Speaker of the House Nancy Pelosi, D-Calif., right, sits with Rep. Suzan DelBene, D-Wash., as they ... [+]
Prescription drug price controls are gaining momentum nationally and also at the state level. Nationally, lowering drug prices using government levers is an area in which there appears to be at least some degree of bipartisan agreement.
A form of direct price controls was included in the Trump Administration’s International Pricing Index (IPI) model to lower Medicare Part B prices. The Department of Health and Human Services Blueprint was explicit: The purpose of the IPI model is to “phase down the Medicare payment amount for selected Part B drugs to more closely align with international prices.”
Speaker of the House Nancy Pelosi’s H.R. 3 bill, named Lower Drug Costs Now Act, goes further and applies to a much wider range of drugs, and also introduces monopsony, which would de facto control prices throughout the entire market as government-negotiated prices would be adopted in the commercial sector.
At the same time, a number of states have introduced drug price control laws.
Maine, for example, has been somewhat of a path breaker when it comes to instituting drug price controls. Nearly two decades ago, in 2000, Maine became the first state to enact price controls. Earlier this year, Maine enacted a more comprehensive law aimed at controlling drug prices. The bill included two key components. First, the law stipulates that a board will cap drug prices for health plans. Second, the law requires pharmacy benefit managers to pass on all savings they negotiate through rebates to patients.
Conspicuously, however, Maine limits its board’s scope to state, county, and local government health plans. Also, Maine’s board isn’t authorized to set spending caps; rather, it provides recommendations on spending targets for prescription drugs to the legislature.
Maryland went several steps further than Maine with a law passed in April of this year. Similar to Maine, Maryland passed a law creating a prescription drug affordability board whose mandate is to regulate drug prices. But, the law added pressure on drug makers by requiring them to justify certain prices or price increases for both patented and generic drugs. If the board rejects a manufacturer’s explanation for a pricing decision, it can, with the approval of the state legislature, set a lower price for the drug. Maryland law only applies to health plans that serve employees of the state government and of county and city governments. And, analogous to the Medicaid rebate, drug manufacturers are required to accept the price set by the board in order to sell the drug in question to state, county, and local government plans operating in Maryland.
These new state laws may be a sign of things to come. Legislation is pending in several more states.
What the Maine and Maryland laws share in common, along with other state proposals, is that they call for “cost reviews” when prices or price increases for certain drugs exceed specified arbitrary thresholds. For example, in Maryland board reviews are triggered when branded drugs enter the market with a wholesale acquisition cost of at least $30,000 per year, or when their prices are raised by at least 10% annually.
Moreover, broadly boards are given the authority to review the prices of prescription drugs when they determine that reimbursement would create “affordability challenges” for the state healthcare system and patients.
It’s noteworthy that such reviews are called “cost reviews” as opposed to “cost-effectiveness reviews.” What’s more, the language adopted - “affordability challenges” - gives state authorities wide discretion with respect to when cost reviews would be prompted.
This does raises the question, are any evidence-based criteria used to set the thresholds and trigger a review? The language adopted - “affordability challenges” - suggests budgets play a role. But, budgets are separate from evidence-based criteria, such as a drug’s clinical effectiveness.
Some expensive drugs – well, above the $30,000 threshold cited – are very cost-effective, that is, they offer very good value for money. Some may even be cost-saving in the long term. At the same time, some cheap drugs are not cost-effective. Surely, reviews ought to take into account some measure of a drug’s cost-effectiveness, as opposed to merely its cost.
Furthermore, there is a concern among some state legislators — which the drug industry has echoed — that the boards may reduce access to certain newly approved drugs with relatively high price tags, as companies may simply walk away from a particular market.
To illustrate, a state such as Maryland has relatively little bargaining power; companies could walk away from the market, rather than set a precedent for other payers by selling certain drugs at prices below current levels.
In fact, it may be the case that states would need to act collectively to simultaneously drive down prices and ensure patient access to drugs. Whether this is possible logistically or even legally remains to be seen.
