Prescription Drug Pricing
A Legislative Brief for the Center for State Innovation
The health of Americans is threatened by skyrocketing prescription drug prices. Between 1994 and 2005, prices for brand-name prescription drugs increased by 71 percent[1].
The problem is literally an epidemic—nearly one quarter of Americans report that someone in their household did not fill a prescription, cut pills, or skipped doses in the past year because of cost[2].
At the same time, rising drug prices have forced states to make drastic cuts in medical assistance programs.
The Medicare drug benefit passed in does not solve the prescription drug problem.
Forty-five percent of Americans under 65 reported that they or a family member had failed to fill a prescription in the past year because of financial restraints. Even amongst the Medicare eligible population the problem of coverage persists. Twenty-two percent of elderly adults said they did not fill a prescription due to cost, and 18 percent said they had skipped or reduced doses to conserve money[3].
And because of exclusions, deductibles and co-pays, most Medicare beneficiaries receive inadequate drug benefits even when they do obtain Medicare drug coverage.
The federal government pays a fair market price for its pharmaceuticals; individuals and states do not.
Federal agencies are the only buyers of prescription drugs that pay negotiated fair market prices that are similar to those in the rest of the world. These prices are, in fact, actually cheaper than drug prices in Canada. Uninsured Americans pay twice the fair market price for brand-name drugs, and states that don’t negotiate supplemental Medicaid rebates with drug manufacturers pay 20 percent more than the federal government[4].
The “Maine Rx Plus” program provides uninsured residents with the best discounts in the nation.
In 2000, Maine enacted legislation that directs the state to use its bulk purchasing power to negotiate drug discounts for the uninsured. This law, called Maine Rx, was challenged in the courts but was upheld in 2003 by the U.S. Supreme Court[5].
Revised and renamed Maine Rx Plus, the program has been in operation since January 2004 and serves nearly 275,000 residents with household incomes under 350 percent of the federal poverty level. Maine Rx Plus provides the largest drug discounts of any state program in America, saving participants an average of 15 percent on brand-name drugs and 60 percent on generics[6].
The program is successful because it is based on fair market negotiations—drug manufacturers participate in negotiations because it enables them to be included on the state’s Medicaid preferred drug list. If a manufacturer does not negotiate, the state retains the authority to impose prior authorization in a manner consistent with the Medicaid program.
States can lower drug prices by adopting a version of Maine Rx Plus.
The primary reason that states have not duplicated Maine Rx Plus is the threat of litigation by pharmaceutical manufacturers. But Maine Rx Plus is operating despite all the drug companies’ efforts to disrupt it. Opponents claim that the Center for Medicare and Medicaid Services (CMS) will block state programs—but CMS is not blocking Maine Rx Plus. Similarly, states can seek waivers for their state Medicaid programs, as long as the proposed benefits go to those under 200 percent of the federal poverty level. In 2005, Maryland enacted a law to duplicate Maine’s success; its waiver request is pending.
Model Legislation
Fair Market Drug Pricing Act
Summary: The Fair Market Drug Pricing Act is similar to the Maine Rx Plus program. It lowers prices for the state Medicaid program and for uninsured state residents by directing the state Secretary of [Health] to negotiate rebates from drug manufacturers.
SECTION 1. SHORT TITLE
This Act shall be called the “Fair Market Drug Pricing Act.”
SECTION 2. FINDINGS AND PURPOSE
(A) FINDINGS—
The legislature finds that:
1. Approximately one in five [State] residents lack sufficient prescription drug coverage, and do not qualify for Medicare or Medicaid. These uninsured or underinsured residents overpay for prescription drugs. In many cases, excessive drug prices deny residents access to medically necessary care, thereby threatening their health and safety.
2. Many uninsured and underinsured residents require extra doctor or medical clinic appointments because they have not taken the drugs prescribed for them due to their cost. Many are admitted to or treated at hospitals each year because they cannot afford the drugs prescribed for them—which could have prevented the need for hospitalization. Others enter expensive institutional care settings because they cannot afford the prescription drugs that could have supported them outside of an institution. In each of these circumstances, uninsured and underinsured residents become eligible for Medicaid because of their inability to afford prescription drugs. Lower drug prices for the uninsured and underinsured directly benefits Medicaid by reducing enrollment.
4. The state government is the only agent that, as a practical matter, can play an effective role as a market participant on behalf of all residents who are uninsured, underinsured or are Medicaid recipients. The state already provides drugs and acts as a prescription benefits manager for a variety of programs. It should expand that role to negotiate voluntary drug rebates and use these funds to maintain and expand Medicaid services and offer lower drug prices to the uninsured who do not qualify for Medicaid.
