Automating Processes, Enhancing Analytics Could help Pharma Companies Comply with State Price Transparency Laws | Deloitte US has been saved
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By Paul Silver, principal, and Clay Willis, senior manager, Deloitte & Touche LLP
In September, the White House issued a new executive order that it says will reduce prescription drug prices.1 At the same time, many states have enacted, or intend to enact, laws that require pharmaceutical companies to create more transparency around their pricing strategies. The complexity of these laws, which vary by state, has created operational challenges for pharmaceutical companies—particularly those that continue to rely on low-tech reporting processes. More than 40% of small and mid-sized manufacturers, and 35% of large manufacturers, use spreadsheets and manual analyses, according to our recent survey of 235 pharmaceutical companies. Most respondents admit there is room for improvement in their company’s approach to meeting state price-transparency requirements.
Rising out-of-pocket costs for consumers—as well as state Medicaid programs—has been a major driver of drug price transparency initiatives. Along with attempting to drive down drug prices, some states are gathering data from drug manufacturers in an attempt to determine the nature of price changes. Transparency laws are typically triggered when the cost of a drug increases by a certain percentage within a certain period (e.g., one year), or when the annual cost of a therapy exceeds a particular amount (e.g., $10,000). When such rules are triggered, manufacturers need to explain the factors that led to the change in pricing. At least five states have enacted laws this year.
Enforcement is increasing in some states
Pharmaceutical companies that fail to comply with state drug-transparency laws could face steep penalties of between $1,000 to $30,000 per day, depending on the state. Typically, the larger the company’s portfolio, the greater chance of triggering a law. While not all states have fines associated with the laws, pharmaceutical companies need to track each law and understand their nuances.
Since the COVID-19 crisis began, we’ve noticed that some state laws are getting more (and sharper) teeth, and enforcement appears to be ticking up in some areas. The California Office of Statewide Health Planning and Development, for example, has levied more than $17 million in fines against companies that failed to comply with its reporting requirements. In Nevada, 21 drug manufacturers have been fined more than $24 million for non-compliance. Reports need to be complete and accurate. Some states are closely scrutinizing information and are coming back to the companies if they believe the information is incomplete.
States are also creating commission boards or drug affordability review boards to set pricing caps for select higher-cost drugs, as well as to limit price increases by drug manufacturers, according to a recent report from the Deloitte Center for Health Solutions. Indiana, Missouri, Nevada, New Hampshire, and New Mexico are examples of states that have created these boards. Maine also worked on a Prescription Drug Affordability Board that sets prescription drug spending targets for public entities based on a 10-year rolling average, considering inflation.
Keeping up with state regulations might be easier with automation
Most of the manufacturers we surveyed said their manual processes are not able to keep up with all of the new state laws and changing requirements. Pharmaceutical companies should consider developing new reporting processes to confirm appropriate information is reported to each state to ensure compliance. Moreover, incorporating state price-reporting requirements into drug-pricing decisions can introduce efficiencies, create a more integrated approach to price management, and lead to more precision in forward-looking financial projections.
Here are several strategies pharmaceutical companies should consider:
Management of drug pricing is becoming more complex and government scrutiny is increasing. Transparency requirements are one more aspect of pricing that requires strong insight from analytics and system interoperability. There are broad implications of wholesale acquisition cost (WAC) price actions on product-lifecycle planning, launch strategies, and contracting. This changing landscape means pharmaceutical companies should build stronger compliance and reporting operations supported by automation and analytics to inform the impacts of state regulations on pricing strategy.
Acknowledgement: Jason Eldred
1. Executive order on lowering drug prices by putting America first, The White House, September 13, 2020