Drug pricing authorities in Colorado and Maryland approach payment caps

States considering establishing prescription drug reimbursement panels are eyeing panels in Colorado and Maryland, which are moving closer to imposing first-ever caps on how much health insurers will cover for some of the nation's most expensive drugs.

In October, the Colorado Prescription Drug Affordability Board is scheduled to meet to consider how to set the maximum amounts that health insurers in the state can pay for three anti-inflammatory treatments: Amgen Inc.'s Enbrel, Johnson & Johnson's Stelara and Novartis AGby Cosentyx.

The Maryland committee hopes to complete the affordability review of the first four selected drugs by year's end. Novo Nordisk A/S is Ozempic, Eli Lilly & Co. 's truth, Boehringer Ingelheim 's Jardiance and AstraZeneca PLC's Farxiga. The panel's analysis will help decide whether to seek caps on payments – a move that will likely expose the panel to lawsuits from the pharmaceutical industry. Amgen has already sued the panel in Colorado.

These two panels are the most advanced among the state PDABs and can set caps on what health insurers can pay for certain prescription drugs. Their action comes at a time when Enbrel, Stelara, Jardiance and Farxiga must reach negotiated prices under the state Medicare program starting in 2026.

The panels' work, as well as a ruling in Amgen's lawsuit, will determine whether policymakers in more states seek to implement PDABs to address the problem of prescription drug affordability, drug pricing researchers and policy analysts say.

“People in the states will see and feel the impact of laws designed to make drugs more affordable in their states,” said Benjamin Rome, a health policy researcher at Harvard Medical School's Program On Regulation, Therapeutics, And Law (PORTAL). PDABs in several states have hired Rome and his team to help implement affordability assessments and payment limits.

'Test case'

In other states, legislation to introduce PDABs has largely stalled. Patient groups and policy analysts expect the outcome of the Amgen litigation to be a key factor in determining whether politicians are willing to support the introduction of PDABs.

Amgen's lawsuit is “truly a precedent-setting case,” says Jon Bartholomew, director of government affairs at AARP, which supports state legislation to impose PDABs.

“If the affordability panel passes, I think many other states will try to create their own panel,” Bartholomew said.

States including Connecticut, Illinois, Michigan and Rhode Island have recently considered creating their own affordability committees. In April, Virginia's Republican governor, Glenn Youngkin, vetoed a bill that would have created a committee with the power to set payment limits.

The Colorado state board has committed to proceeding with the case despite Amgen's lawsuit. The company claims that Colorado state law allowing the board to set limits violates the U.S. Constitution's Supremacy Clause, federal patent laws and the Due Process Clause of the 14th Amendment to the U.S. Constitution.

Pharmaceutical companies have tried unsuccessfully to make similar arguments in lawsuits challenging Medicare's drug price negotiations under the Inflation Reduction Act.

The Colorado Attorney General's Office is seeking to dismiss Amgen's lawsuit, with oral arguments scheduled for October 22 in the U.S. District Court for Colorado.

If a court ruling “broadened the ability of states to regulate drug policy and affordability in the states,” “that would signal a really big problem and a really big gap in the ability of states to do that job,” Rome said.

Next Steps

Colorado is expected to be the first state to set a payment cap, although Maryland, Minnesota and Washington also have the authority to set health insurance caps.

Nine other state panels do not have the authority to set limits but can analyze cost and affordability data to make recommendations to states on possible measures to reduce prescription drug costs.

There is currently no set timeline for price cap legislation in Colorado, but the panel's executive director has said they expect it to take three months and that the panel will work in parallel on the next round of drugs to be considered for affordability review.

Panel spokesman Vincent Plymell said in an email that the panel has yet to determine the exact timeline for issuing the rules, which will include hearings and public comment periods to get feedback from patients, drugmakers and other stakeholders.

The committee in Maryland, which in 2019 became the first state to pass a law establishing a PDAB, plans to complete the collection of information on the first four drugs by September 23. After that, the committee will begin collecting information on two additional drugs that have been selected for review: AbbVie Inc.'s Skyrizi and Dupixent from Regeneron Pharmaceuticals Inc.

Board members “made it clear that they wanted to move the process forward more quickly than it had been previously,” Andrew York, executive director of the Maryland PDAB, said in an interview.

Measuring affordability

The way each board defines “affordability,” policy analysts say, could affect how it affects patients’ pharmacy payments and whether other states view PDABs as a worthwhile endeavor.

Maryland is still deciding which cost data will be most important in the audit, while Colorado's agency has focused heavily on out-of-pocket costs, Rome said.

Colorado state affordability reports found that patients paid an average of more than $2,000 out-of-pocket for Enbrel in 2022. The average out-of-pocket costs for Cosentyx and Stelara were more than $3,000 and $7,000, respectively, in the same year.

When considering those costs, “you really have to look at the entire supply chain,” says Leslie Wood, regional vice president for government policy at Pharmaceutical Research and Manufacturers of America, the main U.S. pharmaceutical trade organization that is aggressively lobbying against legislation to introduce PDABs.

PhRMA argues that the Colorado panel and other committees were not designed to consider the role of pharmacy benefit managers, who administer prescription drug benefits on behalf of health plans and determine which drugs are preferentially included on a plan's drug list or covered drug list.

Colorado PDAB Chair Gail Mizner and other board members have said they plan to consider feedback from insurers and PBMs when deciding whether to set price caps.

Under Colorado PDAB regulations, the board may consider a variety of factors when setting the maximum reimbursement limit for a drug, including out-of-pocket costs, estimates of the manufacturer's net costs and net sales, and price ceilings negotiated by Medicare under the Inflation Reduction Act.

Reid Porter, a spokesman for PhRMA, said PBMs will likely adjust their drug lists based on Medicare's negotiated drug prices, which could affect discounts for patients.

He cited a statement from the Pharmaceutical Care Management Association last month that said the Biden administration had selected prescription drugs for which “PBMs are already actively negotiating deep discounts that significantly reduce costs for beneficiaries and taxpayers.”

“One wonders what the response will be if each of these states moves forward in a similar way,” Porter said.

However, existing bodies remain confident of their legal viability, arguing that their primary goal is to improve the availability and affordability of prescription drugs.

“When they make that decision, they make sure that whatever they do improves access to the drug, not decreases it,” York said of Maryland’s PDAB.