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Drug Pricing Laws at the State and Federal Level

Over half of US states have proposed new drug pricing laws and transparency legislation in the past two to three years. At a federal level, legislators are working on a bill to allow Medicare to negotiate directly with manufacturers. The government’s concern over Medicare budgets, combined with the public’s frustration with rising healthcare costs are the catalysts fueling a number of these initiatives. These legislative bills and laws have major implication for drug manufacturers, pharmacies, and insurers alike. These new laws won’t only have impacts to long-term profitability and R&D strategies but also clear implications to regulatory and compliance operations.

Enacted Drug Pricing Laws

In 2017, California passed SB 17, a bill forcing manufacturers to justify price increases. If a medicine’s wholesale acquisition cost (WAC) rises by 16 percent and/or by $40 or more, a notice must be given to the attorney’s general office with an explanation for the increase. Companies must also detail what percent of premium raises are caused by drug prices. This law had support from the public, labor groups, hospitals, and insurance companies. Drug manufacturers, on the other hand, were generally displeased with the proposal with industry trade group PhRMA bringing a lawsuit against the state in reaction to the bill’s passing.

New York became the first state to place a limit on Medicaid prescription drug spending in April 2018 with NY S 2007, which set a cap at inflation plus 5 percent. If a company does not voluntarily agree to a rebate that is at least 75 percent of the government’s recommended amount, a state commission will review their data regarding product effectiveness and profit margins. The commission also has the authority to put the medicine on a list of drugs that require prior authorization and prescriber justification. The New York State Medicaid program had spent $3 billion per year on drugs alone and seen costs rising by about 8 percent yearly. With the new law in place, they expect to save $55-85 million per year.

Other Enacted Laws

  • Twenty-nine states made laws that authorize pharmacies to talk about alternative pricing models and generic options for patients without being penalized by pharmacy benefit managers (PBMs) and insurers.
  • Eight states (California, Vermont, Nevada, Connecticut, Maine, Oregon, Louisiana) passed drug pricing transparency laws, many of which requires companies to justify price increases.
  • Maine has a law that increases competition by encouraging production of generics.
  • Nevada and California created copay caps.
  • Oklahoma, Louisiana, and Massachusetts allow the state government to negotiate pricing for Medicaid.

Bills in Review

On a federal level, Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) are currently pushing a bipartisan bill to allow the department to negotiate directly with manufacturers on a wider array of Medicare drugs. The proposal would set price caps on Part B while moving more medications to Part D, which has been able to use negotiation to come consistently under budget. According to a survey, 92 percent of Americans want Medicare to be able to negotiate drug pricing. By controlling how drugs are categorized under Medicare, the government hopes to recapture tax money lost by the incorrect classification of drugs. HHS claimed they lost about 1 billion in 2017 from incorrect classifications.  HHS Secretary Alex Azar also wants to create an international pricing benchmark that would tie Part B pricing to rates offered in other countries.

On a state level, Maryland attempted to enact legislation similar to pricing laws passed by other states. It would have given the attorney general the authority to intervene if a drug’s price increased by more than 50 percent a year.  However, the district court ruled the bill as unconstitutional in April 2018 due to interstate commerce regulations. This lawsuit is likely to go all the way to the US Supreme Court. Many states are also currently trying to pass laws about price increases and special negotiating powers for Medicaid. New Jersey’s S 9777 bill limits excessive prices for drugs that receive public funding for research and has been referred to a committee for review. The state also created bill A 4216/S 2630 that would require PBMs to disclose drug pricing information.

The following bills have also been referred to in state legislative committees.

SB 27
Commissioner of social services can make a price cap that requires special permission to surpass for Medicaid drugs. It also increases transparency of the reimbursement model between PBMs and Medicaid.

SB 370
Makes a review board to investigate price gouging.

SB 415
No price gauging allowed, for essential drug off-patent or a generic, if “the price increase represents an increase of at least 50% in the wholesale acquisition cost of the drug during a 12-month period and a 30-day supply of the drug costs $80 or more.”

HB 1
Medicaid (aka MassHealth) can negotiate directly with drug manufactures. Also creates a commission to determine if price gouging occurs.

New Jersey
A 583/S 983 
Commission would create a list of drugs that manufactures would have to report costs such as R&D, marketing, and various prices in order to create a price cap if necessary.

S 1590/A 3987
Prevents essential off-patent, generic drugs and biological products from price gouging.

HB 2696 
“Brand-name drugs that have increased in wholesale acquisition cost (WAC) more than 10% or $3,000 in a 12-month period, or drugs that will be introduced to the market with a WAC of $30,000 or more. This measure also requires manufacturers to notify the commission if a generic drug’s WAC will increase by more than 25% or $300 or if a brand-name drug’s WAC will increase by 25% or $10,000.”

Rejected Bills

Not all bills about drug pricing and transparency were passed by state and federal legislators.  In June 2018, eleven states rejected price gouging laws, including Washington, Colorado, Minnesota, Wisconsin, Louisiana, Mississippi, Tennessee, Virginia, Vermont, New Hampshire, and Maine. In 2017, a federal proposal to allow drug imports from Canada failed 46-52 despite bipartisan support.

State and federal legislators are making demonstrative efforts to address high prescription drug costs. While legislative intervention may curb some price increases, it doesn’t address the systemic and wide-ranging issues facing the industry. Drug manufacturers will be well served by continuing to maintain open and honest channels of communication to better educate lawmakers on the implications of these bills to long-term drug development and R&D.

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Coauthor and contributions by Sabrina Zirkle

Tags: Strategy & Compliance