woman with shopping basket in a grocery store pharmacy

Utah’s Right to Shop law gives qualifying employees the option of travelling to Mexico or Canada to buy their prescription medications.

Lawmakers Continue Fight for Lower Drug Costs

By Colleen Becker | March 9, 2021 | State Legislatures News

Somber stories of people dying, not because they caught the deadly virus, but because they were rationing their expensive insulin during the pandemic, have been percolating headlines and generating significant bipartisan legislative interest.

In response, 10 states have implemented some variation of a monthly copayment cap and 18 more have proposed a cap this year. A closely related California law (S 852) directs the state to investigate partnerships with outside entities to either manufacture or distribute generic forms of certain drugs, including one form of insulin.

When asked about prescription drug policy, state lawmakers typically cite access and affordability as top concerns. The pandemic hasn’t changed that. With most 2021 state sessions now in full swing, legislators continue to grapple with competing demands, searching for promising policies that lower drug costs for states and consumers alike.

Formularies—Helpful or Harmful?

Insurers and pharmacy benefit managers (PBMs) use drug utilization management tools to control prescription drug spending and to identify and eliminate potential fraud, misuse and waste that can occur in a prescription drug benefit. PBMs administer the pharmacy benefit in the health plans of more than 266 million people, including Medicaid beneficiaries, and use these management tools to negotiate lower prices from drug manufacturers.

One such tool, formularies, are pricing systems that place lower cost drugs on the bottom cost-sharing tier and higher priced drugs, such as brand-name medications or biologics, on the upper tier. Health plans and PBMs can manage the amount and mix of drugs prescribed by using tiered formularies and by incorporating the use of management tools like prior authorization and step therapy.

Prior authorization requires providers to gain approval from a patient’s health plan or PBM before prescribing a particular medicine. Step-therapy protocols—also called fail first—require a patient to take a lower cost medicine before the insurer will cover a higher priced drug. Both practices can be required even if the patient has responded well and is stable on a particular drug. Advocates say the tradeoff of using these tools is decreased access to more expensive, and perhaps more effective, drugs for patients, resulting in potentially adverse outcomes.

Most states use management tools in their Medicaid programs, but their use varies by state and by drug class. In a recent Kaiser Family Foundation study of Medicaid directors, researchers found that while states often require prior authorization and step-therapy for more expensive drugs, a number of states have legislation protecting drug classes or categories from the use of these tools in some or all circumstances.

Legislators have also pursued cost-saving strategies with PBMs. At least 109 bills in 33 states have been proposed so far in 2021.

States May Increase Oversight

In Pharmaceutical Care Management Association (PCMA) v. Rutledge, the U.S. Supreme Court ruled in December last year that PBM laws are a form of health care cost regulation and, since PBMs are third-party administrative contractors, are bound by state laws. This ruling may open the door to greater regulation of PBMs by states. Legislators across the nation have expressed interest in possible state policy options since the decision was handed down.

A 2016 New Jersey law (SB 2749), passed well before the Rutledge ruling, serves as a good illustration. It allows the state to engage vendors in a reverse auction, with the state selecting a PBM through a confidential bidding process as opposed to the typical contracting method, which can make it difficult for a state to compare bids.

New Jersey Senate President Steve Sweeney (D) describes it as “an eBay for PBMs.”

“The innovation to prescription drug purchasing we adopted features an online auction,” he says, “powered by a cutting-edge, big-data analytics technology platform, to create a dynamic, truly competitive marketplace in which PBMs bid and counter-bid against one another to win the state’s business.”

The contracts for the state and school employee health benefits programs were awarded to a single PBM and were in place in New Jersey by 2019. Over the three-year term of the contract, the state projects a savings of more than $1 billion. It reported a cost decrease of 25% in the first nine months alone.

In 2020, Maryland lawmakers passed legislation (HB 1150) establishing a timeline and process for conducting a reverse auction for its public employee health plans. Maryland’s Prescription Drug Affordability Board will work with state agencies to specify the contractual terms all participating bidders must accept to take part in the process. The state’s anticipated savings is unknown, according to the bill’s fiscal note, but the net impact on state expenditures is expected to begin this year.

End of Spread Pricing?

Another way state Medicaid programs are looking to capture savings is by eliminating spread pricing. In a spread pricing model, often seen in generic drug dispensing, a PBM reimburses a Medicaid managed care organization (MCO) with an amount that is less than what the PBM collects from the pharmacy, with the PBM retaining the difference, or “spread.” Several state agencies—including those in Florida, Louisiana, Michigan, New York and Pennsylvania—have recommend moving to a pass-through payment model in lieu of spread pricing. With pass-through contracts, the PBM passes the full amount on to the MCO and charges a flat administrative fee. Of the 34 states that have MCOs, at least 15 prohibit spread pricing in their programs.

The amount that states pay for public employee prescription drugs is also on the rise, equating to $2.8 billion in 2013 (the most recent data available). Before pandemic-related travel restrictions, employees enrolled in Utah’s Public Employee Health Plan who took certain prescription drugs could participate in the plan’s Pharmacy Tourism Program, established by the state’s Right to Shop law. The program gives qualifying employees the option of travelling to Mexico or Canada to buy their medications.

“For many state employees, the cost of prescription drugs hurts their pocketbook,” Utah Representative Norm Thurston (R) says. “In addition, it is a significant expense in the state budget. The Pharmacy Tourism Program is a win-win because it saves the state money and allows patients to be rewarded not only by paying less, but by getting to keep part of the savings.”

With the new year came new hope, but as both the health and the economic crises persist, drug policies that affect both state and consumer budgets will likely remain a focus for legislators in 2021, and for a long time to come.

Colleen Becker is a policy specialist in NCSL’s Health Program.

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