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States Try to Cut Drug Prices

Kate Traynor

Seeking relief for government budgets and residents without prescription coverage, politicians in Maine and several other states are pursuing legislation to reduce drug prices.

The Maine Rx Program, enacted in May, authorizes the state government to form bulk drug purchasing alliances with other states. 

Also, starting July 1, 2003, Maine's Commissioner of Health Services can set the maximum retail prices for drugs in order to bring these prices in line with the lowest ones available to government agencies. Pharmaceutical companies that, in the state's view, charge "excessive" prices for drugs can face fines. Manufacturers and labelers that supply drugs for Medicaid beneficiaries will be penalized for not giving rebates. 

According to the newsmagazine Managed Healthcare, the managed care industry is waiting to see whether Maine's program affects the drug prices negotiated by nongovernment groups such as HMOs. 

The Public Hospital Pharmacy Coalition (PHPC), which represents about 100 hospitals and health systems that serve the nation's poor, describes Maine's law as "particularly aggressive in reducing the cost of drugs for residents who lack prescription drug coverage." Pharmaceutical Research and Manufacturers of America President Alan F. Holmer describes Maine's price controls as "innovation-chilling" and possibly unconstitutional, adding that his organization supports the expansion of drug coverage by private-sector insurers. 

PHPC has identified four major cost-saving strategies proposed by states to reduce drug prices: price regulation, bulk purchasing and multistate consortia, Medicare rebates based on Medicaid prices, and other rebates from manufacturers. The coalition's findings are summarized below. 

According to PHPC, price regulation proposals use indicators, such as federal supply schedule prices, overseas drug prices, and drug prices charged to insurers and "favored purchasers," to set maximum levels. Although Maine is the only state to enact such legislation, price regulation bills are being considered in Vermont, New York, and New Jersey. 

Bulk purchasing and multistate consortium agreements allow states to negotiate discounted purchase prices with pharmaceutical companies and form purchasing groups with other states. Last November, Massachusetts authorized a bulk purchasing program to benefit residents whose prescriptions the state subsidizes. Massachusetts has also joined the other New England states and New York to form the Northeast Consortium, which is considering Canadian and Internet-based drug sources as supplements to bulk purchasing strategies. 

A California law effective in February requires that pharmacies charge Medicare beneficiaries at the rates established for patients enrolled in Medi-Cal, the state's Medicaid program. Maryland, Minnesota, Missouri, and Wisconsin have also proposed laws limiting how much pharmacies can charge Medicare patients for prescriptions. 

Other proposals would extend the rebates the manufacturers give states on drugs dispensed to Medicaid patients to include drugs dispensed to Medicare patients or uninsured residents. Most bills encourage pharmaceutical companies' participation by requiring them to offer a rebate on prescriptions bought by a state's Medicare beneficiaries as a condition for coverage of the drug by the state's Medicaid program. Minnesota has proposed using Medicaid rebates to subsidize pharmacies that reduce their prescription prices. Pennsylvania is considering legislation requiring manufacturers to negotiate rebate agreements with the state for drugs reimbursed through public state-sponsored programs.