On June 16, 2021, Governor Jared Polis signed into law SB 21-175, a law that creates the Colorado Prescription Drug Affordability Review Board (PDAB). The PDAB is required to conduct affordability reviews of certain prescription drugs and determine whether any are unaffordable for Colorado residents. The law authorizes the PDAB to establish Upper Payment Limits (UPLs) for drugs found to be unaffordable, and prohibits all purchases of or payer reimbursements for a drug at an amount that exceeds the UPL established by the PDAB.

With this law, Colorado becomes the latest state to pursue prescription drug affordability review boards to monitor and address the cost of certain high-cost drugs. As of this post, six states (Colorado, Maine, Maryland, Massachusetts, New Hampshire and New York) have enacted laws that establish some type of drug affordability review mechanism, with several more considering similar legislation. Colorado’s PDAB law may just be the most aggressive of the six in terms of the powers given to the PDAB, as described below.

Affordability Reviews. The Colorado law provides that the PDAB must identify certain prescription drugs to include in its affordability review. Specifically, the PDAB must identify brand-name drugs or biological products that have: 1) an initial wholesale acquisition cost (WAC) of $30,000 or more for a 12-month supply or for a course of treatment that is less than 12 months in duration; or 2) an increase in the WAC of $3,000 or more during the immediately preceding 12 months for a 12-month supply or for a course of treatment that is less than 12 months in duration.

The PDAB must also identify any biosimilar drug with an initial WAC that is less than 15% cheaper than the corresponding biological product. Last, the PDAB must identify any generic drug that:

  1. Has a WAC of $100 or more for: 1) a 30-day supply based on the recommended dosage approved for labeling by the FDA; 2) a supply that lasts less than 30 days based on the recommended dosage approved for labeling by the FDA; or 3) one dose of the generic drug if the labeling approved by the FDA does not recommend a finite dosage; and
  2. For which WAC increased by 200% or more during the immediately preceding 12 months, as determined by comparing the current WAC to the average WAC reported during the immediately preceding 12 months.

The PDAB then must determine whether to conduct an affordability review for each identified prescription drug. The PDAB makes this determination by evaluating several factors, including the availability of therapeutically equivalent products, as well as average out-of-pocket costs.

Should the PDAB proceed with conducting the affordability review, it must then determine whether the prescription drug is “unaffordable for Colorado consumers.” As part of this analysis, the PDAB must consider, to the extent practical, factors including WAC; cost and availability of therapeutic alternatives; effect of price on access and relative financial effects on health, medical, or social service costs compared to therapeutic alternatives; cost sharing for the drug; impact on safety net providers (if the drug is available through the 340B program); orphan drug status; and other categories of information set forth in regulation or that the reporting entity chooses to provide.

Under the law, the PDAB “may request that a manufacturer, carrier, or [PBM] provide pricing information for any prescription drug identified” for the affordability review. However, the PDAB may not impose a penalty on a party that refuses to provide any requested information.

Upper Payment Limits. The law authorizes the PDAB to establish a UPL for any prescription drug it has deemed unaffordable for Colorado consumers, but the PDAB cannot establish a UPL for more than 12 prescription drugs in each calendar year for 3 years, beginning on April 1, 2022. The PDAB must also establish via regulation the methodology it will use to calculate the UPL. This methodology must consider several factors, including: the cost of distributing, administering and dispensing the prescription drug; the drug’s status on the FDA’s drug shortage list; and the impact of the methodology on older adults and persons with disabilities.

The UPL established by the PDAB applies to all purchases of and payer reimbursements for the prescription drug at issue. The effective date of such UPL must be at least 6 months after the PDAB’s adoption of the UPL. Any savings generated for a health benefit plan as a result of the UPL must be used by the carrier to reduce costs to consumers, “prioritizing the reduction of out-of-pocket costs for prescription drugs.” The law also provides that self-funded health benefit plans will be subject to the law’s requirements only if they choose to comply with it.

Penalty. Starting on January 1, 2022, it will be unlawful in Colorado for any person to purchase or reimburse a payer for a prescription drug at an amount that exceeds the UPL established for that drug. Plans will be required to comply with any UPL established by the PDAB starting on January 1, 2023. However, the legislation does not specify what, if any, penalty would apply to payers or other entities that violate the UPL.

Finally, the law provides that a manufacturer must give the state 180 days’ notice before withdrawing a drug that is subject to a UPL from the market in Colorado, or be subject to fines of up to $500,000.

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