As states and the federal government grapple with how best to address the issue of rising prescription drug costs, various models have emerged at the federal level that are similar to efforts underway at the State level. The Administration has called upon states to create innovative approaches to state Medicaid programs, particularly by examining value-based purchasing for drugs and medical devices (with a few states actively operationalizing or exploring this option). In January 2019, three pieces of drug cost control legislation were filed, each proposing a different method to address rising drug costs: direct negotiations with drug manufacturers, prescription drug importation programs, and cost control levers. In addition to the proposed legislation, progress is being made at the state level on a number of new and ongoing prescription drug reforms efforts—including a recent report to the Vermont legislature on the feasibility of an importation program.
Direct Negotiation with Drug Manufacturers
On January 10th, 2019, lead sponsor Senator Bernie Sanders filed S. 99-the Medicare Drug Price Negotiation Act. This Act seeks to establish direct negotiation between the Secretary of Health and Human Services (HHS) and drug manufacturers in order to provide lower covered Part D drug prices for Medicare beneficiaries, as well as the establishment and application of a drug formulary by HHS. The Act also sets forth drug cost limitations, triggered if the Secretary is unable to negotiate appropriate pricing for a covered Part D drug. The price shall be, in that instance, the lowest of a number of options including the contract price, and average pricing (during a 12-month period) of manufacturer to wholesaler or retail sales in certain countries. In addition to negotiating pricing, the Secretary is tasked with issuing guidance on the criteria to determine whether the Secretary is successful in obtaining an appropriate price, as well as identifying the applicable covered Part D drugs for which negotiations should be conducted, which drugs should be prioritized, and which should be included for renegotiations.
Negotiations begin at state Medicaid level
Direct negotiation with manufacturers is underway at the state level. Oklahoma, and recently Michigan, were approved by the Centers for Medicaid and Medicare Services (CMS) to operate value-based drug-purchasing programs through the state Medicaid program. Oklahoma encountered some initial barriers, identified in part in an October 2018 report by the University of Oklahoma that outlined the following: beyond-label concerns; “price” implications; data collection; cost savings/benefits; and utilization issues. As of December 2018, Oklahoma had negotiated alternative payment models with manufacturers for four drugs: two long-acting antipsychotics, including Aristada; Orbactiv, and the epilepsy drug Fycompa.
Michigan was approved to operate a similar waiver program in November of 2018, with the aim of leveraging additional rebate agreements for “outcomes-based” contracts with drug manufacturers. By utilizing efficacy in purchasing decision and payment negotiations, Michigan hopes to realize cost savings for the state and consumers. Michigan has yet to release an update on how initial outreach to manufacturers has gone, or whether any such value-based payment agreements have been made.
On January 10, 2019, lead sponsor Representative Elijah Cummings filed H.R. 447- Affordable and Safe Prescription Drug Importation Act. This Act seeks to allow individuals to have valid prescriptions (those issued by a licensed healthcare practitioner) filled in no more than 90-day supplies by Canadian or other certified foreign sellers licensed as foreign pharmacies. The legislation also includes lengthy requirements to ensure consumer protection, standards by which certified foreign sellers are bound, and timelines and standards by which the safe importation program would be expanded to other countries outside of Canada. This legislation is similar to legislation that passed in 2018 in Vermont, with the scope and approach slightly different in the federal model.
Update on Vermont Prescription Drug Importation Program
In May 2018, Vermont became the first state in the country to pass legislation allowing for the wholesale importation of drugs from Canada. On May 16th, “An act relating to the wholesale importation of prescription drugs into Vermont” was signed into law. In December 2018, the Vermont Department of Human Services, with assistance from the National Academy for State Health Policy (NASHP), submitted to the legislature the proposed program design for the “Canadian Rx Drug Import Supply Program.” It is estimated that commercial health insurance carriers operating in Vermont could see savings between 1-5 million dollars by purchasing drugs from Canada. Before such savings could be realized, the state would have to invest substantially in the operationalizing, licensure and oversight of the importation program. Health insurance carriers participated in the report to the legislature, detailing the top-spend drugs for the second quarter of 2018 in order to compile a list of the 17 high cost drugs across all carriers. Next, carriers were asked to calculate savings by detailing net spend for the identified 17 high-spend drugs compared to the cost of the drugs if imported (with a 45% markup on the Canadian cost added to capture administration costs and profits). Even with the markup, carriers reported savings between $2.61-2.82 dollars per member per month, totaling between 1-5 million dollars each year. The next steps for the State as outlined in the report include a.) determining the benefit to Vermonters, including estimates of upfront and ongoing operational costs, and b.) outlining the steps necessary to implement the program, including assessing interest of suppliers, submitting an application to the Secretary of HHS, and enabling any necessary legislation and appropriations. As outlined in bill, Vermont would need to submit an application request to HHS by July 2019, with the state likely moving quickly in the coming months to determine the feasibility and success of this proposed program.
On January 10th, 2019, lead sponsor Senator Bernie Sanders filed S. 102 Prescription Drug Price Relief Act of 2019. This act aims to “significantly lower prescription drug costs by ending government-granted monopolies for manufacturers who charge drug prices that are higher than the median price at which the drugs are available in other countries.” The act sets forth the methodology by which excessive cost would be determined, using both international referencing pricing to determine degree of excessiveness, as well as factors for those drugs that may not have excessive costs, but do entail limited therapeutic value or efficacy. The Secretary of HHS would have the power on a yearly basis to review all drugs and, if determined to be excessive, void or waive any government-funded exclusivity with respect to the drugs, as well as open up the purchasing and licensing options of said drug. The excessive price review results would be submitted to Congress, tracked in a database, and made public in order to increase consumer transparency.
State Cost Control Efforts
A number of states have filed legislation in 2019 aimed at various components of rising prescription drug costs that are likely to impact consumer health insurance rates. A number of states attempted to pass price control legislation in 2018, with none having successfully having implemented a major reforms effort to date. The approaches proposed this legislative year range from establishment of a “Prescription Drug Affordability Commission” in Minnesota that would monitor, review and notify for certain cost increase parameters, to drug-specific price control (for example, an insulin cost transparency program) also pending in Minnesota. Other proposed legislation seeks to set pricing or cost benchmarks. Connecticut has filed a bill to establish a prescription drug cost cap for the Medicaid program, which would also require additional negotiation for rebates and review if the cap is exceeded. Governor Baker of Massachusetts included in his proposed budget a proposal to allow the state Medicaid program to negotiate supplemental rebate agreements directly with drug manufacturers, including value-based payment agreements. Massachusetts had previously petitioned CMS for similar flexibility via an 1115 waiver that was denied in October 2018 due to the dual request for a closed formulary, as well as additional drug rebate flexibility. NASHP is closely tracking these state-level developments, and their legislative tracker contains short summaries of each bill organized by topic.
Health Policy News will continue to follow this topic as well, so please visit our blog to view upcoming (and past) reporting on prescription drug reform efforts.