Massachusetts Legislature Advances Bill to Impose Caps on Drug Prices

HIGHLIGHTS:

• Massachusetts Bill S. 1048, if granted final approval by the Joint Committee on Health Care Financing, will include a first-in-the-nation cap on prices of some prescription drugs.
• The drug-pricing legislation outlines requirements for drug producers to disclose information on the development of pricing for certain prescription drugs.
• Failure to submit the required information may subject manufacturers to fines.

The Joint Committee on Health Care Financing of the Massachusetts legislature took up Bill S. 1048, an "Act to promote transparency and cost control of pharmaceutical drug prices," on Sept. 14, 2015. The bill initially was referred to the Joint Committee on Mental Health and Substance Abuse on April 15, 2015, and was approved by that committee. Referral to the Joint Committee on Health Care Financing is the next step toward final approval of what would be a first-in-the-nation cap on prescription drug prices.

States such as California, North Carolina, Oregon and Pennsylvania recently have introduced legislation requiring disclosure of information about drug pricing. However, Massachusetts is the first to propose an actual cap on prescription drug prices. Mark C. Montigny, vice chair of the Joint Committee on Health Care Financing, sponsored the bill with 16 co-sponsors.

The bill authorizes the Health Policy Commission (HPC) to cap prescription drug prices sold in Massachusetts for certain, "critical" drugs whose cost is "significantly high." According to the bill, "critical prescription drugs" are those for which there is "substantial public interest in understanding the development of its pricing." In developing the list of critical prescription drugs, the bill identifies the following factors for the HPC to consider:

• cost of the drug to public healthcare programs
• current cost of the drug in Massachusetts
• utilization of the drug in Massachusetts
• potential impact of the drug's cost on the state's healthcare cost growth benchmark of 3.6 percent

The bill establishes reporting requirements for manufacturers of critical drugs. Manufacturers of these drugs must submit the following information:

• total cost of production and cost of production per dose
• research and development costs
• marketing and advertising costs
• prices for the drug in other countries
• prices charged to Massachusetts purchasers, including pharmacies and wholesalers
• prices charged to pharmacy benefit managers for Massachusetts distribution

Information submitted by manufacturers is not a public record for purposes of the Massachusetts Public Records Law. Failure to submit the required information may be subject to fines, if established in forthcoming regulations.

If the HPC determines that the price of a prescription drug is "significantly high" such that it will jeopardize the state's ability to meet the 3.6 percent healthcare cost growth benchmark, the commission may cap the price the manufacturer can charge for the drug in Massachusetts. In determining if the prescription drug cost is "significantly high," the HPC must consider the following:

• clinical benefit of the drug
• cost to develop and manufacture the drug
• prices charged by the manufacturer in other countries

The bill also requires the HPC to issue an annual report on prescription drug pricing, including recommendations to lower costs.

Holland & Knight will continue to monitor this bill and other cost-containment initiatives for prescription drug prices on the state and federal levels.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.