Vermont the First State to Require Pricing Justification from Drug Manufacturers

On June 3, 2016, the Governor of Vermont signed into law bill S.216, “An act relating to prescription drug formularies” (the “Law”).  The Law is designed to understand the drivers of rising prescription drug costs, and, among other things, will require all health insurers offering plans under the Vermont Exchange to make detailed information available to their enrollees, the public, and health care providers regarding drugs covered under the plan’s formulary, the cost-sharing amounts for those drugs, and any prior authorization, step therapy, or utilization management requirements. 

However, one of the more notable provisions of the Law imposes new requirements that are clearly attributable to the recent outcry by the public, State legislatures, and the United States Congress over rising drug costs, and how and why pharmaceutical manufacturers justify increasing the prices of their products.

Pursuant to the Law, on an annual basis the Green Mountain Care Board (an independent group created by the Vermont Legislature in 2011 charged with ensuring that changes in the health system improve quality while stabilizing costs) (the “Board”), in collaboration with the Department of Vermont Health Access, will identify and compile a list of “up to 15 prescription drugs on which the State spends significant health care dollars and for which the wholesale acquisition cost has increased by 50 percent or more over the past five years or by 15 percent or more over the past 12 months, creating a substantial public interest in understanding the development of the drugs’ pricing.” The Board will then provide this list to the Vermont Attorney General, and will make the list public on the Board’s website.

For each of the drugs identified by the Board, the Vermont Attorney General “shall require the drug’s manufacturer to provide a justification for the increase in the wholesale acquisition cost of the drug in a format that the Attorney General determines to be understandable and appropriate. The manufacturer shall submit to the Office of the Attorney General all relevant information and supporting documentation necessary to justify the manufacturer’s wholesale acquisition cost increase.” Based on the information received from the drug manufacturers, the Attorney General will present a report to the Vermont General Assembly on or before December 1 of each year. Although the Attorney General will post the report on its website, the report will not identify individual drugs or manufacturers. If a manufacturer fails to provide information justifying its price increase, the Attorney General may seek an injunction from Vermont Superior Court and may impose a fine up to $10,000 per violation. 

The Law, while certainly the first of its kind, still leaves many critical questions unanswered. For instance, what is an “understandable and appropriate” justification for a price increase? How will the Vermont Attorney General evaluate the responses of manufacturers? What, if any, actions could the Attorney General take against a manufacturer whose justification is not acceptable? As written, the only penalties associated with the Law have to do with failure to provide information. Importantly, what are the procedures and timelines regarding publication of the Board’s “list,” notification to a manufacturer that they are on the “list,” and response by the manufacturer? When will the Board’s first list be published? We anticipate that the State of Vermont will be issuing further guidance and clarification in the weeks and months to come, and Arent Fox will be tracking all developments for our clients.