GOVERNMENT and LAW

Pressures to cut drug costs lead state agendas for 2002

As state governments gear up their legislative machines at the start of the new year, pharmacists are bracing themselves for a possible onslaught of measures aimed at reining in the costs of state-funded drug-benefit programs. Given the huge deficits being reported this year by many states, pharmacy leaders are predicting a strong call for cutting healthcare costs with such strategies as further utilization controls, higher rebates, and—perhaps most worrisome for pharmacists—reimbursement reform policies targeting the cost of goods sold.

Indeed, as California edged into the second term of a two-year legislative session, pharmacy was scrambling to deal not only with an exhaustive list of utilization controls already in place (including a prior-authorization program limiting patients to six drugs in a calendar month) but also with a threat to tamper with product margins.

"We're riding on the edge of our seats waiting to see what will come down over the next few weeks," said Carlo Michelotti, CEO of the California Pharmacists Association. He was referring to rumblings that the state will go along with the federal government's recent Office of Inspector General report urging pharmacy reimbursement policies that would narrow the gap between Average Wholesale Price (AWP) and the Actual Acquisition Cost (AAC).

As the assembly health committee prepared to move ahead with business in January, Michelotti said pharmacy was banking on a dispensing-cost study scheduled for release in June to help avert any quick moves by government to cut pharmacy reimbursement under its Medicaid program. Since California's professional fee has been "dramatically suppressed," Michelotti said that any attempt to attack cost without increasing fees would have a "catastrophic impact" on the profession.

Only some last-minute lobbying helped avert this type of disaster for New York pharmacies in January. As part of an attempt to finance a two-year, $5 billion project to boost incomes for healthcare workers, the government proposed to reduce pharmacy reimbursement for its three state-financed programs: Medicaid; EPIC, a program covering about 250,000 seniors; and ADAP, for AIDS patients. Under the original proposal, pharmacists would see drug-reimbursement costs for Medicaid and ADAP drop another 5% from AWP minus 10% to AWP minus 15%, while retaining the $3.50 fee for brands and $4.50 for generic drugs. The proposal also called for including the EPIC program under the same payment scheme instead of the full AWP plus a fee of $3.

"The government saw it as just another 5%, so it was up to us to show them this was actually our net cost," said Craig Burridge, executive director of the Pharmacists Society of the State of New York. There was a last-minute scramble by the group to persuade the state government to retain the existing reimbursement policy of AWP minus 10% for the $3 billion-a-year Medicaid program as well as for ADAP. The only concession was to bring the EPIC program on stream with the other two programs starting in April, as the new budget year begins. One estimate was that the original proposed cuts could have resulted in the closure of about 1,000 pharmacies in the state.

An additional estimated $72 million saving will come from exacting additional rebates from drug manufacturers through a therapeutics committee. Manufacturers electing not to pay will find their drugs placed on prior approval. Another $10 million is expected to come from legislation requiring mandatory generics under the Medicaid program.

While the Texas legislature will not meet again until 2003, the government is moving ahead with legislation passed last year to save $100 million on its Medicaid prescription bill. Top on the list of its strategies is to attack existing drug-cost payment policies, which in Texas are now set at AWP minus 15%.

"It's no secret that government is trying to adjust reimbursement to reflect its best estimate of acquisition cost to pharmacy," said David Gonzalez, director of public affairs, Texas Pharmacy Association. He expects the government to use the results of 2001 invoice audits from every retail store in Texas to justify a move closer to actual acquisition price on drug costs.

Also in the works are changes to implement utilization limits on daily and monthly dosage, some limits on lifestyle drugs, and changes to refill requirements.

Cost-containment is also making news in Florida, where the drug budget for the Medicaid program is projected to exceed $1.6 billion this year. Last year's legislation, ushering in a prior-authorization program for Medicaid, is likely to be only the government's first effort to contain costs, said Michael Jackson, executive director, Florida Pharmacy Association. If the goals aren't met through utilization tactics, more aggressive measures may follow, such as rolling back a fee increase for pharmacies providing long-term care services, which was approved last year.

Tina Kyriakos

The author is a writer in Texas.

Tina Kyriakos. Pressures to cut drug costs lead state agendas for 2002.

Drug Topics

2002;3:57.