The United States faces a crisis of prescription drug affordability. Despite record rates of health insurance, nearly 30% of American adults who take prescriptions report not taking medicine as prescribed due to its high cost. The problem is also widespread, as nearly 157 million American adults take prescriptions. Prescriptions now constitute the most expensive healthcare good or service in the United States, costing over $600 billion in 2021. These costs have only increased, with estimates showing that drug spending increased by 36% from 2014 to 2020. Such cost increases contribute to prescription spending comprising nearly one in seven dollars spent on U.S. healthcare.
While drug affordability constitutes a widespread problem impacting patients across diagnoses, age brackets, and geographies, the impact is not uniform. Patients who take insulin or who live with cancer or plaque psoriasis, among other diagnoses, face high drug costs disproportionately. Women are more likely to report not filling a prescription due to cost than men, a disparity compounded by the fact that many of the highest-priced and fastest-increasing drugs treat conditions that disproportionately impact women. The drug affordability crisis also has large racial and ethnic disparities. Black and Latino seniors are one-and-a-half times more likely to struggle to afford their drugs and twice as likely to not fill a prescription because of its cost as their white counterparts. Such costs to these communities leads Black and Latino patients to fill prescriptions at 10% to 40% less frequency than white patients.
High drug prices have real impacts on patient economic well-being and health. As only half of all Americans have sufficient savings to cover an unexpected $1,000 emergency, high drug costs, especially when unanticipated, can substantially impact Americans’ finances. For example, drug prices are forcing older Americans to delay retirement. Surveys have also shown that many patients take out debt or declare bankruptcy because of prescription costs. In 2020, nearly 20% of patients took such measures to afford their drugs. Such an impact is reflected in diagnoses that typically carry high drug costs, like cancer. In 2023, almost 60% of working-age cancer survivors reported financial difficulty, with many dealing with medical debt taken on to afford care.
High drug costs also compound the diagnoses for which patients take these drugs. Over a million Americans each year report rationing insulin due to its high cost. Such rationing for insulin and other drugs has real impacts: Over one million Medicare beneficiaries could die in the next decade because they cannot afford their prescription drugs. Such deaths have tragically already happened on a large scale; over 10% of American adults report knowing someone who died after not getting needed medical treatment, often due to unaffordable prescription drugs.
Furthermore, this problem is uniquely American. The United States “spends more than twice as much per capita annually on retail prescription drugs” as the average of 12 comparable countries, “$1,126 versus $536 per person.” Though a portion of that increased spending is caused by drugs entering the American market before they are available in other countries, identical drugs often are magnitudes more expensive in the United States compared to European countries.
A multitude of factors contribute to this crisis. Experts cite high launch prices, annual price increases outpacing inflation, anti-competitive behaviors, patent gimmicks, a lack of comparative effectiveness research, minimal price transparency, and the former ban on Medicare negotiation of drug prices as just some reasons the United States has such high drug prices. The United States’ lack of a centralized, single-payer health system to negotiate lower prices also contributes. These policies converge to create high list prices, and because many Medicare beneficiaries, people on high-deductible plans, and the uninsured pay for their drugs at list price or based on the list price, those high prices convert to high out-of-pocket costs. One might expect higher spending to accompany better health outcomes, but the United States sees no such results. Instead, the high prices and associated costs result in the highest rates of non-adherence for prescriptions among peer high-income countries and lower life expectancy.
Such widespread impact of the crisis has calcified large majorities of support for changes to bring lower-cost drugs to the market and to lower the prices of existing drugs: 88% of voters support legislation to speed access to generic drugs, 88% support limiting drug price increases to the inflation rate, and 83% support allowing the government to negotiate lower drug prices through Medicare that would apply to both Medicare and private insurance. Such vast majorities of support for change bridge political parties and ideology. However, until recently, federal action has been minimal, while state reforms remain constricted by commerce clause concerns.
