SB627, An Act to Promote Transparency in Prescription Drug Price

Joint Committee on Health Care Financing

The Massachusetts Health and Hospital Association (MHA), on behalf of our member hospitals, health systems, physician organizations, and allied healthcare providers, appreciates the opportunity to submit comments in strong support of SB627, “An Act to Promote Transparency in Prescription Drug Prices.” 

Pharmaceutical spending growth has significantly outpaced overall healthcare spending growth in Massachusetts.  According to the Health Policy Commission’s (HPC) 2016 Cost Trends Report, prescription drug spending remains the largest single contributor to healthcare costs, accounting for approximately one third of per capita cost growth.

Following the provisions of the state’s healthcare cost control and delivery reform law (Ch. 224), hospitals, physicians and health plans are: held accountable for healthcare costs; must meet healthcare cost growth benchmark targets; and are required to report cost and utilization data to various state agencies. This data, in turn, is readily available to the public.  Hospital financial information, in particular, is an open book.  

By contrast, there is currently little to no transparency around pharmaceutical costs.  SB627 would establish a measure of accountability for the pharmaceutical industry and create greater transparency around the factors that contribute to price increases.
According to an October 2016 report presented to the American Hospital Association(*) : 

Drug spending in the hospital inpatient setting is quickly increasing. Growth in annual inpatient drug spending between FY2013 and FY2015 increased on average 23.4 percent, and on a per admission basis, 38.6 percent.  

Large and unpredictable increases in the price of drugs used in the inpatient setting significantly affected hospitals’ ability to manage costs within a fixed-price-based payment system. 

These types of increases in drug spending are unsustainable for hospitals as well as for patients and place a strain on state health programs that pay for the costs of these pharmaceuticals.
SB627 requires the HPC, in collaboration with the Center for Health Information and Analysis (CHIA), to identify up to 15 prescription drugs on which the state spends significant healthcare dollars and for which the wholesale acquisition cost has: increased by 50% or more over the last five years; increased by 15% or more over the last 12 months; or is a new drug whose price may have a significant impact on the state’s cost benchmark.

The list of identified drugs shall be provided to the Attorney General's office and the manufacturers of such drugs will be required to provide justification for the price increase or the level set for a new drug that may have a significant effect on the cost benchmark. The Attorney General (AG) would issue a report to the HPC, CHIA, and legislature on its findings and the AG would also have the ability to seek injunctive relief if a manufacturer fails to comply.  

Additionally, 30 days before increasing prices more than 10 percent or the introduction of a new drug whose price may threaten the cost growth benchmark, pharmaceutical companies would be required to submit a report to the HPC justifying the price increase, including the following elements: an explanation of the price, including any proposed increases; information on manufacturing costs for the drug; research and development costs for the qualifying drug; net profits attributable to the qualifying drug; marketing and advertising spending on the qualifying drug, and other information as deemed appropriate.  Furthermore, pharmaceutical companies would be required to submit data to the HPC as part of the state’s annual cost trends hearings and would be called upon as witnesses to present testimony under oath.

Under SB627, the data that pharmaceutical companies would be required to report to the HPC prior to price increases of more than 10 percent would provide significant information to consumers, employers, providers, health plans and the commonwealth.  In addition to providing a heads-up on impending significant cost increases, the reporting requirements would also put drug companies on alert that they will be expected to justify these increases and that there will be transparency around what they report.  Ultimately, as this data is disseminated by the HPC in a publicly available manner, it will likely result in meaningful industry reform.

Our collective efforts under Chapter 224 already have returned promising results. However, if we are to sustain this successful path forward, all stakeholders and contributors to total healthcare expenses must be at the table and working collaboratively. SB267 will ensure that pharmaceutical companies, a key driver of healthcare costs, are part of the ongoing public conversation.
(*) NORC at the University of Chicago, “Trends in Hospital Inpatient Drug Costs: Issues and Challenges” [paper presented to the American Hospital Association and the Federation of American Hospitals, Washington, DC, October 11, 2016].

Thank you for the opportunity to offer comments on this important matter. If you have any questions or require further information, please contact MHA's Vice President of Government Advocacy, Michael Sroczynski, at (781) 262-6055 or msroczynski@mhalink.org.