Government News
Judge Gives Green Light To Michigan’s Drug List
Psychiatric News
Volume 38 Number 8 page 1-72

Michigan can continue to use a preferred-drug list for Medicaid patients and other low-income residents, if a March 28 ruling from U.S. District Court Judge John Bates in Washington, D.C., is upheld.

Michigan was the first state to establish a Medicaid Pharmaceutical Product List (MPPL) that does not exempt psychotropic drugs (Psychiatric News, April 19, 2002; January 18, 2002).

To gain MPPL placement for products not selected as best in class, manufacturers were asked to match the net price of the drug ranked first in the category. (For products classified as best in class, no prior authorization is required to prescribe the medication.)

The state did not seek supplemental rebates for products selected best in class or for products whose net price was already below the level of the best-in-class drugs.

State officials have projected that use of the MPPL will generate $42 million annually in savings.

The Pharmaceutical Research and Manufacturers of America (PhRMA) filed suit against Tommy Thompson, secretary of Health and Human Services, and Thomas Scully, administrator of the Centers for Medicare and Medicaid Services, in their official capacities (Psychiatric News, September 20, 2002). The case is PhRMA v. Thompson, D.D.C. No. 02-CV-1306, and was filed June 28, 2002.

PhRMA lawyers alleged that Michigan was violating federal law by excluding drugs from the list solely on the basis of price. According to federal law, pharmaceutical companies must provide states with rebates, which are based on the average wholesale price of the drug, in order to participate in the Medicaid program. The average rebate is 15.1 percent of the drug’s average wholesale price. Federal law stipulates that states can exclude drugs from formularies only if they do not have "significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcomes."

State lawyers in Florida and Michigan maintained that a preferred-drug list is different from a formulary because it permits a drug not on the list to become available if a physician obtains prior authorization.

Bates’s ruling says that PhRMA failed to show that Michigan was acting illegally when it insisted upon supplemental rebates for MPPL placement.

On March 31, PhRMA announced that it would appeal Bates’s ruling.

States that have initiated or announced programs that, according to PhRMA, share "some or all of the illegal characteristics of the Michigan program" are Connecticut, Florida, Hawaii, Illinois, Louisiana, Minnesota, Mississippi, Missouri, New Mexico, North Carolina, Ohio, Vermont, and West Virginia.

According to the PhRMA written complaint, Medicaid prescription drug sales nationwide total approximately $20 billion each year.

In January 2003, the National Legislative Association on Prescription Drug Prices announced a joint effort of nine states and the District of Columbia to implement various strategies to lower prices for prescription drugs.

The states are Connecticut, Hawaii, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, and Vermont.

According to the January 14 New York Times, the association will form its own pharmacy benefit management (PBM) nonprofit organization. That organization will negotiate rebates from pharmaceutical companies as existing PBMs do. None of the rebate savings, however, will be used to generate profits for the PBM. Instead, the savings from the rebates will go to the participating states. Information on the Web site www.statecoverage.net/2003/rivers.pdf claims that the organization will "maximize bargaining power of individual states to benefit states, individuals, and businesses." The focus will be on "joint state purchasing efforts for all state-funded prescription programs using ability to move market share and ability to influence prescribing patterns to obtain lower prices."

The Web site is sponsored by State Coverage Initiatives, a project of the Robert Wood Johnson Foundation.

Cheryl Rivers, executive director of the association, said that the organization would develop its preferred-drug list to "guard against undisclosed behind-the-scenes arrangements that could benefit drug manufacturers."

At a November 23, 2002, meeting of the Center for Policy Alternatives, she said at the session "State Strategies to Lower Prescription Drug Costs" that the association wants "to encourage prescribing patterns which promote quality medical outcomes, and which also minimize cost. . . ."

The Heinz Family Philanthropies will provide financial support for the planning effort to establish the PBM.

According to the Times, "The big pharmacy benefit managers said they would welcome new competition." ▪

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