Massachusetts Governor Again Proposes Excise Tax for “Excessive” Price Increases

On January 27, 2021, Governor Baker of Massachusetts issued his FY 2022 Governor’s Budget. The budget legislation includes an anti-drug price increase measure that has previously been proposed by the Baker Administration on multiple occasions. Under the legislation, drug manufacturers “who establish[] an excessive price [meaning WAC] for any such drug directly or in cooperation with a related party, shall pay a per unit penalty on all units of the drug ultimately dispensed or administered in the commonwealth.”

Whether a drug price is excessive is determined by relation to the drug’s “reference price.” A drug’s “reference price” is the WAC of the drug on the later of January 1, 2021 or the date the drug is first marketed. The price of the drug is considered to be “excessive” if it exceeds the sum of (1) the reference price of the drug, adjusted for any increase or decrease in the CPI-U for Boston, and (2) an additional 2% of the reference price (compounding annually) for each 12 month period that elapsed since the date on which the reference price was determined.

The law establishes a per-unit penalty 80% of the amount by which the drug’s price exceeds this benchmark (defined as the “excessive price increase”), determined at the beginning of the calendar quarter. So, for example, if the reference price of a drug is $100 per unit as of January 1, 2021, and the manufacturer increases that price to $110 per unit as of April 1, 2022, the penalty would be 80% of $8 per unit (that is, $110 minus $102), or $6.40.

The legislation would require manufacturers subject to the penalty to file a return containing certain information including the entity’s total sales subject to penalty in the immediately preceding calendar quarter, as well as all units of excessively priced drug sold for distribution in Massachusetts during the quarter. Information disclosed in a return to the Commissioner of Revenue is confidential (except for certain enumerated disclosures to the Department of Public Health), and is not a public record.

The legislation would be effective upon enactment. The Governor’s Budget now goes to the Massachusetts legislature.

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