$287 billion — that is how much the U.S. spent
on pharmaceuticals in 2007, representing a significant driver of health
care costs.  While spending on hospital and physician care surpass
spending on prescriptions, drugs still account for 14% of all health care expenditures. Combine this with polls that show 70% of Americans believe the drug industry puts profits ahead of people, and it’s no wonder that in 2008, at least 540 bills
and resolutions are being considered by states across the country to
reduce prescription drug prices, ensure the quality of medications
covered by public and private health plans, and reduce the undue
influence of pharmaceutical industry marketing – which itself tops out
at $30 billion each year.

Reducing prescription drug costs is an essential element of
long-term and sustainable health care reform. Fortunately, states have
many options to reduce costs, from bulk purchasing to expanding use of
generic medications to reducing the cost-driving influence of
pharmaceutical marketing. This
Stateside Dispatch
presents many of the leading policy options available to states to
reduce prescription drug costs and expand access to safe and affordable
prescriptions.

This
Dispatch draws on the expertise and tireless advocacy of three leading prescription drug reform organizations:

• The National Legislative Association on Prescription Drug Prices (NLARx), a member organization of state legislators led by Maine State Rep. Sharon Treat. 
  NLARx provides model legislation, testimony, networking of legislators
  across states, technical assistance, analysis, and strategy for state
  legislators to move important prescription reforms.

• Prescription Policy Choices (PPC) provides research, analysis and technical assistance focusing on
  developing policies that reduce drug prices and increase access to
  medications.  PPC is currently working with Maine, New Hampshire and
  Vermont to create a multi-state academic detailing collaborative.  PPC
  is run by Ann Woloson, a former chief of staff to the Maine Senate
  Majority Leader and a consumer health advocate.

• The Prescription Project (RxP) is led by Community Catalyst and seeks
  to “eliminate conflicts of interest created by industry marketing” and
  works with academic and professional medical entities, advocacy groups,
  and state and federal lawmakers.  RxP provides fact sheets, strategy, research, analysis and technical assistance, among other services.  Marcia Hams, Assistant Director of RxP, directs the Project’s state initiatives. 

Increasing Access to Affordable Prescriptions and Reducing Drug Costs

States are expanding access to affordable medications for low
income and vulnerable populations while at the same time reducing costs
for Medicaid, state employee, and other public programs. Options
discussed below include maximizing states’ purchasing power, offering
lower negotiated prices to people who may not be covered by Medicaid,
ensuring generic medications are used when available, and eliminating
conflicts of interest between drug makers and the people who manage
prescription benefit programs.

Favoring Drugs that are Less Expensive But Equally, or More, Effective – As NLARx reports,
generic drugs cost $45 less on average than brand name drugs.  Over the
next 4 years, $38 billion worth of sales of brand name drugs are going
to lose their patents, meaning generics will flood the market.  This is
therefore a good time to promote the use of generics over brand name
celebrity drugs with policies including:

• Preferred Drug Lists: These policies help states
  reduce drug costs by prioritizing certain drugs, those proven to be
  safe, highly effective and typically cheaper medications, over more
  expensive yet no more effective brand name drugs. As Prescription
  Policy Choices (PPC) reports,
  at least 40 states have some sort of PDL policy which regulates
  physician prescribing practice. To ensure quality and safety, PDLs
  should be based on clinical data indicating the most effective drugs
  with the least side effects, rather than simply the cheapest drug. 
  Maine’s PDL has kept Medicaid drug cost increases to below 3% annually. During the same period, the federal government saw increases of 13%. 

• Generics:
  With more brand name drugs losing their patents and generic versions
  becoming available, states are increasingly requiring that generics be
  prescribed when available, saving millions of dollars for Medicaid and
  other state programs. Most rules typically allow this requirement to be
  overruled by the treating physician. According to PPC,
  Massachusetts saved more than $150 million annually by emphasizing
  generics over brand name drugs and Texas saved $223 million by making
  it easier for doctors to prescribe generics. PDLs are a good way to
  expand the use of generics.

Strengthening Negotiating Power with Drug Makers – Pooling
the bargaining power of drug purchasers, like state Medicaid and state
employee health plans, increases their individual leverage to negotiate
cheaper prices from the industry. States are increasingly
combining public purchasers and the last few years have seen an
increase of states banding together to combine their purchasing power,
generating millions in savings.

