How can states tackle rising medication prices?

States have a range of options when it comes to tackling rising prescription drug prices, an expert told Connecticut policymakers Tuesday.

There’s a bully-pulpit approach – think President-elect Donald J. Trump and the auto industry – or the more industry-friendly concept of tying payments to whether the drugs deliver value, like fewer hospitalizations. There’s proposing legislation to increase transparency in drug pricing, or treating certain medications as critical goods that should be regulated like water and electricity.

“States are going to have to be the engine of reform,” Ameet Sarpatwari, a Harvard Medical School instructor and expert in pharmaceutical drug law and regulation, told members of the state’s Health Care Cabinet Tuesday.

Sarpatwari presented what he described as a “toolkit” for states to use in trying to address drug prices, policy options developed by a working group of the National Academy for State Health Policy. (Connecticut Comptroller Kevin Lembo is among the members.) Sarpatwari noted that the options range from market-friendly to heavily regulatory, and that states would probably differ on which they find palatable.

But he framed the problem as one that shouldn’t be ignored. Prescription drug spending in the U.S. was an estimated $457 billion in 2015. Medication prices are straining Medicaid budgets, forcing some states to cut back on other services or tighten eligibility requirements, he said. Privately insured patients are increasingly paying a larger share of their drug costs. And 24 percent of participants in a 2015 survey said they or a family member had not filled a prescription because of the cost within the past 12 months.

Representatives from the pharmaceutical industry suggested a different way of viewing the issue, saying that it’s misleading to focus on the sticker price of drugs, since government programs and insurance companies often pay discounted rates, and that policymakers should examine the designs of insurance plans that leave patients with more out-of-pocket costs. But they acknowledged that pharmaceutical costs should be included in health care cost containment efforts.

The cabinet – a group of state officials and representatives from the health care industry, consumer organizations and foundations – spent the past year discussing ways to tackle health care costs. They issued several recommendations to legislators, but none addressed prescription drug costs, a topic of interest to many on the panel.

Options for states

Surveys have indicated that prescription drug costs are a major health care concern among the public. And states are themselves large purchasers of prescription drugs, for people covered by Medicaid, state employee health plans and in state prisons.

Some states have focused on transparency, pursuing legislation to gather information on the factors behind drug prices and the amount of money spent on drug development and marketing. Sarpatwari said better understanding what goes into the prices could help state officials identify the next steps needed to address costs. They might learn, for example, that some of the cost is the result of pharmacy benefit managers pocketing savings they gained from negotiating with drug makers, or find that some drug-price increases are not justified.

But he also cautioned that there could be limits to what transparency will deliver. “A state has a limited amount of political capital, and is it the best investment…to spend that capital on something like transparency, which may not deliver the promises that people think that it might?” he asked.

States could also pursue antitrust enforcement focused on so-called pay for delay arrangements in which rival drug companies make arrangements that lead to postponing when a generic drug enters the market, Sarpatwari said. The Federal Trade Commission estimated in 2010 that such agreements cost $3.5 billion in foregone savings per year.

And states could take a page from Trump – and Massachusetts – and attempt to put public pressure on companies with high-priced drugs, Sarpatwari said, citing a recent public skirmish involving costly hepatitis C drugs. Massachusetts Attorney General Maura Healey threatened to sue Gilead, the drug company, over the price. Although most legal scholars thought the case had little chance of success, he said, “It put the drug company in the spotlight, and that was a spotlight the drug company didn’t want to be in.” The result: Gilead agreed to give the state’s Medicaid program a rebate. Sarpatwari also cited Trump’s attempts to put pressure on car companies, and predicted he could take a similar approach with the drug industry.

(In fact, Trump did just that during a press conference Wednesday, saying pharmaceutical companies are “getting away with murder.” “We’re the largest buyer of drugs in the world. And yet we don’t bid properly. We’re going to start bidding,” he said.)

Drug companies would probably view another option more favorably, Sarpatwari said: linking what states pay for medications to the value they provide. Under such a scheme, a state might pay for medications over time, taking into account whether they reduce hospitalizations, for example. The concept is promising, Sarpatwari said, but with limitations: It’s hard to determine what constitutes value and then to gather the data to determine if the drug is delivering.

“This is an area where there’s a lot of research that needs to be done,” he said.

At the far end of the regulatory spectrum, there’s what Sarpatwari described as the public utility model, in which states treat certain drugs as critical goods and could have a regulatory board oversee drugs with high launch prices. “For the industry, this is a nonstarter. They’re going to fight this tooth and nail,” he said. And Sarpatwari noted that the legality is questionable.

States could also pursue bulk purchasing for drugs with high public-health value, such as those that treat hepatitis C or EpiPens, he said. States could seek to secure lower prices, while drug companies would gain predictability and large-volume purchases.

Other options Sarpatwati cited include:

• Re-importing drugs from Canada. The secretary of the U.S. Department of Health and Human Services can authorize it, but that’s never happened. “Is there a new dynamic in which a new HHS secretary would be amenable to this in the case of very high-priced drugs or not? It’s an open question,” he said.
• Having states serve as pharmacy benefits managers, creating a uniform list of covered drugs for all its medication purchasing. That could save the state money by eliminating any profits that commercial benefits managers make, but Sarpatwari said it’s not clear whether the Medicaid, state employee and prison populations are similar enough to have a single drug list.
• Attempting to regulate drug discount coupons, which generally allow patients to pay a reduced price for a brand-name medication, but don’t reduce what insurance companies pay. Sarpatwari said those coupons can increase spending by reducing the use of generics. States could put disclaimers on coupons that would, among other things, say consumers would benefit in the long-term by using lower-cost products. But he said banning the coupons is probably not possible because of consumer needs.
• Trying to influence doctors’ prescribing decisions by making it harder for doctors to limit the use of generic substitutions for brand-name drugs, or providing ways for doctors to know what patients would have to pay for specific medications under their insurance plans.

Jenny Bryant, senior vice president for policy and research at the Pharmaceutical Research and Manufacturers of America, the industry trade group, cautioned that policymakers should be careful in any approach they take: getting it wrong could have huge implications for patients’ ability to access medications and for the ability of companies to develop drugs, she said. And she said there are other places to look for savings, including better management of chronic conditions such as heart failure and diabetes, and ensuring that patients take their medications as prescribed.

And Tom Brownlie, Pfizer’s director of U.S. policy, said the focus in discussions of prescription-drug spending should include drug utilization and underlying diseases, not just price.

Both Bryant and Brownlie pointed to insurance plan designs that include deductibles that require patients to pay a certain amount of money out-of-pocket before the plan will begin chipping in, or otherwise leave patients with a larger share of the bill, particularly for prescription drugs.

Brownlie pointed to legislation and regulation in other states, including caps on drug co-pays for people who meet their deductibles, which California, Delaware, Louisiana and Maryland have adopted; limits on the number of tiers health plans can use for drug prices; and capping the total amount people must spend on prescription drugs in a year. Brownlie said caps can be overly prescriptive, and praised the approach taken by Colorado and Montana, which require that some plans offered by each insurance company offer co-pays for drugs with no drug deductible; that ensures choice but doesn’t prescribe a solution, he said.

(In the past, officials at the Connecticut Insurance Department have noted that any moves to limit the cost-sharing that can be charged for drugs come with a tradeoff – higher premiums.)

Dr. William Handelman, a Torrington nephrologist and a cabinet member, offered another suggestion, modeled after a Maine program in which pharmacists visit doctors, go through their charts and show them how they could save money on prescription costs for their patients.