States are tackling America's drug pricing problem

States are tackling America's drug pricing problem

Congressional hearings into America’s drug pricing problem reveal the challenges policymakers face as they confront a powerful industry’s pricing practices, but states have been on these front lines for years. Dozens have passed laws to lower the pharmaceutical price trajectory, and their work can inform the current debate.

Unlike Congress, states must balance their budgets every year and know firsthand the impact of high and unpredictable drug prices. They began addressing drug cost increases years ago, becoming what the late Supreme Court Justice Louis Brandeis called “laboratories of experimentation” and what today’s economists call “business disruptors.”

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Every state has submitted at least one bill to address pharmaceutical costs, and the pathfinding work could help shape federal policy. Before Congress created the Children’s Health Insurance Program (CHIP), many states had created their own children’s health programs. States also led the way with mental health coverage mandates and insurance provisions that were incorporated into the Affordable Care Act (ACA). In another telling example, it was only after 28 states outlawed pharmacy benefit management (PBM) gag clauses, which prohibited pharmacists from telling consumers about less-costly drug options, that Congress outlawed the practice in 2018.

The drug industry is global; 40 percent of America’s drugs are manufactured abroad. In Canada, some drugs cost about one-third of what they cost here. States have responded by developing a wholesale importation model that uses existing distributor and pharmacy networks, which the federal government can allow as long as consumer safety and savings are assured. Last year, Vermont enacted a plan that will soon be ready for federal review, and 15 states have recently introduced bills to implement or study importation.

States also know they need transparency in drug pricing and have proposed laws that require cost disclosure from manufacturers, health plans and PBMs. In 2017, California and Nevada were the first to enact transparency laws. In the past two years, five states have enacted similar transparency laws — despite intense industry lobbying and court challenges — and 20 states are considering similar bills.

In 2018 alone, 20 states passed laws that require more accountability from PBMs, which serve as “middle men” in the drug supply chain. In addition to licensing and registering PBMs, states are requiring them to pass on to consumers any savings and rebates they receive from drug manufacturers.

Transparency is an important first step in shining a light on pricing practices, but it is inadequate to lower prices, and importation requires federal approval. That’s why states are pushing for more.

In 2017, Maryland prohibited price-gouging of generic drugs; its law authorized the state to take action against manufacturers whose price increases were “unjustified.” The industry challenged the law, claiming it illegally regulated commerce outside the state, and federal courts struck it down. Despite that roadblock, 12 states filed similar bills in 2018 and three introduced bills in 2019, incorporating Maryland’s legal lessons.

Recognizing the legal challenges confronting anti-price-gouging efforts, the National Academy for State Health Policy (NASHP) developed a model law that enables states to set “allowable rates” for certain high-cost drugs. Just as states use commissions to regulate what utilities or insurers charge, NASHP’s model takes a similar, rate-setting approach to drug payments. Maryland and six other states are considering the legislation.

In addition, states are leveraging their Medicaid programs’ buying power by placing spending caps and new payment rules on drug purchases. Others are limiting the use of manufacturer coupons for brand-name drugs when generic-equivalents are available. This experimentation has reignited interest in leveraging states’ joint purchasing power. Multi-state contracting alliances are purchasing drugs in bulk for state facilities and negotiating rebates for multiple Medicaid programs.  

States also are contemplating collaborating with local governments and private employers, which may allow these organizations to access discounts now available to state employee health plans.

Tackling the drug cost conundrum requires balancing competing interests. States understand that the industry needs to be profitable; it generates good jobs and investments that bolster state pension funds, and it holds more potential to cure disease and allay suffering. But how profitable, and at what price?

Great innovation is worthless if few can afford its benefits. Across the country, red, blue and purple states are working to creatively control drug costs through legislation and collaboration. Their work can help inform the federal drug pricing debate.

Trish Riley is executive director of the National Academy for State Health Policy. She held appointed positions in Maine, directing the Office on Aging, Medicaid and state health agencies, and health planning and licensing programs. She was a member of the Kaiser Commission on Medicaid and the Uninsured, the Medicaid and CHIP Payment and Access Commission, the Health Services Committee of the Institute of Medicine, and the National Academy for Social Insurance.