Governor Cuomo Presents 33rd Proposal of the 2017 State of the State: Protect New Yorkers from Soaring Prescription Drug Prices through a Groundbreaking Three-Pronged Approach
Governor Andrew M. Cuomo recetnly announced a groundbreaking new proposal to protect New Yorkers from the soaring prices of prescription drugs in New York State.
The Governor's plan consists of a three-pronged approach that will:
- Insulate taxpayers by preventing prescription drug price gouging in the Medicaid program;
- Impose a surcharge on drug manufacturers that charge exorbitant prices and reallocate that money to insurers and businesses to lower premiums for the following year; and
- Protect ratepayers from abusive business practices by intermediaries that drive up drug prices.
"The skyrocketing costs of prescription drugs is an issue that the
nation has been grappling with for years and as we have so many times
before, New York is prepared to show the path forward,”
Governor Cuomo said. “Perpetually rising drug costs hurt the wallets of taxpayers and
the bottom lines of businesses, but for those who desperately need lifesaving
medicine and cannot afford it, the consequences can be dire. The idea
that in 2017 someone who has fallen ill might not have the opportunity
to recover simply so someone can line their pockets with a few more dollars
is unconscionable and must be stopped immediately.”
Over the past three decades, drug prices, especially branded and specialty
drugs, have increased at exorbitant rates throughout the nation. For example,
while 85 percent of prescribed drugs are generic, sales of branded drugs
in the United States have grown from about $10 billion in 1984 to $200
billion in 2015. Furthermore, despite only representing one percent of
all prescriptions, specialty drugs account for 73 percent of total drug
cost growth over the past five years. Even drugs that have been available
at low prices for decades are experiencing unjustified and sudden price
spikes. One of the most publicized examples of this is the recent spike
in the cost of the EpiPen, which has shot up in price by 500 percent since 2007.
This rapid rise in drugs prices not only has big implications for New
York taxpayers forced to subsidize a $1.7 billion drug-related cost increase
in the Medicaid program over the last three years. It also places a heavy
burden on businesses. The cost of drugs has been the biggest driver of
premium rate increases for New York’s commercial insurance market.
In 2015, pharmacy expenses were 26 percent of total premiums in New York,
significantly greater even than in-patient hospitalization which represented
only 18 percent of total premiums. Perhaps most importantly, high prices
for prescription drugs prevent families from accessing life-saving medicine.
Approximately 77 percent of Americans currently say they cannot afford
their prescriptions and have chosen to forgo taking their medications
because of their price.
Governor Cuomo plans to remedy this situation and help keep prescription
drugs affordable through a three pronged approach:
First, the Governor’s plan would effectively create a price ceiling
for certain high cost prescription drugs reimbursed under the Medicaid
program by requiring a 100 percent supplemental rebate for any amount
that exceeds a benchmark price recommended by the state's Drug Utilization
Review Board.
The second prong of the Governor’s plan imposes a surcharge on any
amount by which the price of these high-priced drugs exceeds the benchmark
recommended by the Drug Utilization Review Board in the Medicaid context,
when these drugs are sold into the state. All proceeds from the surcharge
amount will be deposited into a dedicated fund held and administered by
the Department of Financial Services. The proceeds collected from surcharges
will be reallocated to insurers to lower insurance premiums for New Yorkers
the following year.
The third step in the Governor's plan works to protect consumers from
unfair business practices by intermediaries known as Pharmacy Benefit
Managers, who many believe are contributing to the rising cost of prescription
drugs. Pharmacy Benefit Managersare brokers that negotiate the prices
of drugs for insurance plans and self-insured employers. Recently, the
U.S. Justice Department and others have alleged that this industry is
rife with conflicts of interests and undisclosed arrangements entered
into at customers’ expense.
Under the Governor's proposal, Pharmacy Benefit Managers will be required
to immediately register with the State, and be subject to new regulations
requiring disclosure of financial incentives or benefits for promoting
the use of certain drugs, as well as other financial arrangements affecting
customers. The proposal would also require Pharmacy Benefit Managers to
be licensed by the State Department of Financial Services beginning in
2019. The Department of Financial Services will also have the authority
to suspend or revoke a Pharmacy Benefit Manager's license for deceptive,
unfair, or abusive business practices, or for conduct that violates the
standards set by the Department.