Drug Manufacturer Pricing Disclosures: Mid-Year 2018 Update

Merle M. DeLancey Jr.

Earlier this year, I commented on state drug pricing transparency laws in effect and/or enacted during 2017.[1] I also opined that it was likely more states would pass similar transparency laws requiring drug manufacturers to disclose pricing and/or price increases during 2018. While proposed drug pricing transparency and disclosure legislation has been introduced and is pending in numerous states, during the first half of 2018 only two states (Oregon and Connecticut) passed new laws imposing price disclosure requirements on drug manufacturers. Maine expanded its existing disclosure law. Also of note was the United States Court of Appeals for the Fourth Circuit finding Maryland’s Anti-Gouging law unconstitutional.

2018 New State Laws

Oregon

In March 2018, Oregon passed HB 4005. The new law requires drug manufacturers to report to Oregon’s Department of Consumer and Business Services (“Department”) information on prescription drugs meeting two criteria: (i) the drug’s wholesale acquisition cost (“WAC”) is $100 or more for a one-month supply or for a course of treatment lasting less than one month, and (ii) the drug’s WAC increased 10 percent or more during the prior year.

For each drug satisfying the two-part test, a manufacturer must report, among other information, the factors that contributed to the price increase; research and development costs for the drug; direct costs to manufacture, distribute, and market the drug; previous year profits attributable to the drug; and the 10 highest prices paid for the drug during the previous year in any country other than the United States.

In addition, for drugs meeting the above test, a manufacturer also must report information regarding any patient assistance programs (“PAP”) covering the applicable drug the manufacturer offers to Oregon residents. Such reports must include the number of consumers who participated in the program; the total value of coupons, discounts, copay assistance, and other cost reductions provided to Oregon residents who participated in the PAP; the number of refills that qualify under the PAP; the time period the PAP is available to each consumer; and the eligibility requirements to participate in the applicable PAP and how such eligibility is verified.

With respect to a manufacturer’s newly introduced prescription drug with a WAC that exceeds the Medicare Part D specialty drug threshold ($670 for 2018), the new law requires the manufacturer to notify the Department of such drugs within 30 days of the new drugs introduction for sale in the United States. For drugs meeting this test, among other information, manufacturers must disclose how the new drug is marketed, the methodology used to establish its WAC, and any research and development costs for the new drug that were paid with public funds.

Further, with limited exceptions, the Department is required to publicly report all information reported by manufacturers. If the Department withholds any information, it must post a report describing the information withheld and the basis for the withholding.

The new law also creates a drug pricing task force to study and make recommendations regarding other potential transparency measures for highly priced prescription drugs.

Finally, the Department may impose civil penalties on a manufacturer for failing to comply with the reporting requirements. Manufacturer reporting obligations are effective July 1, 2019.

Connecticut

In May 2018, Connecticut began its efforts at drug pricing transparency. The new law (Public Act No. 18-41) requires the state’s Office of Health Strategy (“OHC”) to prepare a list, on or before March 1, 2020, and annually thereafter, of the 10 outpatient prescription drugs that are (A) provided at substantial cost to the state, considering the net cost of such drugs, or (B) critical to public health. The list is to include outpatient prescription drugs from different therapeutic classes and at least one generic outpatient prescription drug.

Drugs eligible to be included on the list are those with a wholesale acquisition cost (“WAC”), less all rebates paid to the state during the prior year: (A) that increased at least 20 percent during the prior year or increased 50 percent during the three prior years, and greater than $60.00 for a 30 day supply or a course of treatment lasting less than 30 days.

If a manufacturer’s drug is included on the list, the manufacturer is required to report to OHC (i) a written, narrative description, suitable for public release, of all factors that caused the increase in the WAC of the drug, and (ii) aggregate, company-level research and development costs and other capital expenditures for the most recent year for which final audited data are available. The information a manufacturer is required to submit should be consistent with its Securities and Exchange Commission filings or other public disclosures.

The office may impose a penalty of up to $7,500 on manufacturers for violation of the new law.

Maine

Also in May 2018, Maine expanded its prescription drug price transparency measures. Under the new law (SP 484, LD 1406), the Maine Health Data Organization (“MHDO”) will provide annual reports on (i) the 25 most frequently prescribed drugs, (ii) the 25 most costly drugs determined by the total amount spent on those drugs in the state, and (iii) the 25 drugs with the largest price increases based upon total amount spent.

The new law also requires MHDO to develop a plan regarding how it intends to collect prescription drug cost and pricing data from manufacturers. MHDO is to submit its plan, its findings, and any recommendations for suggested legislation to the Maine Legislature no later than April 1, 2019. Thus, at this time, there are no requirements for drug manufacturers to report pricing information to the state, but such requirements are being developed.

Maryland’s Anti-Gouging Law

In April 2018, the United States Court of Appeals for the Fourth Circuit struck down Maryland’s law prohibiting “price gouging” by generic drug manufacturers.[2] The law sought to limit pricing by prohibiting a manufacturer or wholesale distributor from making unconscionable price increases for essential off-patent or generic drugs. The Fourth Circuit found the law unconstitutional because it violates the dormant commerce clause by directly regulating transactions that occur outside of Maryland. [3] The court did note that Maryland and other states could enact legislation to limit prescription drug prices for their citizens.

What Should Drug Manufacturers Do?

As more drug pricing transparency laws are enacted, it is critical that a manufacturer dedicate sufficient resources to complying with these laws. The laws are inconsistent in terms of the prices and/or price increases triggering disclosure requirements. Further, if a drug triggers a disclosure requirement, the information required to be disclosed to a particular state can vary significantly.

Manufacturers should ensure that:

  • The Compliance Department is aware of all state laws requiring price and other information disclosures. For purposes of consistency, the Department should be responsible for all state disclosures. In addition, the Department needs to monitor disclosures made by, for example, PBMs and health plans, regarding the company’s drugs;
  • Price Setting/Changing Committees are aware of price reporting disclosure triggers, i.e., percentage increases and applicable time periods. Such Committees should include a person or department that has checked the proposed pricing action against applicable state disclosure laws so the Committee can include as part of its decision making process the public disclosure of prices, price increases, and related corporate information;
  • If not already in practice, Contracting should begin including standard language in all customer contracts requiring the customer to notify the company prior to a disclosure of information to a state regarding one of the company’s drugs and also provide a copy of the actual disclosure; and
  • Communications must be aware if the company is required to disclose its pricing and other corporate information. Because most states intend to make manufacturer-reported information publicly available, Communications needs to be prepared for media inquiries and potential negative coverage.

[1] See Merle M. DeLancey Jr., “2017 Was a Busy Year for State Imposition of Drug Manufacturer Price Disclosure Obligations and 2018 Isn’t Looking Much Better,” Vol. 4, No. 4, Pratt’s Government Contracting Law Report, April 2018 (As of 2017, six states (Vermont, New York, Maryland, Louisiana, Nevada, and California) had enacted some form of law requiring drug manufacturers to disclose, among other information, prescription drug prices).

[2] SeeTargeting Generic Drug Prices,” Government Contracts Navigator, June 21, 2017

[3] Similarly, the Pharmaceutical Research and Manufacturers of America is challenging California’s price increase transparency law based upon the Commerce Clause.