The Current State of Drug Price Legislation

Over the past 2 years, we have seen efforts to address the turbulent issue of rising drug costs gain significant steam in the public policy realm. Tensions have been high as manufacturers and payers attempt to find the elusive balance between improved patient outcomes and cost containment. As companies such as Valeant, Turing, Mylan, and Hikma have raised drug prices, state and federal legislatures have responded with tools they hope will keep costs in check. Below are some of the legislative vehicles that have been introduced to date on this issue.

Congressional Legislation

• S 1131/HR 2439, the Fair Accountability and Innovative Research Drug Pricing Act of 2017, seeks to require manufacturers of certain drugs and biological products with a wholesale cost of $100 or more per month to report price increases that result in a 10% or more increase in the cost of a drug over a 12-month period, or a 25% or more increase over 36 months, to the Department of Health and Human Services (HHS). Reports are required for prescription drugs and drugs commonly administered in hospitals—except for vaccines, drugs for rare conditions, and drugs with annual sales for Medicare and Medicaid enrollees of less than $1. Reports must contain specified information, including pricing history and a justification for each price increase in the relevant period.

• HR 2974/S 1369, the Stop Price Gouging Act, seeks to establish an excise tax on certain prescription drugs that have been subject to a price spike.

• S 1681/HR 3536 seeks to require individuals who conduct federally funded research and drug development to enter into reasonable pricing agreements with the HHS secretary.

• S 1688, the Empowering Medicare Seniors to Negotiate Drug Prices Act of 2017, proposes to allow the HHS secretary to negotiate fair prescription drug prices under part D of the Medicare program.

• S 1348, the Stopping the Pharmaceutical Industry from Keeping Drugs Expensive Act of 2017, seeks to require drug manufacturers to publicly justify unnecessary price increases.

• S 637, the Creating Transparency to Have Drug Rebates Unlocked Act of 2017, seeks to require public disclosure of certain information provided to HHS by a pharmacy benefit manager (PBM) that contracts with a prescription drug plan under Medicare or Medicare Advantage or with a qualified health benefits plan offered through an exchange established under the Affordable Care Act. Specifically, HHS must publish on its website—with respect to each PBM—information regarding the amount and type of rebates and discounts negotiated by the PBM and the extent to which these are passed on to the plan sponsor, as well as the difference between the amount paid by the plan sponsor to the PBM and the amount paid by the PBM to pharmacies.

The states have been just as active as Congress on this front. Last year, Vermont enacted legislation—the first of its kind—addressing drug prices. The law directs the state’s Green Mountain Care Board, in collaboration with the Department of Vermont Health Access, to identify up to 15 prescription drugs each year on which the state spends “significant health care dollars” and for which the wholesale acquisition cost (WAC) rose 50% or more over the past 5 years, or 15% or more over the past year. For each identified drug, the state attorney general will require the manufacturer to justify the WAC increase in an “understandable and appropriate” format. A manufacturer that fails to provide the required information will be hit with a $10,000 fine per violation.

California has been tackling rising drug prices for some time now. Last year, voters defeated Proposition 61, which sought to limit state health programs from paying more for medications than the US Department of Veterans Affairs does. (Interestingly, Ohio’s Issue 2 ballot initiative is almost identical and will be voted on later this year.) Since then, California has introduced several legislative initiatives aimed at cost containment. SB 17 would require insurance providers to report on the drugs for which they spend the most money and would require manufacturers to give a 60-day notice of any price hikes. AB 265 proposes to prohibit prescription drug manufacturers from offering a discount, repayment, product voucher, or other reduction in an individual’s out-of-pocket expenses associated with insurance coverage, including but not limited to a copayment, coinsurance, or a deductible, for a prescription drug if a lower-cost generic or over-the-counter alternative is available.

Nevada has enacted SB 539, which aims directly at diabetes cost containment by placing new reporting requirements on pharmaceutical manufacturers and pharmacy benefit management related to diabetes treatment and provider payments.

Maryland produced an aggressive law that was enacted without the governor’s signature. HB 631, which prohibits price gouging on essential off-patent or generic drugs, allows the state attorney general to hold manufacturers and wholesalers accountable for unconscionable price increases. According to the law, an “unconscionable increase” means an excessive price that is not justified by the high costs of production or expansion of access, and for which patients who need the drug have no less expensive option.

If an unconscionable increase occurs, the attorney general will meet with the drug manufacturers or wholesalers to discuss the findings. If the attorney general wishes to proceed to the state circuit court, numerous remedies could be required, including mandating that manufacturers or wholesalers provide relevant information to the attorney general, issuing orders to restrain or enjoin price gouging, restoring money that was lost to consumers as a result of price gouging, or requiring manufacturers to make the drug available to Medicaid enrollees at the pre-gouging price for a year. Finally, the court can impose a civil penalty of up to $10,000 for each violation.

Despite all the activity surrounding the issue of high drug prices, it does not seem as though this issue will completely dissipate. Due to our free market, the government can influence drug prices only through policy and cannot directly control them, so it remains to be seen whether legislative efforts will have any effect on cost increases. However, it does seem as though our policy is moving toward a system in which manufacturers are held more accountable.