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Snapshots of Recent State Initiatives in Medicaid Prescription Drug Cost Control

Issue Brief
  1. National Health Expenditure Accounts, CMS, accessed February 15, 2018, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.

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  2. Chris Park, “Trends in Medicaid spending for prescription drugs,” Presentation at MACPAC Public Meeting, October 29, 2015, https://www.macpac.gov/publication/trends-in-medicaid-spending-for-prescription-drugs/.

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  3. Drew Altman, “Prescription drug costs break through the partisan logjam,” Axios, May 2, 2017, https://www.axios.com/one-health-care-issue-breaks-through-the-partisan-logjam-2387900255.html and Kathleen Gifford, Eileen Ellis, Barbara Coulter Edwards, Aimee Lashbrook, Elizabeth Hinton, Larisa Antonisse, Allison Valentine, and Robin Rudowitz, Medicaid Moving Ahead in Uncertain Times: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2017 and 2018, (Washington DC, Kaiser Family Foundation, October 2017), https://www.kff.org/medicaid/report/medicaid-moving-ahead-in-uncertain-times-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2017-and-2018/.

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  4. National Health Expenditure Accounts, op. cit.

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  5. Gifford et al., 2017, op. cit.

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  6. Laura Snyder and Robin Rudowitz, Trends in State Medicaid Programs: Looking Back and Looking Ahead, (Washington DC, Kaiser Family Foundation, June 2016), https://www.kff.org/medicaid/issue-brief/trends-in-state-medicaid-programs-looking-back-and-looking-ahead/.

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  7. 42 U.S.C. 1396r-8 (c)

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  8. Snyder and Rudowitz, op. cit.

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  9. Covered Outpatient Drugs Final Rule, Federal Register, Vol. 81, No. 20, February 1, 2016, https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf.

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  10. See “Retail Price Survey,” CMS, accessed February 15, 2018, https://www.medicaid.gov/medicaid/prescription-drugs/retail-price-survey/index.html.

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  11. Dr. John Coster, “Medicaid Coverage Policies for Prescription Drugs,” Presentation at MACPAC Public Meeting, December 14, 2017, https://www.macpac.gov/public_meeting/december-2017-macpac-public-meeting/.

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  12. States that use PBMs in administering the prescription drug benefit in a fee-for-service setting pay the PBM administrative fees for these services. See Medicaid Pharmacy Trend Report, Second Edition, (Magellan Rx Management, 2017), https://www1.magellanrx.com/media/671872/2017-mrx-medicaid-pharmacy-trend-report.pdf.

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  13. State Maximum Allowable Costs are upper limits states apply to multiple-source drugs included on state maximum allowable cost lists.

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  14. Laura Snyder and Robin Rudowitz, op. cit.; Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, Molly O’Malley Watts, and Caryn Marks, The Crunch Continues: Medicaid Spending, Coverage and Policy in the Midst of a Recession Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2009 and 2010, (Washington DC, Kaiser Family Foundation, September 2009), https://www.kff.org/medicaid/report/the-crunch-continues-medicaid-spending-coverage-and-policy-in-the-midst-of-a-recession/; Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz, and Laura Snyder, Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015, (Washington DC, Kaiser Family Foundation, October 2014), https://www.kff.org/medicaid/report/medicaid-in-an-era-of-health-delivery-system-reform-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2014-and-2015/.

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  15. Snyder and Rudowitz, op. cit.

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  16. “Assuring Medicaid Beneficiaries Access to Hepatitis C (HCV) Drugs,” Medicaid Drug Rebate Program Notice, CMS, November 5, 2015, https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Downloads/RxReleases/State-Releases/state-rel-172.pdf.

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  17. U.S. Congress, Senate, Committee on Finance, The Price of Sovaldi and Its Impact on the U.S. Health Care System, 114th Congress, 1st session, 2015, http://www.finance.senate.gov/imo/media/doc/1%20The%20Price%20of%20Sovaldi%20and%20Its%20Impact%20on%20the%20U.S.%20Health%20Care%20System%20(Full%20Report).pdf.

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  18. Ibid.; Soumitri Barua, Robert Greenwald, Jason Grebely, Gregory Dore, Tracy Swan, Lynn Taylor, “Restrictions for Medicaid Reimbursement of Sofosbuvir for the Treatment of Hepatitis C Virus Infection in the United States,” Annals of Internal Medicine, August 4, 2015, http://annals.org/aim/fullarticle/2362306/restrictions-medicaid-reimbursement-sofosbuvir-treatment-hepatitis-c-virus-infection-united; KFF tracking of policy changes.

