Authored by Mark Scallon, Samantha Sutherland and Grant Ostlund
Drug price transparency is a hot topic of conversation in the life sciences industry. In many ways, the roll-out of drug price transparency laws resembles the early evolution of spend transparency laws, which increased significantly over the last 10 to 15 years. The biggest driver of expanding drug price transparency reporting is increased public scrutiny over the high price of prescription drugs. Price transparency is largely a bipartisan issue, as politicians from both sides of the aisle feel pressure from constituents to rein in drug prices. These factors and others have created somewhat of a “perfect storm” at the moment.
In 2017, only six states had drug price transparency laws. Three years later, that number has increased to 18 states – and the trend appears likely to continue.
When spend transparency reporting began, it too started at the state level due to a lack of any applicable federal standard. Additionally, public scrutiny generated a bulk of the momentum around the issue of increased visibility into payments between industry and the health care community. Other similarities between the early days of spend transparency and the current drug price transparency climate include:
Generally speaking, states pass drug price transparency laws that fall into one or more of the following eight categories:
Furthermore, many states adopt laws that fall under multiple categories. This creates additional complexity and urgency as companies scramble to comply with laws across multiple categories and jurisdictions, many of which require disclosure of sensitive information.
Of course, companies face significant penalties if they fail to comply with the laws in their state. Minnesota and Oregon fine companies up to $10,000 for each day of a violation, while fines in Maine can reach as high as $30,000 per day.
As companies work to adhere to the specific reporting requirements in their state, they typically face operational and structural challenges including:
The best way to combat these challenges is by taking advantage of the following best practices.
On a federal level, congressional action is stalled. A 2018 executive action was blocked in court after several companies and industry groups challenged its requirements on free speech grounds. However, with the presidential election around the corner, expect price transparency efforts at the federal level to be in news between now and November. In fact, as recently as July 24, 2020, President Trump signed four executive orders designed to lower drug prices (These executive orders have limited power to affect policy, but instruct the Department of Health and Human Services to begin or continue taking steps towards facilitating greater drug price competition and transparency).
Looking down the road, we see several possible trends for the future of price transparency, including:
With that being said, we do anticipate some type of federal laws around price transparency in the near future.
As noted earlier, we are seeing the type of “perfect storm” at the moment that typically leads to federal action. We are seeing many similarities to spend transparency laws. Combine that trend with the political climate of an election year, the fact that it is a bipartisan issue, the federal transparency of medical care, the increased public scrutiny and the national attention surrounding the pricing of COVID-19 products, and these factors make it likely that federal legislation of drug price transparency will be on the horizon – and also that it will expand into the medical device space, as well.
We encourage you to closely monitor state and federal regulations for new laws and requirements and to connect with Baker Tilly if you would like additional insight or assistance regarding drug price transparency.
For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.