Drug Companies Crying Foul Over Medicaid’s Formulary Push

John Carroll

For the past two years states have been caught in the proverbial hard place; wedged in between weak tax revenue and brutal hikes in the cost of their Medicaid programs. For state lawmakers, the dilemma has focused a glaring spotlight on one key cost item that has been spinning out of control: prescription drugs. So 14 of the states borrowed a page from private enterprise to solve their public budget problem and began to adopt preferred drug lists, ordering drug manufacturers to cough up rebates if they wanted their drugs on a state formulary. Better yet, say the states, if there’s a cheap generic medication that can do the job, who needs branded drugs?

It’s the same basic model that drives the business plans of most of the country’s big pharmacy benefit managers, who handle prescription drugs for 170 million Americans. And Medicaid managers say the move is overdue.

“It’s our single largest cost and it’s growing most rapidly and we have to do something to control these costs,” says Nancy Atkins, acting chairwoman of West Virginia’s Pharmacy and Therapeutics Committee, which is piecing the state’s preferred drug list together this fall. Last year, she says, drug costs took a $280.7 million bite out of the budget. This fiscal year, drug costs jumped to $327 million.

But with preferred drug lists spreading like a prairie wildfire, the manufacturers have mounted a furious legislative counterattack, funding grass roots campaigns aimed at fanning the opposition in state legislatures even as they wage a legal war in state and federal courts. And at least one manufacturer has picked up the flag of opposition after its own proposed solution to high drug costs was turned down.

If the lawsuits don’t get the message across, the Pharmaceutical Research and Manufacturers of America has been funding an effort by Medicines Work, a broad coalition group, to lobby against state plans that discourage the use of off-list drugs.

“These are the poorest, sickest, most vulnerable patients,” says Jan Faiks, assistant general counsel for PhRMA. “Doctors need to have the widest options of medications and other treatments at their disposal.”

Bruce Lott, spokesman for PhRMA, adds that “There’s a big difference between what the Medicaid program is and what private insurance programs are. Those of us with private insurance have various options, or most of us do. We have the opportunity to go to an employer and say, ‘I need this treatment and our insurance doesn’t cover it.’ Medicaid patients have no one. They get Medicaid or they get nothing.”

Ironically, PhRMA says that the jury’s still out on West Virginia’s drug list, saying that its final position will depend on how the state manages the clinical evaluation of the drugs it includes.

Angry governor

That’s small consolation to the governor of West Virginia, who recently accused PhRMA of orchestrating criticism of the state program.

“They’re going to be spreading lies and half-truths about steps we’re undertaking to control the outrageous prices they charge for prescription drugs,” Gov. Bob Wise maintained. He cited a meeting drug companies held in Charleston as the “first salvo in their campaign to frighten the people of West Virginia.”

PhRMA has been spreading the message that Medicaid patients are likely to find that their requests for much-needed drugs will be denied, says Atkins, when in fact the state is planning to allow doctors to prescribe medications not on the list with prior approval.

“What dismays me is that they’re using these tactics on the poorest and most vulnerable,” says Atkins. “It’s a scare tactic.”

In Michigan, the giant pharmaceutical company Pfizer helped fund the work of Michigan Partners for Patient Advocacy after the state rejected its effort to adopt a Florida-styled drug plan. In Florida, Pfizer was allowed to get all of its drugs on the Medicaid formulary without discounts, but only after it agreed to fund an ambitious — and controversial — disease management program aimed at managing chronic illnesses and lowering the demand for drugs.

In response, Pfizer provided a grant to several patient advocacy groups to solicit reports from patients and physicians who had experienced problems with the state’s formulary. Pfizer’s Rich Bagger, vice president for government relations, says that the company also sees problems in West Virginia’s formulary plan — another state that has rejected its overtures.

Counters West Virginia’s Atkins: “The pharmaceutical companies like Pfizer have not come to the table to offer us anything that we think is a substantial benefit.”

Wrong direction

PhRMA, Pfizer, and others that oppose the preferred drug approach say that the states are going about the business of cost control the wrong way. New drugs, they say, have clearly reduced hospital stays, shortened illnesses, and provided dramatic savings.

Michigan’s plan ran afoul of the manufacturers, says PhRMA’s Lott, by focusing primarily on cost. “What Michigan did,” he says, “is say, ‘OK, we’re going to make doctors call a bureaucrat if the manufacturer didn’t pay more money.’ They’re using prior authorization to extract more money from the manufacturer.”

The drug makers’ best chance of killing the Michigan program and fundamentally altering the way states adopt formularies lies in U.S. District Court in Washington D.C. PhRMA filed a lawsuit there that targets what it claims is the program’s Achilles’ heel. With the feds funding the lion’s share of state Medicaid programs, any preferred drug plan has to be approved by Health and Human Services Secretary Tommy Thompson and the Centers for Medicaid and Medicare Services. And not only do they not have the authority to approve the Michigan program, states shouldn’t have the right to get between patients and physicians, PhRMA’s Faiks says.

The Medicaid Act already requires manufacturers to give states their best price, adds Lott. And it’s a violation of the law, PhRMA maintains, to try to go back to the bargaining table to squeeze out lower prices from drug makers competing for market share.

So far, though, Thompson has sided solidly with the states.

PhRMA under fire

The Michigan Department of Community Health, meanwhile, says that it has already saved millions in the 10 months its drug list has been in place and appears ready to run whatever legal gamut is necessary to keep it. The MDCH says that the state spends about $1 billion a year on pharmaceuticals for Medicaid and other state programs — double the amount budgeted just three years ago — and that without a preferred drug list the state would have to cut its overall Medicaid budget by $42 million.

Not only is PhRMA wrong about Thompson’s role, says MDCH, it is way off base in complaining that the drug list is based on cost alone. A clinical review of drugs based on medical and scientific data allows the state “to make sound, clinical recommendations as to what drugs should be considered the preferred drugs in a class,” says David R. Johnson, MD, chairman of Michigan’s P&T committee.

All this talk about efficacy and miracle drugs, says Atkins, is really just a smoke screen for companies eager to avoid discounting to one of their biggest clients. “Anytime you do something to impact your profits,” she says, “of course you’re going to oppose it.”

About the only thing everyone can agree on now is that this is one fight that won’t be over soon.

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