Vermont’s Pricing Transparency Law

VT Transparency Law

Vermont’s recent drug price transparency bill (S.216) gained heavy press coverage as the state tries to answer a question on the mind of patients and policymakers across the country: why do drug prices keep rising? The new law will empower the Attorney General to create a list of the state’s highest-expenditure products, then demand information from the producers of those products on any recent pricing changes. While the details of the law make it investigative rather than punitive, the implications for pharmaceutical manufacturers in terms of privacy, pricing, and the shifting nature of state healthcare markets could set up more challenges down the line.

The governor and state legislators have centered the bill around accountability, endeavoring to discover how manufacturers will explain the price increases. The General Assembly expounded their finding that, “in order to contain prescription drug costs, it is essential to understand the drivers of those costs,” setting up this bill as an illumination of an otherwise opaque process.

What Defines and What Explains ‘Large Price Increases’?

The details of the law fit this non-punitive theme. The authors even go so far as to affirm that, “nothing in this section shall be construed to restrict the legal ability of a…manufacturer to change prices.” State health agencies will identify up to 15 drugs that are consuming considerable state Medicaid expenditures that have also seen large increases in wholesale acquisition cost (WAC). The specified increase criteria are an aggregate rise of over 50 percent during the past five years, or 15 percent during the past year. The state Attorney General would receive this list of products, and then require manufacturers to provide a justification for the increase. This justification must be deemed understandable and appropriate, and contain factors such as the factors contributing to the increase, the percentage of increase attributable to each factor, and explanation of each factor’s role in the increase. Any failure to provide such information would result in a USD 10,000 penalty per missing factor.

By the end of the year, the Attorney General will then be responsible for reporting to the Vermont General Assembly on the information received. For competition and privacy reasons, information provided to the Attorney General will be exempt from public inspection, however this report and the list of drugs and their producers will be posted on the agency website. There is not clarification as to what may constitute understandable or appropriate justification, and the first round of products will be in uncharted territory for this first-in-the-nation law.

Mixed Stakeholder Reactions

Initial reactions to the law have been mixed across stakeholder groups. While some consumer-advocates have applauded the bill as the first step towards holding the pharmaceutical / biopharmaceutical industry accountable, trade group PhRMA filed public testimony that laid out some objections to the bill. The wholesale acquisition price used as a metric rarely reflects the price paid by an individual, as complex rebate and contract agreements reduce the prices by over 20 to 30 percent. They also suggested that the bill would drive up drug prices overall, rather than achieve its goal of cost containment.

CA’s Legislation Neutered, Then DOA

Beyond Vermont, many other states approve of the move to bring transparency to an area where national policy has remained relatively ineffectual. At least seven other states have similar bills at various phases in their legislatures (Massachusetts, New York, North Carolina, Oregon, Pennsylvania, Texas, and Virginia). California recently fell off this list, as its law (SB 1010) was withdrawn by its author on August 17th. It would have used a similar mechanism based on a threshold of price-increase (10% or USD 10,000 over a 12-month period); increases beyond this level would require manufacturers to report additional information. Companies would have had to notify state payer authorities and other officials of drug price increases or ‘expensive drug launches’ 60 days before they were planned to be implemented, with penalties for late notification. These price increases would similarly subject the manufacturer to explain the changes. Where the California bill goes further is in requiring health insurers, not just the state MEDICAID program MEDI-CAL, to report which drugs are generating the most expensive and frequent claims. The law sought to reach a better understanding of the impact of drug prices on the costs to consumers by requiring insurers to explain or estimate the impact of these expensive drugs on plan premiums.

The author, Sen. Ed Hernandez (D-West Covina), lamented that amendments made in the final round of Assembly Appropriations Committee review would have made it difficult for the bill to achieve its goal of, “shedding light on the reasons precipitating skyrocketing drug prices.” Such amendments included:

  • Removing the clause requiring manufacturers to provide a justification for a price increase,
  • Delaying the year that the bill goes into effect to 2018,
  • Raising the WAC price increase threshold from 10% to 25%,
  • Simplifying reporting, so that manufacturers report only to the Office of Statewide Health Planning & Development instead of to Senate / Assembly Committees,
  • Classifying information defined as ‘pricing information’ within the definitions of the law as confidential until any related price increase takes effect,
  • Limiting information requirements from manufacturers to information that is publicly available, and
  • Ensuring that the insurer-provided information remained aggregate, to avoid revealing information specific to an individual insurer.

Hernandez points to “Big Pharma’s avalanche of lobbying” as the source of these amendments, with over 100 firms, unions, and other stakeholders documented as lobbying either for or against the bill. The arguments made by these lobbyists are centered around the potential impacts of disclosure requirements on both patients and the competitive pharmaceutical environment. They predicted that distributors and other stakeholders could create medicine shortages by stockpiling products that were due for large price increases, as publicly announced through the new law. This could leave patients unable to access products that have been stockpiled by distributors out of their reach.

With regard to competition, a key component of lowering drug prices is the negotiation that occurs between pharmaceutical firms and health insurers, generating large rebates that dramatically lower costs faced by payers and consumers. By requiring the release of payer information on spending and prescription data, these private contract details would be in the public domain, making it more difficult for firms to negotiate agreements. The amendments above would likely address these concerns, by keeping sensitive pricing and insurer information protected.

Preparing for the Future

Monitoring Vermont and other states will be important to ensure manufacturers are best prepared to comply with this new legislation. Providing input and feedback to legislators will help ensure reasonable justification standards and privacy assurances are included in these bills. Understanding the motivations and technical evidence requirements will allow firms to identify where they need to generate greater evidence to justify pricing changes. If these laws begin to spread across the country, manufacturers will need to remain organised and attentive. They should look to make preventative investments to help further communicate the value of the product at the price point that has been set. Additionally, adding messaging around price increase rationale could become a standard aspect of a product’s value story for the USA. It will also be critical to maintain a centralised position on price increase rationale for each year, which could span from product related needs to organisational changes required to better support healthcare stakeholders using the product in question. Finally, it is worth noting that most global organisations must provide pricing rationale for access and maintenance of access in many countries outside the USA. Leveraging this existing effort and also ensuring consistency with the USA is critical to a brand’s global value positioning.