Since the passage of Medicare Part D in 2003, the federal government has taken little action to lower drug costs, let alone lower list prices. The lack of reform, despite strong public support, is largely attributed to the pharmaceutical industry’s influence in our political system. As one of the most profitable industries, pharmaceutical manufacturers and trade associations like the Pharmaceutical Research and Manufacturers of America (PhRMA) spend tens of millions of dollars annually on lobbying and campaign donations. Just in 2022, pharmaceutical and health product companies spent over $372 million to lobby Congress and federal agencies, “outspending every other industry and making up over half of all health sector lobbying efforts.” Such spending buys the industry outsized influence. Further, many patient groups worry about losing pharmaceutical funding for critical initiatives if they advocate for lower drug prices. In the face of such opposition and the current administration unlikely to expand the Inflation Reduction Act’s (IRA’s) provisions and facing pressure from congressional Republicans to repeal them, this article advocates for state action to extend Medicare-negotiated drug prices beyond Medicare through state Prescription Drug Affordability Boards.
Despite a decades-long drought of federal action, PhRMA’s lock on legislative action has loosened as Congress and states have acted to address the affordability crisis. However, these reforms face barriers that limit their impact. Federal action has focused almost exclusively on Medicare due to parliamentary rules, while state reforms face restrictions based on state geographic boundaries and limits on state powers. This section will detail two key policy advancements through the IRA and state-level Prescription Drug Affordability Boards (PDABs) and will discuss the scope of their impact on drug prices and patients.
Since the passage of Medicare’s Part D prescription drug benefit in 2003, advocates for lower drug prices have sought to provide Medicare with the power to negotiate drug prices on behalf of its beneficiaries. Although individual Medicare plans could negotiate on behalf of their plan members, the law creating Part D explicitly banned the program from negotiating on behalf of the entire enrollee population. As Medicare insures over 60 million people, negotiation on behalf of such a sizable population as a single bloc would allow the program to exert significant savings in a way that an individual plan representing a fraction of that total would not be able to.
Congress was eventually able to realize this longtime policy goal through the IRA, signed into law in 2022. Among other things, the IRA marked a historic advancement in prescription drug affordability policy. The IRA’s drug pricing provisions largely apply only to Medicare beneficiaries because of the process through which the bill passed through the Senate. For drug pricing reform, such procedural constraints meant that reforms like extending Medicare-negotiated prices and insulin copay caps to privately insured individuals were not viable. Under such restrictions, the bill combined provisions focused on Medicare prices with cost-focused reforms to lower out-of-pocket costs for Medicare beneficiaries.
In the face of a drug affordability crisis that particularly hurts Medicare beneficiaries, Congress acted to lower beneficiaries’ out-of-pocket costs. The IRA overhauled the Part D plan design. Previously, beneficiaries did not have a limit on out-of-pocket costs, with some facing tens of thousands of dollars in out-of-pocket expenses. Starting in 2025, out-of-pocket Part D expenses are capped at $2,000. Further, those expenses for certain patients, particularly those who reach that limit early in the year, may be paid throughout the year to assist in payment predictability. This provision alone will impact nearly 1.4 million beneficiaries who spend over $2,000 a year and, on average, will save each beneficiary over $1,500 each year.
The IRA also includes provisions for specific categories of drugs. Medicare insulin copays are capped at $35 per month, assisting over 3.3 million beneficiaries. For those ineligible for low-income subsidies, this provision will save about $20 per insulin prescription each month. The IRA also eliminates cost sharing for vaccines, meaning beneficiaries who previously would have paid $76 on average for the shingles vaccine now pay no cost. Additionally, low-income subsidies for Part D were expanded to an estimated 400,000 more beneficiaries who earn between 135% and 150% of the federal poverty line, saving each an annual average of nearly $300.
In addition to policies focused on out-of-pocket cost reduction, the IRA also had two key policies that impact prices: penalties for drug prices that outpace inflation and Medicare negotiation of the Maximum Fair Price (MFP) that Medicare plans can pay for certain drugs. Medicare Part D plans’ format results in beneficiaries typically paying coinsurance based on a percentage of a drug’s price. As such, reforms that impact drug prices affect overall government spending by reducing the cost for Medicare itself, while lowering the out-of-pocket costs that beneficiaries themselves pay. Despite the downward pressure these provisions will place on Medicare prices for drugs already on the market, estimates from the Congressional Budget Office show the provisions leading to an increase for launch prices of new drugs.
