In certain instances, states have required advanced notice of drug price increases.
Overview of State Legislative Activity
Some notable developments in this trend include laws enacted in Vermont (SB 216) in 2016 (strengthened in 2018 (SB 92)), followed by California (SB 17) and Nevada (SB 539) in 2017, then Connecticut (HB 5384) and Oregon (HB 4005) in 2018 (Oregon law strengthened in 2019 (HB 2658)), and Colorado (HB 19-1131), Maine (LD 1162), Texas (HB 2536), and Washington (HB 1224) in 2019. The momentum to require drug pricing disclosure mandates has been growing at a steady pace and is not likely to slow. As of Aug. 1, 52 bills related in some way to drug pricing transparency were introduced in the states during 2019 alone, according to the National Academy for State Health Policy. However, only a select few followed the robust drug pricing disclosure requirements originally advanced by California, examined more below.
Common Components of the State Drug Pricing Transparency Laws
State drug pricing laws vary in how drug price reporting is triggered, what entities are obligated to report, and what information must be disclosed among other factors. The California law is often viewed as a model for other state laws and provides a good baseline for understanding the potential impact of these mandates. California’s reporting requirements became effective on Jan. 1, 2019.
In California, if the wholesale acquisition cost (WAC) of a drug is more than $40 for a course of therapy (based on the FDA label) and the WAC of that drug increases by more than 16 percent including the proposed and cumulative price increases over the previous two calendar years, the manufacturer must notify the state of the pending increase 60 days in advance of the increase. This notification requires a statement from the manufacturer of whether a “… change or improvement in the drug necessitates the price increase.” Once the 16 percent threshold is exceeded, the manufacturer is required to report certain information to the state on a quarterly basis, including “financial and nonfinancial factors” to justify the price increase for the specific drugs in question. Additionally, if a new drug’s WAC exceeds the Medicare Part D specialty drug tier threshold ($670 a month in 2019), notice must be given to the state within three days of commercial introduction and certain supporting data must be provided to the state within 30 days. Failure to comply with reporting requirements may result in a $1,000 a day penalty for each drug not reported.
The constitutionality of this law was initially challenged by industry as an impermissible interstate restriction on raising drug prices, specifically during the 60-day notice period of a pending price increase, among other legal arguments. That challenge was dismissed but the court allowed for amendments to be filed. A renewed challenge remains ongoing based in part on free speech concerns. For now, all elements of the California law remain fully operative.
What Has Passed in 2019?
With most states having concluded their regular legislative sessions for the year, we have a fixed vantage point to assess how the drug pricing transparency landscape is looking for 2020, though others may still pass after this writing. Oregon chose to strengthen its initial drug transparency law in 2019 by adding a price increase notification requirement like California’s, having originally dropped it to avoid the kind of litigation noted above. That change is scheduled to take effect in January 2020. Colorado, Maine, Texas, and Washington also passed drug pricing transparency legislation this year.
In Colorado, the effort to pass a more comprehensive drug pricing transparency law failed. However, a law was enacted that requires drug manufacturers to disclose their WAC price to prescribers in writing when representatives market drugs directly to prescribers. This disclosure must also include the names of at least three generic drugs in the same therapeutic class, depending on how many generic products exist. This law went into effect Aug. 2, 2019.
Maine’s new law builds from previous state efforts to prepare a system for collecting drug pricing data from drug manufacturers. Companies will be required to provide certain pricing information to the state by Jan. 30, 2020, and annually after, for any brand-name drug that had a WAC increase of more than 20 percent per pricing unit (defined as “the smallest dispensable amount of a prescription drug that could be dispensed”) in the previous year, with similar requirements for generics costing at least $10 per pricing unit. Manufacturers must also report on new drugs to the state if their WAC exceeds the Medicare Part D specialty tier threshold.
Washington’s law, with new reporting requirements set to go into effect on Oct. 1, 2019, models some core requirements of California’s law. However, it differs on many specifics for reporting, for example WAC thresholds that trigger reporting requirements for drug price increases. The new law in Texas is also strong and models the components of California’s law with numerous differences on specifics. When triggered, reporting in Texas will begin Jan. 1, 2020.
Implications and Strategic Considerations for Life Sciences Companies
With ever more states expected to pass drug pricing transparency laws in the future, life sciences companies must pay careful attention to evolving requirements for both new and existing products to remain compliant. Although many of these state laws share common components, the details surrounding reporting requirements vary considerably. Also, civil monetary penalties totaling potentially thousands of dollars a day for failures to report have become common features in these laws. It is also worth noting that all drug pricing transparency laws do not fit the California model and like the Colorado law mentioned above, may require other kinds of compliance response than state notice and reporting.
Several companies have had to submit pricing increase justifications already under the California law. It is yet to be fully seen how these laws will impact drug prices, however, pricing strategy should weigh the requirements of these laws.
DRG Consulting is a leading insights, analytics, and advisory services business focused on helping life sciences companies to advance innovations and navigate the complex global healthcare environment.