• Multi-State Purchasing Pools: To
  achieve greater economies of scale and reduce costs, several states
  have teamed up to negotiate lower prices from drug companies. As NLARx reports,
  Iowa,
  Maine and
  Vermont created the Sovereign States Drug Consortium and
  Oregon and
  Washington created the Northwest Prescription Drug Consortium. In 2006, it was estimated that the purchasing pool would save Maine $5 million in state and federal Medicaid costs. As PPC reports, Oregon could save $17 million annually if it combined the drug purchasing of all its state programs. There are at least five multi-state bulk purchasing pools. 

• Pharmacy Benefit Managers (PBMs):
  PBMs, or middlemen, negotiate rebates and manage drug benefit programs
  on behalf of public and private health plans and many businesses.
  However, the PBM industry is highly corruptible. To get their drugs on
  a health plan’s benefit list, or formulary, drug companies make
  payments to PBMs that are directly tied to how often the drug is
  prescribed. As PPC reports,
  PBMs boost their profits by pocketing some or all of these payments
  instead of passing them along to their customers. Three PBM companies
  administer 80% of all private prescription coverage and pocket annual
  revenues exceeding $15 billion. Model legislation
  compiled by PPC and NLARx, and mirroring Maine’s first-in-the-nation
  law, requires greater transparency of negotiations, disclosure of
  conflicts of interest, and create an ethical fiduciary duty to serve
  the interests of the health plans which hire them.  Maine’s and DC’s
  PBM laws have been upheld by the federal courts, and the US Supreme Court refused to review the Maine decision.

• Pricing Reforms: Worries about
  price gouging and artificial price inflation on celebrity and other
  drugs are driving states to implement a number of policies designed to
  shed light on the pricing practices of pharmaceutical companies. Wisconsin and Colorado law prevent unfair and discriminatory pricing of prescription drugs, particularly during emergency situations. Maine law requires disclosure of manufacturer prices and “best price” and West Virginia created the Pharmaceutical Cost Management Council in 2004 (HB 4084)
  to continually examine the cost of prescriptions and develop ways to
  reduce prices in the state.  Model legislation compiled by NLARx,
  includes the Excessive Drug Pricing Act and the Drug Retail Price Disclosure Bill.

Increasing Access to Low Income and Vulnerable Populations
– States are increasingly thinking more creatively about how to enable
populations that are ineligible for Medicaid to purchase drugs at the
same reduced prices that Medicaid bargaining wins.

• Discount Programs: Maine Rx
  negotiates with drug companies to bring more affordable drugs to
  residents living below 350% of the poverty line. The program, as NLARx reports,
  achieves average savings of 25-50% on generic and brand name drugs. 
  The program uses the leverage of the state’s Medicaid program to
  negotiate lower prices for residents not eligible for Medicaid, who get
  an Rx card for the purchase of medications.  According to NCSL,
  at least 42 states have some sort of program to help lower income
  residents afford medications. These typically take the form of direct subsidies to help residents pay for their prescriptions through discount programs that achieve lower prices through negotiations and bulk purchasing.

• 340B: An obscure name, but “340B” represents a tremendous source of lower prices for drugs. Federal law
  allows certain “safety-net” programs to purchase prescriptions at
  significant discounts, often below what Medicaid pays for drugs. 
  Eligible entities include community health centers, hospitals that
  serve a disproportionately large Medicaid population, and programs that
  serve populations with costly medical needs, like AIDS clinics. States
  have options
  to ensure that populations and programs eligible for 340B pricing are
  receiving the reduced prices. Legislation in Massachusetts (H 2243) would require eligible health care centers to participate in 340B pricing and Vermont’s comprehensive prescription reform act of 2007 requires the state to inform residents of the availability at 340B pricing.

Reining in Abusive Marketing Practices to Cut Costs

They are ubiquitous to board rooms and doctors’ offices: those pens
emblazoned with the latest celebrity drug – like Celebrex or Xanax –
representing the industry’s profits from a purple pill. But these
innocent looking pens are only the tip of the iceberg when it comes to
pharmaceutical industry marketing.

The drug industry spends nearly $30 billion each year on marketing. As the Prescription Project (RxP) reports,
$7 billion is targeted directly at physicians. Through TV
advertisements, catered lunches, “educational” conferences at swanky
resorts, and other gifts, drug manufacturers and their 90,000 sales
reps exert tremendous influence over which drugs physicians prescribe.
In fact, as the RxP reports, “94% of doctors have received such incentives” and studies show that even small gifts create an unconscious “demand for reciprocity.”

