The former controversy was over the drug Harvoni, first released by Gilead Sciences in 2014. Harvoni can completely cure many people of the most common type of hepatitis C (and with few side effects), resulting in its being hailed by the medical community as a major breakthrough. However, the patient cost of this "miracle drug"—$94,500 for a 12-week treatment—elicited a firestorm of condemnation. By late 2014, both Democrats and Republicans on the U.S. Senate Finance Committee were demanding detailed cost data on Harvoni from Gilead Sciences because the new drug was already placing an additional strain on the budgets of state and federal health care assistance programs.
The latter controversy was over Turing Pharmaceutical's marketing of Daraprim, a medication used to treat protozoal infections in AIDS and cancer patients. Daraprim is on the World Health Organization's List of Essential Medicines. In the summer of 2015, Turing announced that the drug's price would rise from $13.50 to $750 per tablet—a 5,500% increase.
Public and employer concern / A recent national survey shows that the average American consumer is alarmed at these skyrocketing prescription and brand-name pharmaceutical prices. Just over three-fourths of those surveyed believe that brand-name prescription drug prices are unreasonably high today, including 80% of Democrats and 70% of Republicans. Although media attention has focused on a small number of very high-priced medicines to treat debilitating diseases, a majority of survey respondents report greater concern for future rising prices for more routine brand-name drugs. This concern is fueling support for major governmental action to negotiate or set future drug prices.
American consumers aren't alone in their concern about rising drug prices; so are their employers. Willis Towers Watson, a leading global workforce advisory firm, surveyed employers about their top health coverage concerns heading into the 2017 open enrollment season. The firm found that nearly nine in 10 employers identified managing prescription drug expenses—especially for specialty drugs—as their top priority.
State action / According to Aaron Kesselheim, an associate professor of Medicine at Harvard Medical School, transparency initiatives may be more palatable than tackling price caps or patent protection. "Who could be opposed to transparency?" asked Kesselheim rhetorically, speaking at a March 2017 American Medical Association advocacy conference. "To the extent that all of them are difficult hills to climb, that one might be easier because we're not changing anything, we just want things to be more open. So that seems more doable in the short term."
According to the National Conference of State Legislatures (NCSL), at least 14 states considered legislation involving prescription drug manufacturer price transparency in their 2015–2016 legislative sessions. In essence, such legislation would require drug makers to report and justify price increases that lawmakers consider questionably large. The NCSL also found that eight states considered bills that would place drug pricing transparency requirements on health insurers, with Arkansas, South Dakota, and Texas adopting such legislation. Ten states and Puerto Rico considered legislation requiring pharmacy benefit managers (PBMs)—third-party administrators of prescription drug programs—to provide price transparency, with Delaware and Maine signing those bills into law.
The NCSL reports that 15 states have legislation pending related to drug price transparency as of early March of this year. One such state is Maryland, which has two bills, one to require drug manufacturers to explain price hikes, and a second to allow legal action for excessive price increases.
Vermont / The first state to implement drug price transparency legislation was Vermont in June of 2016. "This bill is about accountability," explained Gov. Peter Shumlin of the enacting legislation. He continued:
The reality is that we have pharmaceutical companies raising prices on lifesaving drugs 5,000%. When asked about those outrageous increases, CEOs are literally laughing in front of Congress. That needs to change.
Under the legislation, the Green Mountain Care Board—a Vermont health care regulator—works in conjunction with the Department of Vermont Health Access to develop an annual list of either (1) the 15 drugs for which "significant health care dollars are spent and where list (i.e., 'wholesale acquisition cost') prices rose by 50 percent or more over the previous five-year period," or (2) 15 medicines whose list prices rose 15% or more over a 12-month period for the state's Medicaid program. Also, the 15 drugs identified by these agencies must represent different drug classes. The Green Mountain Care Board then provides the state attorney general the compiled list, including the percentage of the wholesale acquisition cost increase for each drug. The drug cost information is made publicly available on the Green Mountain Care Board's website.
Under the law, pharmaceutical manufacturers need to disclose "all the factors that have contributed to a price increase," including detailed cost breakdowns, and justify the increases to the attorney general in a format that is "understandable and appropriate." The attorney general can seek injunctive relief, costs, and attorney fees if these companies decline to provide the requested information, where each civil violation carries a $10,000 civil penalty.
Congress Acts? / On September 14, 2016, a bipartisan bill, the Fair Accountability and Innovative Research (FAIR) Drug Pricing Act, was introduced in Congress by cosponsors Sen. John McCain (R-Ariz.) and Sen. Tammy Baldwin (D-Wisc.) in the Senate, and by Rep. Jan Schakowsky (D-Ill.) in the House. This legislation was not enacted in the 114th Congress, and has yet to be re-introduced in the 115th Congress.
Under the legislation, drug manufacturers would have been required to report in advance to the U.S. Department of Health and Human Services (HHS) a price increase of more than 10% over a 12-month period for certain drugs. As part of their reports, the manufacturers would have had to provide a justification for each price increase, manufacturing and research and development costs for the qualifying drug, net profits attributable to the drug, marketing and advertising spending on the qualifying drug, and other information as deemed appropriate.
