Virginia is the latest state to prioritize legislation that puts prescription drug affordability front and center, with a bill moving through the General Assembly that would create a body to review and regulate pharmaceutical prices.
Proponents of the proposal say it will help rein in high-priced medications, or at least create state oversight of the pharmaceutical industry. Skeptics point to a lack of success in other places that have passed similar legislation and say that the bill could cause unintended consequences.
SB 274, introduced by state Sen. Creigh Deeds, D-Charlottesville, would establish what’s called a prescription drug affordability board, or PDAB. Made up of five independent experts, the state-run board would be tasked with reviewing and regulating pharmaceutical prices for certain high-priced medications, similar to regulatory bodies for public utilities.
“The reality is two-thirds of Virginians take medication. We’re getting a handle on inflation with this bill,” Deeds said. “We’ve got to find a way to bring costs down for the working family because the [federal government has] not.”
The bill passed the Senate Commerce and Labor committee, Senate Finance and Appropriations committee, and then the full Senate on a 23-16 vote. On Tuesday, it cleared the Democratic-led House Committee on Labor and Commerce on a 12-10 party-line vote.
The Virginia PDAB would have the authority to evaluate drugs and impose upper payment limits to the sales price and reimbursement for the drug, essentially capping the list price for pharmaceutical companies.
The board could establish up to 12 upper-payment limits annually, and any action taken would apply only to state-regulated health plans and Medicaid. Because Medicare is a federal program for people over 65 years old, the decisions of the Virginia PDAB would not apply to its enrollees.
PDABs have been implemented in eight other states and are a relatively new approach to tackling the growing concern over prescription drug affordability. After a rocky start — the governor vetoed the bill before lawmakers revived it — Maryland became the first state to pass PDAB legislation in 2019.
But the effectiveness of this strategy has yet to be seen. Colorado, which created its program in 2021, is the only state to have completed affordability reviews of two drugs.
In December, the Colorado PDAB unanimously voted that the first drug it reviewed, a cystic fibrosis treatment called Trikafta, was not unaffordable and voted against applying a cap to the listed sales price. Both pharmaceutical companies and cystic fibrosis patients had opposed a price cap, according to The Colorado Sun, with patients arguing that if Colorado limited the sale price, the manufacturer might decide not to sell the drug in the state.
Then just last week, Colorado became the first in the nation to find a drug unaffordable, though the board has not voted on whether to set a price cap. The injectable drug Enbrel is used to treat autoimmune diseases and can cost patients and their insurance companies up to $46,000 a year, according to The Denver Post.
Critics who say PDABs don’t return on their promises point to the Trikafta outcome and echo concerns that with a price cap on Enbrel, the drug might not be offered in the state anymore.
Jared Calfee, director for advocacy and outreach for Virginia AARP, an advocacy group for seniors, said the Colorado board did exactly what it was supposed to do: provide oversight and analysis of drug prices. He dismissed the idea that price caps could limit drug availability as “scare tactic” by pharmaceutical companies.
“Medication is only effective if you can afford it. The board will take a look at drugs that are high in cost or are causing affordability problems in Virginia. If the cost is justified, they’ll leave it the way it is. But if the cost isn’t justified, they’ll set an upper payment limit,” Calfee said.
Virginia AARP worked with state policymakers last year and this year to bring the PDAB legislation to the General Assembly. Last year, the bill was killed in a House subcommittee after significant opposition was raised during public testimony, Calfee said.
“We could wait and see what other states accomplish, but the commonwealth should be a leader in this area,” he said.
Deeds, who’s carrying the bill this year, agreed that PDABs aren’t a perfect solution and acknowledged that there are other bad players in the pharmaceutical industry.
Establishing the board would take hundreds of thousands of dollars, he said. But it’s a good place to start addressing things like the cost of living in Virginia.
“Part of this legislation and what we do here is giving people hope,” Deeds said. “You’ve got to give them hope.”
Drug pricing is complicated by design
The idea of curtailing prescription drug prices is widely supported, especially as recent reports have found that Americans pay higher prices for prescription drugs than any other country in the world, according to the U.S. Department of Health and Human Services.
Virginians are paying even more than the average American, Calfee said.
In 2020, Virginians spent 36% more on prescription drugs than the national average, according to data from AARP. Residents spent $3.2 billion collectively on prescription drugs in the commercial market, AARP found.
Bringing comprehensive reform to the $1.48 trillion pharmaceutical industry is deeply complex, and many supporters of state regulation agree that the federal government is better positioned to impose regulatory oversight.
The Biden administration has made some progress on this front with the Inflation Reduction Act by capping insulin prices for those on Medicare. The action put pressure on pharmaceutical manufacturers to cap their prices at the same rate, and some did.
The problem is that some pharmacy benefit managers, which negotiate on behalf of insurance companies, continued to work with manufacturers that had not made the change.
Critics say that PDABs target the wrong player in the complicated world of drug pricing. Instead, it’s the pharmacy benefit managers, or PBMs, that require greater oversight, said Howard Estes, a lobbyist for the Virginia Pharmacists Association.