The first price-focused provision of the IRA penalizes drugs whose price in either Part B or Part D outpaces inflation, as measured by the consumer price index. Companies whose drug prices exceed inflation must pay a rebate to Medicare equal to the amount the price increase exceeds inflation multiplied by the number of units sold in Medicare. Drug companies, in seeking to avoid the penalty, will likely not increase drug prices for Medicare faster than inflation. Additionally, in instances where drug prices do outpace inflation, beneficiaries’ out-of-pocket cost-sharing is calculated as if the price did not outpace inflation. Had such a provision been in effect in 2019, half of all drugs covered by Medicare would have paid a penalty. Such a provision curtails price gouging while lowering beneficiaries’ comparative out-of-pocket costs.
The IRA also required Medicare to negotiate MFPs for up to 20 of the most costly drugs each year, beginning with lower numbers of drugs negotiated in the first few years. Under the law, the Secretary of Health and Human Services (HHS) must negotiate with drug companies to determine the MFP for certain drugs with no generic or biosimilar competition. In the first round of negotiations, the Secretary negotiated up to ten drugs’ prices for 2026, eventually reaching the maximum annual number of drugs negotiated of 20 drugs’ prices for 2029. The Secretary chooses among the drugs qualifying for negotiation by selecting those with the highest expenditure for Medicare in the 12 months prior.
Through negotiations, the HHS Secretary must consider manufacturer-specific data, such as the research and development costs for the drugs, the extent to which the manufacturer has recovered such costs, current production and distribution costs, prior federal financial support, approved and pending patent applications for the drug, drug revenue, and its U.S. sales volume. For each of these statutory data categories, the Center for Medicare & Medicaid Services (CMS) has outlined specific data that manufacturers must submit. Just for research and development costs, CMS requires submission of the costs for acquisition of the drug, pre-clinical research, post-investigational new drug application, abandoned and failed drugs, and a catch-all “All Other R&D Direct Costs.” The guidance then further details examples of data included in each of those sub-categories of research and development costs.
To obtain the vast amount of data needed for these negotiation procedures, CMS requires that manufacturers agree to submit these manufacturer-specific data when they initially agree to the negotiation process. The IRA text itself states that “[i]nformation submitted to the Secretary under this part by a manufacturer of a selected drug that is proprietary information of such manufacturer (as determined by the Secretary) shall be used only by the Secretary or disclosed to and used by the Comptroller General of the United States for purposes of carrying out this part.”
The Secretary also must consider data about therapeutic alternatives such as whether the “drug represents a therapeutic advance as compared to existing therapeutic alternatives,” their comparative costs, FDA prescribing information, the drugs’ comparative effectiveness, and “[t]he extent to which such drug and alternatives address unmet medical needs.” CMS guidance has clarified that “information on these factors may be submitted by several entities, including the manufacturer of the selected drug, other drug manufacturers, people with Medicare, academic experts, clinicians, and others.” CMS guidance similarly outlines specific subcategories of data for each therapeutic alternative data category identified in the IRA statutory text.
In 2024, HHS Secretary Xavier Becerra announced the MFPs for the first 10 drugs negotiated. The drugs all saw large reductions in their prices, ranging from 38% to 79% of the pre-negotiation list price. Such price decreases, if they had been in effect the year prior, would have saved Medicare itself $6 billion in net costs, savings that would have constituted “22% lower net spending in aggregate.” Patients themselves also would have seen large savings of an estimated $1.5 billion if the prices had been in place the year prior. As statutorily required by the IRA, HHS and CMS announced the negotiated prices publicly and in December 2024 published an explanation for how they reached each negotiated price.
The released explanations detail the relevant therapeutic alternatives and outcomes of interest analyzed by CMS’s process for the first round of drugs. Each drug’s explanation also contains hundreds of sources considered in determining offers for the negotiated price, though the offers and counteroffers themselves are redacted. While these explanation documents provide insight into the negotiation process, much of the hard data, such as R&D costs, per unit production and distribution costs, comparative effectiveness research data, sales volumes, and global lifetime revenue of the drug, are redacted. Though only the initial round of prices and CMS’s explanations for the negotiation process have been released, Medicare’s negotiation program has already proven great potential to lower drug prices for Medicare and drug costs for beneficiaries.
