Pharmaceutical Transparency Bills: Targeting Disclosures Purposefully

By Rachel Sachs

On Monday, the Massachusetts Joint Committee on Health Care Financing held a hearing on Senate bill 1048, which would require pharmaceutical companies to report to the state a range of information on their research & development costs, marketing and advertising costs, and prices charged to a number of different purchasers.  The hearing, recapped by the Boston Globe and Gloucester Times (among others), went as expected, with industry executives opposing the bill and health insurers, consumer advocates, and others testifying in support.

Massachusetts is not the only state considering a transparency bill.  At least ten other states, including California, North Carolina, Oregon, and Virginia have all drafted bills that would advance similar goals.  These bills do differ in their details.  As just one example, each state would require disclosure from a different set of drugs and companies.  Massachusetts would only require disclosure of costs and pricing for the top twenty selling drugs in the state (where the list is based around a set of criteria including but not limited to cost), California, Oregon, and Virginia would require disclosure for any drug whose wholesale cost is $10,000 or more per year (in California, this includes over 900 drugs), and North Carolina’s bill is framed around classes of drugs, rather than prices.

It is no accident that these bills have been developed in the wake of Martin Shkreli, Valeant Pharmaceuticals, and other drug pricing scandals.  Patients and policymakers are seizing this moment to take action against the drug industry.  Forcing companies to disclose their R&D costs, advertising costs, and pricing practices is seen as a step in the right direction against these secretive companies.  In this blog post, I want to focus on just one of many interesting issues raised by these bills: what and who are they useful for, and how can we target the required disclosures to best achieve those ends?  More specifically, I’m not interested in transparency for transparency’s sake.  Disclosure rules (like nutrition labels, for instance) can and should be used to help people make better decisions than they would’ve otherwise made.

It’s not about patients: Interestingly, these transparency bills are seemingly not designed to help patients themselves, unlike many other transparency rules in the health care context.  The idea is not to create a public database that enables consumers to price shop for health care services (Massachusetts and other states already have such tools).  Indeed, much of the information proposed to be collected is either not clearly relevant for patients seeking to lower their own costs (R&D expenditures, advertising costs) or will be held back by the state government as proprietary information (price charged to different insurers), although details on this latter point have yet to be worked out in most states.

It’s not about direct price regulation (yet): One common argument made in support of these bills is that they will enable states to control the price of these drugs.  At least in the case of Massachusetts, the bill’s sponsor has explicitly disavowed this argument, stating at the hearing that “we’re not trying to regulate prices.”  The idea instead is something like, more transparency will promote competition, which will then lead to lower prices.  Perhaps, but I’m not optimistic, given that more transparency in the context of health care services has often led to an increase in average costs, not a decrease.  These bills may well be precursors to bills that address drug prices directly, but they do not themselves do so.

It’s about gathering data: And so we come to what I think is and should be the goal of these bills: to gather data about drug R&D costs, advertising costs, and pricing that policymakers and researchers can use to make sensible choices about how to regulate pharmaceuticals, for the benefit of both patients and drug companies.  As such, it is important to think about what types of data would be useful for solving problems (or identifying them) in drug pricing and innovation policy, and how we can use these bills to give us information that we don’t already have.  At least some of the data these bills seek to collect (such as amount spent on advertising) is already publicly reported in some form. We should take care to specify that the information requested by these bills would be different and more useful, such as if it were broken down in a more granular way, by drug and by outlet.

Data can serve a range of purposes:  Policymakers and researchers can use the information generated by these bills to enable evidence-based policymaking along a range of dimensions.  Boston University law professor Kevin Outterson, a leading expert in incentives to develop new antibiotics, testified that such data would be useful as governments seek to estimate the risks and costs of developing new antibiotics, in service of supporting alternative innovation incentives.  Jamie Love, the Director of Knowledge Ecology International, has written persuasively that detailed information about clinical trial costs, broken down by drug, phase, and patient, could enable policymakers to analyze intelligently incentives designed to develop new uses for old drugs, or to test drugs on new populations.  Interestingly, these arguments may support even broader data collection than the states have proposed.  That is, collecting data on only the top twenty drugs that have come to market gives us no information about the drugs that have failed, or most drugs that are only barely recouping their input costs.

In my own view, it’s not obvious that the data generated by these bills could or would be used to take action against pharmaceutical companies directly.  After the last several months, the public already knows that many companies charge high prices for drugs, that prices are based less on input costs and more on what the market will bear, that companies increasingly in-license drugs rather than developing them entirely in-house, that they spend large amounts on advertising and lobbying, etc.  On these metrics, companies will not be telling the public things they don’t already know on some level.  But the value of the data to enable policymaking on alternative incentives for innovation, or even to promote incentives that directly support pharmaceutical companies themselves, is real – and policymakers ought to think carefully about how best to use these transparency bills to support these efforts.

[NB: The link above to the text of the MA bill does not link to the most recent version, which was discussed at the hearing on Monday. If anyone knows whether and where the most recent version is located online, I would be happy to update the link! Relatedly, I did not discuss the price cap element of the original bill in this blog post in part because that element has been limited significantly in the new version.]

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About rachelsachs

Rachel Sachs is an Associate Professor at the Washington University in St. Louis School of Law. Previously, she was an Academic Fellow at the Petrie-Flom Center. Rachel earned her J.D. in 2013 magna cum laude from Harvard Law School, where she was the Articles Chair of the Harvard Law Review and a student fellow with both the Petrie-Flom Center and the John M. Olin Center for Law, Economics, and Business. Rachel has also earned a Master of Public Health from the Harvard School of Public Health, during which she interned at the United States Department of Health and Human Services. Rachel's primary research interests lie at the intersection of patent law and health law, with a particular focus on problems of innovation and access and the ways in which law helps or hinders these problems.