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H 7950Pharmaceuticals

State Affairs and Government - The Rhode Island Health Care Reform Act of 2004 - Health Insurance Oversight

Imposes financial penalties on pharmaceutical manufacturers that increase prescription drug prices without supporting clinical evidence.

Held for study
Population
Affected
72
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Introduced Feb 27, 2026Committee House Health & Human Services

Plain-English Summary

This legislation seeks to control prescription drug costs by penalizing pharmaceutical manufacturers that raise prices without clinical justification. It utilizes reports from the Institute for Clinical and Economic Review (ICER) to identify "unsupported price increases." If a manufacturer raises a drug's price significantly without evidence that the drug is more effective, the state will assess a penalty equal to 80% of the revenue generated by that price hike. The bill also prohibits manufacturers from stopping the sale of these drugs in Rhode Island to avoid the penalty, imposing a separate $500,000 fine for doing so.

For younger readers

This bill tries to stop companies from charging too much money for medicine. Sometimes, companies raise the price of medicine really high without a good reason. This law says that if a company raises the price but cannot prove the medicine works better than before, they have to pay a large fine to the government. It also says these companies cannot just stop selling the medicine in Rhode Island to avoid paying the fine. The goal is to make sure people can afford the medicine they need to stay healthy.

Who & Where It Applies

Impacted groups
Pharmaceutical ManufacturersPrescription Drug ConsumersHealth Insurance ProvidersPharmaciesOffice of the Health Insurance Commissioner
Impacted communities
All

Constitutional & Fiscal Check

High. The bill prohibits manufacturers from withdrawing products from the state to avoid penalties, which likely violates the dormant Commerce Clause and potentially the Takings Clause by forcing continued commerce. Additionally, the provision requiring manufacturers to prepay penalties before seeking judicial review (Section 42-14.5-6(d)(2)) raises significant Due Process concerns. The delegation of regulatory triggers to a private third-party entity (ICER) may also face legal challenges regarding the non-delegation doctrine.

Estimated cost
None
Estimated revenue
Amount unknown

Bill Analysis

Both viewpoints
For Progressives
  • Combats corporate greed and price gouging in the pharmaceutical industry, aiming to make essential medications more affordable for working-class families and vulnerable populations.
  • Creates a mechanism for corporate accountability by utilizing independent, evidence-based research to determine if price hikes are justified, rather than allowing profit motives to dictate healthcare costs.
  • Generates revenue from corporate penalties that is specifically earmarked to fund the oversight and regulation of health insurance and drug costs, reducing the burden on individual taxpayers.
  • Relies on the Institute for Clinical and Economic Review (ICER), an organization whose cost-effectiveness metrics have been criticized by disability rights advocates for potentially undervaluing the lives and quality of life of disabled individuals.
  • May inadvertently cause pharmaceutical companies to limit the supply of certain drugs in the state despite the withdrawal bans, potentially harming patient access to necessary treatments.
  • Allows manufacturers to retain 20% of the revenue from unsupported price increases, which might still incentivize price gouging if the profit margins are high enough.
For Conservatives
  • Targets deceptive market practices where price increases do not reflect actual product improvements or value, theoretically protecting consumers from bad faith actors.
  • Generates revenue through specific fines on violators rather than implementing broad-based tax increases on Rhode Island citizens or compliant businesses.
  • Includes provisions for administrative hearings, ensuring that manufacturers have a formal process to dispute the state's calculations before final penalties are solidified.
  • Represents severe government overreach into the free market by imposing price controls and dictating how private businesses must price their products based on third-party opinions.
  • Violates fundamental property rights and due process by forcing companies to prepay penalties before they are allowed to appeal the decision in court, effectively treating them as guilty until proven innocent.
  • Infringes on corporate freedom by legally prohibiting a business from withdrawing its products from a specific market, forcing them to continue commerce against their will.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 93 additions · 7 deletions

SECTION 1. Section 42-14.5-2.1 of the General Laws in Chapter 42-14.5 entitled "The Rhode Island Health Care Reform Act of 2004 — Health Insurance Oversight" is hereby amended to read as follows: 42-14.5-2.1. Definitions. As used in this chapter:

