Report Recommends Alternatives to Drug Pricing Transparency Legislation

Value-based reimbursement, focus on middlemen in drug distribution system more likely to reduce prices, provide consumers with valuable information

BOSTON – As Massachusetts lawmakers consider healthcare price transparency legislation, a new Pioneer Institute study finds that most new drug pricing transparency laws do not lower consumer out-of-pocket costs, and that expensive and onerous compliance rules would likely put upward pressure on prices.

In Will New England See Lower Prices from Drug Pricing Transparency Legislation? report author William Smith, a Pioneer visiting research fellow, reviews recent New England legislative attempts to reduce costs by requiring the disclosure of wholesale drug prices and other information about industry pricing practices. The report argues that most of these new laws will not reduce consumer prices because out-of-pocket expenses are generally unrelated to wholesale drug costs.

“Unfortunately, the likely impact of these laws will be just as disappointing as that of previous laws requiring the marketing disclosure of payments to physicians,” Smith said. “Those laws had little influence on drug costs but remain a major regulatory burden for industry.”

Moreover, he finds, these laws entail burdensome compliance costs, as significant regulatory submissions are required by drug manufacturers and others. These compliance costs are more likely to cause upward – not downward – pressure, on drug prices.

The study recommends that states turn their attention to specific policy alternatives that can potentially lead to savings for consumers and patients:

• Value-based reimbursement holds the potential to provide both cost reduction and patient access to high-cost therapies, such as gene therapy and cell therapy, which are being developed in New England. States could lead the way on value-based reimbursement by testing the concept in state Medicaid programs.
• Legislative attention should be focused on the growth in rebate and other payments to middlemen in the drug distribution system. There is increasing evidence that a large portion of these costs are not passed onto consumers or even to payers.  The sub-population of patients who are taking “specialty” medicines is experiencing growing out-of-pocket costs.  This increasing burden could be relieved by reforms that reduce out-of-pocket costs to reflect the discounts obtained by payers and middlemen.

Finally, the study warns that the continuing imposition of greater state regulatory burdens is coinciding with some evidence of softer hiring by the region’s biopharmaceutical industry.  Legislatures must consider the economic impact of their activity around the biopharmaceutical industry.

About the Author

William S. Smith is visiting fellow in life sciences at Pioneer Institute.  He has 25 years of experience in government and in corporate roles, including as vice president of public affairs and policy at Pfizer, and as a consultant to major pharmaceutical, biotechnology and medical device companies. He held senior staff positions for the Republican House leadership on Capitol Hill, the White House, and in the Massachusetts Governor’s office. He is affiliated as research fellow and managing director with the Center for the Study of Statesmanship at The Catholic University of America (CUA), where he earned his PhD.

About Pioneer

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.