Pharmaceutical Discounts Under Federal Law: State Program Opportunities (2001)

William von Oehsen
May 2001

In conjunction with the Public Health Institute/MEDPIN Project

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INTRODUCTION

One merely has to scan the website of the National Conference of State Legislatures to appreciate the keen interest among state lawmakers in assisting low-income individuals, especially those who are elderly or disabled, with purchasing their medications.1 In 2001 alone, more than 100 bills are being considered by state legislatures that would, in one way or another, improve the affordability of pharmaceuticals for state residents.2 Twenty-six states, to date, have enacted some kind of pharmaceutical assistance program, most of them using state funds and manufacturer rebates to insure low income elderly patients for covered drugs.3 Other approaches to improving pharmaceutical access - ranging from placing caps on manufacturer or pharmacy prices to bulk purchasing to expansion of Medicaid and federal discount programs - have also been adopted or proposed by states. Perhaps the most ambitious of the state programs - the Maine Rx Program signed into law on May 11, 2000 - has been the subject of federal litigation, and the program's rebate and penalty provisions have been temporarily enjoined from being implemented based on alleged violations of federal constitutional law.4 State experimentation in the area of pharmaceutical assistance is likely to continue, especially if the U.S. Congress enacts President Bush's "helping hand" proposal of using federal grants to help fund state drug assistance programs in the future.

The purpose of this paper is to assess under federal law some of the models that have been proposed and/or adopted at the state level for improving access to pharmaceutical care. The U.S. pharmaceutical market is complex and a large part of its complexity is the result of federal legislation designed to reduce the cost of drugs for federal purchasers, especially the Medicaid program, the Department of Veterans Affairs (VA), Department of Defense (DOD) and the Public Health Service (PHS). Only after studying these federal drug discount programs and their impact on the market can one fully and accurately assess state-based models. Toward this end, we have divided this paper into four parts. The first part provides an overview of the U.S. pharmaceutical market. The second part describes the four federal discount programs currently in existence in the U.S. The third section analyzes the impact of these federal programs on the market and the risks and opportunities relevant to state drug assistance programs under federal law. Finally, these risks and opportunities are used in the fourth section to assess the various approaches that have emerged at the state level.

In assessing state-based drug assistance programs, a variety of elements could be scrutinized, including patient eligibility, enrollment procedures, patient cost-sharing arrangements, administrative costs, economic impact, health outcomes, and the like. The focus of this paper is on the cost of the drugs for both the patient and the state. Presumably a state can assist more individuals by spending less per drug, which allows the state to stretch its dollars further in paying for covered drugs. We recognize that other criteria can measure the success of a state drug assistance program, but a discussion of those criteria lies outside the scope of this paper. This paper also focuses on the class of drugs on which states can save the most amount of money through negotiation and carefully crafted regulation, namely brand name drugs used in the outpatient setting.

ENDNOTES

National Conference of State Legislatures, "2001 Prescription Drug Discount, Bulk Purchasing and Price Control Legislation," at http://www.ncsl.org/programs/health/drugdisc01.htm (updated Apr. 12, 2001) (listing bills introduced in 2001) [hereinafter "NCSL 2001 Legislative Report"]. See also National Conference of State Legislatures, "2000 Prescription Drug Discount, Bulk Purchasing and Price Control Legislation," at http://www.ncsl.org/programs/health/drugdisc.htm (updated Apr. 5, 2001) (listing bills introduced in 1999 and 2000). [hereinafter "NCSL 2000 Legislative Report"].
NCSL 2001 Legislative Report, supra note 1, at 2-20.
National Conference of State Legislatures, "State Senior Pharmaceutical Assistance Programs," at http://www.ncsl.org/programs/health/drugaid.htm (updated Apr. 23, 2001) (listing enacted state drug assistance programs) [hereinafter "NCSL Senior Drug Programs"].
Pharm. Research Mfr's of America v. Comm'n Maine Dep't of Human Serv's, Civ. No. 00-157-B-H (D. Me. 2000)[hereinafter "PhRMA v. Maine"].