A law passed by Vermont lawmakers last week would cap how much hospitals in Vermont can charge for specialty drugs — medications used to treat cancers and autoimmune conditions, like Crohn's disease, often administered through injections or infusions.
It’s the latest effort to clamp down on the skyrocketing growth of health care costs in the state. Right now, Vermont hospitals have the highest markups in the country for drug prices paid by commercial insurers by far — almost twice the national average, according to a 2024 report from the RAND Corporation.
The cap would be a major change: It would mean drug prices at Vermont hospitals would be the lowest of any state in the country. That would save BlueCross BlueShield of Vermont an estimated $46 million a year and directly reduce their projected rate increases on the state marketplace by 4 percentage points next year, and reduce rates for school employees by 3 percentage points next year according to preliminary estimates.
“When we look at all the things contributing to high premiums, this is the standout reason for high prices,” Sara Teachout, of BlueCross Blueshield of Vermont, said during testimony at the Statehouse last month.
Hospital leaders agree that outpatient drug prices should come down, but several say the cap would cost them millions of dollars a year and could force some to close services.
"There's no argument that where we are today is unacceptable and unsustainable,” Peter Wright, the president of Northwestern Medical Center in St. Albans, said in an interview this week. “My concern with the bill is we're literally going from one end of the spectrum to the other."
The law applies to eight Vermont hospitals, excluding the state’s smallest, most rural independent hospitals. It sets a cap of 120% of the manufacturer’s “average sales price,” as calculated by the Centers for Medicare and Medicaid Services. That includes discounts that insurance companies get from drug manufacturers.
"It doesn't actually reflect cost," Wright said.
Many of the state’s hospitals purchase medications at a price well above the average sales price, especially for high-volume medications. That would mean losses of millions of dollars a year — anywhere between $2 million to an estimated $60 million to $80 million a year for the University of Vermont Health Network.
At Northwestern Medical Center, the cap would cause the infusion center to lose between $2 million to $2.5 million a year — a loss Wright said they cannot sustain.
“This unit, and all the patients that we take care of, barely breaks even at our rates, which are right around the national average,” he said.
He thinks the price cap would require the hospital to close the infusion center, a decision the hospital board would need to approve. If they did close, Dr. Stephen Leffler, the president of the University of Vermont Medical Center, said the Burlington hospital could not take care of those patients.
“We’re actually trying right now to add more capacity for infusions,” he said during testimony at the Statehouse last week, adding that the bill could limit infusion sites and drug options in the state.
“We'll have to send people to Plattsburgh, North Country Hospital in Newport, or Copley Hospital in Morrisville, depending upon where patients live,” Wright said.
There is a carveout in the legislation that allows hospitals to appeal to the Green Mountain Care Board to increase their reimbursement rates if they show the price cap is going to limit patients’ access to care or threatens the sustainability of rural services.
“The board is completely open to information that the hospitals will provide about their acquisition costs and the impact of this potential drug cap on their ability to provide services,” said Jessica Holmes, a member of the Green Mountain Care Board.
But she added, limiting revenue to hospitals is necessary given current health care prices.
“The reality is that the only way to bring our health insurance costs back in line with the rest of the country is to reduce our health care spending,” she said. “This is a bit of precision policy making.”
Gov. Phil Scott has indicated he’s supportive of the measure. In a statement, his office called it “an important tool to help keep costs down."
If Scott signs the legislation into law, the price cap will go into effect at the start of next year.
