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Issue Brief: State Drug Pricing

Over the past few years, drug prices have skyrocketed to the point that healthcare providers and patients must make difficult choices regarding their healthcare. On May 11, 2018, President Trump released his drug pricing blueprint, and Congress is looking at many different legislative solutions. It is the states, however, that have been the most proactive on this issue, with more than 100 bills introduced this year alone. In June 2016, Vermont became the first state to pass a law on drug transparency. California followed suit soon after, passing its drug transparency law in 2017.

Ballot Initiatives

States have also tried to address drug pricing through ballot initiatives. In 2016, California included a ballot proposition to limit state health programs from paying more for medications than the U.S. Department of Veterans Affairs (VA), which receives the steepest discounts in the country. The drug lobby was responsible for 85% of the $125 million that was funneled into swaying public opinion in California. Ultimately the proposition was defeated 54% to 46% on the November 2016 ballot. Last year, Ohio introduced a nearly identical ballot initiative that was soundly defeated 79% to 21%. In November 2018, South Dakota will vote on a similar ballot initiative.

Drug Pricing Litigation

In 2017, both Maryland and Nevada passed drug pricing laws. Maryland’s law focuses on generic drug price-gouging, while Nevada’s law focuses on the price of diabetes drugs. Both laws were challenged in court by drug companies. In April 2018, a federal appeals court ruled that Maryland’s generic drug price gouging law is unconstitutional. In the majority opinion, the court found that the law violated the Constitution’s bar against states interfering with interstate commerce. More recently, Nevada’s diabetes drug lawsuit has been dropped by the complainants. Dropping the lawsuit, however, may have been a maneuver to allow manufacturers and pharmacy benefit managers (PBMs) to sue to block release of their drug pricing information under the Defend Trade Secrets Act.

Types of Drug Pricing Legislation

Over the past three years, states have introduced different types of legislation to address this issue. Below are examples of the seven categories that state legislation can take in regard to drug pricing. Click on the link to view the text of the state’s legislation.

  • Importation — Allows state-run, wholesale operation (i.e., not personal importation) to import drugs from Canada. However, even if an importation bill is passed, it cannot be implemented without HHS/FDA signoff because the FDA is responsible for the nation’s drug supply chain. (9 states have introduced importation legislation as of 7/15/2018)
    Vermont Law
    Louisiana Bill
    Missouri Bill

  • Pharmacy Benefit Managers (PBMs) — Regulates PBMs, outlaws gag clauses, and mandates more transparency about PBM business relationships. (34 states have introduced PBM legislation as of 7/15/2018)
    Colorado Law
    South Carolina Law
    Virginia Law

  • Price Gouging — Enables states to take legal action against drug companies that dramatically increase prices. Maryland’s generic drug law was in the price-gouging category and was struck down by the courts. (12 states have introduced price gouging legislation as of 7/15/2018)
    New Jersey Bill
    Minnesota Bill
    Louisiana Bill

  • Rate Setting — Creates commission to establish statewide limits on high-priced drugs. (3 states have introduced rate setting legislation as of 7/15/2018)
    Oklahoma Bill
    Minnesota Bill
    Virginia Bill

  • Study — Creates task force or commission to find solutions to drug pricing issue. (5 states have introduced study legislation as of 7/15/2018)
    Idaho Bill
    Indiana Bill
    New Hampshire Law

  • Transparency — Requires drug companies to report reasoning behind extraordinary drug price increases. (17 states have introduced drug transparency legislation as of 7/15/2018)
    California Law
    Oregon Law
    Vermont Law

  • Volume Purchasing — Allows state agencies to explore different drug purchasing and negotiating methods to achieve more cost savings. (4 states have introduced volume purchasing legislation as of 7/15/2018)
    Oregon Bill
    New Mexico Bill
    Florida Bill

States will continue to introduce legislation that addresses the problem of escalating drug prices until a suitable solution is found or until Congress takes decisive action and passes sweeping legislation that preempts state authority.

The National Conference of State Legislatures (NCSL) offers some helpful tools you can use to track and analyze drug pricing legislation:

If you have questions about this issue, please contact Nicholas Gentile at [email protected].