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s prescription drug costs continue to squeeze state budgets, a group of state health policy makers is offering some novel — and also some familiar — suggestions for coping. These include regulating the pharmaceutical industry as a utility, allowing states to operate as pharmacy benefit managers and waiving some provisions of the Medicaid program.

In a paper released on Tuesday, the National Academy for State Health Policy also recommends that states pursue laws that require more transparency from drug makers. And the organization floated some timeworn proposals, such as importing medicines from Canada and prosecuting drug makers for violating consumer protection laws that protect against predatory pricing monopolies.

“States, as large drug purchasers, generally negotiate discounts against those high launch prices and against annual price increases, but they are powerless to change the trajectory of the industry pricing model,” according to a paper written by a working group of state legislative staffers, Medicaid programs, state-based insurance exchanges, corrections departments, and attorneys general staffs.

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The proposals come as rising drug costs have sparked outrage and become a talking point in the president campaign. The concern has extended to high prices for new drugs for hard-to-treat diseases, such as hepatitis C and cancer, to continual price hikes for some brand-name medicines and some generic drugs, which are traditionally lower-cost alternatives.

“The proposals in this paper require more dialogue, debate, development, and experimentation. These policy proposals may not be appropriate for all states or agencies, nor for every pharmaceutical product,” the working group wrote. “But states need to act and this paper presents a toolbox of options to consider.”

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There is no particular ranking of the 11 proposals made, but at the top of the list is transparency, an issue that has emerged in state legislation around the country. The bills would require drug makers to justify price hikes when prices rise above a certain threshold, or provide breakdowns of their various costs for certain medicines. Only Vermont, however, has passed such a bill into law.

The working group acknowledged the approach has limits: “It may be more useful for states to require pricing documentation, such as a manufacturer’s analyses of what the market will bear, given its current and anticipated product competition, for select high-priced drugs. Manufacturers will no doubt argue that this information is proprietary. However, launch prices are public, and how manufacturers arrive at these prices may be less proprietary than data on drug-specific spending for R&D or marketing.”

So how could states win transparency from drug makers? The working group suggests imposing confidential reporting requirements to obtain the net prices charged to state payers, such as Medicaid managed care plans; rebates offered to pharmacy benefits managers in the state; and savings passed on to other providers, such as hospitals, that participate in a federal program called 340B and receive drugs at discounts.

Perhaps one of the most contentious proposals, however, is to regulate the pharmaceutical industry as a public utility. The working groups suggests states could create a board to “review, approve, or adjust launch prices for all newly approved drugs, or drugs with list prices above a certain threshold,” as well as price hikes for any drug that exceeds a certain threshold. Open hearings could be held to review data submitted by drug makers and collect other publicly available information.

“Legally, states have considerable discretion to exercise their police power to protect consumers of essential goods and services in markets that do not operate well or rely on a monopoly supplier. Prescription drugs are an essential good; they are as necessary to quality of life — and life itself — as water and sanitation,” the working group writes in explaining its thinking.

There are limitations to this approach, as well, so you may want to read more in the report.

Meanwhile, the working group also discusses the idea of issuing certain types of waivers for Medicaid. For instance, waivers would allow states to opt out of the Medicaid rebate provisions while maintaining a drug benefit that is eligible for federal matching funds. “Under this approach, state Medicaid programs would no longer get the mandatory minimum or best-price rebates,” it said. “In exchange, a state’s Medicaid program could more easily join (other) state agencies or even other states to form a pharmacy benefit manager to run a formulary as commercial payers do.”

In fact, the working group also suggests that states consider becoming pharmacy benefit managers. “Becoming a strong purchaser is potentially a key to gaining leverage in the market. And a state, operating on behalf of its managed care contractors and other health vendors, could bring scale to innovative contracting that is difficult to achieve as a single-contractor,” it writes.

Before you continue, we have an update in the form of a statement from the Pharmaceutical Research & Manufacturers of America, the industry trade group. A spokeswoman wrote us to say that “many of the solutions proposed by the Work Group would harm patients and limit their access to life-saving treatments. We hope to begin a dialogue with the National Academy for State Health Policy on solutions that will help states better manage and predict costs while preserving patient access.

“Cost pressures on Medicaid – and states more broadly – are real and need to be addressed. At the same time, we need to look at these cost drivers holistically and ensure we maintain a health care system that supports patient access to treatments and fosters the development of tomorrow’s treatments and cures to address significant unmet medical needs.”

What else did the working group propose? States can create purchasing pools, although these do not necessarily affect pricing trends and negotiating leverage may be limited. The working group also suggests states achieve an acceptable return on investment and explore value assessments, such as those calculated by the Institute for Clinical and Economic Review, a nonprofit that has irked drug makers.

Yet another suggestion is forward financing strategy, in which risk is removed — a price is negotiated up front, and payment to the drug maker is delayed until a future date. In return, drug makers would gain either market share, market access, or seek to benefit from upside risk. And another proposal involves bulk purchasing in which states could act individually or together.

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  • Electricity became a utility b/c it was deemed necessary for humanity are pharmaceutical drugs any less a necessity for humanity?

    • Careful what you wish for. The Rural Electrification Act under Roosevelt created the Tennessee Valley Authority to bring cheap electricity to the southeast. Under TVA electric rates have become among the most expensive in the country.

    • Of course, make it like the sewer and water company.
      Call 1-800-BAD-DRUG
      “Your hold time is three weeks”.

    • b/c the doctor/patient relationship is the essence of good medicine. TVA rates are so high b/’c the commission that regulates them is not doing its job.

  • Ed, if we are intellectually honest we have to accept the ultimate reality that the United States will have a single payer system in a few years and these proposals will become academic.

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