States Move to Cut Drug Prices

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States Move to Cut Drug Prices

The battle to cut prescription drug prices has shifted to states nationwide. Last year the state of Florida announced that drug companies participating in its Medicaid program must provide special rebates on top of already discounted prices. Maine restricted Medicaid access to more expensive drugs while threatening drug companies with price controls if they didn’t offer discounts to residents without drug insurance. Recently in what The Wall Street Journal terms “the most aggressive move yet to force concessions from drug makers,” Michigan released a “preferred” list of lower-priced drugs for their state health programs.

To protect profits, drug manufacturers are going to court and beefing up state lobbying efforts to quash similar moves in other states. The Wall Street Journal reports that some industry observers believe the number of states demanding price cuts is reaching a critical mass. The economic recession is drying up state revenues at the same time state Medicaid drug costs are burgeoning.

Michigan used a technique that’s similar to one used in Europe. A committee of doctors and pharmacists chose what they considered “best-in-class” drugs in 40 categories to be on the state’s preferred drug formulary. Doctors can prescribe drugs that aren’t on the list, but only after justifying their decision—a requirement expected to discourage the use of other more expensive drugs. All companies wanting to sell drugs under the Michigan program risk losing market share unless they agree to slash prices to win a spot on the preferred list.

Six major drug companies refused to offer price concessions to the state of Michigan, and on November 30, 2001 filed a lawsuit alleging Michigan violated the state constitution and state laws.

Source: “Michigan’s Bold Drug-Price Experiment Could Bolster Generics, Swallow Profits,” Russell Gold, Scott Hensley and Andrew Caffrey, The Wall Street Journal, December 7, 2001.

For related articles on this topic see “Prospects Dim for Prescription Drug Benefit,” and “The Realities of Adding a Medicare Prescription Drug Benefit,” in the November/December 2001 issue of The Social Security & Medicare Advisor.

February 2002