State drug price transparency

Current regulatory environment

Over the last five years, an increasing number of US states have passed—or have initiated—new drug pricing regulations designed to increase transparency associated with pharmaceutical manufacturers. Many states have determined that it’s in their preferred interest to take legislative action in order to curb drug price increases and decrease their annual pharmaceutical spend.

This momentum is likely to stay in the years ahead. As public and legislative scrutiny on drug price transparency continues, and as more states pursue legislation and expand beyond existing requirements, it will be important for pharmaceutical manufacturers to understand the implications for their current and future business operations.

Recent drug price transparency enforcement

Over the past two years, states began imposing fines as well as amending current regulations to include penalties. While potential penalties for noncompliance vary by state and certain regulations do not contain specific penalty clauses, most contain penalties up to $25,000 per violation for noncompliance¹.

In October 2019, Nevada Department of Health and Human Services fined 21 pharmaceutical companies a total of $17.4 million for failing to provide the state with explanations for recent price hikes on a set of diabetes drugs with penalties ranging from $735,000 to $910,000².

In 2020, the California Office of Statewide Health Planning & Development (OSHPD) began enforcing drug price transparency laws that the state had passed in 2017, with several manufacturers being notified that they could face fines totaling approximately $17.5 million for failing to comply with the reporting requirements³.

Manufacturers should clearly understand the importance of having the appropriate infrastructure in place to achieve compliance with state drug price transparency laws.

Potential operational challenges

State price transparency reporting legislation is not consistent across states and this poses an increase in operational challenges for manufacturers to remain compliant in accordance with new and changing legislation that varies state to state.

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• Complexity and disparate nature of ever-changing regulations
• Penalties for noncompliance
  
• Ability to scale existing processes
• Lack of consistent processes and systems
  
• Limited staff and resources
  
• Integration with broader pricing strategy
  
• Reputational and competitive impact
  

How can manufacturers build effective and efficient processes, leveraging technology and other solutions?

Today, many manufacturers have already evaluated the various state price transparency laws and created processes—along with some form of documentation—to comply with reporting requirements. However, because of the evolving complexity and cross-functional nature of the capabilities necessary to interpret and assess requirements (and provide the required reports), the people involved are often under tremendous strain.

Also, different functional areas are not always fully aligned with what is needed (and when) in order to meet the individual state deadlines. In addition, most state price transparency processes remain highly manual, and many pharmaceutical manufacturers need automated systems and advanced tools to help them rethink their overall governance and operations related to state drug price transparency reporting.

Therefore, many manufacturers have been looking into ways to automate and enhance the processes by integrating technology and analytics into the following aspects:

• Automated end-to-end trigger assessment and reporting
• Centralized location of all information
  
• Pricing strategy modeling
  
• Workflow management
  
• Periodic compliance check  

Enhance operations and mitigate compliance risk

How Deloitte Risk & Financial Advisory can help

• Compliance risk assessment - We can assist manufacturers with a compliance assessment to review a manufacturer’s state drug price transparency environment to evaluate and understand their due diligence and good faith effort, while helping them understand if they have the capabilities to support a compliant state drug price transparency environment.
• Operational readiness assessment - We can assist manufacturers with performing an operational assessment that can help them address the following:
  
  • The impact of each state’s reporting requirements on a manufacturer’s existing and future business strategies
  • Operational considerations, including updates needed for current processes, documentation, and systems
  • Controls for monitoring commercial decisions for activity that may trigger specific reporting requirements
  • Operational road map and process flow outlining operational changes once each requirement is triggered
• Documentation creation (policy, procedure, reasonable assumptions) - We can assist manufacturers in the development of policies, procedures, and reasonable assumptions that document the reporting requirements by state, information that needs to be reported, operational steps and responsibility of individuals for each state reporting requirement, and anything that is interpretive either in the requirements or reporting.
• System evaluation and implementation support services - We can assist manufacturers with evaluation of vendors and provide assistance as they implement their state price transparency systems.
• Tools, templates, and ongoing assistance - We assist manufacturers with updates on changing state laws and regulations, developing tools and templates that can run pricing scenarios, assisting with tracking reporting requirement due dates, and generating reports and information required to report to relevant states.

A road map to avoid penalties

Get equipped with the latest technologies and insights to reimagine the process, reduce the worry over non-compliance, and thrive your business.

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Get in touch

Paul Silver Principal Deloitte & Touche LLP psilver@deloitte.com +1 404 631 2157

Mohammad Khan Senior manager Deloitte & Touche LLP mohammadkhan6@deloitte.com +1 312-796-8335