Since 2003, consumer drug prices have increased by around 8% per year on average, compared to less than 5% for inflation (BLS 2023; Dana 2017). In 2020, the average American paid about $1,300 a year for prescription drugs (OECD 2023).
Pharmacy benefit managers (PBMs) negotiate drug discounts and maintain lists of insurance covered drugs. Negotiations between PBMs and other supply chain intermediates (e.g., drug distributors, pharmacies, health insurers) determine consumer drug prices.
As of February 2023, 21 states require at least one pharmaceutical supply chain entity to meet transparency standards for reporting profits and price design/methodology, providing advanced notice of price increases, and/or regulatory oversight (Figure 1). Seven states specifically require annual transparency reports from PBMs.
OR requires drug manufacturers who sell in-state to notify the Dept. of Consumer and Busi-ness Services when they increase prices by more than 10% on drugs (1) with a launch price over $670 for a month supply, or (2) cost over $100.
The ME Health Data Organization is statutorily required to prepare an annual drug pricing report that determines the average net income at each step in the supply chain.
VT maintains a list of the top 10 drug price increases for the state Medicaid program.
WA requires mandatory reporting of transactions between manufacturers and PBMs.
Developing countries using transparency tools (e.g., comparative drug price data, mandatory price reporting) have lower prices (Hinsch 2014).
Figure 1. Public transparency requirements for drug supply chain entities. Data from NASHP (2023). States with statutory transparency standards for at least 1 non-PBM entity in the drug supply chain (blue), PBMs only (green), or both (orange).
PBMs negotiate with insurers and manufacturers before drugs enter the supply chain, as well as with wholesalers and pharmacies later in the process.
In ME, PBMs charged insured consumers 11% more than what pharmacies paid for drugs; markup decreased to 2% after 4 months of enactment of a law requiring that PBMs pass drug discounts to consumers (ME HDO 2021).
OH’s requirement for all Medicaid discounts to be passed on to the consumer saved consumers 6% in costs after 6 months (OH DOM 2019).
NJ contracted their state employee plan to the lowest bidding PBM, while WV replaced their Medicaid contracted-PBM with a state-run PBM, saving 25% and 9%, respectively (NCSL 2021).
Ahmad, N. S., Makmor-Bakry, M., & Hatah, E. (2020). Drug price transparency initiative: A scoping review. Research in Social & Administrative Pharmacy, 16(10), 1359-1369. doi:10.1016/j.sapharm.2020.01.002
Assessing the Impact of Pass-Through Pricing. (2019). Ohio Department of Medicaid Retrieved from https://medicaid.ohio.gov/wps/wcm/connect/gov/2ef5a8b4-0f15-4ef4-8883-11fd6238e101/ODM-HDS-Summary.pdf?MOD=AJPERES&CONVERT_TO=url&CACHEID=ROOTWORKSPACE.Z18_K9I401S01H7F40QBNJU3SO1F56-2ef5a8b4-0f15-4ef4-8883-11fd6238e101-nAkMJJ4
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Databases, Tables & Calculators by Subject. (2023). Bureau of Labor and Statistics Retrieved from https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths
Drug Price Transparency (DPT) program. (2022). Washington State Health Care Authority Retrieved from https://www.hca.wa.gov/assets/program/hca-dpt-annual-report-2022.pdf
Hamel, L., Lopes, L., Kirzinger, A., Sparks, G., Kearney, A., Stokes, M., Brodie, M. (2022). Public Opinion on Prescription Drugs and Their Prices. Retrieved from https://www.kff.org/health-costs/poll-finding/public-opinion-on-prescription-drugs-and-their-prices/
Hinsch, M., Kaddar, M., & Schmitt, S. (2014). Enhancing medicine price transparency through price information mechanisms. Globalization and Health, 10(1), 34. doi:10.1186/1744-8603-10-34
Mattingly, T. J., Lewis, M., Socal, M. P., & Bai, G. (2022). State-level policy efforts to regulate pharmacy benefit managers (PBMs). Research in Social and Administrative Pharmacy, 18(11), 3995-4002. doi:https://doi.org/10.1016/j.sapharm.2022.07.045
Pharmaceutical Spending. (2023). Retrieved from https://data.oecd.org/healthres/pharmaceutical-spending.htm#indicator-chart
Prescription Drug Policy: A Bipartisan Remedy. (2021). Retrieved from https://www.ncsl.org/health/prescription-drug-policy-a-bipartisan-remedy
Prescription Drug Price Transparency Results and Recommendations – 2020 ( 2020). Oregon Department of Consumer and Business Services Retrieved from https://dfr.oregon.gov/drugtransparency/Documents/Prescription-Drug-Price-Transparency-Annual-Report-2020.pdf
Prescription Drug Transparency Report. (2021). Maine Health Data Organization Retrieved from https://mhdo.maine.gov/_pdf/MHDO%20Rx%20Transparency%20Report%20210209%20FINAL.pdf
Pricing Transparency Drug List-DVHA Methodology. (2021). Department of Vermont Health Access Retrieved from https://gmcboard.vermont.gov/sites/gmcb/files/documents/Merged_DVHA_Act193_2021Submission.pdf
Ryan, M. S., & Sood, N. (2019). Analysis of State-Level Drug Pricing Transparency Laws in the United States. JAMA network open, 2(9), e1912104-e1912104. doi:10.1001/jamanetworkopen.2019.12104
Sood, N., Shih, T., Van Nuys, K., & Goldman, D. (2017). The flow of money through the pharmaceutical distribution system. Health Affairs blog.
State Laws Passed to Lower Prescription Drug Costs: 2017–2023. (2023). Retrieved from https://nashp.org/state-drug-pricing-laws-2017-2023/
State Medicaid Participation in Interstate Purchasing Pools for Prescription Drugs. (2019). Retrieved from https://www.kff.org/other/state-indicator/state-medicaid-participation-in-interstate-purchasing-pools-for-prescription-drugs/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D