As the
New York Times
reported last year, the drug industry habitually markets the latest and
most expensive drugs over medicines that are cheaper and often equally
or more effective. This drives up costs for state Medicaid programs,
families, businesses and private insurance. Fortunately, as the RxP and NLARx show, states have many options to reduce the undue influence of pharmaceutical marketing.

• Ban Gifts Outright:  Minnesota, in 1993, became the first state to limit gifts from the drug industry to physicians. It bans gifts of more than $50. This year, Massachusetts’ Senate President Therese Murray has proposed an outright ban on gifts as part of a broad cost and quality health care reform bill (S.2526). The effort is being supported by the newly created MA Prescription Reform Coalition.

• Require Disclosure of Financial Relationships:  An
  important step, often pursued in conjunction with banning gifts, is
  requiring drug and medical device companies to publicly disclose any
  financial relationship they have with physicians. Minnesota’s 1993 law
  requires companies to disclose
  payments to physicians in excess of $100.  Payments are often in
  exchange for pitching a drug to other physicians. Several states in
  addition to Minnesota have enacted disclosure – or “sunshine laws” –
  including Vermont, Maine, West Virginia and the District of Columbia. As RxP reports,
  these disclosure laws have exposed millions of dollars spent on
  payments to physicians and conflicts of interest, such as physicians
  with ties to a drug company sitting on a drug formulary panel which
  determines which drugs will be covered by a health plan. A review of
  Minnesota data showed that, as payments to psychiatrists increased, so
  did the writing of prescriptions for drugs made by those companies.

  • Model Legislation: RxP and NLARx have collaborated on model legislation that encompasses both a gift ban and disclosure requirements called The Drug and Medical Device Marketing Restrictions and Disclosure Act.

• Ban “Data-Mining” – Protecting Prescription Privacy:  A
  particularly manipulative marketing practice by the drug industry is
  collecting physicians’ prescribing history and using the data to tailor
  marketing and sales to individual physicians. Behind the leadership of Rep. Cindy Rosenwald, New Hampshire became the first state in 2006 to ban this practice, called “data-mining”, by enacting HB 1346.
  Maine and Vermont soon passed similar bans on data-mining. As expected,
  PhRMA is holding up these laws in court. However, states continue to
  press forward. As we wrote recently, the Washington State Senate passed SB 6241 to ban the use of prescribing history for marketing use. Although the measure failed in the House, the effort is part of a growing trend among states and the District of Columbia to
  protect prescription privacy and reduce PhRMA’s undue influence on the
  prescribing habits of physicians. RxP provides an excellent “myths and
  rebuttals” fact sheet on data-mining and a legal analysis on the “Constitutional Battle Over State Regulation of Data Mining.” 

Ensuring Drug Quality and Safety

Reducing the
inappropriate influence of pharmaceutical marketing over physicians’
prescribing decisions is only part of the solution.  States are
advancing initiatives to help physicians stay on top of the latest
scientific information about drug quality and effectiveness.  In fact,
these efforts stand to directly counter the biased information
presented to physicians by drug makers and their sales representatives.
And, they promise to reduce costs for public programs, private
insurance, businesses and families.

The Costs of Industry “Detailing”:  As RxP reports,
the drug industry spends an average $8,800 directly marketing to each
of the 817,000 physicians in the US.  Sales reps and fellow physicians
paid by the industry give the sales pitch directly to physicians in
their offices, over expensive dinners or at industry-sponsored
conferences. This is known as “detailing”.  As the
New York Times
reported last year, “doctors who have close relationships with drug
makers tend to prescribe more, newer and pricier drugs” regardless of
the drug’s efficacy over less expensive brand name or generic
medications. The problem is pervasive and can be profound.  As RxP reports,
the pain-killer Vioxx, which led to 139,000 people suffering heart
attacks, was heavily marketed to the tune of $209 million by the
industry, driving up utilization even though it was not clinically
proven more effective than older, less expensive drugs and before the
medical community had a full understanding for the drug’s side
effects. 

