Vermont became the first state to enforce drug pricing transparency from pharmaceutical companies. The bill took effect on June 2nd and requires manufacturers to be open about what goes into the pricing of their drug. The intent is for manufacturers to be held more accountable for their pricing. An act related to prescription drugs (Act no. 165) requires all factors contributing to a drug’s wholesale acquisition cost (WAC) increase to be disclosed. Manufacturers must demonstrate what percent each factor is attributing to the change and an explanation of why the change has occurred. The Green Mountain Care Board, an independent group tasked with improving Vermont’s healthcare system, and the Department of Vermont Health Access will work together to compose an annual list of up to 15 high expenditure drugs. In order to qualify for this list, the drug’s WAC must have increased over 50% in the last 5 years or seen an increase of 15% over the last twelve months. If a manufacturer’s drug is selected they must justify this increase or face civil penalties of up to $10,000 per violation. Ultimately, the attorney general will collect the manufacturer’s information and publish a report on the board’s public website. To appease bill opponents, names of the drugs in question and their manufacturer will not be released. The bill also requires Vermont’s Medicaid program to use 340B pricing for reimbursement through qualifying health centers.
Health insurance companies must now provide more detailed information on projected prescription costs through their plans. This will be accomplished through online information such as the drugs covered by the plan, the applicable cost sharing amount, drug tiers, prior authorization and step therapy protocols, which is a standard met by Medicare Part D Plans today. These requirements must be met on or before January 1, 2017.
Lowering healthcare cost is at the forefront of many politicians’ minds. While price justification may be one tool to reign in rising expenditures, many question the practicality of the bill. Critics have highlighted that WAC does not usually represent what is being paid after rebates and has little influence on the price paid by patients. Others say that because of the various determinates of drug price such as research and development; transparency of drug prices is not as simple as it sounds. Much like gas or food products, drug prices are based upon changing variables and can often fluctuate depending on market share or drugs in production. Forcing manufacturers to keep drug costs fixed or down may cause less profitable research areas to lose funding. Alternatively some manufacturers could cease making a product, leading to shortages and potential price increases.
It is still unclear how pharmaceutical manufacturers will respond to Vermont. We doubt this new requirement will have any significant import on the overall cost of prescription drugs. It will take time to see how the bill affects its current healthcare system. States may choose to adopt similar bills if Vermont’s increased oversight of pharmaceutical manufacturers proves valuable. Certainly this will not be the last strategy proposed to slow healthcare spending and rising prescription costs.
Posted: September 2016
Updates: June 2020
View Vermont Statues section on prescription drug cost transparency
View Green Mountain Care Board reports meeting the requirements of Act 165