Massachusetts Introduces Drug Cost Transparency Bill That Would Cap Prices For Certain Products; North Carolina and Pennsylvania Also Introduce Bills Requiring Drug Cost Reports

 

Massachusetts last week introduced a bill that calls for more transparency in the prices drug manufacturers charge for certain “critical prescription drugs.” Like California and Oregon before it, Massachusetts S. 1048 would require that companies report a wide range of cost and pricing information. However, Massachusetts ups the ante further than other states because they do not stop at transparency. As outlined in the bill, if the state determines the price of the prescription drug is “significantly high,” they may set the maximum allowable price that the manufacturer can charge for that prescription drug sold for use in Massachusetts.

North Carolina and most recently Pennsylvania have also released cost transparency legislation. Pennsylvania’s bill would restrict insurance coverage for any company that did not produce a cost report. As an update on other state activity, California’s Assembly Health Committee is debating their Pharmaceutical Cost Transparency Act (Bill 463). The Committee will reportedly dwell on the various suggestions and come back to the bill next week.

Massachusetts

The Massachusetts health policy commission, in consultation with the center for health information and analysis, “shall develop a list of critical prescription drugs for which there is a substantial public interest in understanding the development of its pricing.”

In developing the list, the commission would consider: (1) the cost of the drug to public health care programs, including the office of Medicaid and the group insurance commission; (2) the current cost of the drug in Massachusetts; (3) the extent of utilization of the drug within Massachusetts; and (4) the potential impact of the cost of the drug on Massachusetts achievement of the statewide health care cost growth benchmark.

For each drug that makes the commission’s list, the manufacturers of the product would have to report:

• (1) Total cost of production, and approximate cost of production per dose;
• (2) Research and development costs of the drug;
• (3) Marketing and advertising costs for the drug, apportioned by marketing activities that are directed to consumers, directed to prescribers, and the total cost of all marketing and advertising;
• (4) The prices for the drug that are charged to purchasers outside the United States, by country;
• (5) Prices charged to typical Massachusetts purchasers, including but not limited to, pharmacies, pharmacy chains, pharmacy wholesalers, or other direct purchasers;
• (6) True net typical prices charged to prescription drug benefit managers for distribution in Massachusetts, net of any rebates or other payments from the manufacturer to the pharmacy benefit manager and the pharmacy benefit manager to the manufacturer.

The bill specifies that “[a]ny and all public reporting of information submitted [of the shall be aggregated as to protect the financial, competitive, or proprietary nature of the information.”
 
Massachusetts would also prepare an annual report to be published on the commission’s website on prescription drug prices and their role in overall health care spending.

Maximum Allowable Price

The bill states that the health policy commission will “review and consider all data reported to the commission and the center and determine whether the price of the prescription drug is significantly high given: (i) the prescription drug’s medical benefits, (ii) the cost to develop and manufacture the prescription drug, and (iii) the prices charged by the manufacturer in other countries.” 

“If the commission determines that a prescription drug is significantly high, then the commission may set the maximum allowable price that the manufacturer can charge for that prescription drug that is sold for use in the commonwealth,” states the bill.

An interesting aspect of this bill is that the commission states they will take into consideration a “prescription drug’s medical benefit” when determining a drug’s maximum allowable price. It is unclear based on the bill’s language what type of information Massachusetts will consider, and whether it will include, for example, long-term benefits of certain therapies (like cures that protect against additional healthcare costs), or potential off-label indications for example. 

North Carolina

North Carolina has introduced “An Act to require manufacturers of pharmaceutical drugs to report cost and utilization information.” Text available here. The bill states that each manufacturer of a brand medication that is made available in North Carolina will have to file a report on pharmaceutical costs that would include:

• (1) Total costs derived in the production of the drug;
• (2) Average wholesale cost of the drug as filed with the Federal Food and Drug Administration and, for each drug, a five‑year history of average wholesale price expressed as a percentage and the month each increase took effect;
• (3) Total research and development costs paid by the manufacturer in the production of the drug;
• (4) Total administrative costs, marketing and advertising costs for the promotion of the drug, and costs associated with direct‑to‑consumer coupons and amount redeemed;
• (5) Total profit as represented in total dollars and a percentage of total company profit derived from the sale of the drug;
• (6) Total amount of financial assistance the manufacturer has provided through patient prescription assistance programs if such programs are available.

North Carolina’s bill makes no reference to a dollar cap that the state would impose on pharmaceutical products sold in the state.

Pennsylvania

On April 21, Pennsylvania House Bill 1042, or the “Pharmaceutical Cost Transparency Act” (text available here) was introduced by Bipartisan Reps Anthony DeLuca (D) and Tina Pickett (R).

View the reps’ announcement here. 

For prescription drug with an average wholesale price of $5,000 or more annually or per course of treatment, a health insurance policy or government program providing benefits for prescriptions shall not be required to provide the benefits if the manufacturer of the prescription drug has not filed a cost transparency report (emphasis added).

On or before March 1 of each year, manufacturers would have to file with the Insurance Department the following information:

The costs for the production of the drug, including the following information (which must be audited and certified by an independent third party auditor prior to filing):

• (1) The research and development costs paid by the manufacturer, and separately, the research and development costs paid by any predecessor in the development of the drug.
• (2) The costs of clinical trials and other regulatory costs paid by the manufacturer, and separately, the costs of clinical trials and other regulatory costs paid by any predecessor in the development of the drug.
• (3) The costs for materials, manufacturing and administration attributable to the drug.
• (4) The costs paid by any entity other than the manufacturer or predecessor for research and development, including, but not limited to, any amount from Federal, State or other governmental programs or any form of subsidies, grants or other support.
• (5) The other costs to acquire the drug, including costs for the purchase of patents, licensing or acquisition of a corporate entity owning rights to the drug while in development, or all of the costs under this subparagraph.
• (6) The marketing and advertising costs for the promotion of the drug directly to consumers, including, but not limited to: (a) costs associated with coupons or discounts, that are directed to consumers and the amount redeemed, (b) marketing and advertising costs for promotion of the drug directly or indirectly to prescribers; (c) any other advertising for the drug.

Manufacturers would also have to report information related to the average whole sale price of the product, the profit attributable to the drug, and a detailed list and description of manufacturers’ patient prescription assistance programs.

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It will be important to follow the progression of these cost transparency bills through the legislative process, and also to track additional states as they introduce similar language. Clearly prescription drug prices are a hot topic now–some have suggested drug costs will be the “next big thing” for 2016 presidential candidates. As manufacturers have introduced revolutionary treatments and cures, the new frontier in drug legislation seems aimed at the cost of these products and whether, based on yet-undetermined review processes, these prices are considered acceptable.