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  19. A settlement in April 2017 made this provision permanent. See “Washington Settles Class Suit Over Denial of Hepatitis C Medication,” April 13, 2017, https://www.lexislegalnews.com/articles/16417/washington-settles-class-suit-over-denial-of-hepatitis-c-medication.

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  20. The FDA approved Olysio (Janssen) in November 2013, Sovaldi (Gilead Sciences) in December 2013, Harvoni (Gilead Sciences) in October 2014, Viekira Pak (AbbVie) in December 2014, Technivie (AbbVie) in July 2015, Daklinza (Bristol-Myers Squibb) in July 2015, Zepatier (Merck) in January 2016, Epclusa (Gilead Sciences) in June 2016, and Mavyret (AbbVie) in August 2017.

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  21. Gifford et al., 2017, op. cit.

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  22. “Pharmaceutical Bulk Purchasing: Multi-state and Inter-agency Plans,” National Conference of State Legislatures, November 4, 2017 http://www.ncsl.org/research/health/bulk-purchasing-of-prescription-drugs.aspx.

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  23. New York’s spending cap, called the “Global Cap” limits the year-to-year spending growth of the Medicaid program to the ten-year rolling average of the medical component of the CPI. If spending is expected to exceed the spending cap, the NY Department of Health and Department of the Budget develops a plan of action to bring spending back under the spending cap. See Gifford et al., 2017, op. cit. and “Monthly and Regional Global Cap Updates,” New York Department of Health, https://www.health.ny.gov/health_care/medicaid/regulations/global_cap/.

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  24. As noted by the New York Public Health Law, Section 280, added as a result of NY SB 2007, April 20, 2017.

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  25. NY SB 2007, April 20, 2017. https://custom.statenet.com/public/resources.cgi?id=ID:bill:NY2017000S2007&ciq=ncsldc3&client_md=e859cf75599f35248e4fb3672d5d7766&mode=current_text.

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  26. A state’s Drug Utilization Review Boards oversees its Medicaid Drug Utilization Review (DUR) Program, which reviews therapies to ensure patient safety, as well as analyzing prescribing habits and cost savings. See “Drug Utilization Review,” CMS, accessed February 15, 2018, https://www.medicaid.gov/medicaid/prescription-drugs/drug-utilization-review/index.html.

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  27. 42 U.S.C. 1396r-8 (d). See also “Assuring Medicaid Beneficiaries Access to Hepatitis C (HCV) Drugs,” Medicaid Drug Rebate Program Notice, Release No. 172, CMS, November 5, 2015, https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-172.pdf.

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  28. Commonwealth of Massachusetts, “MassHealth Section 1115 Demonstration Amendment Request,” September 8, 2017, http://www.mass.gov/eohhs/docs/eohhs/healthcare-reform/masshealth-innovations/section-1115-demo-amendment-request.pdf.

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  29. Ibid.

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  30. See U.S. Congress, Senate, Special Committee on Aging, Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Healthcare System, December 2016, https://www.aging.senate.gov/imo/media/doc/Drug%20Pricing%20Report.pdf.

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  31. For example, in the case of Turing Pharmaceuticals’ Daraprim, only one manufacturer produced a generic drug, in essence making it a monopoly and allowing it to dictate prices.

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  32. GAO, “Generic Drugs Under Medicare: Part D Generic Drug Prices Declined Overall, but Some had Extraordinary Price Increases,” GAO-16-706, August 2016, https://www.gao.gov/assets/680/679022.pdf.

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  33. 42 U.S.C. 1396r-8 (c). See also “Medicaid Payment for Outpatient Prescription Drugs,” (Washington D.C., MACPAC, March 2017), https://www.macpac.gov/wp-content/uploads/2015/09/Medicaid-Payment-for-Outpatient-Prescription-Drugs.pdf.

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  34. MD HB 631, May 27, 2017, https://custom.statenet.com/public/resources.cgi?id=ID:bill:MD2017000H631&ciq=ncsldc3&client_md=94762068a205033f5447793923805ee9&mode=current_text.

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  35. David Gibbons and Alan Kirschenbaum, “First Generic Drug Price Gouging Prohibition to Become Law in Maryland,” FDA Law Blog, June 1, 2017, http://www.fdalawblog.net/2017/06/first-generic-drug-price-gouging-prohibition-to-become-law-in-maryland/; Michael Dresser, “Judge refuses to block Maryland price-gouging law,” The Baltimore Sun, December 4, 2017, http://www.baltimoresun.com/news/maryland/politics/bs-md-price-gouging-law-20170929-story.html.

