High prescription drug prices have concerned American consumers, and therefore American lawmakers, for decades. And there is good reason for those concerns. Prescription drug prices in the U.S. are almost three times higher than in other countries,1 and the average manufacturer drug price increase from 2022-23 was over 15%.2 Since 1980, U.S. spending on prescription drugs increased from $30 billion to $435 billion in 2023,3 although the total spend accounts for an increase in utilization, as well as prices.
This is in contrast to workers’ compensation, where drug spending has been trending downward for more than a decade, mainly due to a combination of clinical and cost management strategies.4 The bulk of prescription drugs are purchased under group health insurance, including government and commercial plans, and both drug prices and utilization are on the rise for this sector.5 Their members, also known as healthcare consumers are directly impacted by high drug prices, and 82% of them say prescription drugs cost too much.6
In response to consumers’ (also known as constituents) concerns, lawmakers have attempted to address the drug price issue in various ways. These efforts have historically been – and still are – motivated by the desire to reduce costs for individual patients, focusing on the way drugs are paid for under Medicare and commercial health plans.
“The nuances of workers’ compensation healthcare delivery are often overlooked when these new laws are proposed and enacted,” said Sandy Shtab, VP, Industry and State Affairs for Healthesystems. “Unfortunately, workers’ comp pharmacy management is impacted just the same, sometimes in negative ways.”
Legislative activity has been ongoing at both the federal and state levels, as outlined below, but the majority of laws that impact workers’ compensation are state laws.
Federal lawmakers have made sporadic efforts to pass legislation aimed at containing costs for their constituents. These efforts have taken many forms, but historically, few laws have been enacted and even fewer have impacted drug prices.
One notable exception was the Hatch-Waxman Act of 1984, which created the Abbreviated New Drug Application process that allowed generic drugs to gain FDA approval more quickly, catalyzing the generic drug market, which now accounts for over 85 percent of prescription drugs sold. Generic drug prices are typically 80 percent lower than brand drug prices7, and this law truly did make most prescription drugs more affordable.
Another federal law, the Medicare Prescription Drug Improvement and Modernization Act (MMA) signed into law in 2003, ushered in Medicare Part D (implemented on January 1, 2006) to make medications more affordable for Medicare beneficiaries. While effective in its mission, MMA merely shifted the cost of prescription drugs from Medicare consumers to the federal government, without decreasing market prices.
More recently, the Inflation Reduction Act, signed into law on August 16, 2022, contains multiple provisions that are also intended to lower prescription drug costs for Medicare beneficiaries but through different methodologies than MMA, including negotiating prices and requiring rebates for some drugs if price hikes exceed the rate of inflation.8 Medicare accounts for over 20 percent of U.S. healthcare spending, 7 and Medicare prices are often used as benchmarks by other healthcare payers, so this downward pressure on drug prices may have a ripple effect that will reduce prices for certain drugs across the board. The Inflation Reduction Act is being phased in over a period of several years, however, so its impact on the prescription drug market remains to be seen.
Federal policy debates regarding prescription drug costs continue. Currently, attention is largely focused on regulating pharmacy benefit managers (PBMs). Twenty-six bills have been introduced in the 2023-24 session, but, as of this writing, only one bill was passed by the House, none have been passed by the Senate, and progress is slow.
State lawmakers have been more active than their federal counterparts, with a rash of bills aimed at reining in drug costs in recent years. Since 2017, 347 bills intended to curb prescription drug prices have been passed across all 50 states. As of August 2024, 402 state bills addressing various aspects of the prescription drug market were proposed, pending, or passed.9 The 2024 bills range in focus from expanded reporting requirements to limiting health plan member co-pays, establishing prescription drug advisory boards to capping manufacturer and distributor prices. The largest portion (43%) of bills are intended to regulate PBM operations.
Many of the 402 state bills related to drug pricing are similar and/or overlap, even within individual states, and it is hard to predict which will become law. Current trends indicate that laws intended to regulate PBMs and insurers have the most support among state lawmakers, while laws that would regulate pharmaceutical manufacturers’ prices have the least. This is partly because the primary goal is to reduce prescription drug costs for consumers, as opposed to driving down prices for commercial insurers or government payer programs.
Almost 70% of the $4.5 trillion of national healthcare spending takes place under group health plans, and the portion of that spend that went to prescription drugs in 2022 was $405 billion. By comparison, workers’ compensation total medical spend was $37.6 billion in 202210 with less than $3 billion (approximately 7%) spent on prescription drugs.11 Legislators naturally focus on the largest dollar amounts, so most of the current drug-pricing bills are written with group health insurers and their PBMs in mind.
