n May 7, 2019, the Ways and Means Committee of the Massachusetts Senate reported its final budget (S.4), which includes within it authority for the Commonwealth’s Executive Office of Health and Human Services (“HHS”) to directly negotiate supplemental rebates with drug manufacturers for covered drugs on behalf of the Massachusetts Medicaid program, MassHealth.  The operative language appears in outside sections 4 and 39 of the budget and is substantially similar to drug rebate language initially appearing in the Governor’s FY20 budget.

More specifically, the budget authorizes HHS to negotiate supplemental rebate agreements for covered drugs, including agreements utilizing guaranteed net prices, based on either: 1) “the public health value of drugs…as determined by an independent third party” designated by HHS; or 2) “any other appropriate measure of value.”  HHS would then use this information to establish a value for the covered drug, which will, along with manufacturer input on the information, provide the basis for supplemental rebate negotiations with the manufacturer.

If the negotiations between HHS and the manufacturer do not ultimately prove successful and the post-rebate cost of the drug in question is expected to either exceed: 1) $25,000 per year per patient; or 2) $10,000,000 aggregate costs to MassHealth, HHS is authorized to publicly post a proposed value for the covered drug, and refer the manufacturer to the Commonwealth’s Health Policy Commission (“HPC”) for further proceedings as described in outside section 4.  Generally speaking, the HPC is authorized to collect from the manufacturer any records related to the pricing of the drug at issue and, based on that information, may make a determination whether the price of the drug is “potentially unreasonable or excessive” in relation to the value previously determined by HHS.  If the HPC determines the drug’s price to be potentially unreasonable or excessive, it can then require the manufacturer to appear at a public hearing and testify under oath regarding its justification for the price of the drug.

Finally, if after a public hearing, the HPC continues to believe that the drug’s price is unreasonable or excessive, it may impose civil monetary penalties of up to $500,000, or, alternatively, refer the manufacturer to the Attorney General.  Upon such a referral, the Attorney General may institute an action against the manufacturer pursuant to the Commonwealth’s Consumer Protection Law, c. 93A, or any other applicable law.  Any penalty or referral to the Attorney General must be accompanied by a notice of reasons and an explanation of the manufacturer’s appeal rights pursuant to the Commonwealth’s Administrative Procedure Act.

The Senate will debate the Ways and Means budget, including amendments, beginning on May 21, 2019.  We will be sure to provide an update on the Senate’s final budget following the debate.

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