The Big Idea: Home Remedy

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In December, pharmaceutical giant Abbott Laboratories stunned the AIDS community by quadrupling the price of its anti-HIV drug Norvir–to $6,180 for a year’s supply. Doctors and activists alike condemned the move, and the state attorney general’s office reportedly even launched an investigation into whether the price hike was legal.

But while startling, Abbott’s pricing was just the latest example of galloping inflation among prescription drugs in general. U.S. drug prices rose by 10 percent–six times the rate of inflation–in 2001, according to the National Institute of Health Care Management. And overall drug spending–largely driven by spiraling prescriptions for pricey, heavily advertised drugs such as the arthritis meds Vioxx and Celebrex–has been catapulting upward at an average of 17 percent per year.

Here in New York, like many other states, this drug-cost explosion is straining government resources. Medicaid has been hit hardest. This year, some $4.5 billion of the total $42-billion state Medicaid budget will go to prescription purchases. That figure is up from $1.7 billion just five years ago, and the annual increase has ranged between 15 and 20 percent.

Elected officials from the governor to the City Council are desperately searching for cost-cutting measures. But, as in other states, lawmakers have focused their hunt on policies that limit client benefits. Where drugs are concerned, the state is moving ever closer to joining 21 others that have instituted a “preferred drug list”–a variation on the drug formularies used by most HMOs. In these systems, the state picks a certain number of drugs within each of the approximately 100 drug classes and designates them as “preferred.” Any drug not so appointed then requires prior authorization from the state to be paid for. This not only reduces frivolous use of expensive meds, but also gives states a bargaining chip. They can say to drug companies, “Give us a good price and we’ll put you on the list,” explains Bernie Horn, policy director of the Center for Policy Alternatives. “If the buyer has the ability to move market share from one drug to a competitor, it has leverage to get rebates.”

Of course, how any particular drug makes it onto the “preferred” list is the $64,000 question. That’s why some consumer advocates oppose any “prior authorization” schemes. “I have substantial reservations about the idea of restrictive drug lists,” says Debbie Socolar, co-director of the Health Reform Program at the Boston University School of Public Health. Socolar acknowledges that preferred lists can cut back usage of over-marketed drugs. But she warns that such lists are often just “products of what deal [a state] can cut this year,” rather than being informed by studies.

Still, the preferred-drug list proposal is one of few that contain any effort to reduce how much the state pays for its drugs. And that means Albany is overlooking what may be our most powerful weapon in the drug cost battle: the state’s 19 million residents.

“New York State is the seventh-largest health care economy in the world,” says Mike Burgess, executive director of the Albany-based Statewide Senior Action Council. He notes that New York’s $7 billion in annual drug purchasing power is probably more than half that of Canada, with its famed discount prices (up to 50 percent less than in the U.S.). “There should be an attempt to use that bargaining power to get better prices, like other countries do.”

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What are the forces behind Medicaid’s ever-skyrocketing drug spending?

A small group of heavily advertised drugs are the major cost drivers. According to Public Citizen’s Congress Watch, a consumer rights group, 34 meds out of 9,482 on the market accounted for more than half the increase in national drug spending in 2002.

But some identify the real root of the problem as the lack of true market pricing. “The system of competitive pricing utterly breaks down when it comes to prescription drugs,” argues Horn. State and local agencies, he points out, could use their bulk buying to achieve powerful bargaining clout but have failed to exercise it, leaving taxpayers holding the bag. “It was not common until a few years ago for state officials to even care about the price of prescription drugs,” Horn says. “Not until they got into a budget crunch–with drugs often the fastest-rising government cost–did it become a high priority to deal with this.”

In New York, drug-buying is dispersed among myriad state and city agencies–Medicaid, Elderly Pharmaceutical Insurance Coverage, the prison system, the AIDS Drug Assistance Program, state and local employee health plans and others. None collaborate to get a better deal. “I’d guess there are a dozen different prices for the same bottle of drugs in New York,” Horn says. “They’re all negotiated separately by different programs.”

But with cost pressures mounting, advocates and academics are calling for a more concerted effort. At a January gathering in Albany, activists from several seniors groups developed what Burgess calls “an overwhelming consensus” to begin lobbying the state to negotiate better prices.

It’s an idea that other states are already trying. Maine has been the boldest, adopting a program in 2000 that offers discounted drug prices to any state resident based on negotiated rebates from the pharmaceutical manufacturers. Last year, the U.S. Supreme Court upheld the system after a strong legal challenge from the industry.

