States Making Progress Toward Setting Payment Limits for Some Drugs

As drug prices continue to rise, some states are fighting back through the use of prescription drug affordability boards (PDABs), which usually set limits on how much some patients will have to pay for medications.

PDABs were the brainchild of Jennifer Reck and colleagues at the National Academy of State Health Policy (NASHP), which started working on the issue in 2016. “We were hearing from states that were really getting crushed by drug prices, and they needed the tools and resources to do something about them,” Reck, who is project director of NASHP’s Center for State Prescription Drug Pricing, said in a phone interview. “We convened a workgroup of state officials to dive into this topic, and the idea of a PDAB was one of the initial policy recommendations coming out of this.”

Using Rate-Setting as a Tool

The idea behind the PDAB was that “rate-setting is something that’s a common state activity, and looking to something like a public utility commission as an example, the state could create PDABs to review drug prices — not to set prices, which would be a violation of federal law — but instead to leverage the states’ rate-setting authority to set upper payment limits (UPLs),” she explained. Importantly, the UPLs apply only to in-state transactions; anything broader would run afoul of the Commerce Clause in the U.S. Constitution, which bars one state from regulating what goes on in other states.

So far, eight states have implemented PDABs: Maryland, Maine, New Hampshire, Oregon, Ohio, Colorado, Washington, and Minnesota, according to Kate Sikora, MBA, associate principal at the consulting firm Avalere, in Washington D.C. Legislators in Michigan recently introduced a bill that would establish a PDAB in that state, she said in a phone interview.

Not surprisingly, each state’s PDAB varies in its authority, Sikora continued: in Maryland, any UPL would apply only to patients and payers in state-run health plans such as state employee plans and Medicaid, whereas in Colorado, the UPL generally applies to any plan governed by the state, including those in its state health insurance exchange.

In fact, the statutory language regarding to whom Colorado’s UPL applies “is quite broad,” Lila Cummings, the director of Colorado’s PDAB, said during an online interview at which a public relations person was present. “I think it just says ‘all purchasers.'” Health plans for Colorado’s self-insured companies — those governed by the federal Employee Retirement Income Security Act (ERISA) — have the option of participating in the UPL for their beneficiaries, but they are not required to, Cummings said.

There are other differences among states too, Sikora said; for example, not all states are setting upper payment limits. “In New Hampshire, the PDAB is just for making recommendations to the state on how to lower drug price costs.”

One interesting element of Minnesota’s PDAB law, Reck noted, relates to the drug price negotiation program that Medicare is currently implementing. “The statute says that when setting a UPL for drugs that are subject to the Medicare rule, the board shall set the UPL at the Medicare Maximum Fair Price,” she said. “They’re not necessarily limiting their work to the drugs that Medicare is negotiating, but they’re saying that if there’s an overlap, they will use that as the UPL.” Sikora agreed that “watching Minnesota will be interesting next year” and added, “I think probably other states will do similar things because it involves a lot less work for the state.”

Colorado’s Rapid Progress

Observers generally agree that the state furthest along on the PDAB path is Colorado; its PDAB was created through legislation passed by the state’s General Assembly in 2021. Gov. Jared Polis (D) “appointed the first five members to the board in September 2021,” and the board and staff spent about 18 months setting up the program, including appointing a 15-person advisory council — made up of various members of the drug supply chain, including manufacturers, wholesalers, patients, and providers — to give the board advice, Cummings said.

In August, the PDAB officially approved an inaugural list of five drugs to be subject to “affordability reviews” for possible UPLs: etanercept (Enbrel); elvitegravir/cobicistat/emtricitabine/tenofovir (Genvoya); secukinumab (Cosentyx); ustekinumab (Stelara); and elexacaftor/tezacaftor/ivacaftor (Trikafta). Some of the 14 criteria to be considered as part of the affordability review include:

• Input from patients and caregivers
• Health equity impact
• Current wholesale acquisition cost and changes in that cost
• Impact on safety net providers
• Orphan drug status
• Input from individuals with scientific or medical training
• Patient copays and other cost-sharing information
• Price effect on consumer access
• Rebates, discounts, and price concessions

The first review draft is expected out in a couple of weeks, Cummings said.

Why is Colorado so far along? Kate Harris, chief deputy commissioner for life and health policy at the Colorado Division of Insurance, attributes the relatively rapid pace to the requirements of the law. “We implement the statute the legislature passed with the timelines they passed it in, and where there is flexibility, we work at the pace of the board,” she said during the online interview that also included Cummings.

Hope Stonner, policy manager at the Colorado Consumer Health Initiative, a consumer group, seemed pleased with the PDAB’s progress. “What we’ve seen with the board is really encouraging,” said Stonner, whose organization helped get the law passed. “They have had to build this complicated entity from scratch, and it has been very encouraging to see the communal effort and the amount of public input the board has been receptive to.”

Maryland Also Moving Along

Maryland is another state that’s considered to be making good progress. “Our PDAB was created in 2019; it’s an independent agency with five members who are supported by a 26-member stakeholder council that represents different groups on the supply chain,” said Andrew York, PharmD, JD, executive director of the Maryland PDAB, during a phone interview. “The main work we do is cost reviews and setting UPLs.” York said he wouldn’t be surprised to see three to five drugs in the board’s first round of cost reviews, with the first set of reviews starting in the beginning of 2024 and finishing up by mid-year.

PDABs can learn a few things from the Medicare drug price negotiation program, York said. “The entire purpose of the Inflation Reduction Act [which included the Medicare price negotiation program] seems to be to save money because they are required to select qualifying drugs based on their highest overall spend, which is a very good idea. However, what PDABs can do is bring more nuance to the conversation, because they can consider other factors.” Although the list of drugs that have, for example, abused their market exclusivity may be similar for states as well as Medicare, “PDABs have the flexibility to look at additional drugs and try to be more nuanced in their assessments,” he said.

One of the Maryland PDAB’s members is Stephen Rockower, MD, a retired orthopedic surgeon from Bethesda, Maryland. “One of the things that drives physicians nuts is prescribing a medication and then having patients come back a month later or 2 months later and saying they didn’t take it because they couldn’t afford it,” Rockower, former president of MedChi, the Maryland State Medical Society, said in a phone interview. “We are in this business to take care of people, and if there are barriers that prevent them from doing the things that we asked them to do, then we’ve got to work to try to lower the barriers.”

The PDAB’s work also will affect physicians “because some of our physicians are actually dispensing medicines as well, like the rheumatologist who dispenses anti-inflammatory drugs” in their office, Rockower said. But even though setting a UPL may reduce the amount physicians can bill for the drugs they dispense, he said he didn’t think they would be adversely affected because their acquisition cost would also likely drop.

“I think what would happen is if the upper payment limit is set at a certain spot for … the patient, the price that the manufacturers or the PBM [pharmacy benefit manager] set will similarly go down,” he said. “So the physician who is sort of acting as a pharmacist, so to speak, will not get hurt by that.”