Drugs — life-saving drugs — are changing lives, changing the way health care is delivered, and changing the way states, including Massachusetts, are wrestling with the rising public costs of paying for those drugs.
Last week in his proposed 2019-20 state budget, Governor Charlie Baker offered up yet another way to help control those rising prescription drug costs, promising that getting tougher not on MassHealth patients but on pharmaceutical companies could save some $80 million a year. Yes, that’s a big number — but it makes the point that this aspect of Medicaid spending is indeed a big ticket item that needs to be addressed.
That’s not surprising, given that some 1.86 million low-income residents are covered under the program — and that the cost of prescription medications are rising faster than the cost of any other aspect of health care. According to Baker’s budget team, spending on drugs under MassHealth has just about doubled since 2012, to $1.9 billion a year.
The problem, of course is not unique to Massachusetts or even to Medicaid spending. It’s one that private insurers and the federal Medicare bureaucracy are also wrestling with. And no doubt the Baker administration didn’t pick that 2012 date at random. It was in 2013 that the first breakthrough drugs to treat (and cure) hepatitis C came to market — saving lives and untold pain — but at a cost at the time of some $84,000 for a course of treatment. A new and somewhat controversial drug to treat cystic fibrosis — controversial because its efficacy has been called into question — costs $272,000 a year per patient.
Both kinds of drugs would surely be on a short list — and Baker himself assured “we’re talking about a small number of drugs here” — of those MassHealth would be empowered to negotiate directly with drug manufacturers over pricing.
If the manufacturer fails to see the wisdom in offering the state rebates to meet its targeted price, the drug company would be subject to a public rate-setting process. If those negotiations are unsuccessful, then drugs priced at more than $25,000 a year per patient (or $10 million in total costs to the state) would be subject to action by the Health Policy Commission that would include disclosure requirements, public hearings, and a possible referral to the attorney general’s office for action under the state’s consumer protection law.
In short, the measure — which would require legislative approval — would allow the state not only to use its buying power but also its bully pulpit to bring down the cost of the drugs it buys.
And unlike the Baker administration’s proposal last year to exclude certain drugs from its formulary, approving exceptions only on a case-by-case basis, this plan would not require federal approval. (Last year’s was rejected by the feds.)
When it comes to attempts to control drug costs, states have indeed become the laboratories that federalism envisioned. The kind of transparency that the new Baker plan would use as a cudgel if need be to wrest drug discounts from manufacturers is one of the more popular instruments in state toolboxes. Vermont passed its first try at such transparency in 2016 and revised it just last year. It focuses on exposing drugs that have experienced the largest price increases in the course of a year. California passed a similar law in 2017 aimed at the 25 most expensive drugs. Results are still out on the extent of cost savings.
New York has a cap on Medicaid drug spending that if exceeded triggers a negotiating process similar to the one proposed for Massachusetts. That state also has an independent panel that reviews drug costs and clinical benefits — not unlike the role that would be played by the Massachusetts Health Policy Commission.
Connecticut’s law requires drug companies to justify price increases if those increases exceed 20 percent in one year or 50 percent over three years.
Last year Massachusetts lawmakers in their own health care reform effort were looking at promoting drug pricing transparency not simply for MassHealth but for the commercial insurance market as well. Senate President Karen Spilka, in a meeting with the Globe editorial board, indicated that’s a direction she’s still interested in pursuing this year. It would certainly be a logical add-on to the Baker proposal and a hedge against the next EpiPen scandal.
There still needs to be a balancing act, allowing companies to recoup their research costs and turn a reasonable profit. It takes on average some $2.5 billion and often more than seven years to bring a drug to market, according to a study by the Tufts Center for the Study of Drug Development. The Massachusetts economy, with its burgeoning biotechnology industry, has been a big beneficiary of new medicines. But the drug industry also spends billions of dollars each year to tout its latest advances in direct-to-consumer advertising, offering up lots of warm and fuzzy stories — everything but the drug’s cost. It’s time the state filled that gap. Cutting the state’s financial burden for Medicaid recipients is essential, but so too is real transparency in drug pricing that will make all of us smarter consumers.