Pharmaceutical companies are preparing to submit their initial reports detailing why rising prices of some diabetes drugs have outpaced medical inflation, giving state officials the first detailed look into the costs associated with a disease that affects about a tenth of Nevadans.

Despite a protracted legal battle over whether pricing data manufacturers will be required to disclose can be considered trade secrets and, if so, whether the state can adequately protect them from public disclosure, pharmaceutical manufacturers are required to submit reports over the next month and a half to comply with a new diabetes drug transparency law passed during the last legislative session. The state gave pharmaceutical companies a six-month extension to file their first reports, which are now due in January.

Julie Kotchevar, the administrator of the Division of Public and Behavioral Health, said that no reports have been submitted yet, but that she expects that manufacturers will mark much of the information they submit to the state confidential. Companies are required to report the information or face a $5,000 a day penalty.

“We haven’t gotten the actual data yet, but we have been talking to a lot of compliance officers that are making the changes to develop the reports,” Kotchevar said.

Pharmaceutical companies sued the state last year arguing that the reporting requirements created an effective cap on diabetes drug prices. They dropped the lawsuit after the state adopted regulations in June creating a mechanism to allow companies to prevent their trade secrets from being disclosed through the court system.

In advance of the reporting deadline, the state released a list of 175 so-called national drug codes — which refer to a specific drug in a specific dosage in a specific package — that had prices increase by more than the rate of medical inflation. Under the new law, manufacturers of any essential diabetes drug that had its price increase by more than the medical care component of the consumer price index (CPI) in the previous calendar year, in this case 2.5 percent, or twice the percentage increase in the CPI in the two prior calendar years, 12.6 percent, are required to submit reports to the state detailing the factors that contributed to the price increases.

According to a report released by the state in September, 129 drug codes exceeded both the one-year and two-year thresholds, 41 exceeded only the one-year threshold, and five exceeded the two-year threshold. The state analyzed 2,716 drug codes in total deemed essential to the treatment of diabetes under the scope of the law.

Manufacturers of those 175 drug codes will now be required to report specific data for each including the costs of producing it, administrative expenditures including marketing and advertising costs, profit earned, financial assistance provided to help patients and coupons and rebates offered. Kotchevar said that data will help the state understand the costs associated with treating diabetes.

Nevada spends nearly $2.5 billion annually on diabetes including direct medical costs, such as hospital care, prescription drugs and doctor visits, and indirect costs, like reduced labor force participation, disability, absenteeism and morality, according to the report. A little more than 280,000 adults in Nevada have diabetes — about 12.4 percent of the entire adult population — in addition to the estimated 75,000 that have diabetes but are undiagnosed and the 780,000 Nevadans considered prediabetic.

“We included a lot of information in the report about the burden of diabetes so people understand this isn’t just about drug costs, it’s not about whether or not they went up — though they all did — but it’s about what does this mean to people,” Kotchevar said.

Though the most specific data is still to come, the state noted in its preliminary report that certain types of diabetes drugs — certain biguanides, rapid-acting insulins and inhibitors — had more price increases than others. But Kotchevar said it’s difficult to know why that’s the case until the state receives the more detailed information in January.

“Everyone sees the price increase and people will make educated guesses or posit arguments about why it increased and why it could have increased, but we don’t know for sure where the price increase can be attributed to,” Kotchevar said. “The long-acting insulin, the rapid-acting insulin, or the short-acting insulin, these are variations on insulin. It’s not the same insulin that is 100 years old, so that could be the reason for the price increase or not. But if it was developed 20 years ago, would you expect there to be a price increase last year? … Did they have a price increase because they were priced significantly lower than what the market could bear?”

Kotchevar said that because the legislation only tackled diabetes drug price transparency and did not actually attempt to control drug prices — as state Sen. Yvanna Cancela originally intended in introducing the bill and as other states have attempted to do — Nevada has ended up being further ahead of other states who have had their laws found unconstitutional. She said that other states are coming to Nevada for help instead.

“We were sneaky and managed to get farther along than other states,” Kotchevar said. “We are really hoping that that data will at least be able to say this is what it cost to manufacture the drug, this is what expenses were generally, and with the price increase, was there an increase in manufacturing costs or an increase in profits?”

So far, the state has determined that the average increase among the 175 drug codes over one year was 17.2 percent with a median increase of 15.2 percent, while the two-year average increase was 27.5 percent with a median increase of 18.2 percent. The maximum price increase percentage the state saw was 122.2 percent.

The report also notes that only 21 of the 125 manufacturers of essential diabetes drugs increased their prices above the one- and two-year thresholds, and five of those 21 manufacturers were responsible for 59 percent of the total drug codes with significant price increases. The report said that the information indicates “that a small number of drug companies are responsible for most of the essential diabetes drug NDCs with a price increase in the last one or two-year periods.”

The report does not identify those five manufacturers — to address privacy concerns, the law specifically requires the state to compile its report “in aggregate and in a manner that does not reveal the identity of any person or entity” — though it does list the proprietary names of the nearly 50 drugs that saw a price increase.

Kotchevar said the state is trying to walk a fine line between providing the information it can for transparency’s sake and avoiding ending up back in court.

“The bill did say we had to release aggregated information, and it wasn’t the intent to call out anyone,” Kotchevar said. “If anybody were to look up the 45 drugs on the list, the five manufacturers would be super obvious … We’re trying to be good partners in not pushing the limit of what’s allowable so we don’t wind up back in court and then we can’t provide any information.”

An analysis of drug codes by The Nevada Independent determined that those five companies are, in order: Boehringer Ingelheim, AstraZeneca, Eli Lilly, Novo Nordisk and Merck.

In the report, the state also matched the drugs that experienced a price increase with its own spending data from the state-run Medicaid program, determining that 97 percent of Medicaid expenditures on essential diabetes drugs in 2017, $55.3 million, went toward drugs that experienced a significant price increase over the last one or two years. The report noted that while only six percent of drug codes identified as being essential to the treatment of diabetes experienced price increases, Medicaid’s expenditure on those drugs was “substantial.”

In addition to the requirements on pharmaceutical companies, the middlemen in the drug pricing process — known as pharmacy benefit managers, or PBMs — will also be required to report any rebates they negotiated and any profits they retained associated with essential diabetes drugs that experienced significant price increases. Kotchevar noted that the PBM section of the law is less specific than the pharmaceutical company portion, meaning that much of the information the state receives will be in aggregate form.

“We’re going to lose a lot of the discrete information and that will not be as transparent as I wish it would be,” Kotchevar said.

And questions over how transparent the final report will be, given the requirement that it be aggregated, remain. Both manufacturers and PBMs will be allowed to mark information they submit to the state as confidential in an attempt to protect it from disclosure as part of a public records request.

In a compromise, the state approved regulations that will allow it to make an initial determination about whether it agrees with a manufacturer’s request for confidentiality. If officials receive a public records request and agree with the request for confidentiality, they will deny the request and it would be up to the requestor to take the state to court; if state officials don’t agree, they will give the company 30 days’ notice to take the matter to court to prevent the disclosure of the information.

“That’s kind of our position. If you believe it’s a trade secret, you should defend it,” Kotchevar said.

The state is planning to work as quickly as it can to publish an amendment to the preliminary report once it receives the additional information from pharmaceutical companies on January 15, with the goal of publishing a report around the start of the legislative session in February.