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States Step Up Efforts on Drug Pricing Initiatives

A few months ago, we noted that states were jumping into the drug pricing fray largely driven by a lack of federal action and a rising tide of public discontent. State legislation has taken various forms but most of the proposals reflect industry arguments that rising prices reflect rising R&D costs and would require pharmaceutical companies to either reveal their costs or explain their pricing.

Among the states where drug pricing legislation has been introduced, on June 2nd, Vermont became the first state to actually pass such legislation. The Vermont law requires drug companies to explain price increases on medications identified by state officials for which significant health care dollars are spent and where list prices rose by 50% or more over the previous five year period or 15% or more over a 12 month period.  For these identified medications, drug companies will be required to provide a report to the State Attorney General of “all factors that have contributed to a price increase” and “the role of each factor in contributing to the price increase.” The law does not just target drug companies. It also require health insurers to provide Vermont residents with information about how much they will pay out of pocket for their prescription drugs, and the law contains other price transparency provisions.

The Vermont law comes as other states are considering drug price legislation, including at the ballot box. The California voter initiative imposing a cap on drug prices, discussed in our previous post, is going on the ballot in November and recently gained support from presidential hopeful Bernie Sanders – a vocal drug price critic. In Ohio, a similar ballot initiative may be on the ballot in November, thanks to a court ruling last week denying motions to block the effort.

Although the California voter initiative is moving forward, the California Legislature has also introduced a bill aimed at promoting transparency by requiring drug companies to give prior notice to purchasers before raising prices and justifying those price hikes. Additionally, the California bill would require health insurers to report the proportion of premiums spent on prescription drugs.

Although analysts report that states’ efforts to fight skyrocketing drug costs pose a “modest risk” to drug companies, drug makers are stepping up their fight of such initiatives, which is largely seen in the industry as potentially sparking a national movement on pricing. Drug companies are also pushing back on the Vermont and other state legislation, warning that price transparency legislation will have the unintended effect of driving up drug prices.

As the drug pricing debate continues at the federal level – particularly in this election year – state legislative efforts and ballot initiatives, and their effect on the pharmaceutical industry, continue to be an area to watch.

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