States Move to Cut Cost of Drugs

While Congress struggles with Medicare reform, prescription drug prices already are falling for many elderly consumers as states take aggressive actions to control drug costs.

Twenty-nine states, including California, have enacted programs that shave the costs of medications for senior citizens, many of whom do not have insurance for prescription drugs.

In California, the cost of the average prescription has fallen to $32, from about $40, according to the state pharmacists’ group, as a result of a law that took effect last year that requires pharmacies participating in Medi-Cal, the state Medicaid program, to extend Medicaid discounts to senior citizens.

Maine and Vermont have passed controversial laws that extend mandatory discounts to senior citizens who don’t qualify for Medicaid, the state-federal program for the poor. New Mexico and West Virginia are setting up buyers’ clubs with enough clout to negotiate lower prices.

And bills under consideration in 40 other states would deepen existing Medicaid discounts or expand the number of people eligible for price breaks. Proposed legislation in California would use voluntary rebates from drug makers to save Medicare recipients an estimated $750 million a year.

To Theresa Johnson, a 65-year-old widow with chronic pulmonary disease, the legislation would mean a monthly savings of as much as $140. She now pays $700 a month for 16 medications that treat her lung disease and other ailments.

“It’d be nice to get some help,” said Johnson, a retired respiratory therapist who lives near Sacramento.

Prescription drug prices rose an average of 3.9% last year, according to industry statistics. But total expenditures rose 14.9% as Americans turned to new and more costly medications.

Pharmaceutical firms argue that the drugs will prove to be cost effective because they can help consumers avoid hospital stays. But, industry representatives admit, such savings can take years to materialize, as in the case of cholesterol drugs used to lower the risk of heart attack.

“It doesn’t reduce what the provider is paying right now,” said Marjorie Powell, general counsel for Pharmaceutical Research and Manufacturers of America, or PhRMA, whose members produce most brand-name medications.

The industry opposes mandatory price curbs. PhRMA said lower profits hurt everyone, because it means drug makers will have less money to plow into research. Manufacturers say it takes $500 million to bring a new drug to market.

But there is growing skepticism about the impact of price cuts on innovation. The advocacy group Public Citizen last week said the federal government--through National Institutes of Health research grants--heavily subsidizes drug development. Actual research expenditures by pharmaceutical firms average $110 million per drug, Public Citizen said.

The state-level reforms come as Congress seems unable to agree about adding a prescription drug benefit to Medicare. President Bush this month proposed a national prescription card for Medicare recipients that would be issued through private health insurers. Senior citizens would pay as much as $25 for a card entitling them to discounts of 15% to 25%. But advocates for the elderly said that does not offer enough help.

State legislators have strong incentives to take matters into their own hands. According to the National Conference of State Legislators, state Medicaid programs are coming in over budget, partly because of higher drug prices. In Oregon, where a law to curb spending recently was passed, Medicaid costs are expected to swell 60% over the next two years.

At the same time, lawmakers feel compelled to assist elderly constituents with their prescription bills. Nationally, 30% of those age 65 or older, or about 13 million people, have no prescription coverage.

“State legislatures have two quite distinct motivations,” said Richard Cauchi, a health policy expert with the National Conference of State Legislators. “They want to help people who need assistance, but as lawmakers, they are concerned with saving the state money.”

Many of the state programs already in place use government funds to subsidize prescription drug costs. But, as state Medicaid tabs climb, legislators have come up with innovative ways to share the burden with drug makers and, to a lesser extent, pharmacies--whether they like it or not.

Like Clumps of Seaweed, Lobbyists Hit Town

Nearly two dozen lobbyists for drug companies swarmed the Oregon Capitol last month, intent on watering down a bill creating a preferred drug list, or formulary, said Kurt Furst, policy advisor to the Oregon Department of Human Services. “They traveled in clumps, like seaweed.”

The final bill omits price control language the industry considered onerous. It nonetheless will save the state Medicaid program--which is being expanded to include 50,000 low-income senior citizens--an estimated $100 million over five years.

PhRMA has filed federal lawsuits to overturn price control laws in Vermont and Maine that require drug makers to fund discounts. Last month, an appeals court temporarily blocked Vermont’s program.

PhRMA contends that laws in Vermont and Maine violate federal Medicaid regulations. Those rules require state and federal governments to fund Medicaid benefits. Under the Maine and Vermont programs, PhRMA argues, benefits are funded by manufacturers through rebates.

Vermont and Maine received federal waivers from Medicaid rules before implementing their programs, however.

“I think the lawsuit stinks,” said Dorothy Merrick, a 77-year-old Maine resident who has saved $20 since the discount program began in June. A retired receptionist with a monthly income of $850, Merrick said she sometimes must choose between groceries and medicine.

“The prices are obscene.”

PhRMA attorney Powell said that, despite the high-profile skirmishes, the trade group isn’t opposed to reform. It advocates Nevada’s approach, with the state paying premiums on private prescription drug insurance for low-income senior citizens who don’t qualify for Medicaid. The program covers annual prescription medication expenses of as much as $5,000 and requires nominal prescription co-payments from enrollees.

“We think that shows real promise,” Powell said. “It is using the private marketplace rather than imposing state [mandated] price controls.”

Florida and Washington have enacted versions of a California law that gives Medicaid discounts to Medicare recipients. Under the California law that was enacted in 1999 and took effect in February 2000, the discounts come out of the pharmacies’ markups, which typically are 20%.

Maria Salem, 78, of San Francisco is among the 2 million senior citizens who have taken advantage of the law. It has saved her as much as $60 on her monthly supply of blood pressure medication. But the retired dentist has learned she must demand the discount, which, like Medicare, is available to the elderly regardless of income.

“No one offers it spontaneously,” she said.

Plan Offers Discount Card for a Small Fee

Some pharmacies don’t like the program because it cuts into profits, acknowledged Carlo Michellotti, chief executive of the California Pharmacists Assn. In Washington, pharmacists have sued to block that state’s program.

Drug makers would fund the discount under a bill introduced by California state Sen. Jackie Speier (D-Hillsborough). The industry does not oppose the measure, which is expected to pass, because participation is voluntary.

Under the proposal, senior citizens would pay a nominal fee, probably no more than $15, for a card entitling them to price breaks of as much as 20% on prescriptions. The discounts would be available only on drugs for which manufacturers have agreed to pay rebates. The program is for senior citizens who don’t have insurance for prescription drugs.

To drug makers, said Speier, the discounts are a tool with which they can grab market share in a state that accounts for 8% of the nation’s prescription drug sales. She is optimistic that drug makers will discount widely used medications and she has threatened to propose a law requiring them to do so if they don’t cooperate.

Advocacy groups for the elderly are skeptical. When Maine attempted a similar approach last year, 70 small drug makers offered voluntary discounts on obscure medications, while PhRMA sued. The drug industry lobby lost on appeal, but Maine hasn’t implemented the program, which is separate from the current discount plan.

“The drug companies say they want to cooperate,” said Betty Perry, lobbyist for the Older Women’s League of California, which, along with such groups as AARP and the California Teachers Assn., supports the Speier bill.