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Although the act would not prohibit manufacturers from increasing prices, it could change the pricing landscape. Here’s why.
A potential new law aims to address the rising prices of pharmaceutical drugs by requiring price transparency. The law, known as the Fair Accountability and Innovative Research (FAIR) Drug Pricing Act, would require drug manufacturers to notify HHS and submit a transparency and justification report 30 days before they increase the price of certain drugs by more than 10% over one year or by more than 25% over three years.
Manufacturers would need to provide a justification for each price increase; manufacturing, research and development costs for the qualifying drug; net profits attributable to the qualifying drug; marketing and advertising spending on the qualifying drug; and other information as deemed appropriate.
Although the act would not prohibit manufacturers from increasing prices, it would give consumers notice of price increases and bring basic transparency to the market for prescription drugs for the first time.
On July 30, Rep. Francis Rooney (R-Florida) became a cosponsor of a bill supporting the FAIR Drug Pricing Act, making it bipartisan in both the House and Senate-and consequently increasing its momentum. The bill still needs to be considered by committees in both the House and the Senate before coming to a full vote in both chambers. “The House and Senate will need to reconcile and agree on any discrepancies before the bill goes to President Trump to sign,” says Joseph Honcz, RPh, MBA, vice president of Payer Access Solutions, Precision for Value, a healthcare consulting company.
Industry experts have varying opinions on how the act could affect drug prices. Here’s a look at three possible outcomes.
The act proposes public shaming of drug manufacturers that increase their drug prices substantially. Companies would file paperwork with HHS, which would then be posted for public viewing. “None of this limits price increases, it only requires more public disclosure of increases,” says Stacie Dusetzina, PhD, associate professor of health policy, Vanderbilt University School of Medicine, Nashville, Tennessee. “But companies may rethink increasing prices if filing these reports is time consuming or would create significant public backlash.”
Along these lines, Jodie Thellin Skyberg, global pharmacy and pharmacy benefit manager practice leader at Cognizant, a technology and consulting services company, says the new legislation might discourage pharmaceutical companies from raising prices dramatically, given the exposure of the required reported information to consumers and the negative impact to a company’s brand. “At a minimum, it will cause drug companies to reconsider price increases by having to disclose actual costs versus revenue and justify increases,” she says.
Yana Paulson, PharmD, chief pharmacy officer, LA Care Health Plan, a health insurer in Los Angeles, California, says public pressure, greater scrutiny, and laws like this one will likely help to keep drug price increases down. “This is because over the last two years, when the press and lawmakers have paid a lot of attention to the issue, drug price increases have slowed,” she says.
2. It could increase drug prices.
While the act may initially cause pharmaceutical companies to think more about price increases, Sharon K. Jhawar, PharmD, MBA, BCGP, chief pharmacy officer, SCAN Health Plan, a health insurer in Long Beach, California, believes drug companies will find ways to work around the system.
In fact, Jhawar wouldn’t be surprised to see companies limiting increases to 9.9% of the wholesale acquisition cost to avoid needing to notify HHS or applying different interpretations of the one and three year periods as the bill is somewhat vague and provides a way to avoid notifying HHS of price increases above 10% and 25%, she says.
“It may have an unintended consequence of manufacturers setting even higher list prices when a medication first launches on the market, since increases thereafter above 10% in a 12-month period would require a notification,” Jhawar says.
Likewise, Dusetzina says the act could result in drug companies using limits on drug price increases to justify even higher initial prices.
3. It might only have minimal impact.
The notification requirement might lead drug manufacturers to increase drug prices less frequently, says Honcz. “However, this might only be temporary until drug companies better define the process and become comfortable with the reporting process,” he says.
Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.