By Christopher J. Gearon
April 2002

	AARP.org Links: Prescription Drug Coverage

States are testing new ways to hold down rising prescription drug costs in their public health programs so they can preserve existing medical benefits for low-income and older residents without raising taxes.

At least 14 states have joined drug-purchasing coalitions as one approach to controlling costs, and others are considering such alliances to negotiate prices with drugmakers.

And in a second approach, some states are encouraging doctors to prescribe preferred or priority drugs—often lower-priced generics—instead of costlier brand-name drugs for enrollees in Medicaid, the federal-state health program for low-income and disabled people.

For states already reeling from unexpected deficits, the ballooning cost of prescription drugs has become a worsening drag on their budgets.

Illustration by Dave Clark

Prices of the 50 most-prescribed medications for older Americans grew on average at twice the 2000 inflation rate of 2.7 percent, the Washington consumer group Families USA says. Price increases of the top 18 drugs were triple the inflation rate.

The birth of state purchasing coalitions and preferred drug lists simply reflects how great an issue drug prices is for the states, says Amanda McCloskey, Families USA's director of health policy analysis.

The new cost-containing strategies could be the one-two punch that prompts drug companies to sweeten their deals with the states.

"While state efforts are no substitute for a prescription drug benefit for Medicare beneficiaries," AARP director of policy John Rother says, "they are certainly putting pressure on the drug industry."

The industry, which can set prices for different drug buyers, isn't happy about some cost-cutting strategies.

"We don't think [these states] understand how federal Medicaid rebates work," says Marjorie Powell, assistant general counsel with the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry's lobbying group.

Negotiating deeper discounts and establishing preferred drug lists for Medicaid participants violates federal law, Powell says. The law requires drug companies to guarantee states the best price on brands compared with the prices paid by commercial buyers such as insurance companies.

FINDING THE BEST BUY
Some states are leveraging their bulk-buying power to seek lower drug prices. The most recent alliance to do so is the Pharmacy Work Group, or Southern Coalition, which was started by West Virginia and includes Louisiana, Mississippi, Missouri, New Mexico and South Carolina.

"Part of the strategy is being able to maintain the benefits we already provide," says Tom Susman, director of West Virginia's Public Employees Insurance Agency. He says potential savings from bulk buying in his state would first be used to preserve drug coverage for public employees and eventually to expand health benefits for low-income and older citizens.