Connecticut takes a big step toward lowering drug costs

Connecticut residents could soon enjoy lower pharmacy bills.

Gov. Dannel P. Malloy just signed a law, H.B. 5384, designed to boost transparency among pharmacy benefit managers, health insurers, and drug manufacturers. The effort should reduce out-of-pocket spending.

House speaker Joe Aresimowicz, majority leader Matt Ritter, insurance and real estate committee chairman Sean Scanlon, and state Comptroller Kevin Lembo deserve praise for shepherding the bill through the legislature.

A key feature of the law is more oversight of pharmacy benefit managers, or “PBMs.“

These firms serve as middlemen in the drug supply chain. Insurers and large plan sponsors — think unions, municipalities, and large employers — hire PBMs to negotiate with drug manufacturers for discounts.

Last year, thanks in part to the work of PBMs, drug manufacturers offered a staggering $153 billion in discounts , cutting 44 percent off the cumulative list prices of brand name drugs.

But patients rarely see these discounts in the form of lower bills at the pharmacy, as PBMs and insurers keep much of the savings for themselves. Here’s how:

Many people have insurance plans that require them to pay co-insurance, a set percentage of a drug’s list price.

Say a drug’s original list price is $400 and a health plan requires 20 percent co-insurance. Thanks to PBMs, the health plan might have obtained the drug at a discount for just $200. But the patient would still pay 20 percent of $400 — or $80 — double what she’d pay if the discounts were disclosed and passed along.

Or consider co-pays, the traditional flat fees that patients pay each time they fill a prescription. A March study by the University of Southern California Schaeffer Center for Health Policy and Economics found that for about one in four prescriptions filled, the co-pay was more than the actual cost of the drug.

For example, a health plan may feature a $15 co-pay requirement for all generic drugs. If a medicine costs just $10, patients would be better off paying cash rather than using their insurance cards.

The law that Malloy just signed aims to fix these flaws. The law includes provisions that require PBMs to disclose the value of the rebates they obtain — and how much of those rebates go to customers, health plans, or are retained by the PBMs themselves.

The law also increases state oversight of insurers, requiring them to share rebates with patients at the pharmacy counter or certify that they are using rebates to lower patients’ premiums. And the law asks drug manufacturers to justify any drug price hikes of 20 percent or more in a given year — or 50 percent over three years.

All of these provisions make Connecticut the first state to bring transparency to all parts of the drug supply chain.

Cutting patients’ out-of-pocket costs will also help patients take their medicines as prescribed — which will save the state in the long run. Improved medication adherence is linked fewer hospital visits and lower overall health care spending for patients with multiple chronic conditions.

Kudos to Connecticut lawmakers for bringing transparency to the prescription drug supply chain.

Kenneth E. Thorpe is a professor of health policy at Emory University and chairman of the Partnership to Fight Chronic Disease.