The Debate Over Capping Drug Prices is Headed Towards the States

Democrats are touting how the multibillion dollar proposal worked out by Senate Majority Leader Chuck Schumer and Sen. Joe Manchin would lower drug prices for seniors on Medicare. 

But because of limits on what congressional Democrats are able to get through the Senate, the bill does not go as far as Democratic leaders like House Speaker Nancy Pelosi had wanted—to limit what drug companies can charge everybody and not just those on the federal health program for the elderly.

Instead, that fight is being left to be played out in state capitols around the country. 

Lawmakers in Colorado last year and in Washington in March created boards that will evaluate the prices being charged for drugs in their states, and if they’re too much, they will have the power to set a limit on how much can be charged.

And other states could follow. 

Bills to do the same have been introduced this year in seven other states—Arizona, Connecticut, Michigan, Minnesota, New Jersey, Pennsylvania and Rhode Island. Meanwhile, a Massachusetts bill would allow a state board to require a drug company to enter into a plan to reduce prices if they are deemed to be charging too much. 

A total of 288 bills aimed at lowering drug prices have been proposed in states this year, according to a National Academy for State Health Policy database tracking drug bills around the country. 

“We were tired of waiting for Congress to act. Many states believe we just can’t wait,” Washington Democratic Sen. Karen Keiser, who sponsored her state’s law, said in an interview.

“So we’re doing what we can do at the state level,” she said.

Bill Falls Short of Original Goal

After years of debate over drug prices in Congress, Democrats are moving toward taking action as part of the Inflation Reduction Act proposal Schumer, of New York, and Manchin, of West Virginia, agreed to last week. 

The massive bill—which would also spend $369 billion on climate change and $64 billion to allow millions to continue to afford health-care coverage—would allow Medicare to negotiate down the prices of 10 drugs with pharmaceutical companies. The number would grow to 20 in 2029.

However, Democrats’ ambitions were much higher in April 2021 when Rep. Frank Pallone, a New Jersey Democrat who chairs the House Energy and Commerce Committee, introduced the Elijah E. Cummings Lower Drug Costs Now Act. The bill would have required drug companies to charge the same price they’d negotiated with Medicare to commercial insurers.

Under that bill, the Health and Human Services secretary would have negotiated “lower prices on behalf of Medicare. But those same lower prices will be available to all Americans with private insurance,” Pallone said at a committee hearing on the bill.

Democratic House Speaker Nancy Pelosi, of California, pushed for the bill, touting it as “bold action to level the playing field for American patients and taxpayers” in a fact sheet at the time. The bill, Pelosi stressed, “makes the lower drug prices negotiated by Medicare available to Americans with private insurance, not just Medicare beneficiaries.”

However, extending the negotiated prices to commercial insurance, an idea that was strongly opposed by the pharmaceutical industry as government rate setting did not make it into the House’s $1.75 trillion Build Back Better bill. And Senate rules prohibit it from being part of Schumer’s and Manchin’s scaled-down version, sources said.

To overcome unanimous Republican opposition to the new bill, Schumer is planning to try to pass it through a budget procedure called reconciliation, which requires only 50 Democratic votes. However, the procedure only allows provisions with a direct impact on the federal budget. 

That’s a loss for states and cities from getting relief from the large amounts they are paying for medication.

No national figures are available on how much state and local governments spend on medications. But in Maryland, for example, the state estimates that it spends about $400 million annually for medications taken by its employees.

The top 25 most expensive drugs—including the arthritis treatment Humira Pen, the diabetes medication Trulicity, and Enbrel, which is used for autoimmune diseases—made up only 8% of total prescriptions in 2018 but 36%, or $360 million, of the state’s overall drug spending.

Jennifer Reck, director of NASHP’s coverage, cost and value project, said in an interview that not extending the negotiated Medicare prices to others, including for drugs taken by state and local workers, means it will not lower the amount states and localities are spending on the medications. The governments, though, would have seen a decrease had Democrats been able to achieve their goal of lowering prices for all.

However, Reck did say the bill would add some pressure on drug companies to charge everyone the same prices as they negotiated with Medicare. That could lower the cost for states and localities. 

In addition, experts at health-care policy groups including the Kaiser Family Foundation noted the bill would also pressure drug makers not to raise prices above inflation. If they do, they would have to pay the difference over inflation back to Medicare through rebates. 

Though commercial insurers would not get the rebates, the Health and Human Services Department would include price hikes for commercial insurance in determining whether a company is raising prices for a drug above inflation. 

That would push companies to not raise prices for commercial insurance faster than inflation, because it would make it more likely they would have to pay the rebates to Medicare, Meredith Freed, senior policy analyst at the Kaiser Family Foundation, said in an email. 

‘A Good Start’

Still, while Keiser said the proposal in Congress is “a good start,” she noted letting Medicare negotiate the price of drugs for seniors would not bring the same relief as capping how much companies can charge everyone. Congress’ inability to pass a broader drug pricing bill, she said, could push more states to follow Washington’s and Colorado’s lead.

By taking on drug prices for Medicare patients, however, Congress is dealing with a problem states can’t address, Democratic Maryland Delegate Joseline Pena-Melnyk said in an email.

“The Medicare population is one that we generally cannot help at the state level because it’s a federal program,” said Pena-Melnyk, chairwoman of the House of Delegates health and government operations committee. “We have a number of older Marylanders who have trouble affording their prescriptions. We often have to tell them that there is little that we can do to help them. If our federal partners take care of their programs, we can work on the others.”

Pena-Melnyk sponsored a 2019 law creating a state drug pricing board that is now evaluating whether to ask lawmakers to let it set a price cap on how much public employees are charged for certain medications.

Andrew York, executive director of the Maryland Prescription Drug Affordability Board, noted in an email that another limitation with the congressional bill—the relatively few number of drugs that would be affected—gives states room to address the cost of other drugs. 

Sen. Bernie Sanders, a Vermont independent, has criticized the proposal for being “weak,” saying among other things that it does not allow Medicare to negotiate the price of more drugs.

York, while not criticizing the proposal, noted that “federal policies often only affect specific parts of the prescription drug market. It is still important for states to address prescription drug affordability to supplement the work that is happening at the federal level.”

Opposition From the Drug Industry

The creation of state boards that could limit drug prices is opposed by the influential Pharmaceutical Research and Manufacturers of America, known as PhRMA, which sees it as government intrusion that would take money away from the industry to develop new cures.

“Whether it is the current drug pricing bill in Congress or state drug affordability boards—both are forms of government price setting that ultimately threaten future innovation and access to lifesaving medicines for patients,” PhRMA spokeswoman Sarah Sutton said in a statement. “Instead, policymakers should focus on commonsense solutions that help patients at the pharmacy counter and don’t upend the health care system, improving patient access and lowering patient’s out-of-pocket costs.”

Maryland is one of six states that created boards similar to those in Colorado and Washington, but stopped short of giving them power to limit how much can be charged for drugs and limit their work to the price of drugs for state and local workers or those on Medicaid.

Pena-Melnyk said she had wanted Maryland’s board to have authority over drug prices for all the state’s residents, instead of only public employees. But to get the measure through the legislature, she had to compromise. Rather, the board is required to recommend to the Maryland legislature by December 2023 whether to expand its authority to more people and to allow it to set limits on how much can be charged for medications.

“States have been incredibly active around drug pricing because they haven't been able to wait for Congress,” Reck said. She noted that more than 250 laws have been passed since 2017.

The boards are among a range of approaches states have tried to lower drug prices, including enacting transparency laws requiring entities across the drug supply chain to report pricing information to state officials, including why prices are being raised.