Loopholes, Lack Of Staffing Stymie Transparency Of Oregon’s Drug Pricing Program
Prescription drug costs are often more than one 63-year-old cancer survivor in Portland can afford. She also suffers from rheumatoid arthritis and other chronic conditions. While Medicare and Medicaid cover the majority of her care, copayments for life-saving drugs have cost her as much as several hundred dollars out-of-pocket at one time. For years, her son has helped her financially, but when he can’t, she goes without.
“More often than not, she will not fulfill pain medication prescriptions because she tends to grin and bear it, because pain typically is not a critical side effect so much as a lifestyle-impacting one,” her son told The Lund Report. The woman requested anonymity for herself and her son over fears that going public could affect her health care coverage.
This woman is far from alone. According to a Gallup poll released in November 2019, more than 58 million Americans reported they couldn’t afford a needed prescription drug during the prior 12 months.
Oregon lawmakers took what was described as a first step toward combating sky-high drug prices and spending when it created the state’s Prescription Drug Price Transparency program in 2018. The goal of the program was to hold pharmaceutical companies accountable by shining a light into the black box of drug supply-chain costs and pricing. It was the second such program to be established in the country at the time, second only to California.
Companies are now required to report new drugs and price increases of existing drugs to the program, which is run by Oregon’s Department of Consumer and Business Services, when the list price meets certain price thresholds. Companies must also include an explanation of how they arrived at their prices.
But pharmaceutical companies have successfully kept their pricing strategies hidden from the public — by labeling much of the information they submit to the program as “trade secret.” Program staff have not used their authority to make any of that information public, nor have they issued any fines or penalties, despite reporting a 30% noncompliance rate last year. While the focus has been on notifying and educating companies about requirements, The Lund Report has learned that limited staffing and large blind spots have also heavily constrained the program.
Shrouded In Secrecy
There are many factors that go into determining the list price of a prescription drug, and many others in determining what insurers and consumers actually pay for it once it’s distributed. Oregon’s Prescription Drug Price Transparency program reporting requirements are primarily focused on the process that leads to the list price. Research and development costs play a large role, as do marketing and manufacturing costs. But other factors, such as what competitors are charging, profits, sales figures, the discovery of new uses for the drug and how life-saving the drug is can also influence pricing. For example, if a drug can cure a disease that would otherwise cause a person to be hospitalized for weeks, the drug maker can look at the cost savings to the hospital and incorporate that into the price of the drug. This rationale means that in many cases, the more a person needs the drug to stay alive, the more it will cost the individual or their insurer.
Oregon’s drug price program requires companies to submit the details of these pricing factors.
When proponents of the program were advocating for its establishment, they hoped it would expose the details of specific pricing decisions.
In written testimony in support of the program, Providence Health & Services, Kaiser Permanente, AARP Oregon, Oregon Medical Association and other providers and advocacy groups argued the program would “help explain why insulin has increased 300% over the last 10 years, and Naloxone — which is essential in fighting the opioid epidemic — has increased 552% in the past three years.”
But today, members of the public who peruse the program’s online database of reports from pharmaceutical manufacturers will quickly discover that information about factors contributing to a drug’s price is not publicly available. In most cases, they will see only the drug's name and manufacturer displayed.
Program coordinator Numi Lee Griffith said that will change later this year, but it’s not an easy process. That’s because drug companies often label most, if not all, the information they report as falling under trade secret protections, she said. The onus is on the state to determine whether trade secret labeling should apply. Oregon’s program is unique among states with similar efforts in that it can override a company’s claim of trade secrecy and release the information, Griffith said — but it has yet to do so.
The program’s staff, now two people, have focused on educating companies about the program and its requirements.
They’ve not had time to cipher through trade secrets to determine their legitimacy, with more than 2,000 reports submitted since the program’s implementation in 2019.
‘A Little Bit Suspicious’
A chief sponsor of House Bill 4005, which established the program, was Rep. Rob Nosse, D-Portland. He said he did not realize how little information would be available. “I think we have always understood that what the chemical compound is and what's in your secret sauce probably is a trade secret. But I feel like periodically the pharmaceutical industry has also said that their pricing situation is a trade secret. And that's a little bit, I think, a little bit suspicious,” Nosse said.
