PDABs bring the problem of drug price controls to the state level

PDAB – which stands for Prescription Drug Affordability Board – is an acronym that you might hear more lately, as more and more states are introducing PDAB legislation.

In fact, eight PDAB bills have been introduced in state legislatures in 2022 alone, across four states—Michigan, Pennsylvania, Rhode Island, and New Jersey. While the bills in Pennsylvania and Michigan are not likely to move forward, the bill in New Jersey seems likely to proceed. And Washington is in the process of assembling their PDAB this year, building off of drug transparency legislation enacted in 2019. These states stand to join the already established PDABs operating in five states—Colorado, Maine, Maryland, New Hampshire, and Oregon.

In a nutshell, PDABs are state boards that aim to cap, control, and dictate the price of drugs that manufacturers can charge.

PDABs are made up of a variety of people, varying from state to state. Often, PDAB members are civil servants, doctors, and hospital, pharmacy, or clinic CEOs. Their prevalence is pushed by the National Academy for State Health Policy (NASHP).

Threats to investment and patient access

Unfortunately, PDABs’ price controls can cause two major problems: decreased investment in new treatments, and lack of access to treatments for patients with rare diseases. At the same time, PDABs ignore major issues inherent in medical payment systems.

“The problem is that these PDABs really drive bad policy and this legislation is popping up in several states now,” explained Jack Geisser, Senior Director of Healthcare Policy, Medicaid, and State Initiatives at the Biotechnology Innovation Organization (BIO). “And these boards are getting more and more aggressive, so we are seeing them push for everything from requiring disclosure of pricing information to developing price controls. We are already seeing states seeking to impose upper payment limits and things of that nature.”

In a statement, BIO explained, “The legislation does not address the root cause of the problems affecting patients, such as lowering out-of-pocket costs. Finally, imposing government price controls like those proposed by this legislation will jeopardize patient access to innovative biopharmaceuticals.”

Ignoring the problem with out-of-pocket costs

Investment in the biotech industry is considered incredibly risky due to decades-long R&D that may or may not result in a product that can go to market. Only when a drug or treatment has undergone this rigorous process can investors start to recoup their cost, and biotech companies make back their investment and plan for the future.

Price caps fundamentally get in the way of that system without addressing the real issue at hand: out-of-pocket costs.

As BIO explained in their statement, “When patients visit a pharmacy, nearly 90% of them pay a price for their prescription(s) that is determined by their insurance provider. Patients are also experiencing an increase in out-of-pocket costs because of decisions made by their health insurance provider.”

Much like we see in the problematic PBM system, insurers are making sure that the sickest patients are paying the most. As BIO pointed out, “A May 2021 Congressional Research Service report found that insurers are imposing higher levels of cost sharing and forcing some patients, such as the chronically ill, to shoulder a greater financial burden than others. In fact, insurers require patients to pay almost 5 times more out of pocket for prescription drugs than for hospital care.”

But once again, legislation has targeted the innovators of medicine rather than a profiteering insurance system and Medicare/Medicaid systems in need of updates.

‘Upper payment limits’ are price controls

One of the most popular tools for PDABs is upper payment limits on drugs—in other words, price controls. Price controls not only don’t address systemic problems, they also put R&D and patient access to innovative and necessary treatments at risk.

“For states that impose an upper payment limit, this could have detrimental impacts on access to these therapies because insurers might not cover them if they believe that the board has said that the cost doesn’t match the value,” explained Patrick Plues, Vice President of State Government Affairs for BIO. “And that’s where our concern lies. We worry that it would restrict access to especially the new gene therapies and cell therapies that are coming out for rare diseases. Those patients already have a limited amount of therapies at their disposal to treat or even cure their condition. It is problematic to have a somewhat arbitrary, unelected board who’s then placing a value on drugs that could potentially hinder access to difficult and necessary therapies.”

“Biotech is on the cutting edge of science, and when we’re dealing with new innovative medicines that are being developed, you are looking at the need for huge investment in time, research and development, and financing, all while trying to ensure patient access to those therapies,” said Geisser. “And many of the companies who are developing these innovations, especially for rare diseases and gene editing, are small. When we are talking about these transformative therapies, frequently, they’re the higher-cost therapies. So that generates the debate that we are seeing on the state level, in particular. When you’re dealing with Medicaid access and issues where the states are heavily invested in providing the therapies, because they are required by law to provide them, then you get into budgetary issues that are outside of typical commercialization issues.”

Despite a disconnect, biotech is still trying to help

One major issue at hand is that state budgets and biotech development work on two profoundly different timelines. While state budgets function on an annual or biannual basis, the scope of biotech R&D works on the timeline of decades.

“There is a disconnect when it comes to priorities. Biotech has to worry about how to ensure patient access and affordability while maintaining R&D and manufacturing, but, equally importantly, states have to address how they are going to pay for treatments and get the best care for their dollar,” said Geisser. “We need to meet in the middle going forward. It’s about making sure that small biotech developers can be successful companies so they can develop new, innovative medicines for patients. But it is also making sure that you are setting up a system that does not ultimately increase the cost of medicine in the long run through detrimental regulatory policies.”

Biotech has been working with state governments to develop innovative new payment models that work to bring the two sides together to create sustainable payment models that work for everyone.

“We have been working extensively with states to create sustainable payment plans and systems that work for both patients and biotech manufacturers,” said Plues. “We are creating these value-based arrangements where state Medicaid will only pay for therapy if it works, or they will pay for therapies over time through installments. These are innovative payment models that ensure that the patients who need to have these therapies have the access to them and the payers who are paying for it can actually pay for treatments in a sustainable way.”

Ultimately, the government needs to come together with biotech to solve systemic problems in paying for medicine. Unfortunately, we still see a default to simplistic answers that only kick the problem down the road and will ultimately raise the cost of medications and treatments for patients in the future.

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