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  36. Plaintiff States’ [Proposed] Consolidated Amended Complaint, In. Re: Generic Pharmaceuticals Pricing Antitrust Litigation, United States District Court Eastern District of Pennsylvania, November __, 2017.

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  37. See Katherine Young, Robin Rudowitz, Rachel Garfield, and MaryBeth Musumeci, Medicaid’s Most Costly Outpatient Drugs, (Washington D.C., Kaiser Family Foundation, July 2016), https://www.kff.org/health-costs/issue-brief/medicaids-most-costly-outpatient-drugs/.

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  38. The Drug Price Competition and Patent Term Restoration Act of 1984, usually referred to as the Hatch-Waxman Act, created the current framework of balancing innovation incentives in the form of regulatory exclusivity with access to affordable drugs in the form of simpler approval processes for therapeutically equivalent generic drugs.

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  39. “Pharmacist Substitution of Biosimilars: An Overview of State Laws,” M2 Health Care Consulting, May 30, 2016, http://www.m2hcc.com/pharmacist-substitution-of-biosimilars-an-overview-of-state-laws.html.

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  40. Andrew Mulcahy, Zachary Predmore, and Soeren Mattke, “The Cost Savings Potential of Biosimilar Drugs in the United States,” (Rand Corporation, 2014), https://www.rand.org/content/dam/rand/pubs/perspectives/PE100/PE127/RAND_PE127.pdf.

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  41. “Pharmacist Substitution of Biosimilars: An Overview of State Laws,” op. cit.

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  42. Richard Cauchi, “State Laws and Legislation Related to Biologic Medications and Substitution of Biosimilars,” National Conference of State Legislatures, February 8, 2018, http://www.ncsl.org/research/health/state-laws-and-legislation-related-to-biologic-medications-and-substitution-of-biosimilars.aspx.

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  43. NASHP’s Pharmacy Costs Work Group, “States and the Rising Cost of Pharmaceuticals: A Call to Action,” (NASHP, October 2016), http://nashp.org/states-rising-cost-pharmaceuticals-call-action/.

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  44. CMS’s Outpatient Drug Rule published in early 2016 requires states to switch from an Estimated Acquisition Cost, for which states frequently relied on AWPs or WACs, to an AAC. States heavily relied upon AWPs and WACs prior to the ruling, and have been working to change their reimbursement policy to use AAC to comply with the regulations. The industry used to rely more heavily on AWPs, but due to several OIG reports and litigation (New England Carpenters Health Benefits Fund v. First DataBank) that showed that AWPs were inflated, this list price is not used as often. See Federal Register, Vol. 77, No. 22, February 2, 2012, p. 5345, https://www.gpo.gov/fdsys/pkg/FR-2012-02-02/pdf/2012-2014.pdf.

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  45. “Medicaid Covered Outpatient Prescription Drug Reimbursement Information by State, Quarter Ending June 2017,” CMS, https://www.medicaid.gov/medicaid/prescription-drugs/state-prescription-drug-resources/drug-reimbursement-information/index.html.

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  46. CMS provides AMPs on their website for generic drugs for use in calculating Federal Upper Limits (FULs). However, CMS does not provide AMPs for brand drugs on their website or to the public.

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  47. Both federal statutory and supplemental rebates are available to the public at the state level through reporting on the Form CMS-64, but they are not broken out by drug. See https://www.medicaid.gov/medicaid/financing-and-reimbursement/state-expenditure-reporting/expenditure-reports/index.html.

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  48. PBMs often argue that they are able to achieve greater rebates by keeping these rebates confidential. See, e.g., comments from Dr. William Shrank, then of CVS Health, at a 2016 event: “That competition that we have, and our ability to sort of not show our cards, allows us to negotiate more effectively and negotiate better prices, better deals for our clients and our members. So we believe that right now, while there are folks on the outside that don’t necessarily have clarity about all of that process, the folks that we’re dealing with every day, our clients do and we are doing our very best job to provide them with medications that are affordable and that meet their needs.”  Transcript from Alliance for Health Reform and CVS Health event “Value-Based Pricing for Prescription Drugs: Opportunities and Challenges” on April 15, 2016, available at http://www.allhealthpolicy.org/wp-content/uploads/2016/12/FINALTRANSCRIPT_HM.pdf, page 21.

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  49. Pfizer, Inc. v. Texas Health and Human Services Commission, and Charles Smith, Executive Commissioner, Findings and Facts and Conclusions of Law, In the United States District Court for the Western District of Texas Austin Division, Filed September 29, 2017.

