Not long into a hearing Thursday over whether Colorado’s first-in-the-nation price cap on a brand name prescription drug should be struck down, the judge appeared flummoxed.
As Chief Judge Daniel Domenico of the U.S. District Court in Denver struggled to piece together how the pharmaceutical market works — and, therefore, why drugs cost so much and who stands to be hurt by the price cap — he stumbled over the terminology: WACs and wholesalers and PBMs and chargebacks and rebates. Finally, he just cut right to it.
“Why is it such a mess?” he asked an attorney for the pharmaceutical company Amgen.
That question is what inspired Colorado lawmakers and Gov. Jared Polis in 2021 to create the Colorado Prescription Drug Affordability Board, or PDAB. The board, made up of members appointed by the governor, reviews the costs of certain prescription drugs one-by-one and then decides whether to declare the drug unaffordable. If it does, it can then move on and set a cap on what patients or insurance companies are required to pay for the drug in the state.
Last year, after years of setting up the board, gathering data and conducting analysis, the PDAB voted to cap the price of the prescription drug Enbrel, which treats rheumatoid arthritis and other autoimmune diseases and which last year brought in more than $2.2 billion worldwide for Amgen. While other states have also established PDABs, Colorado became the first state in the country to impose a cap on the price of a specific prescription drug.
Amgen sued to overturn the cap — which is set to go into effect next year — and Thursday’s hearing was to debate whether Domenico should issue a temporary injunction blocking the pricing measure while the lawsuit is pending. At the conclusion of the hearing, Domenico said he would issue a written ruling soon.
Health initiatives under threat
The hearing was emblematic of the precarious footing for numerous progressive health policy initiatives undertaken during Polis’ administration, which is now in its waning months.
Polis made reforming the healthcare system a major focus early in his administration. He established an Office of Saving People Money on Health Care and, along with Democratic allies in the state legislature, pursued policies to give state regulators more muscle to slash healthcare prices.
In addition to the PDAB, Polis championed a plan to import lower-cost prescription drugs from Canada. He backed health insurance initiatives like a program called reinsurance that helps insurance companies pay their highest-cost claims, as well as a government-designed insurance plan called the Colorado Option.
But, as the Polis administration nears its end, the fate of all those initiatives is uncertain.
The effort to import drugs from Canada is stalled, awaiting the federal government’s approval. Even if that comes, it’s unclear if Canada and the pharmaceutical industry will go along.
While the Polis administration argues that the Colorado Option has provided better value to customers shopping for health insurance and has kept rates lower than they would have been, the program has not achieved the ambitious reductions in insurance prices it aimed for.
The reinsurance program, which the state estimates has saved consumers more than $2 billion on their insurance premiums, is facing reduced funding from the federal government due to the expiration of certain federal health insurance subsidies. Lawmakers have patched together solutions for two years to keep the program at full strength — the latest involving a complicated plan to issue bonds to fund the program — but have yet to identify a sustainable funding source.
And now Amgen’s lawsuit could significantly constrain what the PDAB can do.
Patent upending
Amgen argues that the price cap should be struck down for interfering with federal patent law.
In selecting Enbrel for a price cap, the PDAB focused on drugs for which there are no lower-cost generic alternatives available. This means it zeroed in on drugs still covered by patent protection, Amgen argues. It’s why the PDAB didn’t also target the competitor drug Humira, which is similarly expensive but is also now off-patent, the company says.
That’s a problem, Amgen argues, because federal patent law for pharmaceutical companies exists to promote research and development in exchange for offering companies an exclusive window to sell their products at whatever price they can get.
In summarizing Amgen’s argument, Domenico called this “a big carrot” for innovation. Capping the price, then, takes a giant chomp out of the carrot.
On the other side, the state argues that Amgen hasn’t actually shown that the price cap will hurt it. Technically, the cap is not a cap on the price Amgen charges but an “upper payment limit” on what the end purchaser — either a patient or an insurance company — pays. Those end purchasers aren’t buying the drug from a pharmacy, and in between the pharmacy and Amgen there could also be a distributor and a pharmacy benefit manager.
So which one stands to lose money from the price cap? Domenico asked the attorney representing the state.
“I think it’s unclear, your honor,” answered Senior Assistant Attorney General Pawan Nelson, citing “counterintuitive pricing behavior” in the pharmaceutical industry.
To Amgen’s attorneys, the answer is obvious. No wholesaler is going to pay more to acquire Enbrel than they can charge to sell it, meaning the price cut will ultimately travel upward into Amgen’s bottom line.
“I recognize that there is complexity,” attorney Paul Mezzina said. “But I don’t think anybody is confused about how this works.”
To which Domenico, the judge now charged with making sense of this dispute and rendering a coherent ruling, answered back deadpan:
“Well, I am.”