Prescription Drug Affordability Boards Face Legal Challenges as States Tackle Drug Costs

As states consider healthcare affordability issues, Prescription Drug Affordability Boards (PDABs) have emerged as a key debate in state drug pricing policy. Virginia is emerging as a focal point this year, with the Senate passing legislation (VA SB 271) to establish a PDAB with upper payment limit authority, and a similar bill (VA HB 483) under consideration in the House. PDABs are not a new debate in Virginia, as the General Assembly has passed similar legislation twice in the past two years, only for it to be vetoed by former Governor Glenn Youngkin (R). This year, however, the effort has new viability with recently inaugurated Governor Abigail Spanberger (D).

Understanding Prescription Drug Affordability Boards and Upper Payment Limits

Virginia’s debate reflects a broader national trend of states considering PDABs as a tool to address prescription drug costs and affordability.

How PDABs Function and Their Authority

PDABs are state entities, typically composed of appointed experts in healthcare and the pharmaceutical supply chain, tasked with reviewing drug costs and recommending or implementing cost-containment strategies. PDAB authority ranges by state and can include conducting affordability reviews, issuing reports and recommendations, and setting upper payment limits (UPLs).

Upper Payment Limits as the Most Contentious Tool

The most contentious aspect of PDABs has centered on UPLs. In the PDAB process, PDABs conduct “affordability reviews” on select high-cost drugs, and if a drug is determined to pose an affordability challenge, the PDAB may elect to set a UPL. UPLs are limits on the amount that purchasers and payers can be required to pay for a drug when dispensed or administered in the state, and typically apply to all purchases and payments for drugs in the state. UPLs have the potential to significantly alter complex drug reimbursement dynamics and test the boundaries of state authority to regulate drug pricing.

State Implementation of PDAB Upper Payment Limits

Four states currently have PDABs with UPL authority.

Colorado Sets First UPL Using Medicare Fair Price Benchmark

In October of last year, Colorado became the first state to set a UPL on a drug, though it will not go into effect until January 2027. In setting the UPL, the Colorado PDAB relied on the maximum fair price (MFP), the price established through the Medicare negotiation process created under the federal Inflation Reduction Act. The PDAB contended that MFP is a negotiated price that leverages federal research and mechanisms, is significantly lower than other benchmarks, and could lead to savings for payers and consumers.

Other States Follow Medicare Fair Price Model

As other states move towards setting UPLs, MFP will continue to be a key benchmark. In Minnesota, statute requires a UPL to be set at MFP if one exists, and Maryland’s PDAB has decided to not set a UPL lower than MFP. In addition, more recently proposed PDAB legislation follows this trend, including the Virginia bill, which prioritizes drugs subject to Medicare negotiation for review. Under the legislation, the PDAB would be required to review such drugs first and set UPLs at MFP.

Legal Challenges Threaten PDAB Implementation

However, it should be noted that as UPLs move towards implementation, legal challenges have arisen that could shape the future of PDAB and UPL policy. In a closely watched case in Colorado, a drug manufacturer has challenged the state’s PDAB over a UPL on its drug, arguing that UPLs conflict with federal authority, attempt to regulate economic activity outside of the state, and violate due process. While a federal district court dismissed the manufacturer’s initial challenge when the drug was first selected for a UPL, the manufacturer filed a second lawsuit after the UPL was set, and litigation remains ongoing. As additional states, including Virginia, advance PDAB legislation, the outcome of this case may prove critical in determining whether states can effectively use UPLs as a drug pricing tool.

Track Health Care Policy

The ever-evolving state health policy landscape will continue to influence how health care organizations make business decisions. MultiState’s team pulls from decades of expertise to help you effectively navigate and engage. MultiState’s team understands the issues, knows the key players and organizations, and we harness that expertise to help our clients effectively navigate and engage on their policy priorities. We offer customized strategic solutions to help you develop and execute a proactive multistate agenda focused on your company’s goals. Learn more about our Health Care Policy Practice.