Drug Price Transparency: Planning for Change
Currently, some 22 states have enacted prescription drug transparency laws that require entities across the drug supply chain to report pricing information to state officials. Designed to shed light on the true cost of drugs and to ensure that consumers and insurers aren’t being gouged, drug pricing transparency laws seek to level the playing field by delivering greater visibility into drug costs. And given the fact that prescription drug prices continue to increase, the topic of drug price management is likely to continue to capture the attention of the media and policymakers at the state level, given the current lack of overriding federal regulation.
For example, the AARP Rx Price Watch Report for 2021 revealed that retail prices for brand-name prescription drugs are consistently increasing at a faster pace than that general inflation. These cost increases have a negative effect on patients and overall drug compliance because people tend to avoid taking medications as prescribed when the cost gets too high. This trend is also confirmed by a 2021 GoodRx survey around medication adherence and drug cost, which shows that 18.7% of adults have delayed refilling a prescription after running out, and 16.4% of people ration medication to extend their prescriptions.
What’s Next for Drug Pricing
As drug prices become a broader concern, it becomes even more likely that there will be additional legislative and regulatory activity around drug pricing in the coming months and years. In the absence of comprehensive federal legislation, many states are taking on drug pricing management themselves, and within the next few years, up to 30 states are expected to adopt price transparency regulations. With this, we can expect that each state will have its own set of unique reporting requirements around pricing transparency.
These coming requirements for greater transparency and visibility into drug pricing will help legislators, regulators and the public better understand price increases and help control costs. Price transparency mandates typically require companies to generate reports based on “triggering events,” which include wholesale acquisition cost (WAC) increases and other events that include the release of annual price lists and pricing for new drugs, as well as the rollout of newly acquired products, as well as new drug applications.
However, the requirements for reporting and documentation can vary significantly from state to state, including formats and timing. Different periods of time around reporting on WAC price increases can vary from 30 to 60 days, or reports may be required on a quarterly basis.
Managing these requirements across a large and potentially growing number of states is, of course, challenging for pharmaceutical manufacturing companies. For each state, these firms must generate and deliver mandated reports, correctly formatted and on the correct timetable. Reporting volumes can vary significantly based on drug types and the nature of a given firm’s price increases, and some states may demand different calculations and/or documentation from companies. Accurate reporting also turns on cross-departmental collaboration that can include marketing, research and development, IT, and finance stakeholders from across the organization.
Multiplying these requirements across various states and the numerous drugs in the market illuminates the obvious complexity and show how difficult staying in compliance can be. Even worse for drug manufacturers, there can be substantial financial penalties for non-compliance, with potential fines running into the millions of dollars in some large states.
What Can Pharmaceutical Companies Do to Stay Compliant?
This increasing pressure means that pharma companies must respond to and meet reporting requirements with solutions that go far beyond labor-intensive, manual processes such as using spreadsheets and maintaining multiple different report templates.
Some companies have addressed this pain point by employing outside experts, in the form of consultants and law firms, to manage compliance efforts. While this can be an effective short-term solution, these consulting organizations typically are not domain experts with core competencies in the drug and pharma space. Additionally, these services can have a substantial price tag for pharma manufacturers, adding further to the financial burdens of compliance. This approach also typically fails to integrate technology to handle the most labor-intensive aspects of compliance, like maintaining document repositories or leveraging automation for tasks like workflow-based approvals.
State Price Transparency Software Solutions
As a result, pharma manufacturers are looking to software vendors to fill the void. Today’s state price transparency management (SPTM) tools can help ease the reporting burden and effectively operationalize these mandates. Modern, cloud-based solutions can be configured to maintain repositories of state-specific reports, filing formats, and critical dates and deadlines. Legislation repositories can also store rules changes and allow for updates as rule changes occur.
Pharma companies can also rely on automation capabilities within SPTM software to route tasks and approvals across an organization, bringing departments together for collaboration when and where needed. Automation also enables on-demand report generation based on triggering events, which helps user organizations ensure that filings are timely. Governance capabilities within these systems are designed to track and record reporting activity to provide a clear audit trail for regulators should that documentation be needed. What’s more, analytics capabilities within these systems allow for the exploration of what-if scenarios relating to downstream pricing impacts, so companies can plan for future events.
The challenges associated with state-based price transparency rules will continue to be a moving target for pharmaceutical and biotech companies for many years to come. As a result, companies should look to develop agile strategies around responding to these mandates and embrace technology and services – and collaboration between business and IT – as the foundation of their approach. Doing so will enable companies to proactively respond to changes in specific laws on a state-by-state basis, avoid penalties, and maximize revenues. Given the scope and scale of the challenge, there is really no other way for companies to deal with today’s state mandates and plan for the future.
About Kyle Forcier
Kyle Forcier is a senior director of corporate strategy for Model N. For more than 15 years, Forcier has focused his time in the life sciences space helping manufacturers increase their revenue, maintain compliance, and bring innovative ideas to the marketplace. He currently helps shape Model N’s strategic direction focusing on bringing complex, valuable solutions to the market to solve longstanding operational challenges within the medtech industry.