Connecticut and Maine Become the Latest States to Adopt New Drug Pricing Transparency Laws

The Maine Law does not impose any specific reporting requirements on drug manufacturers, but it does authorize the Maine Health Data Organization (MHDO) to create a plan to collect data from manufacturers related to drug costs and pricing with the stated goal of increasing transparency and accountability. The MHDO must create the plan by April 2019, so manufacturers should expect specific reporting requirements to be released within the next year.

Connecticut’s drug price transparency bill (the Connecticut Law) was passed unanimously by both the Connecticut House and Senate, and was signed into law by Connecticut Governor Daniel Malloy on May 31, 2018. The Connecticut Law includes a number of drug price and rebate reporting requirements for drug manufacturers, sponsors of pipeline drugs and biosimilar drugs, pharmacy benefit manufacturers (PBMs), and health insurance carriers.

Overview of Recent State Drug Price Transparency Laws

As covered in the Arent Fox Health Care Counsel blog, Vermont, Nevada, California, Maryland, Louisiana, New York, and Oregon have all adopted various drug pricing and/or transparency laws in recent years. Notably, the Maryland law was recently struck down as unconstitutional by the Court of Appeals for the Fourth Circuit, and the legality of the California law is currently under scrutiny by the courts as well.  

State Laws Requiring Manufacturer Reporting on Drug Price Increases. Both the Oregon law and the California law require manufacturers to report an extensive amount of information about drug price increases. Of note, the California law requires manufacturers to provide advance notice of drug price increases to purchasers. Under the Oregon law, manufacturers are only required to report information on drug price increases over the previous calendar year to a state government agency, but the law obligates manufacturers to report an extensive amount of information about drug price increases, patient assistance programs offered by manufacturers, and drugs that exceed the Medicare Part D price threshold for specialty drugs.

State Laws Requiring Annual Manufacturer Reporting for Specific Drugs Identified by the State. The Vermont law authorizes an independent board to identify and compile a list of 15 drugs on which Vermont spends significant dollars and for which the wholesale acquisition cost (WAC) has increased by 50% or more over the past 5 years or by 15% or more over the past year. Manufacturers of the drugs identified are required to report certain information about the drugs’ costs and pricing. As described below, the Connecticut Law has adopted a similar approach, and a similar bill was recently introduced in Hawaii.

State Laws Requiring PBMs to Disclose Manufacturer Rebates. The Connecticut Law also has some similarities to the Nevada drug price transparency law. Both laws seek to place accountability on PBMs by requiring the PBMs to disclose the amount of rebates they negotiate and retain from manufacturers. However, the Nevada law is only applicable to drugs used to treat diabetes, and the Connecticut Law’s PBM reporting requirements apply to all outpatient prescription drugs.

State Laws Prohibiting Drug “Price-Gouging.” The Maryland law sought a different approach by prohibiting “price gouging” – defined as “unconscionable increases” in the price of a prescription drug that is “excessive and not justified.” Under the law, the Maryland Medicaid program could alert the Maryland Attorney General (AG) of certain drug price increases, and the AG could then require the applicable manufacturer to submit a statement justifying the increase. Should the AG determine that price-gouging occurred, the AG could bring a lawsuit against the manufacturer, impose civil penalties, and seek other remedies. However, as noted above, the Maryland law was recently ruled to violate the United States Constitution, and therefore it remains to be seen whether it (or pending laws similar to the Maryland model) can successfully be enacted. The New Jersey, Illinois, and Louisiana legislatures are all considering similar drug “price-gouging” laws. 

Below is a brief overview of Maine and Connecticut’s’ recent drug price transparency laws. 

Maine’s Drug Price Transparency Law

The Maine Law was effective as of May 1, 2018.  Under the law, the MHDO must provide an annual report on both brand name and generic drugs, including:

• the 25 most frequently prescribed drugs in Maine; 
• the 25 costliest drugs as determined by the total amount spent on those drugs in Maine; and 
• the 25 drugs with the highest year-over-year cost increases as determined by the total amount spent on those drugs in Maine.  

The MHDO must provide the first report by December 1, 2018, presumably to the Maine legislature, although the law is unclear on this point. Manufacturers should also expect drug price reporting obligations under the Maine Law. By April 1, 2019, the MHDO must develop a plan to collect data from manufacturers related to the cost and pricing of prescription drugs, but at this point, the specific data and metrics to be collected have not been determined.

Connecticut’s Drug Costs Transparency Law

The Connecticut Law imposes significant reporting requirements for manufacturers, sponsors of drugs seeking approval from the Food and Drug Administration (FDA) pursuant to new drug applications or biologics license applications, PBMs, and health insurance carriers. Under the Connecticut Law, the Connecticut Insurance Department and Office of Health Strategy (OHS) must establish standardized forms for reporting and has the authority to adopt implementing regulations. PBMs, manufacturers, and drug sponsors should watch for additional guidance and requirements from the Connecticut Insurance Department and the OHS.

