Background

As the implementation of the Inflation Reduction Act continues for the Medicare program in 2024, state policymakers also continue to consider legislation to control drug spending and patient out-of-pocket costs. To this end, state lawmakers have proposed legislation introducing prescription drug affordability boards (PDABs), often with the ability to set upper payment limits (UPLs) for a specified number of prescription drugs. UPLs establish a payment limit and/or reimbursement limit on how much purchasers and payers within a state may pay or reimburse for drugs found to be “unaffordable” by the PDAB.

To date, eight states have enacted PDABs with four (CO, MD, MN, WA) having the authority to set UPLs (ME, NH, NJ, and OR enacted PDABs without UPLs). Colorado continues to be the furthest along in this process, conducting affordability review for five drugs in late 2023 and early 2024.

PDABs use criteria outlined in statute or rulemaking to identify drugs for evaluation and conduct affordability reviews of drugs that meet the criteria threshold. In states where PDABs have the authority to set UPLs, the boards may use the findings from their affordability reviews to select a specified number of drugs for which to set UPLs. Since many PDABs are in their nascency, there is no uniform approach to how states will operationalize UPLs if established. Thus, UPL implementation raises several key questions and considerations for stakeholders such as health plans, patients, providers, and manufacturers.

Research Methodology

Avalere sought to assess how health plans may view UPLs, including implementation considerations and impacts on providers and patients (e.g., plan benefit design). To this end, interviewed staff at regional and national health plans operating in Colorado and other states with UPLs. Between December 2023 and January 2024, Avalere conducted six double-blinded interviews with health plan representatives who (1) had current or recent experience in prescription drug benefit design and (2) were able to speak to their organization’s perception of UPLs and preparedness for implementation. Interviewees’ areas of expertise spanned pharmacy and medical benefit management, pharmacy & therapeutics committees, plan rebating, and patient support and access services remits. Scripted interview questions focused on the implementation and implications of UPLs, including payers’ view of potential drug coverage and access changes.

Interview Findings

Payer Perceptions of UPL Implementation and Impact: Payers were asked what preparation their respective employers were currently taking in advance of UPL implementation at the state level. All interviewees disclosed that their organizations have not fully contemplated potential downstream issues with PDABs and subsequent UPL implementation. They widely acknowledged that Colorado is the furthest along in its UPL process and that the implementation timeline is being tracked, but that they are not yet actively preparing for a UPL.  Most payers stated that the actual implementation of a UPL in Colorado will likely take more than a year.

Shifts in Plan Benefit Design: With the introduction of a UPL for selected drugs, some stakeholders have questioned whether plans would respond with benefit design changes for drugs in UPL-affected therapeutic classes. When asked about the potential for these benefit design changes, all interviewees agreed that UPL-affected drugs or their competitors in the therapeutic class could see greater utilization management (e.g., step therapy, prior authorization), depending on how manufacturers respond to supply chain changes, rebating, and UPL implementation.

In addition, five of six interviewees indicated that they expect formulary adjustments, such as moving selected drugs and therapeutic alternatives to different tiers. Such changes can affect beneficiary cost sharing. The five interviewees did not anticipate changes to benefit parameters that apply broadly to medical and prescription benefits, such as changes to deductibles or out-of-pocket maximums. According to these payers, plan responses will be determined by where the UPL is established and competition among the drug’s therapeutic class.

Provider and Manufacturer Considerations: When asked about the potential impact to provider acquisition and reimbursement for UPL drugs, most payer interviewees indicated they based commercial provider reimbursement on average sales price (ASP), and if a drug were to become subject to a UPL, then providers may experience challenges acquiring the product. Interviewees elaborated that provider reimbursement based on a selected drug’s UPL may not be adequate relative to their acquisition costs. One payer noted, however, that the drugs most likely impacted by UPLs are self-administered and thus not reimbursed based on ASP. Another payer indicated that UPLs may have significant effects on stakeholders, including pharmacists and pharmacy benefit managers, but it will depend on how states effectuate the limits.

Payers were split when asked if UPLs would impact manufacturer contracting and rebating. Half of the payers expressed that a UPL-affected drug’s formulary placement could change a competitor’s rebates and in turn shift plan preferences over time, while the other half indicated they would not.

Conclusion

This early research indicates that there are many unknowns related to how states will implement UPLs and how payers would respond. States implementing and considering PDABs with UPL authority may contend with potential impacts on plan benefit design, patient cost sharing, and provider reimbursement as they proceed with implementation.

Funding for this research was provided by the Partnership to Fight Chronic Disease. Avalere retained full editorial control.