The bill would not have prohibited manufacturers from increasing prices, but it would have given taxpayers notice of price increases and would have brought a basic level of transparency to the market for prescription drugs. The HHS would have made the information from these reports (excluding any proprietary and confidential information) publicly available in an understandable online format within 30 days. Moreover, the HHS would have been required to submit an annual report to Congress summarizing the information and reports submitted by drug manufacturers.
In a June 15, 2016 Stat News article, an unnamed spokeswoman for the Pharmaceutical Research & Manufacturers Association, the drug industry's trade association, said that the FAIR Drug Pricing Act "will not benefit patients" or provide information that they could use. "Instead it focuses on isolating research and development costs for the few medicines that make it to patients in a thinly veiled attempt to build a case for government price setting," the spokeswoman argued. Moreover, she maintained that drug manufacturers already disclose "extensive information" about R&D costs, "a wealth of information about effectiveness and safety" before clinical research that is published on public websites, and "aggregated information about negotiated and required rebates is included in company financial filings."
Will greater transparency work? /Returning to Vermont, the state has been a bellwether for legislation addressing alleged "excesses" of the pharmaceutical industry. The recent legislation continues that trend. It will most likely capture popular generic drugs (and increase compliance costs for those companies) among the state's list of the top 15 drugs, because it focuses on percentage price increases where this category of pharmaceutical has a low list price. Conversely, because the legislation focuses on price increases, Vermont's legislation will not capture newly introduced drugs initially offered to the public at seemingly exorbitant prices. Yet, the new legislation will provide information for the state's Medicaid program and the Green Mountain Care Board will have to decide whether the state will pay for certain drugs.
A December 2016 report issued by the Vermont attorney general's office identified 10 drugs of concern. While manufacturers were asked to submit explanations of all factors that contributed to price increases and estimate percentages attributable to each factor, none of those specific answers are explained in the report. Rather it merely summarizes some of the reasons given, including the industry's need to invest in research and development. As required in the state's legislation, the law has a confidentiality provision that does not allow for companies' written responses to be made publicly available. Thus, the efficacy of this transparency legislation is being called into question by many of the legislation's original critics.
An issue with many of the proposed state bills is that they offer percentage thresholds in annual (or multi-year) price increases that must be exceeded before a drug manufacturer is required to justify its cost to a state government's satisfaction. These percentage thresholds will offer visible targets for pharmaceutical manufacturers to consider when making their pricing decisions. While providing an annual price increase ceiling for some pharmaceutical manufacturers who do not want to make a state's list, these laws could perversely entice other drug manufacturers to raise prices yearly rather than risk one large (and reportable) increase in the future. Also, if other states pass legislation similar to Vermont, the lowest percentage price increase will likely establish a national threshold for pharmacy manufacturers concerned with such transparency legislation—unless the FAIR Drug Pricing Act is re-introduced and enacted in the 115th Congress, which would result in a 10% annual ceiling. The net result could conceivably be an overall increase in the price of prescription drugs.
Another legitimate criticism of these laws concerns the use of "list price" terminology. These wholesale prices are simply starting points for negotiations with PBMs and health care insurers. For example, according to data compiled in 2015 by the Drug Channels Institute, a pharmaceuticals consultancy, the combined top three PBMs (Express Scripts, CVS/Caremark, and United Health Group/OptimumRx/Catamarin) controlled 75% of market share by total equivalent prescriptions in 2014, worth an estimated $263 billion annually. These large buyers will negotiate a final price for a pharmaceutical, and that price often includes substantial rebates. Depending on competition in the market for a drug, a pharmacy manufacturer may provide steep rebates, i.e., discounts, on their product to the increasingly concentrated PBM industry. For insulin, which is a highly competitive market, Eli Lily reportedly offered rebates off its list price in 2014 averaging 56% to PBMs and health insurers. As a result, the net price of insulin increased by only 3% over the previous five years.
Another area of concern to the pharmaceutical industry is the public release of trade secrets. In a May 30, 2016 letter to the editor in the Pittsburgh Post-Gazette, Robyn Boerstling, a vice president for the National Association of Manufacturers, noted the industry's concerns about the recently enacted Vermont legislation:
Manufacturers understand the need to reduce health care costs, but we have serious concerns related to the long-term implications of pharmaceutical pricing transparency proposals. Protection of trade secrets and intellectual property is a necessity for manufacturers to succeed in today's intensely competitive global marketplace. No industry should be forced to turn over highly sensitive, proprietary information to any government—state or federal.
Boerstling goes on to note, "Trade secrets, which include pricing information, are protected by both federal and state laws."
Whether the Vermont legislation improperly asks for proprietary information that is part of the overall drug development process, and whether this request would cause competitive harm to a pharmaceutical manufacturer, is yet to be decided by the Vermont judiciary. At this time, the pharmaceutical industry has not challenged the lawfulness of the Vermont law—but that situation could change quickly.
