Drug Price Transparency: State and Federal Reforms

Drug price transparency laws require pharmaceutical manufacturers, insurers, and pharmacy benefit managers to disclose how prescription drugs are priced. These laws create new compliance obligations and legal risks for businesses operating in the healthcare space.

To protect your business and ensure compliance, connect with a healthcare attorney through the Super Lawyers directory.

Why Drug Price Transparency Became a Legislative Priority

Ever-increasing prescription drug costs are receiving increased scrutiny. Prices in the United States have routinely exceeded those of comparable drugs in other developed countries. While other countries rely on centralized price negotiation or regulation, the U.S. does not.

Instead, the U.S. has an open market system that enables participants to set and adjust prescription drug pricing. Historically, there have been fewer limits and regulations to comply with.

High Costs Have Far-Reaching Impacts

The market system has led to increased out-of-pocket costs for patients. This is especially true for people with high-deductible health plans or no insurance coverage. When prices are beyond what patients can afford, it increases the risk of medication non-adherence.

Escalating drug costs drive up health care costs for insurance companies. These costs are passed along to the insured by increasing health insurance premiums. There is also a greater reliance on cost-sharing programs, which shifts the cost increase back onto consumers through higher copays.

For people who receive support through public programs, increased prescription drug spending drives up total expenses for programs like Medicare and Medicaid. Over time, this creates budget pressures for federal and state governments, which are responsible for funding these programs. Legislative involvement is required to address the financial need.

All of these financial pressures have made drug pricing a bipartisan policy issue. Policymakers are now seeking tools to better understand and respond to the drivers of healthcare costs.

Drug Supply Chain Complexity

One factor complicating drug pricing is pharmaceutical supply chain challenges. Manufacturers set the initial list price, and wholesalers are responsible for distributing drugs to pharmacies. From there, pharmacies dispense the medications in accordance with patient prescriptions. Pharmacy Benefit Managers (PBMs) negotiate rebates on behalf of insurers.

All these parties can create disparities. The list price can be significantly different from the final net price, even after rebates and discounts. To complicate matters further, negotiated rebates are typically confidential. This creates an additional barrier to transparency in pricing.

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Federal Laws on Drug Price Transparency

Several federal policies are in place to protect public health. The U.S. Department of Health and Human Services (HHS) enforces these laws and issues guidance within the healthcare system. The 340B Drug Pricing Program also regulates several aspects of drug pricing.

Manufacturers must report pricing data to the Centers for Medicare & Medicaid Services (CMS) as a condition of participating in Medicaid. This puts the agency at the center of federal transparency efforts.

The False Claims Act imposes consequences for inaccurate reporting, helping to establish consumer trust. The Inflation Reduction Act (IRA) introduced a major shift in federal drug pricing policy, empowering Medicare to negotiate lower prices for certain high-cost prescription drugs.

The IRA focuses more on affordability, though during the negotiation process to lower costs, financial data must be disclosed, which contributes to the broader regulatory effort.

State Drug Price Transparency Laws

Over 20 states have enacted drug pricing transparency laws since 2016. They are designed to address information gaps rather than directly regulate prices. These laws typically require reporting on high-cost drugs, significant price increases, and wholesale acquisition costs (WAC). They may also include required disclosure of research, development, and marketing costs. Some states take reporting requirements a step further to include profit data.

Transparency regulations are far-reaching. Drug manufacturers, pharmacy benefit managers, insurers, wholesalers, and pharmacies may be required to comply with reporting requirements.

For example, New York implements several transparency initiatives. Under Assembly Bill A1707, manufacturers must report planned price increases for certain prescription drugs no later than 60 days before they take effect. This obligation applies when a drug’s WAC exceeds $40 per course of therapy, and the increase is greater than 16 percent, taking into account cumulative increases within the past 24 months.

Oregon requires reporting under House Bill 2658 (Oregon 2019) when a prescription drug costs more than $100 per month and its price rises by more than 10 percent in the prior year. California takes a broader approach in Senate Bill 17 (California 2017), targeting drugs with a WAC over $40 that increase by more than 16 percent over two years.

Legal Challenges and Constitutional Issues

Drug price transparency laws have faced legal scrutiny, with industry stakeholders challenging both the scope of state authority and the nature of required disclosures. These cases continue to shape how far regulators can go.

Preemption challenges often arise when state-level transparency laws overlap with federal regulatory schemes. Companies argue that overlapping requirements can create conflicts, particularly when federal law governs the same pricing data or transactions. Courts analyzing these claims must assess whether Congress intended to preclude state action or whether state laws can operate alongside federal requirements.

First Amendment challenges have become a primary line of attack. Companies argue that being required to disclose pricing justifications or internal financial data forces them to communicate messages they would not otherwise share. Courts, however, have largely upheld transparency laws that require factual disclosures tied to consumer protection or cost control.

Trade secrets and confidentiality issues present a separate line of challenge. Business stakeholders contend that forced disclosure of proprietary information can undermine competitive advantage and expose sensitive business practices. Legislatures have attempted to address these concerns through confidentiality provisions, but disputes remain over the scope and adequacy of those protections.

Seek Legal Advice

State and federal drug price transparency laws are part of a broader shift toward increased oversight of the pharmaceutical industry. For companies, this means greater scrutiny, more reporting obligations, and a higher risk of enforcement actions. Understanding how these laws apply to your business is essential to avoiding costly mistakes.

A knowledgeable attorney can provide the guidance needed to navigate this complex regulatory environment. Use the Super Lawyers directory to connect with a healthcare attorney who can help you move forward with confidence.