(1) “Accountability standards” means measures including service processes, client and population outcomes, practice standard compliance, and fiscal integrity of social and human service providers on the individual contractual level and service type for all state contracts of the state or any subdivision or agency to include, but not limited to, the department of children, youth and families (DCYF), the department of behavioral healthcare, developmental disabilities and hospitals (BHDDH), the department of human services (DHS), the department of health (DOH), and Medicaid. This may include mandatory reporting, consolidated, standardized reporting, audits regardless of organizational tax status, and accountability dashboards of aforementioned state departments or subdivisions that are regularly shared with the public.

(2) "Consumer Price Index" means the Consumer Price Index, Annual Average, for all Urban Consumers, CPI-U: US City Average, All Items, reported by the United States Department of Labor, Bureau of Labor Statistics, or its successor or, if the index is discontinued, an equivalent index reported by a federal authority or, if no such index is reported, "Consumer Price Index" means a comparable index chosen by the Bureau of Labor Statistics. (2)(3) “Executive Office of Health and Human Services (EOHHS)” means the department that serves as “principal agency of the executive branch of state government” (§ 42-7.2-2) responsible for managing the departments and offices of: health (RIDOH), human services (DHS), healthy aging (OHA), veterans services (VETS), children, youth and families (DCYF), and behavioral healthcare, developmental disabilities and hospitals (BHDDH). EOHHS is also designated as the single state agency with authority to administer the Medicaid program in Rhode Island.

(4) "Identified drug" means any prescription drug that has at any time been identified as having an unsupported price increase.

(5) "Prescription drug" has the same meaning as prescription as defined in § 23-25.3-3. (3)(6) “Primary care services” means, for the purposes of reporting required under § 42- 14.5-3(t), professional services rendered by primary care providers at a primary care site of care, including care management services performed in the context of team-based primary care. (4)(7) “Rate review” means the process of reviewing and reporting of specific trending factors that influence the cost of service that informs rate setting. (5)(8) “Rate setting” means the process of establishing rates for social and human service programs that are based on a thorough rate review process. (6)(9) “Social and human service program” means a social, mental health, developmental disability, child welfare, juvenile justice, prevention services, habilitative, rehabilitative, substance use disorder treatment, residential care, adult or adolescent day services, vocational, employment and training, or aging service program or accommodations purchased by the state. (7)(10) “Social and human service provider” means a provider of social and human service programs pursuant to a contract with the state or any subdivision or agency to include, but not be limited to, the department of children, youth and families (DCYF), the department of behavioral healthcare, developmental disabilities and hospitals (BHDDH), the department of human services (DHS), the department of health (DOH), and Medicaid. (8)(11) “State government and the provider network” refers to the contractual relationship between a state agency or subdivision of a state agency and private companies the state contracts with to provide the network of mandated and discretionary social and human services.

(12) "Unsupported price increase" means an increase in price for a prescription drug for which there was no, or inadequate, new clinical evidence to support the price increase. In order to determine whether a price increase for a prescription drug is unsupported by new clinical evidence, the state shall utilize and rely upon the analyses of prescription drugs prepared annually by the Institute for Clinical and Economic Review (ICER) and published in its annual unsupported price increase report.

(13) "Wholesale acquisition cost" has the meaning set forth in 42 U.S.C. § 1395w- 3a(c)(6)(B).

SECTION 2. Chapter 42-14.5 of the General Laws entitled "The Rhode Island Health Care Reform Act of 2004 — Health Insurance Oversight" is hereby amended by adding thereto the following section: 42-14.5-6. Penalty imposed and collection power.

(a) A penalty shall be assessed on the sales within the state of identified drugs and payable by the manufacturers of the identified drugs. The penalty shall be calculated as described in subsection (a)(1) of this section.

(1) The penalty in any calendar year shall equal eighty percent (80%) of the difference between the revenue generated by sales within the state of the identified drugs and the revenue that would have been generated if the manufacturer had maintained the wholesale acquisition cost from the previous calendar year, adjusted for inflation utilizing the Consumer Price Index.

