In response to rising prescription costs and overall state-level healthcare spending, numerous states, including Maryland and Oregon, have established prescription drug affordability review boards (PDABs) to review certain high-cost prescription drugs and determine if states should take action to reduce those prices.
PDABs aim to reduce overall government and commercial spending on prescription drugs. And although no two boards are the same, generally speaking, boards may accomplish these goals through various means, such as conducting affordability reviews, making recommendations to each state’s respective legislature on ways to reduce spending, negotiating prices and Medicaid supplemental rebates with manufacturers, and setting upper payment limits (UPLs) or caps on what a state will spend on a particular medication.
However, after conducting a comprehensive analysis of its proposed plan for UPL implementation, Oregon has quickly realized that drug pricing and supply chain complexities may limit, if not preclude, implementation of its proposed UPLs. While Oregon has started questioning the practical benefits to PDABs setting UPLs, Maryland has conversely approved a process that could lead to UPLs on high-cost prescription drugs for state health plans.
Oregon’s Constituent Group Engagement Report
On August 14, 2024, the State of Oregon Department of Consumer and Business Services published a Constituent Group Engagement Report summarizing the perspectives of constituents throughout the pharmaceutical supply chain on the Oregon PDAB’s plan to establish UPLs. The report is based on the perspectives of seven constituent groups, consisting of (1) 340B Covered Entities, (2) carriers, (3) hospitals, (4) patient advocacy groups, (5) pharmaceutical manufacturers, (6) pharmacy benefit managers (PBMs), and (7) retail pharmacies.
Through analysis of constituent survey results, the Oregon PDAB identified that, although constituents generally expressed concerns regarding drug affordability, the perceptions regarding the implementation of a UPL to allay these concerns were mixed. Specifically, among other things, the board’s surveys found
- 47% of respondents expressed the belief that a UPL would have a negative financial impact on their organization;
- 54% of respondents expressed the belief that a UPL would create challenges to patient access;
- 47% of respondents expressed the belief that a UPL would have a neutral impact on patients’ ability to afford their medications, with 26% expressing the belief a UPL would have a negative impact; and
- more than half of respondents expressed the belief that a UPL would not result in cost savings.
In addition, respondents expressed concerns that the implementation of a UPL would result in a loss of revenue, decreased patient access, increased patient costs, increased administrative burden, infrastructure costs, and operational challenges.
Separate from the survey review, the Oregon PDAB also conducted focus group meetings with participants from the constituent groups. Similarly, the focus group participants expressed concerns over drug affordability. However, the participants were not in agreement as to the definition of affordability or how it should be determined, and were unsure how to assess the impact of a UPL on drugs dispensed in Oregon.
Overall, the report found that constituents, although supportive of the board’s efforts to improve drug affordability, were skeptical of the effectiveness of UPLs. This skepticism stemmed from a lack of clarity as to how UPLs would be developed, applied, and enforced within the supply chain. Instead, participants offered alternative strategies, including support for PBM reforms to ensure UPL-related savings, rebates, or discounts are directly passed through to patients, as well as the elimination of spread pricing and clawbacks.
Maryland UPL Action Plan
Despite Oregon’s reservations on such limitations (and a rejection on the use of UPLs by many industry experts), Maryland approved an Action Plan last month that presents a variety of methods that the state’s PDAB will follow to reduce costs for medications that pose an “affordability challenge,” including the implementation of a UPL.
