Administration walks fine line on drug programs

While criticizing Maine for trying to enact a program to save on drug costs for more patients than there are on Medicaid, the U.S. Department of Health and Human Services (HHS) reiterated its support for state experimentation with drug programs and asked state Medicaid directors for ways to extend drug benefits to residents who are not poor enough to qualify for Medicaid.

The administration’s objection to the Maine plan (which called for the state to sell cards for patients to present at pharmacies for an estimated discount of 20%, funded through drug company rebates) came in a legal brief filed with the U.S. Supreme Court in a case against the plan brought by Pharmaceutical Research and Manufacturers of America (PhRMA), a trade association. The Maine plan was adopted in 2000 but is not yet in effect.

The U.S. Justice Department brief said Maine’s program was illegal because it was not specifically targeted to people who are poor or elderly, or who have a different need for help in paying for medicine. The drug companies involved have said the program violates Medicaid law and the Constitution’s interstate commerce provisions. In its 39-page brief, the trade association said the program would make it more difficult for patients to get certain medicines because of strategies intended to encourage drug companies to grant the rebates the state seeks. The state planned to publicize the names of manufacturers that refused to approve the rebates and also would seek to deter use of those companies’ drugs by requiring doctors and Medicaid patients to obtain prior approval to use a drug from a company that refuses to participate in the rebate program.

Trying to put a positive spin on the administration’s legal action against Maine, an HHS official told reporters, "Nobody should say we are supporting PhRMA over Maine."

In a Sept. 18 letter to state Medicaid directors, Dennis Smith, the director of the Center for Medicaid and State Operations Centers for Medicare and Medicaid Services (CMS) in Baltimore, said he wanted to clarify issues related to supplemental drug-rebate agreements and prior authorization of Medicaid covered outpatient drugs.

Mr. Smith said that states may enter separate or supplemental drug-rebate agreements as long as such agreements achieve rebates equal to or greater than those set forth in the HHS secretary’s rebate agreement with drug manufacturers. State supplemental drug rebates also must be considered a reduction in the amount expended under the state plan in the quarter for Medical Assistance, he said.

Mr. Smith says that states may subject covered outpatient prescription drugs to prior authorization as a means of encouraging drug manufacturers to enter into separate or supplemental rebates for covered drugs purchased by Medicaid recipients. Prior authorization programs don’t have to comply with requirements for restrictive formularies, he said. Thus, states have broad authority and flexibility to implement a prior authorization program to secure cost savings for Medicaid.

Because operation of a prior authorization program used to negotiate drug discounts for Medicaid patients is a significant component of a state plan, Mr. Smith says CMS expects that states that don’t have an approved prior authorization state plan amendment and want to start such a program will submit a state plan amendment for the prior authorization requirement, while simultaneously seeking the agency’s authorization for its proposed separate or supplemental rebate agreement.

States that have an approved state plan amendment governing prior authorization requirements and now want to use that authority to negotiate Medicaid drug discounts must amend the state plan to refer to the separate or supplemental rebate agreement and submit the proposed rebate agreement to CMS for authorization.

Mr. Smith also addressed the notion of non-Medicaid supplemental rebates, noting that some states secure prescription drug benefits, rebates, or discounts for non-Medicaid populations by linking such benefits to a Medicaid prior authorization program. He said that while states are not legally precluded from negotiating prices, including manufacturer discounts and rebates for non-Medicaid drug purchases, establishment of a prior authorization program for Medicaid covered drugs to secure drug benefits, rebates, or discounts for non-Medicaid populations is a significant component of a state plan and should be submitted to CMS for review under the state plan process.

"In submitting such a state plan amendment," Mr. Smith wrote, "the state should be prepared to demonstrate through appropriate evidence that the prior authorization will further the goals and objectives of the Medicaid program. A state could make such a demonstration by submitting appropriate evidence that its prior authorization requirement is designed to increase the efficiency and economy of the Medicaid program. A state could demonstrate that its prior authorization requirement furthers Medicaid goals and objectives by submitting appropriate evidence that the requirement sufficiently benefits the Medicaid population as a whole by making available to financially needy individuals medically necessary prescription drugs, thereby improving their health status and making it less likely that they will become Medicaid eligible."

