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States to the Rescue? An Overview of the State Trend Toward Reducing Drug Prices

As we previously observed, on drug prices the Trump administration is tweeting furiously but carrying a very small stick. Meanwhile prescription drug costs continue to rise. In 2014 drug prices increased by 12.4% and in 2015 by 9%, and they have kept going up. Americans now spend $1,370 in out of pocket payments for prescription drugs, on average. State governments, confronted with higher drug costs and strains of their budgets, and irked at federal inaction, are increasingly taking measures to reduce drug prices. In a recent policy brief, the Source writes about state efforts to bring down prescription drug costs and concludes this trend will only get stronger in the coming years.

For a long time drug policy was mostly the federal government’s purview. That has recently changed and in 2017 forty-three states considered bills intended to reduce high drug prices. Seventeen states passed bills and five states are still considering them; this is in sharp contrast to 2016, when only ten states introduced bills to curb drug prices and only Vermont enacted a law. The bills and laws vary widely, but the most common legislation consists of price transparency initiatives. Other bills aim to directly control drug prices, regulate conflicts of interest with drug manufacturers and pharmacy benefit managers (PBMs), and forbid gifts and coupons from drug companies.

The most important state considering drug price legislation is California. State legislators are looking at five bills to cut drug costs. SB 17, the bill that has received the most attention, stipulates that drug manufacturers must give 90 days’ notice before raising the costs of drugs above a certain threshold, and they will have to provide justifications for these price increases. Another bill, AB 315, would require PBMs to be licensed by California’s Department of Managed Health Care, to have a fiduciary duty to their clients, and to disclose data regarding drug costs, rebates, and fees earned to their clients.

The most common proposal introduced in 2017? Bills to make drug prices more transparent. In most cases there is very little public information about drug costs or how much drug companies are charging for rebates and payments. And Big Pharma and PBMs prefer it that way because it allows them to keeping charging outrageous prices—it’s hard to determine if companies are price gouging, how they are doing, and how it can be stopped. Consumers and policymakers have to rely instead on anecdotes, personal experiences, and lawsuits. So far, Florida, Louisiana, New Jersey, and North Carolina have passed laws to require transparency for prescription drug prices, and they have made drug manufacturers and PBMs more accountable. Most of the bills require state governments to identify and monitor price increases and also require companies to justify the hikes. One bill, AB 4438 in New Jersey, specifically forced PBMs to reveal pricing information to health plan customers.

But transparency bills, while helpful, are not enough to solve the problem. After all, they do not prevent drug companies from continuing to raise prices, although they make it more difficult. Many states looked at stronger measures to lower drug prices, such as establishing commissions to negotiate price concessions. Georgia passed SB 200, which requires health benefit plans to cost-sharing rates to drugs that are dispensed under certain circumstances. New York passed a bill that allows the state government to identify expensive drugs, set a value price, and negotiate rebates to achieve that price. Finally, Maryland passed HB 631/SB 415, which prohibits price gouging of generic drugs and allows the Maryland Attorney General to file lawsuits against off-patent drug companies that raise drug prices excessively. This is a good start, but generic drugs are not the real problem. Brand name companies engage in more price gouging and their drugs are less affordable. The law would have been stronger and more meaningful had it applied to brand companies as well.

Naturally these proposals have encountered fierce opposition from the pharmaceutical industry. Drug companies and PBMs angrily lobbied against the weakest of bills, even ones that simply sought to disclose information about prices. Generic companies even filed a lawsuit against Maryland’s law claiming it was unconstitutional. But these reforms are dealing with a very real problem. As long as drug prices continue to rise and the federal government continues to dither, states will—and should—promote affordable prescription drugs for all Americans.

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