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Laboratories of Democracy: States Ring in New Year with Ambitious New Health Laws

As federal legislation to address health care affordability stalls, 2020 ushers in state-level action to lower costs — a response to mounting public pressure.

Amid the national debate on drug pricing policies and the announcement of a bipartisan compromise on surprise billing that consumed the end of 2019, you’d be forgiven if you missed the movement among states to rein in excessive health care spending.

The start of the new year has ushered in an array of ambitious — and innovative — state-level health care policies that attempt to curtail rising health care costs. As federal lawmakers continue to iron out the details of policy solutions, a handful of states are taking action into their own hands.

Several new laws took effect on Jan. 1, 2020 across three key policy areas:

Surprise billing comes under fire

A new law in Colorado protects patients from out-of-network bills, establishing a cap on what out-of-network providers can charge as well as an arbitration process to address payment disputes. The law applies to out-of-network providers in emergency situations and those providing services at in-network facilities. It also creates a process for addressing out-of-network bills for ambulance services — a rarity in state surprise billing laws — and sets standards for consumer notification of network status. The Congressional Budget Office found that similar approaches outlined in federal legislation would lower consumer premiums.

Other states are also seeking to crack down on surprise billing. Nevada now limits providers from charging exorbitant out-of-network bills for certain medically necessary emergency services, and Washington implemented rules restricting patients from getting balance billed by out-of-network providers who are working at in-network facilities. Texas protects patients from receiving out-of-network bills and establishes an arbitration process between providers and insurers to determine payment.

Capping the cost of drugs

While the new year brought another round of annual drug price hikes, states pushed back by rolling out a series of new policies designed to rein in drug costs.

Maryland approved a first-of-its-kind prescription drug affordability board, an independent body charged with reviewing the costs of expensive drugs and those that experience steep price hikes. Those deemed unaffordable by the board could face price caps in state or local government-sponsored health plans. The board will meet for the first time Jan. 13.

Colorado has taken aim at insulin prices by capping patient out-of-pocket costs of the life-saving drug at $100 per month regardless of how much a patient uses, becoming the first state in the nation to do so.

California enacted legislation to ban pharmaceutical companies from engaging in practices that seek to block competition by generic manufacturers — in what experts have called the first state-level “pay-for-delay” ban. The state is hoping that by increasing competition, it can further lower drug prices.

And Oregon is now requiring drug manufacturers to give notice when they plan to hike a drug price beyond a certain threshold or introduce an extremely expensive new drug. Even though the law took effect Jan. 1, the powerful pharmaceutical trade group Pharmaceutical Research and Manufacturers of America (PhRMA) filed a legal challenge last year. The suit is pending in court.

Pharma’s middlemen face scrutiny

Operating behind the scenes, opaque negotiations by pharmacy benefit managers (PBMs) with drug manufacturers and health insurers have helped fuel the “gross-to-net bubble” — the massive difference between a drug’s list price and the confidential price paid by actors in the supply chain like insurers or PBMs.

However, their role in determining the prices patients pay is now the focus of several state laws effective Jan. 1 in Georgia, Illinois, and Minnesota.

These laws attack the issue from a variety of angles, including forcing PBMs to be more transparent about their operations and pricing strategies and restricting them from preventing pharmacists from disclosing to patients cheaper alternatives.

These policies join scores of others that took effect in 2019 and earlier and are being closely watched by industry experts to see if they are able to generate substantial savings.

The year ahead: What we’re watching

Momentum is likely to increase on these issues as several state legislative sessions convene.

Maine, New Hampshire, Illinois and Wisconsin are all expected to follow Colorado’s lead in considering legislation to cap out-of-pocket costs for insulin. The Massachusetts Senate passed a bill late last year that not only limits insulin prices to $25 per month for consumers, it also authorizes a state board to analyze drug prices and negotiate with drug makers to lower costs. The state’s House of Representatives is expected to take up the bill this session.

Surprise billing also continues to be debated in state houses. A bipartisan bill in Pennsylvania — which gained the support of the area’s largest insurer — would establish a benchmark price for all out-of-network bills and allow for arbitration when the price is disputed. It’s scheduled for a vote in the House of Representatives in early January.

As federal legislation remains tangled in partisan bickering, the “laboratories of democracy” are continuing to test solutions to some of the country’s most stubborn problems, potentially setting the stage for more sweeping national rules that give patients and taxpayers some much-needed financial relief.