In recent years, states, unwilling to wait on long-standing federal inaction and then the ensuing lengthy runway for reforms to take effect once the federal government did act through the IRA, passed various reforms aimed at lowering prices and costs. Some exclusively cost-focused reforms, such as copay caps for insulin products, found bipartisan support and passed across a multitude of states. Others remained more partisan. Many reforms faced legal challenges that debated the bounds of a state’s power to regulate pharmaceutical access and prices in an area typically controlled by the federal government under the commerce power.
One such reform states have implemented is the Prescription Drug Affordability Board (PDAB). Though state models of the PDAB vary, the hallmark of PDABs consists of the ability to conduct drug affordability reviews that disclose key price and cost information about a given drug in the state, leading to increased industry transparency. Maryland became the first state to implement a PDAB, with Washington, Oregon, Minnesota, Maine, Colorado, and New Hampshire also passing PDAB legislation in the following years.
Oregon provides an instructive example of a PDAB’s affordability review authority. Oregon’s PDAB consists of five board members appointed by the governor who have “expertise in health care economics and clinical medicine.” Each year, the state’s Department of Consumer and Business Services must produce a list of all prescription drugs and all insulin products sold in the state during the past year. The PDAB then evaluates that list and selects nine drugs and at least one insulin product that the Board believes create potential high out-of-pocket costs for Oregon patients or affordability challenges for Oregon’s healthcare systems. The PDAB’s establishing statute outlined 13 factors for the Board to consider when selecting such drugs, including potential “health inequities in communities of color” caused by the drug price, the number of Oregonians who take the drug, the drug’s price, the price of therapeutic alternatives, several rebate values, the cost to health insurance plans, the average out-of-pocket cost to patients, and the overall barrier posed to patient access to the drug by its price. In order to access the necessary data to conduct an assessment, the Board is instructed to access data for in-state prices, drug costs to patients and insurers, and use of drugs and alternatives in Oregon from the “All Payer All Claims” database, as well as the state business regulatory agency, Oregon Medicaid, similar agencies in other states, and any publicly available price information.
The PDAB then uses such information to conduct an affordability review to promote transparency around a drug’s costs within the state. Through such a review, the PDAB collects data from various stakeholders, such as manufacturers, drug carriers, patients, caregivers, clinicians, and scientific experts to develop an affordability report. The reports detail the average cost to various stakeholders, potential therapeutic alternatives, off-label uses, wholesale acquisition cost (WAC), WAC change over time, and total statewide spending on the drug in Oregon excluding Medicare and Medicaid spending. The Board then develops a profile to demonstrate the level of access to the drug in Oregon. Following a full affordability review of a drug, the PDAB can then suggest policies to address the affordability concerns that the legislature could then decide to implement or not. Such potential policy recommendations include but are not limited to “[e]stablishing upper payment limits for all financial transactions in this state involving a drug,… [u]sing a reverse auction marketplace for the purchase of prescription drugs by state and local governments; [and]… [i]mplementing a bulk purchasing process for state and local governments to purchase prescription drugs.”
Currently, Maine and New Hampshire have a similar level of review authority as Oregon. All three states’ PDABs promote transparency through publication of affordability reviews and can suggest policies to leverage the government’s purchasing power to lower drug prices; however, they lack the power to lower prices directly themselves.
Other states, concerned that transparency alone is not enough to promote affordability, have given their Boards additional power to set upper payment limits (UPLs) after conducting an affordability review. PDABs with UPL authority use data collected during the affordability review to determine a fair price and establish that price as the upper limit for nearly all drug transactions in the state. Currently, Colorado, Washington, Minnesota, and Maryland have PDABs with the potential to set UPLs. All of these PDABs, aside from Maryland, have the authority to set UPLs on their own; Maryland’s board requires legislative approval of any UPL.
