States grapple with high pharmaceutical costs: states continue to face alarming deficits as they address FY03 budgets and look ahead to state finances for FY04 - State Policy Watch.

States grapple with high pharmaceutical costs: states continue to face alarming deficits as they address FY03 budgets and look ahead to state finances for FY04 - State Policy Watch.In late April, 36 states faced a cumulative budget gap of $25.7 billion for FY03, a 47 percent increase over the November predictions when states reported a cumulative gap of just $17.5 billion. State lawmakers recognize that Medicaid costs, particularly those associated with pharmaceutical spending, are among the fastest growing components of these budgets. Accordingly, they are looking for innovative approaches to scale back these expenditures.

At the end of May, fewer than 20 states had ratified budgets for the coming fiscal year. The others continue to grapple with how best to handle the current fiscal climate.

Proposed Solutions

Many budget proposals, both passed and under consideration, provide for increased use of preferred drug lists (PDLs), new intra- or inter-state bulk purchasing agreements, and supplemental rebates. These new initiatives are intended to lower the price of drugs for state programs that require the purchase of drugs for various reasons, as well as for individuals purchasing drugs in pharmacies.

PDLs. PDLs have emerged this session as a favored cost-cutting mechanism. A critical federal court decision (PhRMA v. Thompson, Scully) finding the Michigan PDL program legal and reports of significant first-year savings for active PDL programs have encouraged states to investigate the benefits of such lists. In 2003, at least 20 states have considered implementing or expanding their current PDL programs, with at least eight states enacting measures.

Bulk purchasing. Another popular remedy being considered is the use of bulk purchasing pools. These pools provide a state with the means to obtain discounts on pharmaceuticals by greatly increasing the pool of agencies and states purchasing the pharmaceuticals, thereby increasing the state's bargaining power with drug manufacturers. States can pursue bulk purchasing by pooling the potential sales volume in the various state programs that purchase drugs, such as Medicaid, state employees' health insurance, pharmaceutical assistance programs, and the criminal justice system.

Intrastate initiatives. States also are increasing their purchasing power by joining with other states to purchase prescription drugs for an even larger volume of people to further reduce the cost of drugs. In 2003, Michigan, South Carolina, Vermont, and Wisconsin announced that they would join efforts to seek increased drug discounts for Medicaid. Although other states have expressed an interest in such an alliance for their Medicaid programs, this one will likely be the first to be implemented. Four other states--Iowa, Illinois, Nevada, and New Mexico--have enacted legislation providing for the establishment of intrastate purchasing pools within their own state agencies.

Copayments. To help further reduce costs, states are establishing or increasing prescription drug copayments, limiting the number of prescriptions a Medicaid recipient can have dispensed in a month, and expanding use of generic substitutions for name-brand prescriptions.

U.S. Suprcme Court Decision Promotes New Initiatives

A recent finding by the U.S. Supreme Court (PhRMA v. Concannon) in favor of the implementation of the Maine Rx program has sparked increased interest in such innovative programs, which explore territory beyond traditional pharmaceutical assistance programs. Maine Rx, enacted in 2000, is a pharmaceutical assistance program that would force drug manufacturers to extend to all state uninsured residents the discounted price provided for Medicaid recipients. The program provides that if a manufacturer should choose not to extend those benefits its products would require prior authorization under the state's Medicaid program.

Until now, only Hawaii has begun implementing a program similar to Maine Bx, which also is still under development. In addition, i8 states have introduced legislation in 2003 that includes provisions similar to those of the Maine Bx plan. Despite these attempts to address the high costs states pay for pharmaceuticals, the problem is far from resolved. State legislative initiatives to reduce pharmaceutical spending will likely continue to gain momentum throughout 2003 and into future sessions