“Drug Transparency”: Each Bill Needs Careful Evaluation

Aug 08, 2016

About a month ago, I received a breathless email from a colleague who was following the Vermont Drug Transparency debate in Montpelier. The measure was signed into law on June 2, 2016, and he felt it would “lead the US Pharmaceutical industry to an awful end”.

Intrigued, I got a copy of the final Vermont S. 216 and here is what I found.

Vermont S. 216

This new law will be administered by The Green Mountain Care Board, a group “charged with reducing the rate of health care cost growth in Vermont while ensuring that the State of Vermont maintains a high quality, accessible health care system” and the Department of VT Health Access. These two entities must “identify” 15 drugs reimbursed by the State of VT that have sustained a “wholesale acquisition cost increases” of 50 percent or more over the last five years…Or 15 percent over the last 12 months.

The law declares that drugs that present these rate increases, “create a substantial public interest in understanding the development of the drugs’ pricing”… Also, that these particular drugs have to represent different drug classes. Both curious statements.

Once the drug analytics team of the Green Mountain Care Board and the Dept. of VT Health Access determine the list of 15 offending drugs, they are required to send their findings to the Attorney General’s office -- which seems odd.

When the VT AG’s office gets this info, it is required to ask that the drug manufacturers of the expensive products why the WAC prices have risen so much. In explanation, the law says the Rx firms MAY include factors -- the companies BELIEVE contributed to the wholesale acquisition cost increase, the percentage of total wholesale acquisition cost increase attributable to each factor, and explain to the AG’s folks the role of each factor in contributing to the wholesale acquisition cost increase.

Based on these explanations, the AG is obligated to create a report and send that summary to the General Assembly by December 1st, each year. Also, the report is to be posted on the AG’s website.

There is one fairly significant wrinkle in all of this…The provided Rx information, “is exempt from public inspection and copying under the Public Records Act and shall not be released in any manner that allows for the identification of an individual drug or manufacturer or that is likely to compromise the financial, competitive, or proprietary nature of the information provided.”

This is obviously strong legal – and public relations -- protection for prescription drug manufacturers re: concerns about full disclosure of the pricing and private deals the Rx firm may cut with various purchasing entities. It also may neutralize the intended “transparency” impact of the entire bill.

Finally, if all of the above is not provided to the satisfaction of the state’s agents, civil injunctive relief than can be sought, but not for more than $10,000, per violation.

And that’s it…There are no other provisions in this “precedent setting”, “end of times” Vermont transparency law.

What to make of VT S. 216?

• The law does not seem to have been written by people who know much about drug pricing.  Focusing repeatedly on the “wholesale acquisition cost” is, at best, an older pricing term, seldom used in 2016 Rx pricing.

• Why? Because as every pharmaceutical executive reading this article knows, WAC is the price listed by the manufacturer of a drug before any rebates, discounts, allowances or other price concessions are offered by the creator of the product. WAC is not the price that a PBM, hospital, insurance company or even a consumer pays for their prescription drug products. So gauging the findings of the report sent to AG based on WAC versus real world pricing would seem to be flawed.

• Also, using WAC as the basis for the report doesn’t seem to take into consideration simple market dynamics…For example, the expiration of an originator drug’s patent. During the six month period after the first generic comes on the market, the originator product traditionally maintains the price it has been charging for the Rx while the new generic drug, presumably less expensive than the originator, is actively selling its product and grabbing substantial market share. So, will the VT WAC cost report use only a drug’s branded name, or its new generic name? If not by the generic name, the WAC computation may be invalid.

• On generics, it has been pointed out that some of the most egregious Rx drug pricing is being undertaken by generics. I found one summary that noted a 91% price increases for doxycycline hyclate, an Rx that lost its primary patent apparently in 1985. Will the WAC evaluation include generic drugs in the VT summary? There’s no mention of this in the law.

• The other question that I have is this business about listing drugs from “other classes”. What exactly does that mean and what is it intended to do? Did the authors think all the high cost drugs, say for cancer care, or Hep C medications, would entail the entire list of 15? By requiring “more classes” to be considered, will some of these genuinely high cost drugs be excluded from the list-- in favor of drugs from “other classes”? It’s curious phraseology to say the least.

• I am not an attorney, however, I tracked legislation for over 30 years. Words that appear in this law like “may” and “believe” are code words for “not mandated”. That this law is predicated on the words “may” and “believe” for performance suggests it’s not a strong law.

• Finally, the phrasing that states information is “exempt from public inspection and copying under the Public Records Act”, and “shall not be released in any manner that allows for the identification of an individual drug or manufacturer”, and also “that is likely to compromise the financial, competitive, or proprietary nature of the information provided” is ripe for legal mischief.

My point here is simple. If this Vermont law is “leading to the end of the US pharmaceutical industry as we know it”, I beg to differ. This is not a particularly difficult law for the industry to manage going forward, as I see it.

However, as the title of this commentary suggests, all the “transparency” bills now moving around the country do need to be carefully evaluated. When you’ve seen one transparency bill, you’ve seen one bill.  They are not all the same. Some are definitely tougher than others, and some do pose potentially serious marketing and pricing challenges for the US Rx industry.

California SB 1010

Take the California “transparency bill”, S.B. 1010.  This is definitely one of the more concerning “transparency” measures now being considered and here’s why.

First of all, this bill is alive and moving towards final passage in the California legislature. It cleared the California Senate by a 25-10 majority and has also passed the Assembly Health Committee 12-4. It is now awaiting hearing in the California House Appropriations Committee. 

SB 1010 is strongly supported by numerous health advocacies, and also has recently received positive statewide media attention

Secondly, as you evaluate SB 1010, you will note that the California framers of this measure created “transparency” requirements that have gone far beyond the requirements written into the Vermont “transparency” law.

Here are a few highlights:

• The “cost” issue in the legislation is to be determined not by WAC, but by “the most costly drugs by plan or insurer spending” -- a much more “real world” way of evaluating Rx costs.

• This real world “cost” information will be evaluated by the CA Department of Managed Health Care and the CA Department of Insurance, which will make a combined report on findings.

• The California pricing evaluations are expanded to include the top 25 most expensive drugs, including generics, and may be expanded beyond 25.

• The report from DMHC and DOI must “demonstrate the overall impact of drug costs on health care premiums”, which goes way beyond what is mandated in the Vermont law. The results will be published on the department websites.

• Importantly, this law also includes a mandate that an Rx manufacturer must notify, 60 days in advance, all state purchasers, PBMs, insurers, and specific legislative committee chairs of any drug increase in the “wholesale acquisition cost” of more than 10% or more than $10,000 during any 12-month period.

• For generics, any WAC increase of over 25% for 12 months, would require the same reporting.

• Also, notification has to be given for any new FDA approved drug priced at $10,000 per therapy or more.

• An annual CA legislative hearing on aggregate drug pricing trends would be required.  Aside from this hearing, all pricing information supposedly would be kept confidential, which is clearly debatable.

There is much more, but understand that SB 1010 is a very tough, potentially difficult “transparency” law for the Rx industry to manage both legally, and also from the standpoint of potential public relations challenges. If it passes in California, it could very easily cause major problems for the Rx industry in California, and could become the “transparency precedent” for the country that Vermont’s law, in fact, is not.

So when you read about the many “transparency bills” that are now moving in various states, take the time to understand what they propose. All need careful evaluation, because they definitely are not identical in their intent -- and certainly not in their effect.

Tom Norton

NHD Smart Communications of Illinois, Inc.













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