Colorado’s PDAB, passed in 2021, has statutory authority to implement UPLs and currently is the farthest along in the process of conducting affordability reviews and establishing such payment limits. Colorado’s PDAB is similar in structure to Oregon’s, as a multi-member board that conducts affordability reviews of drug prices in its state; however, Colorado’s PDAB was unique when passed because of its ability to go beyond affordability reviews and policy suggestions to act once it identified drugs that posed affordability challenges to the state’s health system and patients. Colorado’s PDAB UPLs would cover nearly all drug transactions in the state by setting an upper payment limit for any drug transaction except for those for “enrollees in self-funded plans that elect not to participate.” While the Board itself determines the methodology for setting a drug’s UPL after conducting an affordability review, the law requires consideration of the cost of administering or dispensing the drug, in-state distribution costs, and the FDA drug shortage list. Colorado’s PDAB must also consider the impact a proposed UPL would have on disabled and older Coloradans. Through such a process, the Board has authority to issue up to 12 UPLs between 2022 and the end of 2025. Though the state has not yet set the actual UPL for the drugs, Colorado has identified five drugs throughout 2024 that are eligible for UPLs. Current litigation challenges the constitutionality of UPLs under the dormant commerce clause theory; however, this paper does not focus on such litigation.
Two other states, Washington and Minnesota, have similar models to Colorado. Minnesota, however, was the first PDAB passed after the IRA passage at the federal level. As such, the statutory text, while requiring the Board to consider factors similar to Colorado’s, like the supply costs, in-state drug prices, and prices of therapeutic alternatives, also contains reference pricing provisions. The law encourages reference pricing regarding prices in other states and Canada, but also notably requires that the Board adopt the Medicare MFP for any drug that has been selected for both Medicare negotiation and a Minnesota UPL.
The fourth PDAB in this category, Maryland nominally contains UPL authority but has much narrower jurisdiction than Colorado, Minnesota, and Washington. The first-in-the-nation PDAB has the authority to set UPLs only for drugs purchased by state and local government purchasers. Such UPLs need approval by the legislature to take effect, rendering the Maryland model much more similar to the affordability review and policy-suggesting authority of Maine, New Hampshire, and Oregon. Though legislation currently exists to expand Maryland’s PDAB authority to suggest UPLs for all payers in the state, the Board still would have less authority than a model like Colorado, Minnesota, or Washington.
While both the IRA and PDABs present exciting advancements in policy solutions to the drug affordability crisis, each policy has its limits in population covered and scope. Medicare negotiation leaves out large portions of the U.S. population from the lower negotiated prices based on insurance type, while PDABs only impact their state. Given the shortcomings of Medicare negotiation only applying to Medicare beneficiaries and not reaching the other 81% of Americans who receive insurance through a non-Medicare plan or who lack insurance, PDABs can extend maximum prices to much of the currently unreached population through UPL authority.
Through considering a UPL, state PDABs should consider and adopt pricing from the Medicare-negotiated MFP as an upper bound on the UPL. As noted above, Minnesota’s PDAB already considers such a proposition, statutorily requiring that the PDAB set the UPL for any PDAB-selected drug at the Medicare-negotiated MFP. However, such an MFP only applies if the Minnesota PDAB has already identified a drug as a candidate for a UPL rather than implementing UPLs for every drug Medicare has negotiated. Additionally, the policy leaves no discretion for the PDAB to set the UPL lower than the MFP. As such, Minnesota forgoes potential savings and leaves patients paying higher out-of-pocket costs.
States should follow Minnesota’s lead but slightly adjust the model to increase its impact and avoid potential liability. States should pass PDABs with UPL authority that require the adoption of UPLs that match the MFP or are lower for every negotiated drug, regardless of whether it is a top spending driver in the state. Additionally, as Medicare’s highest expenditure drugs may not match the most expensive drugs in state, PDABs should still have the additional authority to set UPLs for non-Medicare-negotiated drugs under their own processes. Such a policy will allow savings for patients beyond just Medicare beneficiaries, while allowing for state government savings for Medicaid and government payers, along with lower premiums for private plans who save through the UPLs.
In adopting such a policy, states will likely face legal challenges, as wholesale adoption of the MFP with no retention of discretion for the PDAB could violate state delegation doctrine. To import Medicare negotiation prices while avoiding such a challenge, PDABs would likely need to retain discretion over the exact UPL and be able to justify their decision. Such a scheme would be especially difficult if PDABs lack access to the information Medicare uses to calculate its MFP. This section will outline these potential challenges to such a policy, and ways federal and state governments can work to share information to protect such a policy from successful litigation.
