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States Taking Action to Control Rising Drug Costs

States are taking action to keep prescription drug costs from rising uncontrolled.

Some prescription drug costs have risen so high that patients are being forced to choose between buying prescriptions or buying groceries. As a result, several states are leading the charge to reform the prescription drug industry price structure.

How Prescription Drugs are Priced

KFF (Kaiser Family Foundation) reports that out-of-pocket drug spending for those in large employer plans and Medicare Part D is highest for drugs to treat cancer, multiple sclerosis and rheumatoid arthritis. Why these costs are so high and what can be done about them is yet to be determined.

The American Medical Association, which is running a TruthinRX campaign, asserts that there are three major market players who they believe significantly impact drug prices:

Pharmaceutical companies make and sell drugs, don’t explain pricing or why they often greatly exceed research-and-development (R&D) expenses. Some companies buy existing drugs, spend nothing on R&D and still raise prices.

Pharmacy benefit managers (PBMs) work on behalf of health insurance companies or employers and negotiate upfront discounts or rebates on the prices of prescription drugs. The FierceHealthcare publication asserts that many PBMs keep the negotiated cost savings for themselves and some even charge higher drug prices to their customers and keep the difference.

Health insurance companies approve treatments, set co-pays, and set prices with PBMs, often with an eye on what will maximize company profits.

Current Laws

Congress is debating more than a dozen bills targeting drug costs, but there are concerns that political divisiveness, a packed congressional schedule and a looming election year — not to mention the impact of the pandemic — could stall the passage of any of these bills.

And, while there has been some federal legislation, states are pushing for more regulation. Kaiser Health News reported that 33 states enacted 51 laws in 2019 to address drug prices, affordability and access. The measures focus on:

Price Transparency

The majority of states have enacted laws requiring drug companies to provide information to states and consumers on the list prices of drugs and planned price increases. Most drug companies have complied and post the data on their websites. Oregon’s new law goes further and requires manufacturers to notify the state 60 days in advance of any planned increase of 10 percent or more in the price of brand-name drugs or price increases of 25 percent or more in the price of generic drugs.

Gag Rules

Some pharmacy benefit managers (PBMs) include “gag clauses” in their pharmacy contracts. Gag clauses stop pharmacists from discussing whether a drug’s cash price would be lower than the customer’s out-of-pocket cost under insurance. Several states in 2019 and 2018 enacted laws that ban the practice. Congress in October 2019 passed a federal law banning the clauses in PBM-pharmacy contracts nationwide and under the Medicare Part D prescription drug benefit. Despite that, many of the state PBM laws contain additional gag clause limitations that go beyond the 2018 federal law.

Importing Drugs

Countries like Canada have lower drug costs because they negotiate directly with drug makers to set prices. Colorado, Florida, Maine and Vermont have enacted measures to establish programs to import cheaper prescription drugs from Canada and, in Florida’s case, from other countries as well. A 2003 federal law already allows states to import cheaper drugs from Canada, but only if the federal Health and Human Services Department approves a state’s plan and certifies its safety. Despite this, the federal government halted drug import efforts in five states between 2004 and 2009.

One big problem to the states’ plan is that the Canadian government has opposed any plan that relies solely on Canada as a source of imported drugs.

Drug Affordability Boards

Maryland and Maine have established state agencies to review the costs of drugs and to take action against those whose price increases exceed a specified amount. For instance, state agencies would review drugs that increase $3,000 or more per year; they would also review new medicines that enter the market costing $30,000 or more per year for a drug regime. In addition, starting in 2021, Maine will have a five-member board to set annual spending targets for drugs purchased by state and local governments.

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