Prescription drug prices directly influence costs paid by public and private health insurers, employers, taxpayers and consumers. With recent federal action focusing on prescription drug prices, state policymakers may explore options to lower prescription drug costs for consumers and state budgets.
Costs to Consumers
Out-of-pocket costs for prescription drugs may be a barrier for some people. In one study, nearly 13 million adults surveyed reported not adhering to their regimen due to cost. Other research shows that approximately 12% of consumers’ overall personal health care spending pays for prescription drugs which is equivalent to $1,500 per person, per year in out-of-pocket costs.
Health insurers who offer drug coverage usually require consumer cost-sharing, either through coinsurance (a percentage off list price) or copayments (a fixed amount not tied to list price). Consumers might also have an annual cost-sharing requirement, such as deductibles, they must pay before benefits apply. For people with employer-sponsored coverage, the average coinsurance rate is between 18-37% while the average annual deductible for a family is $3,868. These amounts can be costly for some consumers, especially those that take high-priced specialty drugs.
To help offset out-of-pocket costs, manufacturers may offer copay assistance coupons to consumers. The coupons typically reduce the amount a person pays at the pharmacy counter when they fill a prescription. The value of the coupon may also be applied to a patient’s deductible, but not always.
Opponents say copay assistance coupons mitigate certain strategies pharmacy benefit managers (PBMs) and insurance companies use to encourage consumers to choose lower-cost prescriptions. They also argue that not only do copay assistance coupons promote the use of more expensive drug products, they shift a larger portion of the drug’s cost to the health plan and increase overall drug spending.
Costs to State
Prescription drug costs account for approximately 5% of state Medicaid budgets, however, reports show that number is rising. States also pay prescription drug costs for state corrections facilities, public employees and retirees, and public health programs.
States may leverage their purchasing power to negotiate better deals with manufacturers, typically through multi-state or interagency purchasing pools. Savings in multi-state deals average between 3-5% but vary due to several factors, including whether the state negotiates as a single purchaser or enters into a multi-state agreement.
States may also consider Medicaid alternative payment models as another cost-savings measure, including:
Subscription-based—a contracted, fixed amount paid to a manufacturer in exchange for unlimited access to a treatment.
Outcomes-based—when payment is tied to key metrics or performance outcomes.
Mortgage model—allows purchasers to spread the cost of a period of time.
States with Medicaid managed care contracts may also choose to establish a uniform preferred drug list (PDL), or a list of medications that Medicaid will cover without prior authorization. Instead of using multiple formularies across managed care organizations, a uniform or single PDL agreement streamlines coverage and helps maximize supplemental rebates.
State Policy Options
In an attempt to put downward pressure on costs for both consumers and state budgets, lawmakers are pursuing a variety of policies.
Consumers:
- Restrict the use of copay accumulator programs.
- Limit consumer copayments.
- Require rebates from PBMs be used to reduce premiums or passed through to consumers at point of sale.
- Prohibit gag clauses in PBM contracts.
States:
- Explore alternative payment models.
- Purchase drugs in bulk through interstate or interagency agreements.
- Establish a uniform PDL.
| Consumers |
| Policy Options |
State Examples |
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Restrict the use of copay accumulator programs.
Some health plans use a copay accumulator program to restrict a manufacturer’s copay coupon from counting toward a patient’s annual out-of-pocket maximums.
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Laws in at least 15 states and Puerto Rico address the use of copay accumulator programs by insurers or PBMs by requiring any payment or discount made by or on behalf of the patient be applied to their annual out-of-pocket cost-sharing requirement. |
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Limit consumer copayment.
Research shows that limitations on copayments decrease a patient’s out-of-pocket costs without increasing health plan spending.
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At least eight states—California, Delaware, Louisiana, Maine, Maryland, Montana, New York and Vermont—limit the amount a patient pays for a specialty drug.
For example, Delaware, Louisiana and Maryland—limit consumers’ out-of-pocket costs for specialty drugs to $150 per 30-day supply.
More than 20 states limit how much a patient pays for insulin. Similarly, insurers in Colorado must offer one-quarter of their plans with a copayment only structure.
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| Require rebates be used to reduce premiums or passed throught to consumers at point of sale. |
Insurers and PBMs in Colorado must demonstrate to the Division of Insurance that 100% of rebates are used to reduce an individual or employer’s costs.
Any rebates collected by a PBM in Iowa and Georgia must be applied to a patient’s medication costs.
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Prohibit gag clauses in PBM contracts.
Contracts between pharmacies and PBMs may include limitations (also known as gag clauses) on a pharmacist’s ability to reveal alternative cost-sharing information to a consumer, such as if a consumer would pay less by purchasing a prescription without using the drug benefit through their insurance plan.
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Over two-thirds of states have laws prohibiting the use of gag clauses in pharmacy contracts.
Michigan allows pharmacists to tell patients about lower cost options, as well as the availability of other appropriate therapies.
PBMs in Virginia must provide patient cost and benefit information in real time using a format a health provider can easily access.
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| States |
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Explore alternative payment models in Medicaid.
Also referred to as value-based purchasing or value-based arrangements, alternative payment models allow states to negotiate lower prices with manufacturers.
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The Centers for Medicare and Medicaid Services approved supplemental rebate agreements in 13 states to implement value-based arrangements.
Manufacturers who have outcomes-based agreements with Oklahoma will pay rebates if certain conditions or benchmarks are met.
Louisiana and Washington established subscription-based contracts to lower the prevalence of hepatitis C.
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Purchase drugs in bulk through interstate or interagency agreements.
Five multi-state bulk purchasing pools negotiate deeper discounts for state and local agencies. Three are Medicaid-focused while two apply to local and state agencies outside of Medicaid.
States may also combine the purchasing power of agencies within their own borders.
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The Northwest Prescription Drug Consortium is an intergovernmental agreement among Nevada, Oregon and Washington. Entities from both the private and public sector are eligible to join. The consortium requires 100% pass-through of all manufacturer rebates.
In California and New Mexico, interagency purchasing collaboratives—which include executive, state and local agencies—coordinate efforts to develop solutions that address the cost of drugs across purchasing entities within the state.
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| Establish a uniform preferred drug list (PDL) in Medicaid managed care contracts. |
Of the states with managed care contracts, at least 16 use a uniform PDL across certain or all classes of drugs. |
Federal Action
Signed into law in August 2022, the Inflation Reduction Act contains several drug pricing provisions. Most notably, the federal government will soon be allowed to negotiate prices for some drugs covered under Medicare. For consumers, it caps annual out-of-pocket spending for Part D enrollees and limits monthly cost-sharing for insulin.
Though these cost restrictions will bring relief to Medicare enrollees, they do not apply to the commercial health insurance market. For those who receive coverage through their employer or the individual market, drug costs may still pose barriers to treatment.
How the Inflation Reduction Act might impact Medicaid costs is unclear. While some studies project lower drug spending, other research predicts spending could grow.