The Connecticut Law’s Manufacturer Reporting Requirements

Similar to Vermont’s drug price transparency law, the Connecticut Law authorizes OHS to identify and compile a list of ten outpatient prescription drugs that:

• are determined by OHS to be provided at a substantial cost to the state or are critical to public health; 
• have a WAC, less all rebates paid to the state for the drug in the immediately preceding calendar year, that increased by at least 20% during the prior year or 50% during the prior three years; and 
• have a WAC, less all rebates paid to the state for the drug in the immediately preceding calendar year, of at least $60 for a 30-day supply or for a course of treatment lasting less than 30 days. 

OHS must develop the first list of drugs by March 1, 2020. Manufacturers of drugs included on OHS’s list must provide:

• A written, narrative description, suitable for public release, of all factors that caused the increase in WAC; and
• A disclosure of aggregate, company-level research and development costs and other capital expenditures that OHS deems relevant.

Timing for manufacturers to submit the price increase justification and cost data is not yet specified. Manufacturers should keep an eye out for OHS’s implementing regulations and reporting forms, which will likely include specific reporting requirements and deadlines.

The Connecticut Law’s Sponsor Reporting Requirements

The Connecticut Law also imposes reporting obligations on drug sponsors filing new drug applications or biologics license applications for pipeline drugs or biosimilar drugs with the FDA. A “Sponsor” is defined as “the entity that assumes responsibility for the clinical or nonclinical investigation of a drug.”

Beginning January 1, 2020, sponsors must provide written notice to the OHS that it has filed with the FDA either (a) a new drug application or biologics license application for a pipeline drug, or (b) a biologics license application for a biosimilar drug. Sponsors must provide the required notice no later than 60 days after receiving an action date from the FDA.

Starting January 1, 2020, the OHS may conduct a study, not more frequently than once a year, of each manufacturer of a pipeline drug that it determines may have a significant impact on state expenditures. Each manufacturer subject to a study must submit the following information for the drug:

• Primary disease, condition, or therapeutic area studied in connection with the drug and whether the drug is therapeutically indicated for such disease, condition, or therapeutic area; 
• Each route of administration studied;
• Clinical trial comparators, if applicable;
• The estimated year of market entry; 
• Whether the FDA has designated the drug as an orphan drug, a fast track product, or a breakthrough therapy; and
• Whether the FDA has designated the drug for accelerated approval and, if the drug contains a new molecular entity, for priority review.

Proponents of the Connecticut Law state that these requirements will help Connecticut “better plan for new drug spending on the state employee plan and Medicaid.” Further discussion from one of the law’s co-sponsors can be found in the Statement on the Bill by Connecticut Rep. Bob Godfrey.

The Connecticut Law’s PBM Reporting Requirements

PBMs are also a target of various reporting requirements under the Connecticut Law.  No later than March 1, 2021, and annually thereafter, PBMs must report to the Connecticut Insurance Commissioner the following information:

• The aggregate dollar amount of all rebates concerning drug formularies used by its health carriers that the PBM collected from manufacturers of outpatient prescription drugs that were covered by its health carriers and attributable to patient utilization during the prior year; and
• The aggregate dollar amount of all rebates, excluding any portion of the rebates received by the health carriers, concerning drug formularies that the PBM collected from manufacturers of outpatient prescription drugs that were covered by its health carriers and attributable to patient utilization during the prior year.

These reporting requirements are intended to require PBMs to disclose the amount of rebates they receive from manufacturers and the amount that they pass on to health insurance carriers and consumers compared to the amount they retain. Although the Nevada law discussed above imposes similar reporting requirements on PBMs related to drugs used to treat diabetes, Connecticut is the first state to impose such requirements on all outpatient prescription drugs.

The Connecticut Law’s Health Insurance Carrier Reporting Requirements

Finally, starting January 1, 2021, health carriers that deliver health care plans in Connecticut must include detailed information on their annual rate filings to the Connecticut Insurance Commissioner related to prescription drugs:

• The following information for covered outpatient prescription drugs prescribed to its insureds:
  • The 25 most frequently prescribed drugs;
  • The 25 drugs that the health care plan covered at the greatest cost, calculated by using the total annual plan spending by the plan for each drug; and
  • The 25 drugs that experienced the greatest year-over-year increase in cost, calculated by using the total annual plan spending for each outpatient prescription drug.
• The portion of the plan’s premium that is attributable to:
  • Brand name drugs prescribed to insureds;
  • Generic drugs prescribed to insureds; and
  • Specialty drugs prescribed to insureds.
• Year-over-year increase, calculated on a per member, per month basis, calculated as a percentage, in the total annual cost of: 
  • Brand name drugs prescribed to insureds;
  • Generic drugs prescribed to insureds; and
  • Specialty drugs prescribed to insureds.
• Comparison, calculated on a per member, per month basis, of the year-over-year increase in the cost of covered outpatient prescription drugs to the year-over-year increase in the costs of other contributors to the plan’s premium cost;
• The name of each specialty drug covered during the year; and
• The names of the 25 most frequently prescribed outpatient prescription drugs for which the carrier received rebates from manufacturers during the year.

Health carriers must also submit a written certification that it accounted for all rebates in calculating the plan premiums.

The Connecticut Law also authorizes the Insurance Commissioner to impose penalties of up to $7,500 per violation on PBMs and drug sponsors that fail to comply with the law’s reporting requirements.