Stateline Story

States Teaming Up to Combat Rx Drug Costs

There's strength in numbers.

At least that's the rationale of freshmen governors in Michigan, Vermont, Wisconsin and South Carolina who are mounting a joint attack on the soaring cost of prescription drugs for Medicaid beneficiaries.

Through the first multi-state bulk purchasing pool, the quartet plans to use their combined Medicaid populations as leverage to negotiate lower prices from drug makers.

Medicaid, the state-federal health insurance program, is one of largest contributors to state budget deficits. Total annual spending on prescription drugs through Medicaid amounts to more than $21 billion, according to the Kaiser Commission on Medicaid and the Uninsured. Michigan and Vermont expect to begin implementing discounts this year, while Wisconsin and South Carolina are in planning stages.

Essentially, the governors reason they'll have greater buying-power with a larger purchasing pool.

That's why Michigan Gov. Jennifer Granholm (D) was lobbying colleagues at the National Governors Association (NGA) meetings in Washington, D.C., last week.

"(Gov. Granholm) knows with every additional state, we can increase the purchasing power for everyone," said Geralyn Lasher, spokeswoman for the Michigan Department of Community Health.

In a brief hallway interview at the NGA meetings prior to announcements from Wisconsin and South Carolina that they would join the pool, Granholm told Stateline.org she was "very excited and pleased" at the response she'd received from fellow chief executives.

Wisconsin Gov. Jim Doyle (D) announced a tentative agreement to join the pool Feb. 25, the last day of NGA meetings, and South Carolina Gov. Mark Sanford (R) followed suit the next day.

Granholm said the governors of Iowa, Kansas, Ohio, Minnesota, Tennessee and Virginia had expressed interest as well.

"Governor Doyle is excited about doing this because this is the first multi-state purchasing agreement and he wants to be a part of it. If he's able to save the state of Wisconsin money, then he's willing to do it," said Josh Morby, a Doyle spokesman.

Vermont Gov. Jim Douglas (R) said in a statement that the plan brings much-needed cost relief to the state's most vulnerable populations.

The pool will help South Carolina "get the most bang for our Medicaid buck," Sanford said. Wisconsin, which faces a $3.2 billion budget deficit, expects to spend nearly $385 million on prescription drugs for the state's 615,000 Medicaid patients in fiscal 2003. Michigan spends more than $1 billion annually on pharmaceuticals for its 1.4 million Medicaid clients. Vermont currently spends about $93 million on drugs for 139,000 Medicaid recipients and South Carolina estimates it will spend $489 million on 900,000 patients.

Bulk-buying isn't a new tactic in the ongoing struggle between the pharmaceutical industry and states with budget woes. However, this is the first time states have successfully teamed up to tackle the problem using Medicaid populations, policy analysts say. Loose coalitions of states across the country have seriously considered, but never fully-implemented, combined purchasing efforts over the past few years.

Michigan and other states already demand discounts from drug companies for including their medicine on a preferred drug list (PDL) for Medicaid patients.

Doctors in many states are often required to use less-expensive generic drugs and gain prior approval before prescribing a drug that's not on the list.

Though governors say they don't know exactly how much money they'll save, they hope the pool will garner greater discounts than they already receive through PDLs, prior-authorization programs and supplemental rebates.

PDLs are lightning rods for court challenges from drug manufacturers who say the lists limit the range of drugs available to the low-income and disabled populations covered by Medicaid.

Several pharmaceutical companies have expressed opposition to the buying pool in Michigan, where the state's PDL is being challenged in state and federal court.

Preferred drug lists in Michigan and Vermont are managed by First Health Services, a Virginia-based pharmacy benefit administrator who negotiates prices with drug companies on behalf of the state.

South Carolina uses the same company, but is awaiting approval on an addendum to their PDL from the Centers for Medicare & Medicaid Services (CMS), a process that could take several months. Wisconsin, still in preliminary planning stages, has not determined a benefit manager. The buying pool is the pharmaceutical industry's "worst nightmare" because it will probably work, said Bernie Horn, policy director at the Center for Policy Alternatives, a D.C.-based left-leaning policy group.

"You have to prove to drug manufacturers that you can move market share. Only then will they have an incentive to give you a discount," Horn said.

The more states need the money, the more willing they'll be to join, Horn said, adding that other states might participate because Michigan and Vermont "broke the ice."

"We still don't know all the details, but if (the pool) adopts the approach of the Michigan Medicaid program they're walking down the wrong road," said Jeff Trewhitt, spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA), which lobbies for the drug industry.

Trewhitt said Michigan's PDL is too restrictive and threatens the ability of Medicaid patients to receive a full-range of available drugs.

In other efforts to curb drug costs, Texas and Pennsylvania may consider bulk-buying legislation within the borders of their states because their Medicaid populations may be large enough to leverage prices on their own, policy analysts said.

Beth McConnell, state director of the Pennsylvania Public Interest Research Group (PennPIRG), is urging legislators in the Keystone State to sponsor such a bill. Though different than the four-state agreement, McConnell said it's along the same vein.

"(States) cannot afford to provide benefits to anyone if the cost of prescription drugs keeps rising. We've got to not only stem the tide, but solve the problem," McConnell said.

Legislators in Illinois, Indiana, Maine, Michigan, Washington, Wyoming and others will consider other types of "fair drug pricing" measures in 2003, said Richard Cauchi, a health expert at the National Conference of State Legislatures.