States Turn to Drug Price Boards to Reduce Spending

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State legislatures are increasingly considering prescription drug affordability boards and upper payment limits to lower state expenditures and patient costs.

State and federal lawmakers have increasingly been interested in lowering prescription drug spending and improving affordability for patients. To this end, state policymakers have prioritized legislation introducing prescription drug affordability boards (PDABs), often with the ability to set upper payment limits (UPLs) for a specified number of prescription drugs.

At the same time, the passage of the Inflation Reduction Act (IRA) has given state lawmakers momentum to expand oversight of state-regulated commercial markets and pursue mechanisms to identify and review drugs with the highest cost and usage across the state.

Growing Interest in Drug Price Cost Containment

Since 2016, state policymakers have contemplated several methods (e.g., manufacturer transparency bills) aimed at reducing spending and costs associated with prescription drugs that the state deems “unaffordable” for state purchasers and patients. States are increasingly turning to PDABs to address spending, some of which have the authority to establish UPLs. In 2023, at least 11 states considered or are considering PDAB legislation.

Most states’ PDABs comprise state-appointed healthcare experts and stakeholders. Traditional 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.

A UPL is a payment threshold on all purchases and payments for a selected number of prescription drugs that is set by the state as part of a PDAB initiative. UPLs may consider a variety of criteria when setting their limits, such as wholesale acquisition cost (WAC), costs to the state, and Food & Drug Administration drug shortage list status.

The first PDAB was created in 2019 by the Maryland legislature. PDAB legislation has since been enacted in Maine, New Hampshire, Oregon, Ohio, Colorado, Washington, and most recently in Minnesota in the 2023 state legislative session. Of the eight enacted PDABs, five contain UPL price limit threshold provisions: Washington, Oregon, Colorado, Maryland, and Minnesota.

Key Features of PDABs and UPLs

Each state’s PDAB and UPL-setting process and authorization can vary across dimensions such as covered markets and targeted drugs. In most states, covered markets include all state-regulated plans, excluding self-funded plans (though they may choose to participate). In some states, like Maryland, PDABs only have the authority to regulate public plans.

Currently enacted UPLs require states to determine the UPL-setting process through rulemaking considered by the PDAB. Colorado is the furthest along in the UPL process, releasing its eligible drug dashboard with over 600 products for potential review in June and identifying five drugs for affordability review in August. The selected drugs span therapeutic areas including HIV, rheumatoid arthritis, and other autoimmune conditions. Additionally, in April, Maryland enacted a new law directing its PDAB to study and create recommendations on whether the general assembly should pass legislation to expand the PDAB’s UPL-setting authority to apply to all state-regulated purchasers and plans. Finally, in May, the Minnesota legislature enacted a PDAB law that will tie any future UPL set by the board to the Medicare maximum fair price established by the IRA.

Implications Across Stakeholders

PDABs and UPLs primarily function to reduce government spending on prescription drugs and increase affordability for patients over time through affordability reviews and payment thresholds. However, UPL-setting may have many potential downstream effects in the following areas.

Drug Pricing

  • UPLs could create long-term stakeholder pricing changes (e.g., WAC, average sales price (ASP), average manufacturer price (AMP)).
  • Pricing changes could have cascading effects on Medicaid best price calculations and the 340B drug pricing program.
  • Manufacturers may face an increased reliance on their patient support programs due to increased out-of-pocket costs for patients.

Formulary Coverage and Benefit Design

  • UPLs may influence payers to modify cost sharing and formulary tiering through changes to preferred medications.
  • Patients may face access challenges to drugs with UPLs due to increased cost sharing or mid-year formulary changes.

Provider Payment

  • Providers may face reductions in reimbursement due to long-term pricing alterations.

While states such as Colorado have made significant progress in the UPL-setting process, most states are still in the process of evaluating their paths forward for PDABs. As states continue to develop their PDABs and UPL-setting processes, it will be increasingly important for stakeholders to consider the effects of these developments.

How Avalere Can Help

Avalere’s policy experts are closely following the state drug pricing legislative landscape and have a deep understanding of the potential impacts of drug pricing thresholds such as UPLs. To learn how Avalere’s policy experts and subscription products can support your state tracking, advocacy, and strategic planning efforts, connect with us.

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