States Get Creative to Rein In Prescription Costs

State governments and advocacy groups are developing new methods to attack the problem of escalating costs of prescription drugs.

South Dakota’s Senate, for example, passed a bill (HB 1311) on February 24 that would require prescription benefit managers (PBMs) to disclose rebates and other payments they receive from drug companies, according to a February 27 article on the Web site www.kaisernetwork.org.

The legislation, which is supported by Gov. Mike Rounds (R), would force PBMs to disclose fees they receive from drug companies for conducting educational activities and collecting information on drug use. They would also be required to disclose information about negotiated rebates.

According to the report, the three largest PBMs have said that they might stop doing business in South Dakota if the bill is passed, claiming that disclosing trade secrets would destroy their ability to negotiate lower prices on drugs.

The bill returns to the South Dakota House for consideration of minor changes to the original legislation made by the Senate.

At the end of December, two New York labor unions sued the PBM Express Scripts Inc., charging the company with receiving kickbacks from drug manufacturers to recommend higher-priced drugs and with keeping rebates instead of passing them back to health plans (Psychiatric News, February 6).

One State’s Response

In West Virginia, the bill HB 4084 would set prescription-drug prices for state agencies based on the Federal Supply Schedule, according to www.kaisernetwork.org on February 24.

The schedule reflects prices that have been negotiated by the federal government and are estimated to be 42 percent lower than retail prices, the report states.

Under the proposed legislation, which was considered at a joint hearing of the West Virginia Senate and House, the state would create a pharmaceutical commission to set prescription-drug rates. Drug manufacturers would be required to report all advertising and marketing expenses and would be prohibited from making up those costs by increasing drug prices.

Alan Sager, a professor of health services at the Boston University School of Health, is quoted in the report as saying that the bill could reduce prescription-drug spending in the state by $534 million in 2004.

Jan Faiks, assistant general counsel for the trade group Pharmaceutical Research and Manufacturers of America, called the bill a “government-mandated price control” and a “form of socialized medicine.”

Michigan, Vermont, and South Carolina responded to these issues by forming a purchasing pool to enable their state governments to negotiate lower prices from pharmaceutical companies, but the federal Centers for Medicare and Medicaid Services has failed to approve the effort, after having their plan under review for more than a year (Original article: see facing page).

Price-Fixing Charges Argued

In Boston, on February 26, Judge Patti Saris of the United States District Court issued an order rejecting arguments made by the defendants in a price-fixing case against the pharmaceutical industry, according to an undated press release from Prescription Access Litigation (PAL), a lead plaintiff in the suit.

The suit alleges that pharmaceutical companies illegally inflated the average wholesale price (AWP) of their drugs. The AWP is the figure on which Medicare, Medicaid, and third-party payers such as insurance companies calculate reimbursement.

Judge Saris’s order asserted, “Defendants have conceded that AWPs represent only an ‘undiscounted sticker price’ that has no direct relation to the actual average price they charge for their drugs and that this is a widespread pricing and reporting practice.”

Saris also refused to dismiss an allegation of an “ongoing conspiracy” between the drug companies and PBMs, which profit from the “spread” between the discounted price they pay and the AWP for which they are reimbursed by patients and other payers.

Saris let stand nine of the 10 claims of illegal behavior alleged in the suit.

The text of Saris’s order and the original lawsuit is posted on PAL’s Web site at www.prescriptionaccess.org/awp.htm. ▪