Horn’s Center for Policy Alternatives has also written a model “Fair Market Drug Pricing Act” for states looking to negotiate better deals. Based on a Hawaii law, the model bill directs the state to launch combined negotiations with manufacturers for discounts or rebates on behalf of all state agencies and uninsured residents. With the money saved, the state would then set up a discount drug-buying program for uninsured seniors and residents earning less than three times the poverty level.

In January, Senators Martin Golden (R-Brooklyn) and Nick Spano (R-Westchester) introduced a more modest version of just such a law for New York. It would greatly expand the civil service drug-purchasing plan (which obtains discounts for a million state and local employees) by inviting uninsured or underinsured individuals, school districts, insurance plans and businesses to enroll. Several leading consumer, seniors, medical and insurance groups have indicated their support.

Assemblymember Richard Gottfried (D-Manhattan) has been discussing with Golden the possibility of merging a version of this plan with Gottfried’s own proposal for a combined Medicaid and EPIC drug list (with strong consumer protections).

In drafting the new Medicare drug benefit, Congress missed a similar opportunity to use the feds’ collective purchasing power. For six years, consumer advocates and their congressional allies attempted to give Medicare authority to negotiate deep discounts, as the Department of Veterans Affairs already does. The VA program, riding on its clout from purchases by scores of veterans hospitals nationwide, generally obtains discounts of at least 45 percent of retail prices. But Congress actually wrote a ban on such negotiations into the final Medicare bill. As a result, Boston University’s Socolar projects, 61 percent ($17 billion) of the new Medicare program’s annual spending on prescriptions will go towards what she calls “windfall profits to drug makers.”

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If state agencies can act together, the next step in the natural progression of seeking deeper discounts is to pool the purchasing power of multiple states. An active movement has grown around this approach since 1999, when legislators from several northeastern states founded the National Legislative Association on Prescription Drug Prices, or NLA. The coalition is preparing to launch joint state negotiations with drug companies on behalf of not only governments, but businesses and individuals as well. Nine states (including New York) and Washington, D.C., have joined the association thus far.

“The public sector is the largest buyer of pharmaceuticals. We haven’t fully realized our ability to capitalize on that,” says Cheryl Rivers, NLA’s executive director. “If we’re smart and can demonstrate to the drug companies that we can secure their market share, then we should be able to get lower prices.”

Some states with preferred-drug lists have already begun modest efforts to pool costs among themselves, utilizing for-profit “pharmacy benefit managers”–companies that specialize in running preferred-drug list programs. While the benefits are compelling, there are hurdles–including the simple need to synchronize the lists and their accompanying rules. But NLA’s Rivers says a bigger problem is that some of the companies that help states administer their drug lists have been “dragging their feet, partly because it’s in their interests to have separate arrangements [with each state].” Some drug benefit management companies also have financial deals with drug manufacturers that impede efforts to help clients get large discounts.

In December, NLA launched its own nonprofit pharmacy benefit management company, United Scripts Administrators. NLA believes it can administer multi-state pooling negotiations and fill prescriptions at lower costs than the for-profit firms–and with complete openness.

Meanwhile, here in New York, some elected officials, sensing the political winds, are not waiting for the state to act. Last August, Nassau County Comptroller Howard Weitzman announced plans for a pharmacy discount card program for all county residents requesting one. By negotiating a group price for its members, the program provides discounts of 5 to 50 percent, depending on whether a drug is brand name or generic.

In December, Westchester County Executive Andrew Spano unveiled a similar initiative. That program also gives consumers access to Canadian pharmacies–a policy that when implemented by cities and states elsewhere has brought threats of legal action by the U.S. Food and Drug Administration, which claims that imported drugs may be unsafe.

Also in December, City Council Speaker Gifford Miller called upon Mayor Bloomberg to join Nassau County in creating a joint discount card. But the Bloomberg administration has rejected this proposal. As a fallback, Miller says he will soon introduce and prioritize passage of legislation for a citywide pharmacy discount program run by the Department of Health and Mental Hygiene, for consumers lacking coverage.

Passing any bulk-buying legislation will require confronting what NLA’s Rivers calls “the tremendous influence of the drug industry in New York State–they have a lot of money to spread around to political campaigns and nonprofit patient associations, trying to create confusion and resistance.” They are also a major employer.

Nevertheless, the New York proposals are part of a national explosion of ideas at the local level for reining in drug costs. And they’re why many observers believe that cities and states will be the main laboratories for change. “This is a dam that’s breaking,” Burgess warns. “It’s just a question of which vehicle finally collapses the entire unjust pricing structure.”

Bob Lederer is a freelance health reporter, the co-host of the Health Action program on WBAI radio, and the editor of wbai.org.