In evaluating a potential UPL, PDABs review much of the same data as Medicare negotiation reviews often for drugs for which Medicare has already negotiated an MFP. Intuitively, a PDAB may want to build off Medicare-negotiated prices by importing the price as a UPL as Minnesota’s PDAB plans to. However, questions around whether and how a PDAB could wholesale adopt such pricing structures without any further justification remain. Although courts have recognized that “[t]he government has broad leeway to impose conditions on its own purchases of goods and services,” courts have differed when evaluating state government adoption of federal policies. Outcomes for such state-level adoption of federal policies have varied based on the level of discretion retained by the state, whether the state affirmatively acted to adopt each new federal standard, and whether the state justified each adoption.
State criminal law adoption of federal agency determinations for controlled substance policy provides an instructive example of how courts evaluate state importation of federally set standards. In 1971, Washington state adopted a law which stated “that if a substance is designated a controlled substance under federal law, the substance similarly is controlled under Washington law effective thirty days after its publication in the Federal Register” unless a state agency objected. The Washington Supreme Court struck down the law as unconstitutional because “it permitted law to become binding in Washington ‘without appearing in either a state statute or the state administrative code.’” The state delegation of legislative authority to the federal government was impermissible. While the Washington case could present a challenge to a state’s wholesale adoption of federal Medicare regulation through the MFPs, a similar case in Missouri provides the differentiating factors to successfully avoid such a constitutional issue.
Missouri passed a similar law that mandated that the state Department of Health control substances based on their federal controlled substance designation. Facing a challenge that cited Washington’s invalidation of the similar law, the Missouri Supreme Court differentiated their case by stating that the state agency under Missouri law had to act affirmatively to import the federal standard. With such affirmative acts, “no delegation of power to control substances in Missouri has been delegated to the federal government.” As such, the differentiating factor between a permissible importation of federal standards into state regulations relies on a state’s retention of discretion and affirmative action on whether to comply with the federal standard or not.
Courts also have struck down state and municipal laws that import federal price controls. A Cleveland ordinance that punished any violation of federal price ceilings under the Emergency Price Control Act was deemed unconstitutional by the Ohio Supreme Court, as the city council there delegated power to the federal government over which the city had no control. State and local governments cannot fully abdicate control to the federal government in such a way and must maintain some discretion and ability to justify their decisions. A similar analogy between a state legislature passing a PDAB and the federal Department of Health and Human Services could be drawn. As a state legislature has no control over the prices negotiated by Medicare, importation of such prices through a PDAB could be construed as an improper delegation if the state retained no discretion over the price, did not have to act affirmatively to import each price, or did not justify adoption of the negotiated price. As such, wholesale importation of Medicare MFPs with no review mechanism or independent justification from the PDAB itself could expose a PDAB to litigation challenging such a scheme’s constitutionality. Thus, allowing a PDAB to retain some discretion while providing it with the data used by Medicare to negotiate its MFP would allow the PDAB to affirmatively decide whether to adopt MFPs or prices lower than MFPs, justify such adoption, and still retain the constitutionality of such a provision.
Other state policies that rely on Medicare prices take a similar position and do not wholesale adopt the standard. Missouri and California both have surprise billing statutes that limit the amount a patient would have to pay in the event that a hospitalization occurs out of network and results in a surprise bill. Rather than stating that patients only have to pay a percentage of the Medicare rate, these bills use a benchmark based on the Medicare rate as just one end of a range that plans can charge, with the average contracted rate in the geographic area or a percentile of the “average and customary” rate for that service constituting the other bound. By not wholesale adopting the Medicare rate, these policies retain some discretion and allow justification of the policy, as the state determined the other bound of the benchmark.
In addition to protecting from challenges around improper delegation of state power, allowing for state justification through access to the same data could further insulate UPLs from court challenges as a taking. Numerous courts have dismissed challenges claiming that IRA Medicare negotiation constitutes a taking because of the voluntary nature of the program. Although the voluntary nature of the program alone negates the taking claims, Medicare’s evaluation of data and justification of the MFP contribute to the negotiation aspect of the program. Thus, from both a delegation and takings standpoint, state access to the underlying data used to determine the MFP would allow a state discretion on whether the MFP or a lower UPL was proper, and importantly would protect the legality of UPLs that mirror Medicare MFPs.
