States Trying to Limit Drug Costs

by | July 6, 2015

By Michael Ollove

As more expensive specialty drugs come on the market to treat some of the most serious chronic diseases, more states are stepping in to cushion the financial pain for patients who need medicine that can cost up to hundreds of thousands of dollars a year.

At least seven states _ Delaware, Louisiana, Maine, Maryland, Montana, New York and Vermont _ limit the out-of-pocket payments of patients in private health plans. Montana, for instance, caps the amount that patients pay at $250 per prescription per month. Delaware, Maryland and Louisiana set the monthly limit at $150 and Vermont at $100. Maine sets an annual limit of $3,500 per drug.

New York prevents insurers from listing specialty drugs in a separate category that allows for charging higher payments out of pocket.

In an effort to hold down prices, legislators in other states, including California, Massachusetts and North Carolina, have proposed requiring companies to make broad financial disclosures justifying their high drug prices. So far, no such law has passed.

Critics of pharmaceutical pricing say that while the measures would help bring financial relief to some patients, they would fail to control spiraling drug prices set by drugmakers. As expensive specialty drugs proliferate, consumers likely will incur higher out-of-pocket payments and health insurance premiums.

"None of those measures is going to be very effective in my view because they don't get at the underlying issue of how drug prices are set," said John Rother, president and CEO of the National Coalition on Health Care, a nonprofit that focuses on improving health care while lowering costs.

Specialty drugs are in a class called biologics, extremely complex medicines made from organic materials. They are often used to treat serious, chronic diseases, including some advanced forms of cancer, autoimmune diseases such as rheumatoid arthritis and diseases of the central nervous system such as multiple sclerosis. They also are used to treat hepatitis C, which afflicts approximately 2.7 million Americans, according to the Centers for Disease Control and Prevention.

In most cases, biologics are far more effective and cause fewer side effects than conventional drugs, leaving patients with no alternative but to take them.

But the price for these drugs far exceeds that of conventional drugs, largely because they have little or no competition. They also require special handling, such as refrigeration, and often must be administered intravenously, adding to their costliness.

On average, biologics cost 22 times what conventional medicines do. A 2011 AARP Public Policy Institute report said that the average specialty medicine cost more than $34,550 for a year's course of treatment.

"The cost of these drugs is simply unsustainable," said Leigh Purvis, director of health services research in AARP's Public Policy Institute. Biologics also are gaining a growing share of the prescription market.

According to a report last year from Express Scripts, a large prescription management company, specialty drugs already represent nearly a third of the spending on pharmaceuticals in the U.S., although they represent only 1 percent of all prescribed medications. Within two years, Express Scripts projects that spending on specialty drugs will account for $4.40 out of every $10 spent on medicine.

At least seven states are tackling the problem of high out-of-pocket payments for expensive specialty drugs by limiting coinsurance payments. Insurers use coinsurance and copayments to impose cost-sharing on beneficiaries. Copayments are a set price _ often $5, $10 or $15 _ that patients pay for medicine, whatever the cost of the drug. With coinsurance, patients are required to pay a percentage of the actual cost of the drug. That means that the higher the cost of the drug, the more the patient has to pay out of pocket.

Coinsurance payments for specialty drugs range nationally from 28 to 50 percent of the price of a drug, according to a 2013 policy paper by Chad Brooker, a lawyer with the Connecticut health exchange.

The state-imposed caps apply both to copayments and to coinsurance. They provide some price protection for the patients taking the drugs, but also spread the high cost of the drugs to a wider population of consumers in the form of higher insurance premiums.

"The caps don't actually lower the costs of the medicine, it just raises the premiums for everyone," said Rother of the National Coalition on Health Care.

Covered California, that state's health exchange, this year became the first state exchange in the country to impose a coinsurance cap on specialty drugs of $250 per prescription per month.

James Scullary, a spokesman for Covered California, said the cap would result in an overall premium increase of no more than 1 percent in the first year and no more than 3 percent in the first three years.

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