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  50. Kaiser Family Foundation Health Tracking Poll, conducted April 17-23, 2017. Available in “Public Opinion on Prescription Drugs and their Prices,” (Washington D.C., Kaiser Family Foundation), https://www.kff.org/slideshow/public-opinion-on-prescription-drugs-and-their-prices/.

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  51. Aaron Berman, Theodore Lee, Adam Pan, Zain Rizvi, Arielle Thomas, “Curbing Unfair Drug Prices: A Primer for States,” (Global Health Justice Partnership, August 2017), https://law.yale.edu/yls-today/news/new-ghjp-report-examines-curbing-unfair-drug-prices.

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  52. Lori Reilly, Executive VP, PhRMA, Comments to Senator Susan Collins at Senate Health, Energy, Labor, and Pensions Committee hearing, “The Cost of Prescription Drugs: How the Delivery System Affects What Patients Pay, Part II,” October 17, 2017, https://www.help.senate.gov/hearings/the-cost-of-prescription-drugs-how-the-drug-delivery-system-affects-what-patients-pay-part-ii.

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  53. Pharmaceutical Research and Manufacturers of America v. Edmund Gerald Brown and Robert David, Complaint for Declaratory and Injunctive Relief, United States District Court Eastern District of California, Filed December 8, 2017, http://phrma-docs.phrma.org/files/dmfile/sb17-complaint.pdf; Megan Messerly, “In lawsuit, Big Pharma argues Nevada law creates ‘effective cap’ on insulin prices,” September 6, 2017, https://thenevadaindependent.com/article/in-lawsuit-big-pharma-argues-nevada-law-creates-effective-cap-on-insulin-prices.

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  54. VT SB 216, June 2, 2016, https://custom.statenet.com/public/resources.cgi?id=ID:bill:VT2015000S216&ciq=ncsldc3&client_md=5c9a42de573d05e6b51cc374a6c53a4a&mode=current_text.

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  55. The Green Mountain Care Board and the Department of Vermont Health Access

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  56. CA SB 17, October 9, 2017, https://custom.statenet.com/public/resources.cgi?id=ID:bill:CA2017000S17&ciq=ncsldc3&client_md=a654672f7d7167cb58ac6d9f34b894f4&mode=current_text.

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  57. This could create an unintended windfall for pharmacies, as they could stockpile drugs with upcoming WAC increases at the lower rate. After the WAC increase, reimbursement would be based on the higher WAC (or within the next month, the higher AAC). See Adam Fein, “Thanks California! SB17 Will Trigger Massive Speculative Buying, Windfall Pharmacy Profits, and Supply Chain Disruption,” Drug Channels, October 11, 2017, http://www.drugchannels.net/2017/10/thanks-california-sb17-will-trigger.html.

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  58. LA SB 59, June 14, 2017, https://custom.statenet.com/public/resources.cgi?id=ID:bill:LA2017000S59&ciq=ncsldc3&client_md=47b8e5485cab12b06de11e2a3905575c&mode=current_text;  and LA HB 436, June 14, 2017, https://custom.statenet.com/public/resources.cgi?id=ID:bill:LA2017000H436&ciq=ncsldc3&client_md=2103ef7e9ce00a3cc5c95a935b993612&mode=current_text.

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  59. NV SB 539, June 15, 2017, https://custom.statenet.com/public/resources.cgi?id=ID:bill:NV2017000S539&ciq=ncsldc3&client_md=4cd738d13fffa3d1831e104a3f8cabed&mode=current_text.

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  60. Denise Roland and Peter Loftus, “Insulin Prices Soar While Drugmakers’ Share Stays Flat,” The Wall Street Journal, October 7, 2016, https://www.wsj.com/articles/insulin-prices-soar-while-drugmakers-share-stays-flat-1475876764.

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  61. In September 2017, a U.S. District Judge combined these lawsuits, some of which state attorney generals had brought forward, into one large class action. See Sarah Jane Tribble, “Timeline: Insulin Market Under Scrutiny,” October 30, 2017, https://khn.org/news/timeline-insulin-market-under-scrutiny/; and James Cecchi and Steve Berman, In Re Insulin Pricing Litigation, Consolidated Amended Class Action Complaint, United States District Court District of New Jersey, https://www.hbsslaw.com/uploads/case_downloads/insulin/amended-complaint-hagens-berman-insulin.pdf.

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  62. The law also requires that nonprofits that advocate for patients or medical research must report funding they receive from pharmaceutical companies on their websites.

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  63. “Colorado state representative introduces new legislation aimed at making insulin pricing more transparent,” Steamboat Today, January 14, 2018, https://www.steamboattoday.com/news/colorado-state-representative-introduces-new-legislation-aimed-at-making-insulin-pricing-more-transparent/.

