Last week, in a speech with President Donald Trump at Manchester Community College in New Hampshire, newly appointed Health and Human Services Secretary Alex Azar declared that one of his priorities is to lower drug prices. He said he would roll out “a whole slate of” proposals for doing so in about a month. Azar didn’t elaborate, but in an address to the Federation of American Hospitals earlier this month, he did say that that a crucial piece of addressing high drug costs would be to force pharmaceutical companies to be more transparent about their pricing practices.
“In both healthcare services and pharmaceuticals, the huge gaps between the list price and the actual price are notorious. It’s like the gap between the $500 rack rate on the back of the door in your Hampton Inn room and the $100 you actually pay,” Azar said at the hospital confab. If drug companies don’t answer his call to be more honest about how they set drug prices—and why they raise them when they do—"we have plenty of levers to pull that would help drive this change,” he added.
Skeptics will say that the Big Pharma lobby will counteract any federal efforts to hold down drug prices, but some states aren’t waiting around to see who wins that battle. Legislators in more than 30 states proposed bills on drug pricing in 2017.
Two weeks ago, Oregon became the latest state to pass a law on drug-price transparency. The legislation mandates that when the price of a drug is $100 or more for a one-month or shorter supply, and there is a net price increase of 10% or more, the maker of that product must report the factors that contributed to the price increase, the research costs associated with the drug, and what it costs to manufacture and distribute it.
“This bill brings greater transparency around drug pricing, an important step towards making life-saving and essential drugs more available and affordable,” Oregon Governor Kate Brown said in a statement from Oregonians for Affordable Drug Prices Now, the group that pushed for the legislation.
The law also requires insurance companies to disclose information on the 25 most expensive drugs they cover and how the costs of those products affect premiums. And Oregon’s Department of Consumer and Business Services will post a list of drugs that have undergone large price hikes.
Similar laws have been passed in Vermont, Maryland, Louisiana, North Carolina and Nevada, each with its own wrinkles. For example, the Nevada law pertains only to some diabetes drugs, requiring insulin manufacturers to provide explanations for any price increases. Vermont, one of the first states to pass a transparency law, calls out up to 15 drugs annually for which the wholesale price has risen 50% or more over the previous five years or 15% or more over the previous year.
Last year’s Vermont drug price hall of shame, published in late February, included 10 medicines. Amgen’s blockbuster Enbrel to treat autoimmune diseases saw an 88% price increase over five years and a 19% rise over one year, costing the state $2.4 million, the Attorney General’s office reported. Mylan’s infamous EpiPen allergy shot was also on the list, for its 153% price increase over five years. Shire, Novartis and Pfizer all made the list, as did AbbVie for the world’s top-selling drug, Humira to treat autoimmune diseases. Humira’s price rose 103% over five years, costing the state $5 million.
But what impact does publishing all this information actually have on drug pricing? After California passed a drug-price transparency bill in October, lawyer and Merck veteran Ian Spatz published a scathing editorial in the journal Health Affairs pointing out several shortcomings of the law. For example, the legislation requires drugmakers to provide 60 days advance notice when they are planning to increase a product’s price to the point where the total price hike for the previous three years would amount to 16% or more.
“And what could customers learn from and do with this information?” wrote Spatz, who is now an advisor for the national health care practice of Manatt, Phelps & Phillips. “The bill’s sponsors and supporters assert that this advance price increase notice requirement could aid purchasers or possibly lead to a scaling back of price increases. What is unclear is how this might happen.”
Some states have moved beyond transparency and attempted to actually limit price increases. In Maryland, the attorney general can petition the circuit court to punish a manufacturer that raises the price of a generic drug 50% or more in a year by fining the company and returning funds to patients and payers. New York recently passed a law that allows Medicaid to negotiate rebates on particular drugs if the state’s spending on pharmaceuticals exceeds predetermined targets.
But even those efforts have limitations, noted a team of public health experts and lawyers at Yale University, which published a primer for state legislators weighing drug-price laws last summer. “These bills are very significant: they represent path-breaking efforts to address drug prices, and show that such laws can be enacted at the state level,” the authors wrote. “But they are also limited—Maryland by its focus on generic drug price increases and lack of public disclosure of information collected by the Attorney General, and New York by its limitation to Medicaid.”
The Yale scholars concluded their report by recommending that legislation in this area cover the prices of both branded and generic drugs, and they urged lawmakers to constrain price increases rather than just publish information about them.
Pharmaceutical company executives will no doubt be keeping a close eye on Washington to see what might be coming on a federal level. Congressional efforts to legislate drug prices have so far stalled.
FDA Commissioner Scott Gottlieb is trying to exert an indirect effect on high drug prices by helping generic drugmakers get inexpensive versions of branded drugs to market more quickly. On Wednesday, speaking at CNBC’s Healthy Returns conference in New York, Gottlieb noted that manufacturers of branded drugs often try to prevent generics makers from accessing samples of those products, which they need as references for developing generic versions. Pharmacy benefits managers and distributors often join in on the efforts to block generic competition, he added. “There are things that we can do to try to make it easier for the generic companies to end that kind of gaming, and we've taken steps to do that,” he said.
President Donald Trump thanked Gottlieb for his efforts during the recent speech at Manchester Community College. But more direct pressure on pharma companies to lower prices, he said, will come soon from Azar, who he called “one of the great professionals,” alluding to the HHS Secretary’s tenure at Eli Lilly.
“You’ll be seeing drug prices falling very substantially in the not-too-distant future,” Trump promised, “and it’s going to be beautiful.”
