Stretching State Health Dollars in Difficult Economic Times: Pharmaceutical Purchasing Strategies

Tanya AlterasEconomic & Social Research Institute

Families USA, January 28, 2005Washington, D.C.

"The chance of dramatic [national] reforms are next to zero. . . .

Like it or not, we are stuck with what we have for the foreseeable future." 

-Rep. Tom Feeney, R-Florida, November 3, 2004

In the face of less-than-likely national reforms, states will continue to pursue state- and community-based solutions to the health care crisis.

State Responses to Skyrocketing Health Costs

Two General Strategies: Address cost increases in Medicaid/SCHIP/state health

programs by: Cutting eligibility, benefits, reimbursement to providers Raising premiums and other cost-sharing

Stretch health dollars to expand health care access, coverage, and efficiency by: Leveraging private &/or federal dollars More effective purchasing, cost-effective primary and preventive

care, better management of diseases

Why Rx Purchasing Strategies?

States estimate an average of 14-15% annual increase in Medicaid Rx spending from 2001-2004

Need to make Medicaid and other state Rx purchasing more affordable

Desire to expand Rx programs to vulnerable populations

Common Theme Across Various Effective Purchasing Strategies:

States pooling together and using evidence-based research to guide their pharmaceutical purchasing in order to reduce costs and increase efficiency.

Typology of Identified Strategies

Substitutions, Preferred Drug Lists (PDLs), and supplemental rebates

State-negotiated discounts Multi-state purchasing & evidence-based

research collaboration Intrastate purchasing Multi-state drug re-importation collaboratives

National Medicaid Pooling Initiative

MI, VT, NH, NV, AK, MN, HI Common PBM pools purchasing power to

negotiate, get supplemental rebates from drug companies tied to volume

Give smaller states purchasing benefits of larger states

Enhances savings from PDLs: MI savings: $60.5m from PDL, $7.2m from rebates

(expected to increase as pool grows)

RXIS: Multistate Rx Purchasing Pool

WV, MO, NM, DE, OH

Common PBM negotiates rates for state workers, SCHIP (only in WV).

States pays higher admin but capture entire rebates

WV saved $7m year 1, expect $25m over 3 years

Drug Effectiveness Review Project

Overseen by the Oregon Center for Evidence-Based Policy

States pool resources to evaluate pharmaceuticals in 25 drug classes

Set standards for comparing drug effectiveness (use for PDLs)

Focusing on clinical outcomes 11 states participating as of July 2004

Maine & Hawaii Rx Plus

State-negotiated discounts for residents to 350% FPL w/o drug coverage

Estimated savings of 15% for brand Rx, 60% for generics on PDL

In ME, program survived legal battles by pharmaceutical industry

HI plan began on July 1, 2004

Georgia Consolidated Drug Management

State contracts with one PBM for multiple state agencies and programs’ Rx benefits, covering almost 2 million residents

One PDL established across all programs

Rx cost growth trend line reduced from 26% in FY 2001 to 16% in FY 2002.

I-Save Rx

IL, MI, WI, KSMulti-state program using reimported

drugs from Canada, Ireland and UKStates contract with CanaRx (PBM)Currently 1,200 enrollees

Next Steps and Issues to Consider

Broadening programs to include additional states

Deepening discounts and increasing rebates to make programs even more cost-effective

Impact of Medicare Part D on state-based Rx programs

Ensuring the use of evidence-based research in developing cost-savings strategies

Challenges from pharmaceutical industry

Overall Lessons Learned

Some strategies do not have high short term costs, but redirect current funding streams opposition…

Building consensus and “buy in” among stakeholders is critical

Some strategies require up-front investments ($ and time investment) But must factor in financial and health-outcomes related benefits

over the long term

Need to address budget shortfalls w/ creative financing models… Requires “outside-the-box” thinking

Most of these state strategies help in an incremental way… Significant impact requires comprehensive, combination approach

(or national commitment)

*** States must be active players ***