(B) PURPOSE—
This law is enacted to expand the state’s role as a participant in the prescription drug marketplace to negotiate voluntary rebates from drug companies, and use the funds to make prescription drugs more affordable to the state Medicaid program and to state residents. Such a policy will improve public health and welfare, promote the economic strength of our communities, and both directly and indirectly benefit the state Medicaid program.
SECTION 3. FAIR MARKET DRUG PRICING
After section XXX, the following new section XXX shall be inserted:
(A) DEFINITIONS—
In this section:
1. “Secretary” means the Secretary of the Department of [Health], or the Secretary’s designee(s).
2. “Department” means the Department of [Health].
3. “Manufacturer” means a manufacturer of prescription drugs as defined in 42 U.S.C. Section 1396r-8 (k)(5), including a subsidiary or affiliate of a manufacturer.
4. “Labeler” means an entity or person that receives prescription drugs from a manufacturer or wholesaler and repackages those drugs for later retail sale, and that has a labeler code from the Food and Drug Administration under 21 Code of Federal Regulations, 207.20 (1999).
5. “Participating retail pharmacy” means a retail pharmacy or other business licensed to dispense prescription drugs in this state that (a) participates in the state Medicaid program, or (b) voluntarily agrees to participate in the Rx Card program.
(B) NEGOTIATED DRUG DISCOUNTS AND REBATES
1. Drug discount and rebate agreements.
The Secretary shall negotiate discount prices or rebates for prescription drugs from drug manufacturers and labelers. A drug manufacturer or labeler that sells prescription drugs in this state may voluntarily elect to negotiate: (a) supplemental rebates for the Medicaid program over and above those required under 42 U.S.C. Section 1396r-8, (b) discount prices or rebates for the Rx Card program, and (c) discount prices or rebates for any other state program that pays for or acquires prescription drugs.
2. Rebate amounts.
In negotiating rebate terms, the Secretary shall take into consideration: the rebate calculated under the Medicaid rebate program pursuant to 42 U.S.C. Section 1396r-8, the price provided to eligible entities under 42 U.S.C. Section 256b, and any other available information on prescription drug prices, discounts and rebates.
3. Failure to agree.
a. The Secretary shall prompt a review of whether to place a manufacturer’s or labeler’s products on the prior authorization list for the state Medicaid program and review prior authorization or formularies for any other state-funded or operated prescription drug program, if:
(1) The Secretary and a drug manufacturer or labeler fail to reach agreement on the terms of a supplemental Medicaid rebate or a discount or rebate for the Rx Card program, and
(2) The discounts or rebates offered by the manufacturer or labeler are not as favorable to the state as the prices provided to eligible entities under 42 U.S.C. Section 256b.
b. Any prior authorization must meet the requirements of 42 U.S.C Section 1396r-8(d)(5) and be done in accordance with [cite existing state law section]. The Secretary shall promulgate rules that create clear procedures for the implementation of this section.
c. The names of manufacturers and labelers that do not enter into rebate agreements are public information and the Department shall release this information to the public and actively distribute it to doctors, pharmacists and other health professionals.
(C) RX CARD
1.Rx Card program established.
The Department shall establish the Rx Card program as a state pharmaceutical assistance program under 42 U.S.C. Section 1396r-8(c)(1)(C)(i)(III), to provide discounts to participants for drugs covered by a rebate agreement. Using funds from negotiated rebates, the Department shall contract with wholesalers and participating retail pharmacies to deliver discounted prices to Rx Card participants.
2.Amount of discount.
The drug discounts received by Rx Card participants shall be calculated by the Secretary on a quarterly basis. That calculation shall provide discounts approximately equal to the average amount of the negotiated drug rebate minus an amount to recover some administrative costs of the Rx Card program.
3.Eligibility for participation.
a. An individual is eligible to participate in the Rx Card program if he or she is a resident of the state and has a family income below 350 percent of the federal poverty level.
b. An individual is ineligible to participate in the Rx Card program if he or she is eligible for assistance under the state’s Medicaid program or is covered by an insurance policy that provides benefits for prescription drugs equal to or greater than the benefits provided under the Rx Card program, as delineated by rules promulgated by the Secretary.
c. The Department shall establish simple procedures to enroll Rx Card participants and shall undertake outreach efforts to build public awareness of the program and maximize enrollment by eligible residents.
4.Operation.
a. The Secretary shall adopt rules that require disclosure by participating retail pharmacies to Rx Card program participants of the amount of savings provided as a result of the Rx Card program. The rules must protect information that is proprietary in nature.
b. A participating retail pharmacy shall verify to the Department the amounts charged to Rx Card participants and non-participants, and shall provide the Department with utilization data necessary to calculate rebates from manufacturers and labelers. The Department shall protect the confidentiality of all information subject to confidentiality protection under state or federal law, rule or regulation. The Department may not impose transaction charges on wholesalers or participating retail pharmacies that submit claims or receive payments under the program.
c. Participating retail pharmacies shall be paid in advance for Rx Card discounts or shall be reimbursed by the Department on a weekly basis.