As states that wholesale accept the federally negotiated price may face legal challenges to their justification, sharing of as much data as possible by the federal government could arm those states with protection from takings and improper delegation lawsuits by allowing them to justify their price adoption. In its summary of the Medicare negotiation provisions and factors considered through the process, KFF notes that “[a]ccording to CMS guidance, information on these factors may be submitted by several entities, including the manufacturer of the selected drug, other drug manufacturers, people with Medicare, academic experts, clinicians, and others.” Collecting data from a wide array of sources will assist the federal government in sharing non-confidential information with state agencies, as disclosure of manufacturer proprietary data will likely pose legal issues for Medicare.
Disclosure of information by the federal government to other agencies or states is statutorily restricted when a party has not consented to the information being shared. For non-manufacturer information submitted by beneficiaries, academic experts, clinicians, and other stakeholders, the federal government could request consent to disclose information to state governmental agencies as part of the submission process. Such a step would allow large portions of the information considered throughout the negotiation process to be shared with state PDABs.
For information where a party does not consent—the likely outcome from pharmaceutical manufacturers who have opposed Medicare negotiation in many ways—courts have further restricted federal government disclosure of information without parties’ consent. Data similar to much of the manufacturer data considered in Medicare negotiation for the drug negotiated and its therapeutic alternatives has been found to be restricted when considering disclosure without consent. The Supreme Court has adopted the Eighth Circuit’s “competitive harm” test to determine whether disclosure of confidential information by the federal government without consent of the impacted party is permitted. The Supreme Court, in adopting the “competitive harm” test, set the standard that commercial information qualifies as confidential if disclosure is “likely... to cause substantial harm to the competitive position of the person from whom the information was obtained.” Without consent, such data cannot be shared with state governments or other governmental agencies. Here, data such as a drug’s current revenue compared with research and development, production, and distribution costs could substantially impact a company’s competitive nature in a state. Additionally, the use of such data to set a UPL would clearly impact the company’s competitive nature by lowering revenue in a state market per drug sold. As such, the federal government will likely be restricted in sharing much of the manufacturer-specific information considered in the negotiation process. Indeed, CMS has acknowledged as much, stating that under such standards, proprietary information like “research and development costs and recoupment, unit costs of production and distribution, pending patent applications, market data, revenue, and sales volume data” will be kept confidential, unless already public. As shown by its first round of explanations of negotiated prices, CMS does plan to publish non-proprietary data and will make high-level statements such as whether a company has recouped its research and development costs without revealing the underlying data through its explanation of the negotiated price. However, although the federal government could partially assist in insulating a PDAB’s importation of Medicare MFPs through UPLs by providing non-proprietary data or data with consent of certain parties, such a policy would only allow sharing of a portion of the information considered in the negotiation process.
While an administration willing to assist PDABs by providing as much information as possible through a consent process for non-manufacturer data could greatly protect state PDAB UPLs from legal challenges, administrative action alone would still leave much of the key information considered in negotiation out of PDABs’ reach. To access the remaining information largely held by manufacturers, states could take their own actions, both through the PDAB affordability review process itself and through partnerships with other state agencies.
As noted above, Oregon’s statute already authorizes its PDAB to work with a state agency to obtain manufacturer-specific information required to conduct an affordability review. For information not available from such an agency, Massachusetts, a state with no PDAB currently, offers a potential avenue to access such manufacturer data. “Massachusetts’ Health Policy Commission require[s] manufacturers to submit the prices offered to other US and non-US entities for drugs under price review for the state Medicaid program.”
A PDAB could take a similar approach, requiring disclosure of such data to the state PDAB or authorizing information sharing between a state agency already requiring such information. With such manufacturer-specific data that Medicare is unable to share, the PDAB could use state agency data and data received from Medicare to justify UPLs based off MFPs under the same data used by Medicare in its negotiations.
In obtaining the necessary information to justify the price and retaining some state oversight over the properness of a UPL based on a Medicare-negotiated MFP, state PDABs could rely on Medicare’s negotiation power, while insulating themselves from litigation by not wholesale adopting MFPs and by evaluating the data considered. States could then adopt Medicare’s price when proper, which, with the right leadership, would consist of wholesale adoption of MFPs or lower prices, both reducing the work done by PDABs in calculating a UPL and extending Medicare MFPs to a larger population. By adopting these suggested policies, states with the help of the federal government could massively expand Medicare negotiation’s impact and better confront the United States’ drug affordability crisis.