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  64. The VA by law gets a 24% discount off of the non-federal average manufacturer price, but is also is able negotiate additional discounts in return for placing a prescription drug on their national formulary. See “Veterans Health Administration,” Health Affairs Policy Brief, August 10, 2017, https://www.healthaffairs.org/do/10.1377/hpb20171008.000174/full/.

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  65. The nonprofit group AIDS Healthcare Foundation sponsored both the Ohio and California ballot initiatives.

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  66. The California ballot initiative would not have applied to any Medi-Cal (California’s Medicaid program) managed care. The Ohio initiative did not have this exclusion.

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  67. Full text of California Proposition 61, “Drug Price Standards” (2016) and Ohio Issue 2, “Drug Price Standards Initiative” (2017). Available at https://ballotpedia.org/California_Proposition_61,_Drug_Price_Standards_(2016) and https://ballotpedia.org/Ohio_Issue_2,_Drug_Price_Standards_Initiative_(2017).

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  68. Seth Richardson, “What we learned from Issue 2’s failed campaign,”Cleveland.com, http://www.cleveland.com/open/index.ssf/2017/11/what_we_learned_from_issue_2s.html.

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  69. Either through a subsidiary or directly, PhRMA spent over $56 million working against the Ohio ballot initiative.  (See Ohio Issue 2, op. cit.) The PAC that opposed the California ballot initiative spent over $111 million. Pharmaceutical manufacturers comprised all of the top 10 donors to the PAC in California, and accounted for over 60% of the spending. (See California Proposition 61, op. cit.).

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  70. “State Prescription Drug Purchases. Pricing Standards. Initiative Statute,” (California Legislatives Analyst’s Office,  May 10, 2016), http://shea.senate.ca.gov/sites/shea.senate.ca.gov/files/lao_analysis_-_state_prescription_drug_purchases._pricing_standards._initiative_statute.pdf.

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  71. California Proposition 61 and Ohio Issue 2, op. cit.

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  72. Letter from Dr. Rebekah Gee to Dr. Joshua Sharfstein, April 12, 2017, https://kaiserhealthnews.files.wordpress.com/2017/04/gee-letter-4_12_17.pdf; Letter from Dr. Joshua Sharfstein et al. to Dr. Rebekah Gee, “Subject: Hepatitis C in Louisiana: Recommendations on Drug Availability,” May 4, 2017, http://ldh.la.gov/assets/docs/HepatitisC/ResponsememotoSecretaryGeeHCV.pdf.

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  73. A National Strategy for the Elimination of Hepatitis B and C, The National Academy of Sciences, Engineering, and Medicine, 2017, https://www.nap.edu/read/24731/chapter/1.

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  74. Letter from Dr. Joshua Sharfstein et al., op. cit.

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  75. “Update: Hepatitis C Drug Pricing,” Louisiana Department of Health, http://ldh.la.gov/index.cfm/newsroom/detail/4227.

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  76. Ed Silverman, “Governors association plans a big strategy session over drug pricing,” Stat News, September 25, 2017, https://www.statnews.com/pharmalot/2017/09/25/governors-session-drug-pricing/.

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  77. IL HR 88, May 11, 2017, https://custom.statenet.com/public/resources.cgi?id=ID:bill:IL2017000HR88&ciq=ncsldc3&client_md=5cf85784e00a848c8e3b6faeac6812bd&mode=current_text. This resolution also urges the federal government to monitor the high out-of-pocket costs for prescription drugs, an issue not as relevant in Medicaid.

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  78. AR HR 1013, February 18, 2015, https://custom.statenet.com/public/resources.cgi?id=ID:bill:AR2015000HR1013&ciq=ncsldc3&client_md=898b12058e4c9b6232b37b0361075718&mode=current_text.

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  79. See Anna Zaret and Darien Shanske, “The Dormant Commerce Clause: What Impact Does it Have on the Regulation of Pharmaceutical Costs?” (National Academy for State Health Policy, November 2017), https://nashp.org/wp-content/uploads/2017/11/DCC-White-Paper.pdf.

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  80. Dr. Renee Williams, “TennCare Formulary Management Tools,” Presentation at MACPAC Public Meeting, December 14, 2017, https://www.macpac.gov/public_meeting/december-2017-macpac-public-meeting/.

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  81. Jeremy Greene and William Padula, “Targeting Unconscionable Prescription-Drug Prices – Maryland’s Anti-Price-Gouging Law,” New England Journal of Medicine, July 13, 2017, http://www.nejm.org/doi/full/10.1056/NEJMp1704907.

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  82. Silverman, op. cit.

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