Among other things, Maryland’s Action Plan establishes that its PDAB must apply the following criteria when determining whether to set a UPL and when setting a UPL:
- The PDAB must consider the cost of administering the drug and delivering the drug to consumers, as well as other administrative costs
- The PDAB must determine whether a UPL is an appropriate tool to address the driver(s) of the affordability challenge identified for the prescription drug product
- The PDAB must not set a UPL for the prescription drug product if utilization of the product by Eligible Governmental Entities is minimal
- The PDAB must set a UPL in a way that minimizes adverse outcomes and risks of unintended consequences
- The PDAB must prioritize drugs that have a high proportion of out-of-pocket costs compared to the net cost of the drug
- The PDAB must not set a UPL for generic prescription drug products that have nine or more marketed therapeutic equivalents
- The PDAB must not set a UPL amount that impacts statutory or regulatory amounts, such as Medicaid Best Practice
- The PDAB must not set a UPL that is lower than the Medicare Maximum Fair Price
Additionally, the Action Plan provides that for the state’s PDAB to begin the policy review process (to study and assess what, if any, policy tools are best suited to redress the identified affordability challenges, including whether a UPL is an appropriate policy solution), it must first determine that use of a drug has led or will lead to an affordability challenge. The policy review process is commenced in three phases: (1) information gathering, (2) preliminary policy recommendations, and (3) policy approval. In preparing its preliminary policy recommendations, the PDAB may use one of the following methodologies:
- Cost-Effective Analysis: This method compares an intervention to another intervention/the status quo by estimating how much it costs to achieve a certain health outcome unit of measure (e.g., a year gained or a death prevented); when given a threshold, it is possible to determine the UPL at which the intervention is considered “cost-effective”
- Therapeutic Class Reference UPL: This involves setting up the UPL to the lowest net price among competing products
- Launch Price-Based UPL: Here, the UPL is set up as the launch price adjusted for inflation
- Same Molecule Reference UPL: This method sets the UPL based on the prices of generic drug products and biosimilars
- Domestic Reference UPL: The UPL is determined based on the net prices paid by other purchasers and payors for the same product within the United States
- International Reference UPL: This method uses drug prices in other countries to set up a UPL
- Budget Impact-Based UPLs: This approach sets up a UPL to ensure that drug spending does not exceed a certain percentage of a specified budget/have disproportionate impact on that budget
- Blend of Multiple Methodologies: This involves recommending potential values for a UPL derived from a blend of methodologies or variations in implementing the methodologies
As previously covered in the June 2024 blog post State-Mandated Upper Payment Limits: Maryland PDAB Evaluates 6 Drugs for Affordability, the Maryland PDAB recently selected eight drugs (Biktarvy, Dupixent, Farxiga, Jardiance, Ozempic, Skyrizi, Trulicity, and Vyvanse) for a “cost review” to determine whether use of the drug has led or will lead to affordability challenges for the state healthcare system or high out-of-pocket costs for patients. Pending approval by the Maryland General Assembly’s Legislative Committee (LPC), which has up to 45 days to approve the plan, these eight drugs will likely be some of the first drugs subject to a UPL. If the LPC does not respond within that timeframe, the PDAB is required to go to Maryland’s governor and attorney general for approval.
The Notice and Comment period is currently open and any comments regarding the UPL Action Plan must be sent to the LPC chairs, Maryland State Senator Bill Ferguson and Maryland State Delegate Adrienne Jones.
Key Takeaways
There remain many unknowns as to whether state-prescribed UPLs will survive the test of time. But, if implemented, UPLs will have wide-ranging impacts in the healthcare industry and on several stakeholders, namely manufacturers and health plans. While some states (i.e., Colorado and Maryland) are moving forward with drug selection and investigation, select manufacturers have filed lawsuits challenging such laws, and at least one state (i.e., Oregon) has determined that the benefits of a UPL do not outweigh the negatives. Alternatively, manufacturers may consider withdrawing flagged drugs from select state markets to avoid price caps, but doing so would likely present practical and regulatory challenges. Nevertheless, the outcome of any such litigation cannot be known, and it is possible that other states follow the trend to implement UPLs for select drugs. Thus, pharmaceutical manufacturers and health plans would be well advised to carefully assess their product portfolios, formularies, and agreements, and diligently prepare for potential selection and UPL implementation.
Our team will continue to monitor developments in the state drug affordability review sector. For more information on the PDAB landscape nationwide, see our prior blog post State Establishment of PDABs: Will Unaffordability Determinations Survive Test of Time?
How We Can Help
Morgan Lewis lawyers are well situated to assist pharmaceutical drug manufacturers and health plans in navigating complex federal and state government pricing and reimbursement matters.