“States have the best intentions [when passing PDAB legislation], but it’s a very complex system. And when it comes to PBMs, it’s a black box,” Estes said.
The 2020 U.S. Supreme Court ruling in Rutledge v. Pharmaceutical Care Management Association opened up pathways for state policymakers to pursue health care rate setting reform.
The decision gave the state of Arkansas the ability to regulate pharmacy benefit manager reimbursement practices, setting a precedent that states have the authority to implement laws that will address the needs of its residents, even when the impact of the laws extend beyond state boundaries, according to an article by Jane Horvath, a renowned health policy analyst and policymaker.
More states started considering ways to implement regulations, which could result in a patchwork of state laws, further complicating dealings with the pharmaceutical industry and making medications unavailable in certain places, Estes said.
Lowering prescription costs is a bipartisan issue with hundreds of doctors across Virginia signing letters of support for legislation targeting drug prices. But other providers disagree on how to get there, saying that a holistic approach is needed.
Dr. Harry Gewanter, a semi-retired pediatric rheumatologist in Richmond and former president of the Medical Society of Virginia, testified against the PDAB bill, saying that singling out manufacturers’ sales prices could have unintended consequences.
Gewanter spent his career treating children with rare conditions and watched as patients couldn’t afford the copay for medications they needed. He has worked at the local, state and national levels to control medication prices. But he is highly critical of PDABs, saying that focusing on manufacturers targets the wrong player in the pharmaceutical food chain.
Instead, he points to the middlemen who hold the keys to what’s called formulary construction.
The formulary is the predetermined amount that an insurance company will pay for a drug. The remaining cost is passed on to the consumer.
Having preferred placement on the formulary gives the manufacturer a competitive edge. Having greater insurance participation in drug costs means consumers are more likely to use that drug over others.
But how does the pharmaceutical company ensure a good placement on the formulary? The company essentially buys it from the PBM.
PBMs negotiate rebates from drug manufacturers who have to agree to the price discounts in order to be covered by insurance, said Dr. Madeline Feldman, vice president of advocacy for the nonprofit Coalition of State Rheumatology Organizations. In the end, it can be more beneficial to choose expensive drugs over less expensive drugs.
“He who creates the formulary chooses the drug that makes the most money,” Feldman said.
The value of the rebates is largely unknown, since the amounts are set during private negotiations and are not accessible to the public. But in a 2023 U.S. Senate committee meeting about insulin prices, manufacturers said only about 20% of the list price went back to the company. The rest went to the PBMs and insurance companies in the form of fees and rebates.
PBMs blamed the high prices on a lack of competition among manufacturers.
“I don’t really care whether it’s insurance companies or drug manufacturers who are getting the money. It’s deep pockets on both sides,” Feldman said.
Feldman fears that if PBMs don’t make the money they need on drugs with a price cap set by a prescription drug affordability board, those medications will be excluded from coverage altogether and won’t be available to patients at all.
Fears of an ‘unfriendly environment’ for business
A representative of the Virginia Chamber of Commerce testified in opposition to the PDAB legislation, echoing concerns that the prospect of price caps could hinder the growth of the pharmaceutical industry in the state.
One major manufacturer has already considered pulling out of Virginia due to the advancement of bills that would establish prescription drug regulations, said John Newby, CEO of VirginiaBio, a nonprofit organization representing the life sciences industry.
As an international company, it could easily move production elsewhere, he said.
“They’re looking at potentially Virginia becoming an unfriendly environment to their manufacturing endeavors. It’s a factor when they’re considering whether or not to bring these new products to Virginia for production,” Newby said.
It’s unclear how a patchwork of state legislation would affect business between manufacturers and insurance companies that cross state lines, but since state-run pharmaceutical regulation is a rarity at this point, companies could be disincentivized from doing business in places with regulatory laws.
And it is companies like this that support and build economies at both a national level and in the commonwealth.
“Our membership makeup is made of predominantly medium to small startup companies,” Newby said. “The startups are the heart of the ecosystem, not just in Virginia, but nationally […] without those smaller companies those innovations of life-saving medicines will not come to market.”
New outlooks
Despite the controversy around how to regulate the pharmaceutical industry, it’s clear that lowering the cost of health care is a bipartisan issue.
Dr. Rommaan Ahmad is a pain management physiatrist in Alexandria who serves residents of both Virginia and Maryland. She has the unique perspective of practicing in a state that passed PDAB legislation in 2019 and in a state that hasn’t.
She also leads the Virginia chapter of a national organization called the Committee to Protect Health Care, which advocates for pro-patient policies. A rallying cry to support legislation to lower drug costs resulted in a list of more than 100 signatures from providers in Virginia in support of the PDAB legislation.
“I hope that this will become a nationwide thing, not too long into the future. I think it’s early which is why it’s hard, it’s hard to change mindsets. […] We don’t have to play the game that insurance industries are playing. It does take a while to get used to the idea,” Ahmad said.
She hopes that as more states get on board, the federal government will step up and take greater action.