The vast majority of prescription drug spend is processed through PBMs contracted with health plans. This is because these plans provide comprehensive health benefit coverages for the majority of patient populations, inclusive of most diseases and disorders, injuries and illnesses. This is in contrast to workers’ compensation coverage, which are limited to treatment for a defined set of compensable injuries and occupational diseases.
As with most consumer goods, a number of entities are involved in the prescription drug lifecycle, including manufacturers, wholesalers, insurers, PBMs, and pharmacies, and each of these entities play an important role in providing needed drugs to patients. So, it’s debatable whether bills to exclusively regulate insurers and their PBMs will reduce drug prices, but there is no question that most of the current drug pricing legislation is directed at group health insurers and PBMs. This is evident in the language and provisions contained in many of the bills, such as measures to limit or reduce member co-pays and requiring that manufacturer rebates be credited to the price of drugs at the point of care. However, newly enacted laws can and do impact entities beyond their intended targets.
Eligible injured worker patients are entitled to all reasonable and necessary medical care, including medications with no out of pocket expense. Because medications are fully covered by workers’ compensation insurers, regulations that address member or consumer costs simply do not apply. But most of these bills do not specifically exclude workers’ compensation coverages, which means that sometimes laws pertaining to insurers and PBMs also can unintentionally apply to workers’ compensation drug benefits. So, any new laws and regulatory requirements that are enacted have the potential to impact prescription workers’ compensation pharmacy program prices and operations.
Requires that PBMs pay pharmacies the same amount for each drug as they charge their payer customers, also known as pass-through pricing, allowing no margin in the price. PBMs may charge a transaction fee on each prescription as a way to cover costs
Potential Impact:
A shift from simple discount pricing models to a drug cost price plus a higher transaction fee to cover costs for clinical services, technology, customer support, etc.
Specify minimum price levels that PBMs can pay pharmacies for drugs.
Potential Impact:
Establishing a payment “floor” can interfere with competition in the marketplace and protect some retail pharmacies without enriching injured worker care or passing on savings to the insurer.
100% of rebates paid by pharmaceutical manufacturers to PBMs must be credited back to the insurer. Some bills also require that the insurer must credit rebates back to their customers.
Potential Impact:
Rebates are paid long after the service is rendered, which would require refunds to claim files after the fact and could adversely impact claim reserving and closure activities for workers’ comp insurers.
Prohibit insurers and PBMs from requiring that covered patients use in-network pharmacy providers and/or reimbursing out-of-network pharmacies at lower rates than in-network pharmacies.
Potential Impact:
Out-of-network providers are not bound by contractual agreements and can charge higher prices, which will be absorbed by payers.
Stipulate that PBMs may not prohibit or discourage physician dispensing of drugs.
Potential Impact:
Prices for physician dispensed drugs are usually much higher than retail pharmacy dispensed drugs and these costs will have to be covered by payers.
Disallow the requiring of mail order fulfillment for prescriptions, specifying that patients cannot be required to receive their medications through mail order or required to pay more if they choose to use a local pharmacy rather than mail order.
Potential Impact:
Mail order requirements are not common in workers’ comp and injured worker patients do not pay for their prescriptions, so provisions such as this will only have an impact if price parity between mail order and retail is also required for payers.
Visibility into drug pricing practices is good for payers who need to understand all aspects of their pharmacy program economics.
Potential Impact:
However, price transparency does not directly regulate or reduce drug prices, and these laws may increase the administrative burden of state reporting requirements for insurers.
Since 2017, 177 laws pertaining to PBM operations have been passed,9 but few of them pertain directly to pricing. While almost all states are considering various pricing measures that target PBMs and insurers, 11 states have enacted pass-through pricing laws. In some states, these and other drug pricing bills conflict with the state’s workers’ compensation regulations, so remedies such as excluding workers’ compensation insurers and PBMs must be considered.
To date, the impact of these legislative approaches on drug prices is uncertain, having thus far produced no evidence that they have lowered drug costs for consumers. Many state legislatures, however, continue to propose and adopt similar law changes.
“State and federal lawmakers are focused on regulating PBMs whose influence on prescription drug prices has been greatly exaggerated,” said Shtab. “The degree to which these laws will lower drug prices is minimal, at best. Sadly, the unintended result has been an increased administrative burden on PBMs and the government agencies who regulate them., without any corollary benefit to the patients we serve. This increased burden also places pressure on PBMs and could ultimately result in changes to how certain complimentary services , like clinical management and regulatory compliance, are offered to workers’ compensation payers.”
Overall, prescription drug expenditures in the U.S. are significantly higher than in comparable nations and have continued to increase in recent years. Ironically, this is not the case in workers’ compensation where drug costs per claim have decreased by 24% since 2012.14 Prices did increase for the drugs commonly used in workers’ comp by an annual rate of 3.7% during this period, but total costs decreased, mainly due to utilization management.
