Drug price transparency for life sciences companies: an analysis of the current and future state

Authored by Mark Scallon, Samantha Sutherland and Grant Ostlund

Drug price transparency is a hot topic of conversation in the life sciences industry. In many ways, the roll-out of drug price transparency laws resembles the early evolution of spend transparency laws, which increased significantly over the last 10 to 15 years. The biggest driver of expanding drug price transparency reporting is increased public scrutiny over the high price of prescription drugs. Price transparency is largely a bipartisan issue, as politicians from both sides of the aisle feel pressure from constituents to rein in drug prices. These factors and others have created somewhat of a “perfect storm” at the moment.

The recent history of drug price transparency

In 2017, only six states had drug price transparency laws. Three years later, that number has increased to 18 states – and the trend appears likely to continue.

When spend transparency reporting began, it too started at the state level due to a lack of any applicable federal standard. Additionally, public scrutiny generated a bulk of the momentum around the issue of increased visibility into payments between industry and the health care community. Other similarities between the early days of spend transparency and the current drug price transparency climate include:

• Different requirements: Various states have conflicting transparency requirements.
• Vague guidelines: Companies everywhere are confused about the regulations.
• A trickle becomes a flood: The number of states passing regulations increased relatively quickly.
• Who owns it: This issue is ongoing with spend transparency, but in both cases the data that needs to be aggregated and reported reaches many departments of a company.
• Need to access information: There are disparate source systems and reports that need to be accessed.
• Laws lack clear guidance and consistency: The laws across different states have generally added to increased confusion.

Generally speaking, states pass drug price transparency laws that fall into one or more of the following eight categories:

• New drug price reporting
• Notice of new drug or biologic license applications
• Advanced notice of price increases
• Drug price increase reporting
• Price increase notice
• Drug price reporting
• Price disclosures to healthcare providers
• Other price transparency laws (including rebate negotiations)

Furthermore, many states adopt laws that fall under multiple categories. This creates additional complexity and urgency as companies scramble to comply with laws across multiple categories and jurisdictions, many of which require disclosure of sensitive information. 

Of course, companies face significant penalties if they fail to comply with the laws in their state. Minnesota and Oregon fine companies up to $10,000 for each day of a violation, while fines in Maine can reach as high as $30,000 per day.

Drug price transparency: challenges and best practices

As companies work to adhere to the specific reporting requirements in their state, they typically face operational and structural challenges including:

• Rapid expansion of laws: More and more states (and potentially the federal government) are creating new laws and, again, this tends to be a bipartisan issue.
• Laws lack clear guidance and consistency: We saw this with spend transparency reporting, as well.
• Laws are nuanced and unique: Rarely are drug transparency laws identical across multiple states.
• Information to be reported: The required information crosses multiple functional areas and systems.
• Lack of control and oversight: A company’s compliance and legal functions must be careful as they generally have no idea what to expect and how it will be regulated, making it extremely difficult to plan ahead.
• Additional resource/work demand: This is a huge challenge as companies must decide who should own this, who needs to be involved and how do they optimize the process to make it as efficient as possible.

The best way to combat these challenges is by taking advantage of the following best practices.

• Develop a cross-functional price transparency task force
  – Talk to internal or outside counsel to get an accurate interpretation of laws
  – Understand the required schedule of ad hoc and fixed date requirements
  – Develop an inventory of all data needed for reporting, including source systems
  – Document all processes, protocols and assumptions with clear project/report owners defined
  – Develop a rationale for items that are considered trade secrets and/or confidential
  – Separate information that is confidential from information that is publically available
  – Create a report and obtain approval from senior leaders prior to submission
• Place a representative from the company’s compliance and legal departments on the pricing committee to provide insight into disclosure implications
• Ensure that the company is aware of timing updates on new and emerging laws/requirements

Where is price transparency going?

On a federal level, congressional action is stalled. A 2018 executive action was blocked in court after several companies and industry groups challenged its requirements on free speech grounds. However, with the presidential election around the corner, expect price transparency efforts at the federal level to be in news between now and November. In fact, as recently as July 24, 2020, President Trump signed four executive orders designed to lower drug prices (These executive orders have limited power to affect policy, but instruct the Department of Health and Human Services to begin or continue taking steps towards facilitating greater drug price competition and transparency).

Looking down the road, we see several possible trends for the future of price transparency, including:

• Continued expansion with more states adopting price transparency reporting requirements
• Intellectual property and trade secret disclosures becoming more of an issue
• Expansion of “social contracts” not to raise prices above a certain amount
• Increased presence of legal and compliance involvement on pricing committees
• Increasing pressure to negotiate and provide concessions to Medicaid and other government purchasers
• The possibility of price controls, which have the potential to cripple life sciences innovation and research and development (R&D) investments, although we don’t believe it will reach that point

With that being said, we do anticipate some type of federal laws around price transparency in the near future.

As noted earlier, we are seeing the type of “perfect storm” at the moment that typically leads to federal action. We are seeing many similarities to spend transparency laws. Combine that trend with the political climate of an election year, the fact that it is a bipartisan issue, the federal transparency of medical care, the increased public scrutiny and the national attention surrounding the pricing of COVID-19 products, and these factors make it likely that federal legislation of drug price transparency will be on the horizon – and also that it will expand into the medical device space, as well.

We encourage you to closely monitor state and federal regulations for new laws and requirements and to connect with Baker Tilly if you would like additional insight or assistance regarding drug price transparency.

For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.