(2) In order to be subject to the penalty a manufacturer shall have at least two hundred fifty thousand dollars ($250,000) in total annual sales within the state in the calendar year for which the penalty is assessed.

(3) Within sixty (60) days of the annual publication by ICER of the unsupported price increase report, the commissioner shall identify the manufacturers of identified drugs. The commissioner shall notify each manufacturer that sales within the state of identified drugs shall be subject to the penalty assessed in this section for a period of two (2) calendar years following the identified drug’s appearance in the annual publication by ICER.

(4) Such penalty shall be collected annually. Any manufacturer notified by the commissioner pursuant to subsection (a)(3) of this section, shall submit to the commissioner a return on a form prescribed and furnished by the commissioner and pay the penalty by April 15 for the previous calendar year.

(5) The form described in subsection (a)(4) of this section shall contain information including, but not limited to:

(i) The total amount of sales of the identified drug within the state;

(ii) The total number of units sold of the identified drug within the state;

(iii) The wholesale acquisition cost of the identified drug during the tax period and any changes in the wholesale acquisition cost during the calendar year;

(iv) The wholesale acquisition cost during the previous calendar year;

(v) A calculation of the penalty owed; and

(vi) Any other information that the commissioner determines is necessary to calculate the correct amount of the penalty owed.

(6) The commissioner may request any agency to assist in calculation of the penalty and collection, including the tax administrator, who may collect the contribution with interest in the same manner and with the same powers as are prescribed for collection of taxes in title 44.

(b) Use of revenue.

(1) The payments required by this section may be made by electronic transfer of monies to the general treasurer.

(2) The general treasurer shall take all steps necessary to facilitate the transfer of monies to a restricted receipt account and made available to the office of the health insurance commissioner to offset costs to assess and collect the penalty, audit manufacturers that are required to submit returns pursuant to this section, and defend appeals from manufacturers. The balance shall be deposited in the general fund.

(c) Prohibition on withdrawal of prescription drugs for sale.

(1) It shall be a prohibition of this chapter for any manufacturer or distributor of an identified drug to withdraw that drug from sale or distribution within this state for the purpose of avoiding the penalty set forth in this section.

(2) Any manufacturer who intends to withdraw an identified drug from sale or distribution from within the state in order to avoid a penalty as described in this section shall provide a notice of withdrawal in writing to the board of pharmacy and to the attorney general at a minimum of one hundred eighty (180) days prior to such withdrawal.

(3) The attorney general shall assess a penalty of five hundred thousand dollars ($500,000) on any entity, including any manufacturer or distributor of an identified drug, that it determines has withdrawn an identified drug from distribution or sale in the state in violation of this section.

(d) Hearing by commission on application and appeals.

(1) Any manufacturer aggrieved by the action of the commissioner in determining the amount of any penalty imposed under the provisions of this section may apply to the commissioner, within thirty (30) days after the notice of the action is mailed to it, for a hearing relative to the penalty. The commissioner shall fix a time and place for the hearing and shall so notify the manufacturer. Upon the hearing the commissioner shall correct manifest errors, if any, disclosed at the hearing and thereupon assess and collect the amount lawfully due together with any penalty or interest thereon.

(2) Appeals from administrative orders or decisions made pursuant to any provisions of this section shall be pursued pursuant to chapter 35 of title 42 ("administrative procedures"). The right to appeal under this section shall be expressly made conditional upon prepayment of all contributions, interest, and penalties unless the manufacturer demonstrates to the satisfaction of the court that the manufacturer has a reasonable probability of success on the merits and is unable to prepay all contributions, interest, and penalties, considering not only the manufacturer’s own financial resources, but also the ability of the manufacturer to borrow the required funds. If the court, after appeal, holds that the manufacturer is entitled to a refund, the manufacturer shall also be paid interest on the amount at the rate provided in § 44-1-7.1, as amended.

SECTION 3. This act shall take effect upon passage.