State Policies To Address Prescription Drug Affordability Across the Supply Chain

State policymakers are prioritizing prescription drug affordability as unsustainably high prescription drug prices threaten consumers’ access to care. In 2020, the United States spent $348.4 billion, or $1,126 per capita, on prescription drugs. With 62 percent of adults in the United States reporting that they take at least one prescription medication in 2021 and 29 percent, or almost 3 in 10, adults reporting not taking their medication as prescribed due to cost, state legislators are actively exploring policy options to lower pharmaceutical costs and improve affordability and access for their residents.

State interventions to lower prescription drug costs must take into account the complexity of the prescription drug supply chain and the various stakeholders that comprise it, including manufacturers, wholesalers, insurers, pharmacy benefit managers (PBMs), pharmacies, prescribers, and patients. The relationships, interactions, and payment flow among these entities have pricing and cost implications, and effective reform will require states to address cost drivers across the supply chain.

This column explores the range of policy options that states have to improve prescription drug affordability, including enacting drug pricing transparency laws, joining multistate purchasing groups, and using their regulatory powers over PBMs and health insurers to protect patients from high out-of-pocket drug costs.

Create drug price transparency programs

These programs provide actionable data to inform future state policy intervention and bolster accountability. Fourteen states have enacted prescription drug transparency laws requiring entities across the drug supply chain to report pricing information to state officials. While data submission requirements vary by jurisdiction, common reporting elements include manufacturer justification and advance notice-of-price increases, annual issuer reporting of the 25 most frequently prescribed drugs, and annual PBM reporting of aggregate rebate amounts. Transparency around these data provides the infrastructure and information for states to take future cost containment action.

For example, Oregon’s Prescription Drug Price Transparency Program, which launched in 2018, allows the state to analyze and report on the overall impact of drug costs, rebates, and other discounts on health care premiums in the commercial market. The program requires Oregon drug manufacturers to submit a new-drug report to the program within 30 days of introducing a drug with a list price of $670 or more for a 30-day supply. It also requires manufacturers to annually submit a price increase report before a planned price increase of 10 percent or more for drugs priced at $100 or more. Oregon noted in its 2021 report on the program a 12 percent decrease in the number of price increase reports compared with 2020 and a 73 percent decrease compared with 2018, indicating that drug manufacturers may be shifting away from larger annual prices increases and pivoting to smaller increases throughout the year. Awareness of this potential shift in practice can inform future regulatory action in the state. For example, to improve manufacturer accountability and close such loopholes, Oregon intends to further refine the threshold for annual reporting moving forward to include an “increase or series of increases in the price of the drug.”

Enact stricter oversight legislation and regulation of PBMs

As the intermediary that negotiates pricing between manufacturers and plan sponsors such as employers, health plans, labor unions; processes prescription drug claims for health plans; and administers rebates to consumers, pharmacy benefit managers are a cornerstone in the drug supply chain. PBMs have historically practiced spread pricing, where they retain the difference between the payment received from the plan sponsor and the reimbursement amount paid to the pharmacy as profit. To limit spread pricing and achieve cost savings, 12 states have passed PBM oversight legislation, and other states, including New Jersey and Hawaii, have introduced bills to curb spread pricing. In Ohio, after state officials discovered that PBMs had retained $224 million via spread pricing in Medicaid from 2017 to 2018, the state mandated that managed care contracts require pass-through payments, which return drug discounts and rebates to the managed care plans. Wisconsin implemented similar pass-through payment requirements with its state employee health plan, saving 10 percent more per month on drug costs compared with industry averages from 2016 to 2018. After enacting pharmacy reform in 2022, New York estimates that the elimination of spread pricing for Medicaid managed care organizations will save taxpayers more than $43 million.

Join interstate drug purchasing pools to maximize purchasing power

State governments are major purchasers of prescription drugs through Medicaid and state health benefit plans. Through multistate drug purchasing pools, states can consolidate their purchasing power and leverage volume to lower prescription drug costs and achieve savings by negotiating more favorable supplemental rebates from pharmaceutical companies, as the Center for American Progress indicated in a 2021 report. States engaged in one of the Medicaid purchasing pools save between 3 percent and 5 percent on prescription drugs.

As of 2019, 31 states participate in one of three interstate Medicaid purchasing programs: the National Medicaid Pooling Initiative, the Top Dollar Program, and the Sovereign States Drug Consortium. In addition to the Medicaid purchasing pools, the Minnesota Multistate Contracting Alliance for Pharmacy is a national cooperative of 13,000 members, including non-Medicaid state and local government agencies. The Northwest Prescription Drug Consortium, an interstate agreement between Oregon, Washington, and Nevada, has delivered $99.4 million in pharmacy benefit savings from 2016 to 2019 by providing pharmacy management and discount programs to its 1.3 million members.

Cap consumer prescription out-of-pocket costs

In addition to this column’s other policy options mainly aimed at reducing costs for state budgets and payers, policymakers should consider limiting consumer out-of-pocket costs for prescription drugs—including copayments, coinsurance, and deductibles—to alleviate the financial burden on individuals who are struggling to afford the steadily rising costs of medication, thereby improving affordability and access. Strategies such as copay caps help lower the cost for many individuals. More than 20 states have implemented copay caps for specific prescription drugs. For example, Colorado, Illinois, Maine, and West Virginia have laws capping cost sharing for insulin, and Delaware, Maryland, and California have implemented monthly copay caps on specialty drugs. If legislation proposed during New Jersey’s 2022 legislative session passes, the state will become the first in the nation to cap cost sharing for insulin to $35 per 30-day supply, epinephrine auto-injector devices to $25 per 30-day supply, and prescription asthma inhalers to $50 per 30-day supply. To maximize the impact of out-of-pocket caps, states should apply the coverage standard to both state-sponsored health plans and the commercial market.

Conclusion

High prescription drug costs increase the financial burden on state governments and their residents, adversely affecting health outcomes and constricting government financial resources for other priorities. State policymakers should take a holistic approach to drug affordability policy by enacting interventions that improve transparency and oversight across the drug supply chain while also providing more immediate consumer relief.