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A Helpful State Primer on Reducing Unfair Drug Prices

High drug prices are a major problem, and Congress should move quickly to reduce them. In the absence of congressional action, state legislatures have stepped in to fill the gap. In 2017 over 80 bills to reduce drug prices have been introduced in over 30 states, and laws have been passed in Maryland, New York, and Nevada. A new policy paper by the Yale Global Health Justice Partnership, the National Physicians Alliance, and the Universal Health Care Foundation of Connecticut examines state efforts to reduce drug prices. It is an excellent resource for policymakers, advocates, health care professionals, and individuals who want to take action.

Prescription drug spending is rising faster than any other area of health care spending. In 2015 Americans spent $457 billion on these drugs; many Americans have cut pills in half or skipped taking their medication because of these costs. Almost two-thirds of Americans think lowering drug costs should be an important priority, 86% of American support requiring drug companies to be transparent and release information to the public, and almost 80% of Americans want the government to control the prices of high-cost drugs for certain illnesses.

And state governments are discovering that our current drug system is unsustainable. They account for 17% of all health spending and pay a large share of prescription drug costs for millions of Americans, which includes people on Medicaid, state employees, and those incarcerated. In some cases, skyrocketing drug prices have forced states to limit coverage—in Louisiana, the prices of some hepatitis C are so high that the states can only treat a few sick patients. This is not efficient, just, or humane.

The solution? This report contains an extensive list of state bills, and makes two recommendations. First, state governments should pass laws to deal with unfair launch prices and price increases of patented and brand-name drugs. These laws should cover the prices of both generic and brand drugs; only addressing generics doesn’t help reduce high insurance premiums or out-of-pocket costs, and generic drugs aren’t the main problem.

In order to establish limits on drug prices, states should either set price benchmarks based on the costs of developing drugs (the most rigorous porposal), use reference prices to approximate fair drug prices (which requires reference prices to be available to the state government) or to price drugs according to their therapeutic value. They could also choose to prioritize especially high-priced drugs by only regulating them if they are very expensive or make up a significant chunk of state spending. States should also stop unfair price increases, possibly by imposing progressive rebates on price increases greater than medical inflation, or suing companies that engage in egregious price gouging.

Second, states should pass laws requiring as much transparency as possible about drug prices and development, drug manufacturing, and marketing costs for individual drugs. Sunlight is the best disinfectant and too often policymakers and advocates lack the most basic information about drug prices and our health care system. These transparency laws should release all relevant information to state regulators, payers, academic researchers, and consumer and patient advocates. The government should presume that all information be publicly released; companies would have to provide good and substantive reasons for keeping information private.

As Jill Zorn of UHCF Connecticut observed, “states can play a key role in protecting everyday people from unfair and unaffordable price increases. This paper provides a roadmap for states that are ready to fight back.”

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