More States Eye Drug Affordability Boards, PBM Regulations

2024 Outlook

PBM and drug pricing regulation will continue to be hot topics at the state level after several years of busy lawmaking, experts predict, even as PBM reforms are diluted and stalled in Congress. They predict that more states than ever will continue to embrace or pursue policies like drug affordability review boards.

“I do think the momentum is still strong, because states have the ability to do a lot more,” Kate Sikora, associate principal at Avalere Health, tells AIS Health, a division of MMIT. “Federal bills typically get a little bit watered down by the time they actually pass. So some of these state laws are a little bit heartier — a little bit more robust — in terms of what they attempt to do.”

“It seems like states are getting really engaged,” says Katherine Hempstead, Ph.D., senior policy adviser at the Robert Wood Johnson foundation. “There’s the affordability boards. That model is spreading. More and more states are kind of thinking about it, a few states are getting them up and running. States are adding some more sort of muscular attributes, like setting up upper limits” for prices.

According to the National Academy of State Health Policy (NASHP), a nonpartisan think tank that develops model legislation addressing issues including drug pricing, as of Jan. 19 there were 107 drug pricing bills under consideration in 29 state legislatures. Those bills include policies like furthering PBM transparency, banning copay accumulators or copay maximizers, and allowing states to import drugs from Canada. Hempstead and Sikora both credit NASHP model legislation as the basis for several statutes that set up state affordability boards.

Nine states — Colorado, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon and Washington — have boards that review prescription drug prices for plans that the state controls, such as Medicaid and state employee plans, and have the authority to negotiate more favorable rebates for state plans. Some of those states’ laws give their boards the option to cap drug prices for either state-backed plans or their fully funded commercial markets.

ERISA Limits Affordability Boards’ Impact

Of course, the extent to which states can scrutinize PBM business practices is limited by the Employee Retirement Income Security Act of 1974 (ERISA), which bars states from regulating most aspects of self-funded commercial plans. This creates tension between states and plan sponsors in the PBM domain: While plan sponsors stand to benefit from certain price controls and PBM regulation policies — and back similar policies at the federal level — plan sponsor trade groups have worked against state drug pricing reforms in order to protect their ERISA privileges.

For example, a 2023 case saw plan sponsor groups successfully side with the PBM industry to have a federal judge strike down an Oklahoma PBM regulation law. Dillon Clair, director of state advocacy and litigation at plan sponsor trade group the ERISA Industry Committee, told AIS Health at the time of the decision that ERIC was in favor of federal PBM reforms but “our opposition to [state] laws is based on the ERISA preemption grounds.”

That convoluted dynamic may not be the end of the story for states and employer plan sponsors. Sikora says it could be possible “down the line” for employers to participate in some sort of group purchasing arrangement alongside government-back plans. Hempstead observes that Colorado officials have made an effort to work with plan sponsors in a long-running, multifaceted effort to lower medical costs there.

States Are Still in Early Stages of Study

However, Sikora says that even established affordability boards have only just begun their work.

“States haven’t gotten to that point” where they can share affordability board insights with other health care stakeholders, Sikora says. “It’s a three-step process to get there. The first step is: What drugs are eligible for even being included? That’s usually under statute.” According to NASHP, typical parameters for review are an annual wholesale acquisition cost (WAC) of $60,000 or generics that cost over $100 for a 30-day supply.

“The second step is affordability review. That’s where Colorado and Oregon are right now in their processes. That can include a bunch of things: therapeutic alternatives, patient out-of-pocket costs, plan costs, things like that — and then ranking those essentially against state spending and patient spending [on the drug] in the state using their all-payer claims database, typically,” Sikora explains.

The final step, Sikora says, “is an upper payment limit. And no one’s really sure…how that process is going to go” because state rulemaking “hasn’t happened yet.”

Another wrinkle, Sikora says, is how specialty drugs are reviewed: “The medical benefit versus pharmacy benefit [dynamic] is definitely going to be interesting,” she says. Will “average sales price…factor in, and buy-and-bill for providers and all of that — I don’t think states have gotten to [it] yet. And that’s where we’re at, helping manufacturers figure [it] out.”

Medicare Prices May Come Into Play

State affordability boards also will likely take federal policy into consideration, Hempstead says.

“There’s always interaction between federal and state policy,” she says. “I think there’s been a desire for the benefits of the IRA” — the Inflation Reduction Act’s Medicare drug price negotiation program — “to be seen in other markets.”

Sikora says that some affordability board legislation under consideration may make that connection explicit by referencing the Medicare maximum fair price (MFP), which HHS will set for drugs selected to be part of the IRA’s price negotiation program.

“That’s the next iteration, I think. We’re going to see a change in…the type of language that’s in these bills,” Sikora says. “There’s a bill out in Illinois that is now going to tie up these [prices] to what the Medicare MFPs are set at. That’s probably the way the future is going to look, I would assume, for most of these states.”

State affordability boards have a great deal of work to do, Sikora observes, before they can make recommendations to state officials — and they don’t have the same resources that HHS does. Given that, Sikora says, “once manufacturers get those prices for those 10 negotiated drugs” selected under the IRA, “it does make states’ lives easier, to just try to tie [upper payment limits] to MFPs, because that allows the federal government to do the work.”

Hempstead says that in states with drug affordability boards, ERISA preemption will lead to pricing dynamics that, paradoxically, are more complex than in states without them — despite the increased price transparency that the affordability boards will yield.

One bill under consideration in Michigan is “sort of trying to hold insurers responsible for not having anyone pay more than the upper payment limit” set by the state board, Hempstead says. In states considering that model, “I’ve seen language saying, ‘This only applies to state-regulated markets.’”

In other words, in those states, fully insured plans might be able to — or have to — pay drugmakers no more than the rate set by affordability boards, but ERISA plans would pay drugmakers a different (and likely higher) rate.

The state policy picture is yet more proof, Hempstead says, that the tumult that PBMs and drugmakers have experienced in recent years is not over.

In the drug pricing space, Hempstead says, “whether we’re talking about consumers, whether we’re talking about employers, whether we’re talking about state and federal policymakers. It’s quite an interesting brew of things. I would think, if I were pharma, I would not want my drug to get picked for review.”

Contact Hempstead at khempstead@rwjf.org and Sikora via Marita Gomez at marita.gomez@avalerehealth.com.

This article was reprinted from AIS Health’s biweekly publication Radar on Drug Benefits.