Last week, Vermont became the first state in the nation to pass a new pharmaceutical cost transparency law. The legislation requires, among other things, that the Department of Vermont Health Access and the Green Mountain Care Board (an independent group created by the State Legislature in 2011 consisting of five Vermonters who, with their staff, are charged with ensuring that changes in the health system improve quality while stabilizing costs) to identify up to 15 prescription drugs each year "... on which the state spends significant health care dollars and for which the wholesale acquisition cost has increased by 50 percent or more over the past five years or by 15 percent or more over the past 12 months ...". The findings in the law state that this is just the beginning of the Legislature's efforts to rein in health care costs:
Sec. 1. FINDINGS
The General Assembly finds that:
- The costs of prescription drugs have been increasing dramatically without any apparent reason.
- Containing health care costs requires containing prescription drug costs.
- In order to contain prescription drug costs, it is essential to understand the drivers of those costs, as transparency is typically the first step toward cost containment (emphasis added).
At the same time, the US Bureau of Labor Statistics (BLS)released a new report, A Look at Healthcare Spending, Employment, Pay, Benefits, and Prices. As the title suggests, the report provides valuable data on health care spending from a variety of perspectives. The report's analysis of annual household spending on health care as a percentage of total spending likely reinforces consumers' perspective that health care costs too much! On the other hand, for those looking to start or change careers, the report shows that employment opportunities in health care look very promising, with demand for some health care jobs projected to grow by as much as 30 percent by 2024.
So, what is the connection between the Vermont law and a BLS report? Chart 11 of the report, "Consumer Price Index for Health Care Items, Seasonally Adjusted, January 1997-April 2016," speaks directly to the findings in the Vermont law. According to the BLS data, consumer prices for prescription drugs have doubled since January 1997. However, over the entire period of analysis, consumer prices for prescription drugs track almost exactly in line with prices for all medical care. In other words, while consumer prices for prescription drugs may have, in the words of Vermont legislators, increased "dramatically," they have not increased any more dramatically than the rest of health care costs.
Thus, efforts to contain health care costs that address only prescription drugs will have limited impact. Further, looking at only 15 prescription drugs, as the Vermont law requires, will be minimally informative and marginally effective. The new law's narrow focus on the prices of prescription drugs also does not take into account other, equally important questions of value and cost, such as whether the drug was a substitute for a different treatment choice that would have been more expensive, or whether the drug results in less pain and suffering for the patient than other less costly treatment options.
If, as the Vermont law itself suggests, transparency is merely the first step to health care cost control, the state will eventually be faced with more daunting questions around what actions it will take to rein in these costs and what impact those changes will have on patients' access, choice and quality of life. Will these two Vermont agencies eventually be given the power to override a physician's decision?
Meanwhile, a drug price transparency measure is also advancing in the California State Legislature. The bill, which was approved by the State Senate last week and will now be considered by the State Assembly, would require drug companies to notify insurers and provide justification for pending price increases, as well as mandate insurers to submit reports on the impact of drug costs on premiums.
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