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Laws to shed light on drug pricing strategies might not work

From coast to coast, state lawmakers are pushing legislation in hopes of putting a lid on rising drug prices. More than a dozen bills have been proposed that require companies to either fork over information about their costs or explain recent price increases for some medicines.

The idea is based on a simple premise — by forcing the pharmaceutical industry to provide this sort of data, the curtain will be peeled back on the decisions used to justify pricing. In turn, drug makers would presumably respond to the scrutiny by changing their practices.

“This bill is about accountability,” Vermont Governor Peter Shumlin declared in June, when he signed legislation that demands companies account for certain price increases. In doing so, he gave Vermont the distinction of becoming the first state to pass such a law.


Admirable as it is, this transparency movement is unlikely to make much, if any, difference.

To be sure, state legislators have good reason to look at pricing. Last year, average prices for prescription drugs increased 10 percent, according to Truveris, a health care data company. Prices for brand-name medicines, specifically, jumped nearly 15 percent.

Of course, it’s easy to vent at a few companies that jack up prices by sky-high amounts — think Martin Shkreli or Valeant Pharmaceuticals. But pricing was a “key driver” of overall industry profit growth last year, adding an estimated 8 percent to overall net income, according to Credit Suisse analysts. In other words, lots of companies have been boosting prices.

And for many Americans, this is a pocketbook issue that extends to a wide variety of medicines, which explains why drug costs are a talking point in the presidential campaign.

Yet Congress has not taken any steps to address the topic. And in the absence of any relief from Washington, more state legislators are looking to fill the void.


Besides Vermont, bills have been introduced in 13 states, according to the National Conference of State Legislatures. All this activity is keeping the pharmaceutical industry trade group busy playing whack-a-mole as it tries to oppose the various efforts around the country.

And the trade group is having some success. Several bills have either died or stalled.

Late last week, for instance, a closely watched bill in the California Legislature, which set specific requirements for drug makers to disclose and explain pricing, was “effectively gutted” by amendments added during a hearing, Melanie Moreno, chief consultant for the Senate Health Committee, told me. The bill’s fate is now uncertain.

Nonetheless, if these bills become law, they may well gather useful information.

Drug makers argue it may be extremely difficult, if not impossible to disclose certain costs, but the longstanding secrecy surrounding their pricing practices is no reason to not push for more data.

Yet to what extent these bills can be used to alter pricing is unclear.

“Lawmakers are caught between their constituents and the marketplace,” said Ed Schoonveld, a managing principal at the ZS Associates consulting firm. “You can demand a lot of information, but it’s hard to see how it changes anything. But it does help politicians say they tried to do something.”

Posturing or not, pricing is a complex and convoluted matter to tackle.

At the same time that drug makers are raising prices, they are also paying more rebates to the middlemen who negotiate coverage for their medicines with health insurers, according to the Credit Suisse analysts.


They noted rebates have been rising faster than pharmaceutical sales. Of course, rebates are a cost of doing business, and drug makers can still try to raise prices to compensate.

Meanwhile, there is already speculation companies may try to avoid having to explain price rises by simply raising prices below thresholds stipulated in any state law.

In effect, these transparency laws may simply be a vehicle for channeling outrage.

“I don’t think the bills will be effective by themselves, but they do create more pressure to justify prices,” said John Rother, who heads the National Coalition on Healthcare, a group of insurers and employers, among others, that object to rising drug prices. “And I don’t think industry would be trying so hard to defeat these bills if it didn’t think they would make a difference.”

Even so, counting on shaming companies into explaining their tactics is not a sure-fire strategy for slowing or halting price increases.

What might have a bigger impact is for states to assess the value of certain medicines, set ceiling prices, and then require drug makers to pay a minimum rebate to state Medicaid programs. That is likely to get still more attention from industry.

Transparency, by itself, may yield more information, but it won’t clear the air.

Ed Silverman can be reached at ed.silverman@statnews.com. Follow him on Twitter @Pharmalot. Follow Stat on Twitter: @statnews.