Posted: 08 Oct. 2020 10 min. read

Automating processes, enhancing analytics could help pharma companies comply with state price transparency laws

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: 

  • Automate and scale analytic processes: Technology and automation can be leveraged for reporting (e.g., having pricing and reporting information in one centralized repository via a system or tool that consolidates laws and regulations) along with business and legal interpretations. This can help companies keep up with a wide range of reporting requirements and determine when reporting requirements are triggered. It can also help generate and populate the reports that need to be submitted. Basic tools and mechanisms can include pricing-scenario models, price trackers, and an electronic inventory of each state’s reporting requirements. Automation can populate reports while analytics can help manufacturers make informed decisions about pricing strategies and understand how changes in one state could trigger broader business impacts.
  • Integrate software to generate state-specific reports: The ability to generate price transparency reports is a fundamental capability. Software can be implemented to help companies export data files tailored to each state and then submitted via email or uploaded to a state portal. Such a solution automatically updates any new state requirements. Once a triggering event has occurred and a report is generated, technology could ensure it goes through the proper reviews before being uploaded to a state portal—helping to mitigate compliance risk and avoid costly penalties. The system should also store all product and pricing information and qualitative data required by the state.
  • Identify data ownership: Given the complexity and disparate nature of state regulations, pharmaceutical companies should determine who owns the data. We have found that the information needed to comply with state laws often resides in multiple systems within a variety of groups. This can make it difficult to effectively and consistently aggregate data. Determining who in the company is responsible for each piece of information can make it easier to collect data and ensure the process is repeatable. Smaller companies might not have an employee dedicated to tracking the laws. Instead, it might just be a part of one employee’s duties. Keeping up with new or changing rules could become overwhelming. Many companies that have limited resources worry they might miss something because new rules are being put in place so quickly. It’s dynamic.
  • Develop processes to manage the complexity of each regulation: It can be difficult to stay on top of new state laws and changing regulations. Many states provide regular updates or frequently asked questions (FAQs) on their websites. An automatically updated central repository for rules and requirements could include the regulations, key elements (e.g., implementation dates and fines), and legal interpretations. This can ensure that information is organized consistently across the states. This could help serve as an audit trail for the overall process from the determination through the reporting. 

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

Endnotes

1. Executive order on lowering drug prices by putting America first, The White House, September 13, 2020

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