While program operators are privy to costs associated with drug price increases, even after trade secrets are sorted out, the public will only see vague narratives that explain why a drug’s price was increased or how it was arrived at — absent any dollar figures. For example, a drug company may say the cost of research and development was a primary reason for pricing a drug at $500 a dose — but how much was spent on research and development will not be disclosed to the public.
One narrative from Cosette Pharmaceuticals for a migraine treatment called Migerot is an example of the type of information the public can expect to see:
“Cosette Pharmaceuticals acquired this product in June of 2019. When we looked at the pricing of this product, as we do with all of our products, we carefully and holistically evaluated a variety of factors including accessibility and affordability of this treatment option for both patients and payors, the number of patients who take the product, the market conditions, the overall increase in the cost of labor and goods, the required capital investment in manufacturing facilities and systems, and the funding of research and new product development designed to meet the needs of patients and healthcare professionals today and in the future. In this instance, the price had to be adjusted in light of the declining net utilization, increase in cost of labor and goods, and financial costs and debt incurred with acquiring the product.”
This example and others are folded into the program’s annual reports to the Legislature. The reports give an overview of drug prices. For example, they include information on the share of drugs with profit margins above 37% — roughly half of them in 2020 — and average costs for manufacturers. They also indicate the 20 highest-priced new, brand name drugs, along with their list prices.
Last year, Tecartus, a brand name one-time therapy for mantle cell lymphoma from Kite Pharma, topped the list at $373,000. The most expensive generic drug in 2020 was Glatiramir, which treats multiple sclerosis, at $2,800 for a 30-day supply.
Most new drugs that crossed the reporting thresholds were for cancer (antineoplastics and adjunctive therapies), with 100 reported across 40 manufacturers.
But insured patients almost never pay the list price. Neither do insurers.
That’s because pharmacy benefit managers, insurers, assistance and rebate programs, pharmacies and wholesalers all take a cut or play a part in determining what the consumer and insurer actually pay. Entities in the supply chain are often unaware of what others along the way are paying.
This price system is complicated and murky by design, making the success of the Prescription Drug Price Transparency program crucial in a state that’s attempting to regulate the market.
Reliant On Honor System
In many cases, program staff take pharmaceutical companies at their word when it comes to the financial information they report. Griffith said staff don’t have the capacity to verify the facts.
“Some companies are providing additional documents of support, and some are not. We don’t require them to,” Griffith said.
Drug companies are required to submit reports to the program when they raise the cost of a prescription drug by more than $100 a month (if that equates to more than a 10% increase over the previous year) and when they introduce a new drug that is priced at more than $670 a month, the threshold for the specialty tier of Medicare Part D, which covers drug costs. Companies are also required to report planned increases that meet certain thresholds.
Program data indicate that the new drugs tend to be priced in line with similar drugs already on the market. Both Griffith and Nosse said the program appears to be a deterrent to raising prices more than 10%, as they’ve seen a decrease in the number of drugs triggering the reporting requirement — from 700 reports of price increases in the first year of the program to 150 in the second year.
But companies may have pivoted to spreading price increases out across multiple drugs, the 2020 report said.
With more than a dozen states now operating transparency programs, companies may want to avoid the fees and paperwork that come with triggering participation in each program, Griffith suggested.
Oregon State Public Interest Research Group, or OSPIRG, is a proponent of bills aimed at regulating the pharmaceutical industry, and it’s health care advocate, Maribeth Guarino, has been watching the implementation of the program. She also suspects companies are spreading out their price increases, as opposed to keeping prices down.
“So instead of raising one drug’s price by 15%, they’re raising three prices by 5%. And what is the impact of that? It means that they're not being transparent,” she said. “Their profits clearly haven't been taking a hit.”
No Penalties Issued
In the past legislative session, lawmakers passed a bill that became law in July requiring pharmaceutical sales representatives to obtain licenses. Now lawmakers will know how many there are, though little about their methods and interactions.
