As more expensive specialty drugs come on the market to treat serious chronic diseases, states are stepping in to cushion the financial pain for patients needing medicine that can cost hundreds of thousands of dollars a year.

At least seven states – Delaware, Louisiana, Maine, Maryland, Montana, New York and Vermont – limit the out-of-pocket payments of patients in private health plans. Montana, for instance, caps the amount that patients pay at $250 per prescription per month. Delaware, Maryland and Louisiana set the monthly limit at $150 and Vermont at $100. Maine sets an annual limit of $3,500 per drug.

New York prevents insurers from listing specialty drugs in a separate category that allows for out-of-pocket payments that are higher than those charged for conventional prescription drugs.

In other efforts to hold down prices, legislators in some states, including California, Massachusetts and North Carolina, have proposed requiring companies to make broad financial disclosures justifying high drug prices. So far, no such law has passed.

Critics of pharmaceutical charges say that while the measures would bring some financial relief, they would fail to control spiraling drug prices set by drugmakers. As expensive specialty drugs proliferate, they say, consumers probably will incur higher out-of-pocket payments and insurance premiums.

“None of those measures is going to be very effective, in my view, because they don’t get at the underlying issue of how drug prices are set,” said John Rother, president and chief executive of the National Coalition on Health Care, a nonprofit that focuses on improving health care while lowering costs.

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SPECIALTY CLASS OF DRUGS

Specialty drugs are in a class called biologics, extremely complex medicines made from organic materials. They are often used to treat serious chronic ailments including some advanced forms of cancer, autoimmune diseases such as rheumatoid arthritis and diseases of the central nervous system such as multiple sclerosis. They also are used to treat hepatitis C, which afflicts approximately 2.7 million Americans, according to the Centers for Disease Control and Prevention.

In most cases, biologics are far more effective and cause fewer side effects than conventional drugs.

The prices of these drugs far exceed those of conventional drugs, largely because they have little or no competition. They also require special handling, such as refrigeration, and often must be administered intravenously, adding to their costliness.

On average, biologics cost 22 times what conventional medicines do. A 2011 AARP Public Policy Institute report said that the average specialty medicine cost more than $34,550 for a year’s course of treatment. Drug manufacturers argue that the specialty drugs often save lives and sometimes even provide cures, which saves treatment costs over the long run.

“The cost of these drugs is simply unsustainable,” said Leigh Purvis, director of health services research at the AARP institute.

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Biologics are gaining a growing share of the prescription market. According to a report from Express Scripts, a large prescription management company, specialty drugs represented nearly a third of the spending on pharmaceuticals in the United States last year, although they represented only 1 percent of all prescribed medications. Within two years, Express Scripts projects that spending on specialty drugs will account for $4.40 of every $10 spent on medicine.

COINSURANCE PAYMENTS LIMITED

At least seven states are tackling high out-of-pocket payments for expensive specialty drugs by limiting coinsurance payments.

Insurers use coinsurance and co-payments to impose cost-sharing on beneficiaries. Co-payments are a set fee – often $5, $10 or $15 – that patients pay for medicine, whatever the price of the drug. With coinsurance, patients are required to pay a percentage of the price: The higher the cost, the more the patient has to pay.

Coinsurance payments for specialty drugs range nationally from 28 to 50 percent of the price of a drug, according to a 2013 policy paper by Chad Brooker, a lawyer with Connecticut’s health insurance exchange.

The state-imposed caps apply both to co-payments and to coinsurance. They provide some price protection for the patients taking biologics, but also spread their high cost to a wider population of consumers in the form of higher insurance premiums.

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“The caps don’t actually lower the costs of the medicine; it just raises the premiums for everyone,” Rother said.

Covered California, that state’s health exchange, this year became the first such organization to impose a coinsurance cap on specialty drugs obtained through exchange plans: $250 per prescription per month.

James Scullary, a spokesman for Covered California, said the cap would result in an overall premium increase of no more than 1 percent in the first year and no more than 3 percent in the first three years.

New York has taken a slightly different approach: Insurers typically place medications in different tiers depending on whether they are generics, preferred prescription drugs or specialty drugs. The higher the tier, the greater the cost-sharing burden for the patient. New York has prohibited the use of a fourth tier for biologics.

Delaware forbids insurers from putting all specialty drugs for a particular disease in the specialty tier, so that patients are given at least one lower-cost alternative.

Neither of these methods gets around the problem of higher premiums for everyone, Rother said.

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Right now, drug prices are set by manufacturers, subject to mandated discounts for various federal health plans and Medicaid and to negotiation with other health plans. Critics of this arrangement have argued for a system of pricing based on the relative effectiveness of a drug.

BILL MAKES REQUIREMENT OF COMPANIES

A bill before the California Assembly would require drugmakers to report their costs for the development and manufacture of any drug priced at more than $10,000 for a course of treatment. Massachusetts and North Carolina are considering similar measures.

The purpose of such measures is to pressure drug companies to lower their prices, AARP’s Purvis said.

“It’s meant to be educational and also to be used in kind of a shaming way,” she said. “If the manufacturer can’t produce information that makes the prices seem justifiable, it may give people more ammunition to say that they’re not.”

The pharmaceutical industry argues that disclosure laws would not fairly represent what it costs to develop drugs. For every product that makes it to market, the industry says, nine or 10 do not. Nor would disclosure provide information on what costs patients would have to bear, it says.

All of the proposed laws, said Priscilla VanderVeer, a spokeswoman for the trade group Pharmaceutical Research and Manufacturers of America, “would create an inaccurate and misleading overview of costs of providing treatment, and don’t provide information on costs patients will have to pay out of pocket,”

This article was produced by Stateline, an initiative of the Pew Charitable Trusts.


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