With Proposal to Cap Drug Price Increases, Massachusetts Once Again Takes Center Stage in the Drug Pricing Debate

On March 17, the same day we wrote about proposed legislation in Connecticut to cap drug price increases, Governor Charlie Baker of Massachusetts included the same proposal in his proposed finances.  Related to the Connecticut laws, the Massachusetts invoice (S. 2774) would penalize producers for rising the value of any medicine above its reference value, adjusted for inflation utilizing the Shopper Price Index, plus 2%.  Producers that exceed this threshold would have to pay a penalty equal to 80% of the quantity above the extreme value enhance threshold – that means the producer would basically solely gather 20% of the income for a drug above the value cap.  Like the Connecticut invoice, the reference value is predicated on a drug’s Wholesale Acquisition Value (WAC), which is actually the record value set by producers for a prescription drug earlier than any negotiations or discounting.

As famous in that prior publish, in the absence of any significant federal motion on drug pricing, states have develop into the major discussion board for legislative motion to handle excessive drug costs in the U.S.  Whereas most enacted measures to date have targeted on regulation of pharmacy profit managers (PBMs) and rising transparency, direct measures, equivalent to imposing precise caps on drug value will increase, have solely lately begun to enter the dialog in the industrial market. (For what it’s price, the Massachusetts invoice additionally comprises provisions to impose annual reporting necessities to PBMs associated to costs negotiated with payors, funds between PBMs and pharmacies, and producer rebates).  Related value cap payments in Hawaii and Washington that have been proposed final yr have been reintroduced and carried over to every state’s present 2022 legislative classes, that means there are actually 4 such payments pending throughout the U.S.

Whereas the Massachusetts invoice shouldn’t be totally shocking – Governor Baker launched the same proposal final yr – there are a number of the reason why producers and different trade stakeholders are probably paying shut consideration.  For one, Massachusetts is bigger and rather more influential in phrases of state coverage than Connecticut, in explicit when it comes to well being care reform. The Inexpensive Care Act (2010) was in fact closely modelled after a 2006 well being care reform regulation in Massachusetts, which was itself ushered and in the end signed by a reasonable Republican governor who had success negotiating with a Democratic legislature. 

If S. 2774 have been to develop into regulation, the prospect of corresponding federal laws being handed would enhance considerably.  With respect to Medicare drug costs, Congress has already begun to earnestly debate the use of inflation caps. For instance, two extraordinarily comparable payments – S. 2543 (2019), which was launched by Sen. Chuck Grassley (R-IA), and H.R. 3 (20192021[1]), which was launched by Rep. Frank Pallone Jr. (D-NJ) and which managed to move the Home in 2020 – would have imposed inflation-based rebates on Medicare Elements B and D medicine. And Medicaid has imposed inflation rebates for almost 30 years, although a corresponding cap on the total drug rebates manufacturers have to pay has limited the effectiveness of the inflation caps. Nonetheless, the concept of inflation caps for medicine in the industrial market is comparatively new floor.

By itself, S. 2774 could be unlikely to have a major impact on producers – influential or not, Massachusetts is one state, and isn’t even one in all the prime 15 in phrases of inhabitants.  Nonetheless, as famous above, it may simply function a bellwether for different states, and finally Congress, to start critically contemplating such measures in the industrial market. Cognizant of the dangers concerned, which many producers will probably argue are existential, the pharmaceutical trade has already begun to loudly express its opposition to the Massachusetts bill.  The producer trade commerce group, Pharmaceutical Producers of America (PhRMA),  reportedly took out a full-page ad in the Boston Globe a couple of weeks ago, and one would count on that PhRMA and its members are going to throw a substantial quantity of assets to undermine the laws. 

As famous in the prior publish, regardless of all the noise in opposition and help for such measures, proposals like the Massachusetts and Connecticut payments will probably have a way more restricted affect than both the invoice’s supporters or detractors would admit. For one, there’s the incontrovertible fact that the reference value is tied to WAC, which is actually the record value set by the producers, quite than to say Common Producer Price (AMP), which is the common value by wholesalers for drug to the retail class of commerce internet of customary immediate pay reductions. The problem shouldn’t be essentially that WAC is a ineffective baseline – most pharmacies purchase drugs at WAC, negotiated for a purchase discount (i.e. WAC – 1%).  Nonetheless, utilizing AMP, given it takes into consideration some (however not all) value concessions would imply the reference value was decrease, and a few would argue extra correct.  Notably, the refined distinction between H.R. 3 (launched by a Democrat) and S. 2543 (launched by a Republican) was that the former used AMP as the reference value for Half D medicine whereas the latter used WAC, which is in some ways emblematic of the incontrovertible fact that WAC seems to be a barely extra conservative and measured strategy to value caps.  AMP can also be the measure used to set rebates in Medicaid, which of course has much lower drug prices than Medicare

Nonetheless, it’s vital not to overstate the important of 1 measure over one other when there’s a bigger limitation on these value cap proposals.  Particularly, capping the enhance in baseline costs for medicine, it doesn’t matter what measure or discussion board, will arguably have a limited impact on affordability if the baseline drug prices are already extremely high to begin with. The truth that it’s seen as radical to restrict the annual enhance in the record value of medication, given the incontrovertible fact that each the prices of and spending on drugs is already significantly higher than in other post-industrial countries, is a sign that the framework of the dialog continues to be on pharmaceutical producer’s phrases. 


[1] The invoice was preliminary launched in 2019, however was reintroduced in 2021.

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