The marketing of pharmaceuticals, however, is another area the price transparency program is attempting to tackle. It indicated in it’s 2020 report that 76% of marketing strategies manufacturers referenced included sales reps making direct pitches to health care professionals.The report also indicated that many companies refuse to submit any marketing information to the program, though Griffith said the program is fighting for transparency.
“We are going to a lot of work to push our reporting manufacturers to actually report the information that they are required to,” said Griffith. “We are pushing back by asking them to provide what they are supposed to provide, telling them what is acceptable, and if necessary, pushing things to enforcement.”
When a drug’s price triggers reporting, state statute allows for fines ranging from $500 to $10,000 per day for failure to comply with the program.
According to the program’s most recent annual report, there was a 30% noncompliance rate in 2020. But, the program’s operators have not issued any fines and aren’t ready to point fingers.
The Lund Report requested the names of companies that have been noncompliant with reporting requirements, but was told no such list exists.
“To date, the department has not made a determination of noncompliance,” said Brad Hilliard, spokesperson for the Department of Consumer and Business Services.
Rather, program staff have taken an “education and outreach approach to program compliance,” he said, adding that the program has been able to work with companies to file complete reports in most cases. Some circumstances, he said, remain under investigation but he declined to provide details.
Oregon’s attempts to regulate pharmaceutical companies have faced strong opposition from the industry. As reported by The Oregonian, pharmaceutical companies spent more than any other industry lobbying the Legislature this past session — nearly $2 million. Some of that money came from PhRMA or Pharmaceutical Research and Manufacturers of America, which opposes drug transparency programs.
Spokesman Jasmine Gossett told The Lund Report in an email that Oregon’s program does nothing to help consumers.
“It is our hope,” she said, “that these misguided and unconstitutional policies are put aside so that we can instead focus on reforms that will actually help people better afford their medicines, such as capping out-of-pocket costs, making monthly costs more predictable and sharing negotiated rebates on medicines directly with patients.”
Blind Spots Endure Attempted Fixes
In addition to reports from drug manufacturers, the program collects information from insurers and consumers, though only 31 consumers have made reports.
Griffith told The Lund Report that information from insurers, which also report price increases to the program, has revealed the most about the drug prices paid by consumers and insurers.
Even though only 10% of Oregon’s insurance market is required to report — those that offer individual and small group plans — Griffith said the data indicate what’s going on in the market. Having access to the entire market, however, would give the state a more accurate picture of the cost to consumers, insurers and the state of any one drug.
In Oregon, prescription drugs account for 11% of total health expenditures and more than a billion dollars every two years through the programs Oregon Health Authority administers. State lawmakers say they’re committed to bringing down these costs, but representatives in the House let a bill that would have fixed some loopholes in reporting requirements die earlier this year.
House Bill 2044, introduced at the Department of Consumer and Business Services’ request, failed to pass because not enough Democrats were present during that Saturday session, Nosse said.
The bill would have required reporting on patient assistance programs, which Nosse said “a touchy subject” because on paper, they sound like they’re doing a good thing: helping patients afford medication.
“But when you dig in a little bit, it’s a little unclear about who gets the assistance,” he said, in terms of how many of the patients that are in need, and which patients, can actually access the assistance. “There’s an argument to be made that the assistance programs are really helping the pharmaceutical industry market their drugs and get people utilizing more expensive new brand therapies,” he said.
Proponents of reform also watched another effort aimed at regulating the pharmaceutical industry wither.
A bill aimed at capping drug prices, Senate Bill 844, was gutted, leaving the state with a new Prescription Drug Affordability Board that has no power to limit prices.
“Ultimately, if you really want to affect pricing, we have to change what we do at the federal level,” Nosse said. “All these things we’re doing at the state level are ultimately trying to put pressure on the federal government to do that.”
In the meantime, Griffith plans to publish data to help consumers, insurers and advocates fighting for greater price transparency. Though the program has loopholes, she still said it has had an impact on soaring drug prices.
“What we can see is that companies have been changing their behavior in a way that they are making fewer extreme price increases,” she said. “And that is actually something that is benefiting the market as a whole.”