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New Connecticut Law Targets High Prescription Drug Prices

By Jill Zorn |

Which powerful industry is to blame for high prescription drug prices?

  1. Drug companies
  2. Pharmacy Benefit Managers (PBMs)
  3. Health insurance companies
  4. All of the above

If you answered D. All of the Above, you are correct.

Connecticut’s new law, HB 5384, An Act Concerning Prescription Drug Costs, begins the process of holding all three industries accountable.  It awaits Governor Malloy’s signature after passing unanimously in both the House and Senate (UPDATE: Governor Malloy signed the bill into law on May 31, 2018).

The bill is focused on transparency, on shining a light on the activities of all three major corporate players, as well as on the impact of rising prescription drug prices on the state budget. Below is a summary of the information that will be gathered from each industry.

Drug Companies 

The Office of Health Strategy, in consultation with the Comptroller, Commissioner of Social Services and Commissioner of Public Health, will compile a list of ten drugs that are provided “at substantial cost to the state” or are “critical to public health”.  The drugs on the list must have experienced price increases of at least 20% in the previous year or 50% in the past three years.  The pharmaceutical companies that manufacture those drugs will be asked to provide justification to the state for these dramatic price increases.  Drug companies will also report information to the Office of Health Strategy about drugs that are in the “pipeline”, to help the state anticipate future cost challenges.

PBMs 

PBMs manage the drug benefit for insurance companies and large employers.  As part of this role, they negotiate volume discounts with drug companies.  These savings are funneled from the drug manufacturer to the PBM and then back to the PBM’s clients as rebates, calculated after prescription volumes are known.

PBMs have been coming under increasing fire because very little is known about the amount of money changing hands in these secretive transactions, including how much of the negotiated savings they are keeping for themselves.  To address this concern, HB 5384 requires PBMs to report annually to the Insurance Commissioner the total amount of rebates they collected from drug companies and the total amount they passed along to insurance companies.  The Insurance Commissioner will publish a report summarizing this information.

Insurance Companies

When filing their annual rate requests, health insurers will report information to the Insurance Commissioner about the rebates they have received from PBMs and how they have used that rebate money.  An earlier draft of the bill required that a “majority” of those rebate dollars be passed through to consumers at the pharmacy counter to lower their out-of-pocket pocket prescription costs. But this provision did not make it into the final version.  This is particularly frustrating as two major insurers,  Aetna and UnitedHealthcare announced in March that they would adhere to this approach beginning in 2019, to improve affordability for their members when they are in their deductible period or pay co-insurance.  Instead, the bill only requires carriers to share the extent to which they have used rebate payments to lower premiums versus passed the discounts through to their members directly.

Insurance companies will also submit detailed information about their outpatient prescriptions drug costs at the time they are requesting rate increases.  This information will include:

  • The 25 most frequently prescribed drugs
  • The 25 highest cost drugs
  • The 25 drugs that experienced the greatest year-over-year cost increase

The Insurance Commissioner will compile this information into an annual report to the General Assembly and will also use this information during the rate review process.

An Important Step Forward

Although this bill makes good progress, it isn’t perfect. The bill is stronger on PBM and insurance company transparency than it is on getting more information from drug companies about why they have raised their prices.  And we wish the provision to pass rebates along to consumers at the pharmacy counter had survived.

Still, with the passage of HB 5384 Connecticut stands out as a state that is determined to make headway on the very challenging problem of high prescription drug costs.   And it gives us a great foundation from which to build future legislative efforts to make even more progress.