Meanwhile, states continue to try other means to rein in prescription drug costs. For instance, Illinois has asked Medicaid patients who take 50 mg tablets of the antidepressant Zoloft to buy 100 mg pills and split them since the more potent tablets cost just a little more than the 50 mg version.

Although a first for the Illinois Medicaid program, observers say the pill-splitting request is part of a growing trend by government and private health insurers. Illinois officials say they can save $3 million of their annual Medicaid drug budget of $1.2 billion by promoting Zoloft pill splitting. And state officials say they won’t rule out further pill-splitting requests for other drugs.

Opposition has come from some consumer and medical groups who say patients may jeopardize their health if they don’t cut the pills properly. There also is a fear that patients will believe they can split any pills, which is not the case. Pharmacists say pill splitting only should be done under supervision of pharmacists or medical providers who have direct access to patients.

The Illinois officials said they had studied the issue and tested the ease of splitting a Zoloft tablet. "We sat around a conference table breaking them in half and decided it would work with this drug to require that they be prescribed in this manner," says James Parker, Illinois Department of Public Aid deputy administrator of medical programs. "It cuts the state’s cost of their prescriptions in half." He said that the state would still pay for the 50 mg doses if doctors think that their patients are physically unable to properly split the pills or are considered mentally unable to remember to do so.

Pfizer, which manufactures Zoloft, said the 100 mg tablet is scored down the middle so it can be broken easily. State officials said the company suggested splitting pills as a way to keep Zoloft covered.

Pill splitting also is under way in Massachusetts, where Harvard Pilgrim health plan is asking doctors to switch patients who take two 20 mg tablets of the antidepressant Celexa daily to one 40 mg tablet that can be broken in half.

Also in Massachusetts, Blue Cross is calling physicians who prescribe more than the recommended daily dose of the heartburn drug Prilosec and asking them to lower the dose except in unusual cases.

Are rebates good policy?

Despite these and other cost-control methods, drug costs are expected to continue their double-digit annual cost increases for the foreseeable future. And not everyone supports the use of rebates as a major cost-control measure.

A briefing paper from the Institute for Policy Innovation in Lewisville, TX, written by Merrill Matthews, MD, a visiting scholar with the institute, says that doctors may not be willing to do the paperwork necessary to get around rebate restrictions when medically necessary. He also says that when dealing with drugs prescribed for mental illness, they often are only effective for 50% of patients. That means doctors have to experiment with various drugs until they find one that works. "Limiting drug choice simply means that some mentally ill patients won’t have the drug they need," Mr. Matthews writes.

In addition, drugs affect different people differently because of differences in genetic makeup. "For example," he says, "blacks with high blood pressure tend to respond to diuretics much better than whites, and Asians respond to some antipsychotic drugs at one-tenth the dosage required for whites. For patients with access to virtually all drugs, doctors can switch from an ineffective one to something that works. But formularies limit the number of drugs available and requiring an additional rebate will exclude even more of them. Mr. Matthews also questions whether rebates achieve their goal of making drugs less expensive for states. When government forces prices down for one set of consumers, he says, prices often go up for another group, a phenomenon known as cost-shifting. He says it is likely that while states may save money through new rebates, at least in the short term, the costs will be shifted to those with private health insurance.

Forcing additional cost-shifting exacerbates the problem of rising health insurance premiums, Mr. Matthews contends, and thus increases the number of uninsured. "Ironically," he says, "those priced out of the market for health insurance because cost-shifting made their health insurance premiums unaffordable may find themselves turning to the state for coverage."

Charging that the state-mandated rebates are anti-competitive and corrupting, Mr. Matthews asks, "Would-n’t it make more sense to let competition, rather than rebates and price controls, drive costs down? A prescription drug program for low-income people that worked like the food stamps program — where participants get a set amount of money and are allowed to make their own choices and benefit from being prudent shoppers — would provide the vast majority of low-income patients with an incentive to get value for their money."

[To access the CMS letter to state Medicaid directors, go to www.cms.gov/states/letters/smd91802.pdf. Contact Mr. Matthews at (972) 874-5139.]