Reining in the spending on drugs: What Mass. can learn from other states

Julio Cortez/Associated Press/File/Associated Press

Two years ago, New York leaders required drug companies to get serious about negotiating lower prices with the state. Drug makers that didn’t agree to bigger discounts could be revealed publicly and required to disclose price information.

New York’s Medicaid program has saved more than $85 million on prescription drugs since the policy was implemented — a savings that Massachusetts is now trying to replicate with its own new drug-pricing rules, approved this summer as part of the state budget.

The measures are part of a flurry of legislation states are adopting to slow runaway drug costs, which are stretching state budgets and patients’ wallets. While debate continues in Washington, without resolution, nearly three dozen states have passed drug-pricing laws in 2019 alone.

The new policies range in strategy and severity, and they have support from both Democrats and Republicans. Among the more aggressive policies are those in New York and Massachusetts, which take direct aim at the costs in Medicaid programs, which serve low-income individuals.

Maryland and Maine are setting up boards to evaluate which drugs may be unaffordably priced. Several other states are demanding more transparency from drug companies, and still others are trying to save money by importing drugs from Canada.

“This is top-of-mind for state legislators,” said Sean Dickson, director of health policy at the West Health Policy Center in Washington. “They have to pay their Medicaid costs, they have to pay for state employees and retirees, and drugs are an increasingly higher share of that spending.”

Drug prices, long a concern, are drawing new scrutiny now with the advent of cutting-edge medicines that can be life-changing — but that come with eye-popping price tags.

For states, a wake-up call came about five years ago, when a breakthrough drug for hepatitis C, Sovaldi, hit the market. The drug was in high demand. Priced at $84,000 for a course of treatment, it quickly put a strain on insurers, particularly Medicaid programs.

“It did make people’s eyes open up and say the landscape has shifted,” said Matt Salo, executive director of the National Association of Medicaid Directors.

Now, while they wait for federal action, Salo said, “what you’re seeing is states trying to say, ‘What can we do on our own?’ ”

In 2017, New York Governor Andrew M. Cuomo proposed a multi-part plan to reduce drug costs. State lawmakers later approved a narrower version of his plan, targeting drugs in the Medicaid program — especially those considered overpriced for the benefits they provide patients.

New York set an annual state cap for drug spending and required pharmaceutical companies to come to the table to negotiate bigger discounts on drugs whose costs were projected to exceed that cap. Companies that don’t agree to further discounts are subject to a detailed board review. Eventually, the state also could lower costs by taking steps to limit the use of certain expensive drugs.

Since the policy took effect, New York has negotiated more than 20 rebates with drug companies, according to the Department of Health. But it hasn’t been universally successful.

Boston-based Vertex Pharmaceuticals refused to provide steeper discounts for the cystic fibrosis drug Orkambi, which has a list price of $273,000 per patient per year. Janssen declined to give additional discounts on the rheumatoid arthritis drug Remicade, according to New York officials.

“Our CF medicines are the first and only medicines to treat the underlying cause of this devastating disease and have fundamentally changed both the short- and long-term course of CF,” Vertex spokeswoman Heather Nichols said in an e-mail. “The price of our medicines reflects the significant value they bring to patients.”

Linda M. Davis, a Janssen spokeswoman, said the company has offered New York officials “several supplemental pricing concessions” on Remicade. The drug has an annual price tag of about $29,000, before rebates.

The New York State Department of Health didn’t make anyone available for an interview, but a spokesman said by e-mail that the department is continuing to negotiate with both companies while continuing to cover the drugs.

“New York State . . . will continue to pursue fair pricing while assuring continued access to Orkambi,” spokesman Jeffrey Hammond said.

Observers of the New York policy say it appears to be making a difference.

“By and large, they have seen savings,” said Trish Riley, executive director of the National Academy for State Health Policy, which tracks states’ drug-price legislation.

Federal law allows Medicaid programs to receive discounts of at least 23 percent on the price of drugs. In many cases, the rebates for specific drugs are much greater. But officials in states including Massachusetts say those discounts aren’t enough.

In January, Governor Charlie Baker’s administration unveiled a pricing plan that resembled New York’s. After lengthy negotiations, lawmakers approved a softer version of Baker’s plan in July.

It gives administration officials more authority to require drug companies to negotiate. Officials can set a proposed value for a drug and hold a hearing on that value. They also can refer drug makers to the Massachusetts Health Policy Commission, a watchdog agency, which could demand detailed pricing information.

The new rules will apply to about 200 drugs that annually cost at least $25,000 per patient. The policy is expected to save Massachusetts up to $140 million per year.

Administration officials said they’ve already begun direct negotiations with some companies.

The new policy marks Baker’s second attempt to rein in prescription drug costs in the Medicaid program, or MassHealth, which covers about 1.8 million people.

Last year, his administration tried to save money by excluding some expensive specialty medications from coverage — a strategy commonly used by private insurers.

But Medicaid, unlike private insurers, is generally required to pay for all medically necessary drugs, and federal officials rejected the administration’s plan. Baker’s new proposal did not require federal approval.

“I think all eyes will be on Massachusetts,” Riley said. “It’s a very important step. I expect other states will replicate this Medicaid initiative,’’

When governors and lawmakers take aim at drug companies, pharma lobbyists tend to object. The companies oppose policies that allow government to set a value or price for drugs, said Leslie Wood, deputy vice president at Pharmaceutical Research and Manufacturers of America, or PhRMA, a Washington-based lobbying group.

“This really is new ground,” Wood said of the Massachusetts law. “We have seen it in New York, but we have not seen it anywhere else in the country. . . . We do really have concerns about the potential effect it could have on patients.”

Drug company lobbyists tend to be vocal before states adopt drug-pricing laws, but they are often reluctant to explain the effects of policies already in place.

“It’s very new,” Wood said of the New York Medicaid policy.

Another trade group, NewYorkBIO, declined to comment.

Maryland, under its new pricing law this year, established an affordability board to review whether certain drugs are priced reasonably and to decide how much the state should pay for them.

“Drug companies haven’t been asked to justify price increases in the past, or prices in the past,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health who advised legislators on the Maryland law. “This is the first time a drug company has to justify.”

Maine Governor Janet Mills signed bills in June that target pharmaceutical costs. One new law creates a board to set targets for drug spending and provide methods for reducing costs.

“The state had to take action, because it couldn’t wait for the federal government any longer,” said Troy Jackson, president of the Maine Senate. “If the states don’t push the federal government, we’re never going to get there.”