Digging Into Prescription Drug Data: Affordability Boards and Transparency

10/26/2022
By Colleen Becker | October 2022

A QUICK LOOK INTO IMPORTANT ISSUES OF THE DAY

New developments in prescription drugs are dramatically changing the options people have to treat their health conditions. New antivirals, for instance, can cure hepatitis C, and new gene therapies can correct certain genetic conditions, transforming the lives of many patients. However, these therapies come with high prices, which can be a barrier to patients who need them. To better understand the tradeoffs between drug prices, costs and access, legislators often look for data to inform their decisions.

Legislative interest in pharmaceutical price and cost transparency programs has steadily grown since the first bills were enacted in 2016. Generally, state transparency programs require data be reported to a state agency such as the division of insurance. Conditions and requirements for programs vary by state. As an example, some states require manufacturers to report increases in list prices, while others mandate that health plans disclose the drugs that were prescribed most frequently or for which they spent the most. Certain states also direct pharmacy benefit managers (PBMs) to report the aggregated dollar amount of rebates, fees or price concessions provided by manufacturers.

Although states have implemented data collection strategies, certain cost and pricing information is confidential. Not only are the methods manufacturers use to establish drug prices protected by federal antitrust laws, but contract terms between PBMs, health plans, pharmacies and manufacturers are proprietary. To avoid running afoul of federal law, states may require these organizations to report various aggregated data.

Questions remain whether price transparency efforts are effective policy levers to lower drug prices. Some research has found that price transparency on its own does little to influence prices or overall costs. Another report found transparency laws focused on utilization risk identifying drugs without significant price increases. Other studies show that while transparency laws may not directly lower prices, the information collected may help guide future legislative or regulatory action.

To inform approaches to lowering costs, states are also turning to prescription drug affordability boards, or PDABs, nongovernmental agencies tasked with identifying drugs that pose affordability challenges. Most PDABs are alike in that they use a certain price threshold to identify which drugs to examine, but they differ in funding, authority and structure. For instance, some are empowered to setting spending targets or upper payment limits, while others make recommendations to the legislature. Although no state has yet set upper payment limits for prescription drugs, such limits are used in some states to calculate Medicaid reimbursement for hospitals or nursing facilities.

Among the potential challenges facing PDABs are that the implementation process and the development of methodologies and rulemaking may be time and resource intensive. Some research suggests that these boards may lack the legal authority to promulgate enforceable rules.

Supporters say PDABs aim to regulate the prices of identified drugs in the way a public utility commission regulates rates for energy. Critics argue PDABs encourage governmental price negotiations rather than promoting free market solutions. Other opponents  say the boards can limit patients’ access to needed medication.

State Action

Over a dozen states have price and cost transparency laws in place today requiring reporting from manufacturers, PBMs, health plans and others. The data collected by each program differs by state. For example, Utah requires drug manufacturers whose prices increased by more than 16% over the previous two years, or by more than 10% over the preceding year, to provide an explanation for the rises, while Nevada centers data collection on essential diabetes and asthma drugs.

Maryland passed the first PDAB bill in 2019, and since then six states—Colorado, Maine, New Hampshire, Ohio, Oregon and Washington—have established boards or councils of their own. As with transparency programs, not all PDABs have the same goals—or the same names. For instance, Ohio’s affordability council developed six policy recommendations, while Colorado’s board is allowed to establish upper payment limits for certain high-cost drugs.

Transparency and PDAB initiatives may also be used in tandem. Maine, Oregon and Washington may use the information collected through their transparency programs to help guide their boards’ recommendations. Colorado does not have stand-alone drug transparency legislation; rather, reporting requirements are embedded in the state’s PDAB law.

Federal Action

Several federal initiatives have sprung up to illuminate the factors contributing to rising drug prices and costs. An interim final rule issued in 2021 requires health plans to submit key data to the Departments of Health and Human Services, Labor, and the Treasury, and to the Office of Personnel Management. Plans must report on the 50 prescription drugs that:

  • Are the most frequently dispensed brand-name products.
  • Are the costliest.
  • Generated the highest increase in plan spending over the previous year.

Health plans are also required to disclose information regarding the impact of prescription drug rebates on consumer premiums and out-of-pocket costs. The departments listed above will report on this data by June 2023. Lawmakers may leverage the information to inform state-level decisions.

Focusing on supply chain middlemen, an investigation launched in June by the Federal Trade Commission will examine PBM business practices that contribute to high drug prices. The inquiry will review the use of specialty drug lists, audits of independent pharmacies, pharmacy reimbursement methods, mergers and acquisitions, vertical and horizontal consolidation, the impact of rebates on formulary design, and more. The FTC will focus on the effect these policies have on consumer costs and develop recommendations that can be used by states as they monitor PBM activity.