(D) ADMINISTRATION
1.Annual summary report.
The Department shall report the enrollment and financial status of the Rx Card program and report savings from supplemental Medicaid rebates to the legislature by February 1 each year.
2.Coordination with other programs.
Where the Secretary finds that it is beneficial to both the Rx Card program and another state program to combine drug pricing negotiations to maximize drug rebates, the Secretary shall do so.
3.Rulemaking.
The Department shall adopt rules to implement the provisions of this section.
4.Waivers.
The Department may seek any waivers of federal law, rule or regulation necessary to implement the provisions of this section.
SECTION 4. ADMINISTRATIVE DISCRETION
The Secretary shall administer the provisions of this Act in a manner that benefits the largest number of residents and prevents preemption by federal law or regulation. This includes, if necessary, separating Medicaid from non-Medicaid negotiations and preferred drug list decisions, or limiting participation in the Rx Card program to a smaller segment of residents.
SECTION 5. SEVERABILITY
The provisions of this Act shall be severable, and if any phrase, clause, sentence or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this Act shall not be affected.
SECTION 7. EFFECTIVE DATE
This Act shall take effect on July 1, 2009 and discounts to participants in the Rx Card program shall begin by January 1, 2010.
Model Legislation
Healthy [State] Pharmacy Discount Act
Summary: The Healthy [State] Pharmacy Discount Act is similar to the Healthy Maine program. It directs the Secretary [of Health] to seek a Section 1115 Medicaid waiver in order to operate a discount program that serves residents with household incomes under 200 percent of the federal poverty level.
SECTION 1. SHORT TITLE
This Act shall be called the “Healthy [State] Pharmacy Discount Act.”
SECTION 2. FINDINGS AND PURPOSE
(A) FINDINGS—
The legislature finds that:
1. Prices for prescription drugs are increasing at a faster rate than inflation. The problem is literally an epidemic—nearly one quarter of Americans report that someone in their household did not fill a prescription, cut pills, or skipped doses in the past year because of cost.
2. Most residents who lack insurance coverage for prescription drugs are not Medicare beneficiaries, so they will not be helped by the new federal drug program.
(B) PURPOSE—
This law is enacted to protect the health of state residents.
SECTION 3. HEALTHY [STATE] PHARMACY DISCOUNT PROGRAM
(A) DEFINITIONS—
In this section:
1. “Department” means the Department of [Health].
2. “Enrollee” means an individual who is enrolled in the Healthy [State] Pharmacy Discount Program.
3. “Program” means the Healthy [State] Pharmacy Discount Program established under this section.
(B) HEALTHY [STATE] PHARMACY DISCOUNT PROGRAM
1. There is established a [State] Pharmacy Discount Program within the state Medicaid program. The Program shall be administered and operated by the Department as permitted by federal law or waiver.
2. The Program shall be open to individuals who are not Medicare beneficiaries, who lack public or private prescription drug coverage, and who have an annual household income below 200 percent of the federal poverty level guidelines.
3. An enrollee may purchase prescription drugs that are covered under the state Medicaid program from any pharmacy that participates in the state Medicaid program at a price that is based on the price paid by the state Medicaid program, minus the aggregate value of any federally mandated manufacturers’ rebates and any state contribution amount.
4. The Department shall establish mechanisms to:
a. Recover the administrative costs of the Program;
b. Reimburse participating pharmacies in an amount equal to the state Medicaid program price, minus the copayment paid by the enrollee for each prescription filled under the Program;
c. Allow participating pharmacies to collect a one dollar processing fee, in addition to any authorized dispensing fee, for each prescription filled for an enrollee under the Program; and
d. Make a state financial contribution to the Program sufficient to satisfy the requirements of federal law.
5. The Department shall adopt regulations to implement the Program.
SECTION 4. APPLICATION FOR WAIVER
On or before September 1, 2009, the Department shall submit to the Centers for Medicare & Medicaid Services an application for a Section 1115 demonstration waiver necessary to implement the Healthy [State] Pharmacy Discount Program. The Department shall apply for federal matching funds subject to budget neutrality requirements under Section 1115 of the Social Security Act and the availability of State funds.
SECTION 5. EFFECTIVE DATE
This Act shall take effect on the date that the Centers for Medicare & Medicaid Services approves a waiver applied for in accordance with this Act. If the waiver applied for in accordance with this Act is denied, this Act shall be null and void without the necessity of any further action by the legislature.