The war on drug--prices: States are taking up the fight to reduce prescription drug costs.

• Author: Boulard, Garry

A new kind of drug war is being wages in legislative chambers and federal courts as citizens and lawmakers fight to lower the costs of prescription drugs.

The states are facing a Medicaid drug bill of some $25 billion this year. With a national economy in decline and congressional action on a long-promised prescription drug benefit on hold indefinitely since Sept. 11, states are feeling a new sense of urgency about the price they pay for medicines.

Maine, Florida and Michigan have taken on the pharmaceutical industry to lower the cost of prescription drugs. It's landed them in court. And the industry has vowed to fight the states on every front. It could be a long, costly and difficult fight. More states are poised to tackle the problem of rising prescription drug costs under the Medicaid program, and a battle of economic and historic significance is looming.

There are those who want to put a cap on costs. There are those who argue that the profits from drugs are ploughed back into research for even better and safer drugs. There are many nuances and sides to this issue.

"This is going to be a confrontation that the pharmaceutical industry did not see coming," observes Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured. "And it is fully prepared to go to court to stop any action from the states that it views as unfair."

The first shots in the battle were fired in Maine--followed shortly by similar actions in Florida and Michigan--after lawmakers passed several bills addressing rising prescription costs, the most important of which is the "Healthy Maine" program that potentially extends Medicaid discounts on prescription drugs to more than 225,000 low-and moderate-income residents.

The "Healthy Maine" program also requires drug makers to grant Medicaid-type rebates on medicines purchased by Maine residents who have incomes less than three times the federal poverty level. While observers taking note of Maine's long history of progressive politics may have seen the "Healthy Maine" legislation as simply part of that tradition, what happened next in Florida was not as easily foreseen.

Facing spiraling drug costs that helped create a $650 million shortfall in the state's $9.7 billion Medicaid budget, lawmakers passed legislation creating a list of some 1,300 prescription drugs that will get preferential treatment from the state.

The list determines which drugs are included in the more than $1.6 billion pharmaceutical purchases Florida makes every year for its poor and disabled.

"We did it from the standpoint of being fiscally responsible," says Burt Saunders, chairman of the Senate Committee on Health, Aging and Long-term Care in Florida. "Our Medicaid, budget was mushrooming, and the pharmacy component of it was the largest part. It suddenly occurred to us that the pharmacy budget through Medicaid had the capacity to literally eat our overall Medicaid budget, so we thought we should do something about it," he says.

Officials say the new law could save up to $214 million a year, which is nearly 15 percent of what the state spends on Medicaid drugs.

Michigan, too, has entered the fray, developing in early December a list of lower-priced drugs that will receive preferential treatment through the state's department of community health, which administers Michigan's Medicaid program.

In response to such state actions, the pharmaceutical industry, as represented by the Pharmaceutical Research and Manufacturers Association of America--otherwise known as PhRMA--filed a series of petitions in federal court seeking to overturn state actions they claim are overreaching and could prove detrimental in the long run to the health of Medicaid patients.

PhRMA also contends that the Maine, Florida and Michigan legislation intrudes upon the relationship between physician and patient by making it either impossible or very difficult for doctors to prescribe certain drugs for patients if those drugs are expensive or not on one of the state's preferred lists.

PhRMA argues that the Maine legislation violates federal Medicaid law, which requires that federal and state governments pay for Medicaid benefits, noting that under the "Healthy Maine" program the discounts are funded entirely by the drug makers.

In response to Florida, PhRMA says the state is in violation of federal Medicaid law, partly because its list excludes drugs based only on the manufacturer's refusal to pay supplemental rebates and not because there is anything medically lacking in the drugs.

And the Michigan program, adds PhRMA, violates the separation-of-power provisions of the state's constitution because the provision did not go through the legislature, and lawmakers "were not given the opportunity to veto the policy before it took effect."

"Essentially we're fighting our battles on a series of fronts simultaneously," says Bruce Lott, director of state media for PhRMA. "Our goal is to not only defeat the actions that have taken place in Florida, Maine and Michigan, but also to discourage other states from following their lead."

Ironically the battle between the states and the nation's pharmaceutical industry began on a simple note when Maine applied for a waiver in federal Medicaid rules.

"Medicaid is a state and federal health program, but the federal government sets the rules," notes Kevin Concannon, Maine s commissioner of the Department of Human Services. "We said we would like to be able to enroll people in the Medicaid program just for the prescription drug benefits that Medicaid provides." The waiver, Maine stipulated, would apply only to those in the state who do not currently have prescription drug coverage and whose incomes are at 300 percent of the federal poverty levels or below.

Early last year, the feds approved Maine's waiver, and the state began its new "Healthy Maine" program in June. By early January, more than 108,000 people had enrolled (about 41,000 of whom have relied on a state subsidy not tied to Medicaid).

"I have never seen a program at that rate of uptake," says Concannon, who previously served as the director of Oregon's health and human services department.

DRUG PRICES GREATEST INCREASE

Overall spending on health care increased to more than $1.3 trillion in 2000, according to a January report from the federal Health and Human Services Department.

The biggest increase by far came from prescription drug costs. According to the Centers for Medicare and Medicaid Services, prescription drugs in 1999, the last year for which statistics are available, accounted for 9.4 percent of personal health care spending.

But it was the increase in that spending that was most alarming: 16 percent over the year before. The Centers also predict that spending on prescription drugs will increase by an average of at least 12 percent every year for...