State Drug Affordability Boards: Legislative Landscape and Future Implications

Editor’s Note: Through a new survey of 50 states plus D.C., summarized below, Manatt maps today’s legislative landscape for state drug affordability boards—and identifies the potential legal and market implications to come. For a preview of key highlights, click here to download our free infographic showing states that have established or are considering boards, payers under their purview and cost triggers by category.

As federal legislative efforts to reform prescription drug pricing have stalled and states have felt increasing pressure on their healthcare budgets, a growing number are implementing or considering prescription drug affordability review boards or commissions to reduce drug spending. These “affordability boards” may become powerful new players in drug pricing—but many questions remain about their legal authority to set reimbursement levels.

Through Manatt Health’s 50-state + D.C. survey of enacted or pending legislation, Manatt Health found that 17 have either authorized the implementation of such boards or have explored their establishment through legislation. Under their purview, affordability boards can set annual drug spending targets, establish upper payment limits, or negotiate supplemental rebate agreements for drugs that meet certain total cost or cost increase triggers.

Key Findings

Among the 17 states that have either authorized the implementation of state drug affordability boards or explored their establishment through legislation, six (ME, MD, MA, NH, NY and OH) have enacted legislation to create an affordability board or commission. Four states (MA, NJ, NY and PA) have more than one piece of affordability board legislation that has been enacted or is pending.

Establishing upper payment limits is the most common approach to reducing prescription drug prices in enacted or proposed affordability board legislation (11 states: AZ, HI, IL, MA, MN, MO, NJ, NY, PA, RI and VT), followed by negotiating supplemental rebates with manufacturers (six states: ME, MA, NH, NY, OH and WA). Affordability board legislation in a few states also employs other approaches such as formulary changes (ME and NH) or importing prescription drugs from other countries (NJ).

Affordability board legislation differs in the cost and cost increase triggers used to determine which drugs the affordability boards will target. The most common specifications for each category of product, however, are included in the following table:

Payers under affordability boards’ purviews generally fall into one of two categories:¹

• State-sponsored and state-regulated health plans, which may include state, county, local or municipal employees, excluding ERISA plans (AZ, HI, ME, MD, MA, MO, NH, NY, PA and VT)
• Medicaid programs (MA, NJ, NY, OH, VT and WA)

The most frequently requested information from manufacturers as dictated by legislation includes estimated value or cost-effectiveness of a drug, projected revenue, and market competition and context. While generally the legislation provides that this information will not be disclosed, there are exceptions, raising concerns regarding public disclosure of information that might be considered proprietary or confidential.

Potential Legal Issues Presented by State Drug Affordability Boards

While states are increasingly turning to affordability boards to address drug prices, significant questions remain about their legal authority to address high drug prices. Although states certainly can establish boards to set maximum recommended prices for drugs, states have limited ability to ensure that such proposed prices are actually adopted.

Due to federal pre-emption, states cannot impact the prices of drugs paid for under Medicare, whether under Part B or Part D. State laws reflect this limitation, as the statutes generally do not apply to Medicare. ERISA pre-emption also likely means that states lack the authority to set prices for self-insured plans, which are a large percentage of the large group health insurance market.

Even where states do have legal authority to regulate a plan, limitations exist on how they may exercise that authority. Section 1927 of the Social Security Act, for example, generally requires state Medicaid programs to provide coverage of all Food and Drug Administration-approved drugs sold by manufacturers so long as those manufacturers agree to provide federally required rebates. States can ask for additional rebates beyond the federal minimum (called supplemental rebates), but states cannot deny coverage if a manufacturer refuses to provide supplemental rebates.

Against this backdrop, it is unclear what authority a state would have to require discounts pursuant to affordability recommendations that go beyond federally required rebates. While California has imposed fines on some manufacturers for failing to provide data in response to the state’s drug transparency law, the boundaries of state powers to enforce affordability board recommendations remain largely untested. 

NOTE: Manatt’s state drug affordability board survey provides critical information for life sciences companies, health plans, state regulators and other healthcare stakeholders. Findings are available in two formats—as a standalone PDF or through a subscription to Insights@ManattHealth, which gives you access to the complete survey results as well as our premium content information service. Insights@ManattHealth leverages Manatt Health’s knowledge in the Medicaid, Medicare, Marketplace, life sciences, litigation, digital health and privacy arenas to bring you a roundup of each week’s federal and state policy changes; detailed regulatory and sub-regulatory guidance summaries; and 50-state surveys across a range of topics, including Section 1115 waivers, 340B policies, telehealth and our newest addition on how states are leveraging Medicaid managed care contracts and 1115 waivers to address social determinants of health (SDOH).

With 17 states already authorizing or exploring the implementation of drug affordability boards through legislation, the survey is a critical tool for understanding today’s market and regulatory environment—and preparing for what’s next. For more information or to schedule an Insights@ManattHealth demonstration, please contact Barret Jefferds at bjefferds@manatt.com.

_{¹ One state (IL) did not specify applicable payers in the legislation.}