A recent New York State law, designed to rein in drug costs, pays for drugs based on their value. It allows the State to determine the price of certain drugs after assessing their therapeutic value, “value-based pricing.” A JAMA paper by Thomas Hwang, Aaron Kesselheim and Ameet Sarpatwari describes how the law is intended to work and its possible benefits.
In April of this year, New York enacted a law that permits the State to reduce its costs for select Medicaid prescription drugs. The State can determine the price of any high-cost drug, based on its value–considering efficacy, alternatives and the disease it is treating–and the State can negotiate lower costs for its Medicaid program. Put simply, if the increase in cost of an expensive drug over ten years exceeds inflation by more than five percent, the State can step in to lower the cost for its 6 million residents with Medicaid.
Given that some high-cost drugs have increased 20-35 percent in the last few years, significantly more than the rate of inflation, it’s more than likely that New York State will try to rein in prices. If it is unable to achieve the value-based price reduction it establishes, the State has the authority to direct Medicaid not to pay for the particular drug.
Currently, Medicaid must cover all medically necessary drugs in certain classes. Patients will still have the right to appeal a denial of coverage of a particular drug.
Medicaid programs already get a price discount on high-cost drugs but, especially for newer drugs, the price it pays can still be very high. For example, for hepatitis C, the wholesale price is $84,000, and Medicaid pays about $64,000 for a 12-week treatment. For some older treatments, such as Humira and Enbrel, which treat rheumatoid arthritis, rebates (discounts) deliver value for Medicaid, according to the Institute for Clinical and Economic Review, ICER.
New York’s decision to calculate rebates based on a drug’s value is a departure from other government attempts to rein in Medicaid drug prices. The Affordable Care Act, for example, simply increased the Medicaid rebate for brand-name drugs an additional 8 percent, from 15.1 percent to 23.1 percent.
The authors believe that New York’s determination of a drug’s value should be available to the public. This will ensure that other states and the federal government can see and potentially benefit from it. They believe that it could end up being a model for the rest of the country.
If you believe Congress should rein in the price of drugs for everyone, please sign this petition.
Here’s more from Just Care:
- With drug prices soaring, millions buy drugs abroad
- Maryland law protects people from prescription drug price gouging
- Lowering health care costs, drug prices, top policy priorities
- Senate bill would deliver lower drug prices
- Get engaged in the drug price fight!
- Research costs provide no basis for high drug prices