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State Policies to Address Prescription Drug Prices | Center for American Progress

Over the past few years, high and rising prescription drug prices have generated significant controversy. Large, bipartisan majorities of the public support increased government action to reduce drug prices.1

However, little action has been taken at the federal level to reduce prices. Despite President Donald Trump’s repeated promises during the campaign to crack down on high drug prices, his administration has only recently begun to develop a policy response.2 And unfortunately, the president has abandoned the more ambitious proposals he supported during the campaign, such as Medicare price negotiation, in favor of more modest and pharma-friendly proposals. Perhaps as a result, President Trump’s recent drug pricing speech was followed immediately by a notable rise in pharmaceutical industry stocks.3

Yet in spite of this federal inaction, several states have taken steps to address prescription drug prices over the past couple years. Many of these reforms fall into three major categories: improving price transparency; increasing state negotiating power; and cracking down on price gouging.

The experiences of these states demonstrate potential promising paths forward for other states, which have the opportunity to take a leadership role in reducing drug prices for patients.

Improving price transparency
Although greater transparency by itself is not enough to bring down prescription drug prices, laws that ensure meaningful transparency are still an important and achievable goal. In addition to providing tools to publicly shame prescription drug manufacturers who implement egregious price increases, it can help advocates and policymakers lay the groundwork for more ambitious reforms in the future.

The transparency bills that states have considered vary in their strength and utility. Two strong examples of transparency legislation were signed into law in 2017 by Nevada and California. The Nevada law focuses specifically on insulin, requiring insulin manufacturers to justify price increases above a certain threshold. It also requires manufacturers to annually report information including insulin profits, production costs, and marketing spending.4 It increases transparency on pharmacy benefit managers (PBMs), which negotiate prescription drug prices on behalf of large employers and insurers, by requiring them to disclose data on the rebates they negotiate with insulin manufacturers. In addition, it requires patient advocacy groups to publicly disclose their donations, including donations from pharmaceutical companies.

Meanwhile, the California law requires drug manufacturers to provide advanced notice if an upcoming price hike would have the effect of increasing a drug’s list price by 16 percent or more over the course of two years.5 The law also requires health insurers to report annual data showing what percentage of their premium increases are attributable to rising prescription drug prices.

Following California’s example, Oregon enacted a transparency law in 2018.6 While a California-style proposal to mandate advanced notification of price increases was dropped from the final bill, the Oregon law does require drug manufacturers who raise a drug’s cost by more than 10 percent annually to report information such as profits, research and development costs, marketing spending, and data on total sales for the drug.7

Some other state transparency laws have been more limited. In 2016, Vermont became the first state to act on transparency for price increases, passing a law that “requires the state to identify up to 15 drugs that account for significant state spending and which have seen price increases of either 50 percent over five years or 15 percent over one year.” The law requires the relevant manufacturers to justify these price increases.8 Since 2016, however, some Vermont legislators have expressed frustration that the law did not go far enough in ensuring access to meaningful data on specific drugs; the price justifications submitted by drug manufacturers were largely protected by confidentiality rules and thus inaccessible even to the legislators themselves.9

Furthermore, legislators in some states have proposed transparency laws that focus only on PBMs.10 Although more transparency for PBMs and the rebates they negotiate with pharmaceutical companies would be a positive step forward, it is not a substitute for greater transparency on pharmaceutical companies. Given that pharmaceutical companies are largely able to set their own prices for their monopoly products, bringing down drug costs will ultimately require legislation that directly addresses these underlying list prices.

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State Policies to Address Prescription Drug Prices – Center for American Progress.