Academic Detailing – Countering Industry Detailing: To
counter drug industry “detailing”, or direct-to-physician marketing and
sales, states are increasingly creating programs that send
highly-educated medical professionals to doctors’ offices with
scientific and unbiased information about which drugs are right for a
given situation. This is known as “academic detailing.” As we reported previously,
Pennsylvania and
Vermont have successful academic detailing program to ensure doctors are getting more than just the industry’s pitch. 
Mississippi also established a program for physicians participating in Medicaid.  Pennsylvania’s program, Independent Drug Information Services, which is a partnership between the state and Harvard Medical School, is a model. As RxP reports,
academic detailing programs help save lives and reduce costs. One study
found that every dollar spent on academic detailing results in two
dollars saved. 

Prescription Policy Choices is bringing together legislators and health care advocates to create a multi-state academic detailing collaborative between
Maine,
New Hampshire and
Vermont. In addition to Vermont’s existing program, Maine recently enacted Public Law, Chapter 327, sponsored by Rep. Sharon Treat, creating an academic detailing program, and HB 1513 in New Hampshire, sponsored by Rep. Cindy Rosenwald, has passed the House and is waiting action in the Senate. 

Evidence-Based Prescribing: The Drug Effectiveness Review Project
is a public and private collaboration that compares and reports on the
effectiveness and safety of drugs designed to treat similar conditions.
This program is used by at least 13 state preferred drug lists.

Fighting the PhRMA Lobby

A primary reason states have led on Rx
reforms while the federal government has been largely stagnant, is that
the Pharmaceutical Research and Manufacturers of America (PhRMA), the
lobbying arm of pharmaceutical research and biotechnology companies,
deploys literally troops of lobbyists in the halls of the US capital to
kill proposals that rein in their obscene profits.  Public Citizen reports that in 2002 PhRMA deployed 7 lobbyists for each US Senator and in 2003 spent $141 million and dispatched over 1,000 lobbyists
to push the Medicare Drug Benefit that prevented the massive bargaining
power of Medicare to negotiate lower prices from the industry.  
Recognizing the threat to their profits by state lawmakers, PhRMA is
increasing its presence and influence in the halls of state houses
across the country.  In 2003 and 2004, according to the Center for Public Integrity, PhRMA spent $44 million
in state lobbying to prevent sensible Rx reforms. As states up the ante
and propose bans on data mining, gifts to doctors and require greater
disclosure of conflicts of interest, this presence will only grow. 
Fortunately, there are political strategies and regulatory steps states
can take to reduce the influence of PhRMA lobbyists and their cash.

• Campaign Finance and Ethics Reform:
  Arizona,
  Maine and
  Connecticut
  all now allow for public financing of state legislative campaigns. This
  helps to take the money out of politics and reduce the influence
  lobbyists and campaign contributors have over state policy. It is
  arguably no accident that Maine, which has the longest history with
  clean elections, has repeatedly enacted path-breaking policies to
  restrain the drug industry, since its elected leaders are not reliant
  on industry donations for their elections. 

• Promoting Ethical Standards at Medical Schools and Professional Medical Societies: As RxP reports,
  states can take action to help medical schools and teaching
  hospitals play a central role in establishing ethical standards for
  relationships between medicine and industry. Recently, the Oregon
  Academy of Family Physicians, the largest medical society in the
  state, announced that it will no longer accept industry support for its organizational or educational programming. Unfortunately, almost two-thirds of medical schools lack institutional
  standards to prevent conflicts of interest. The RxP works directly with
  medical center leaders to address these issues and reports that in
  several states policy change has been stimulated by state legislators
  who have taken an interest in this area and started asking medical
  centers to account for their current policies. 

• Coalitions, Physicians as Spokespeople: Just
  as the industry recruits physicians to pitch new drugs to their peers,
  physicians are strong spokespeople promoting legislation to reduce and
  counter PhRMA influence in exam rooms. Washington State Rep. Jamie Pedersen, who sponsored a ban on data-mining by pharmaceutical marketers (HB 2664), attributes
  the failure of the bill to come to a vote in the House after passing
  the Senate to the “intense lobbying… by the industry creating enough
  doubt and confusion.” The good news is that despite PhRMA’s effort, the
  bill passed the Senate and stands a good chance of being brought back
  for lawmakers’ consideration next session. Along with Rep. Pedersen’s
  leadership, much of the success of the legislation is due to the new
  Coalition for Prescribing Integrity, which includes the Washington
  State Medical Association, the Healthy Washington Coalition, AARP, the
  State Labor Council, the National Physician’s Alliance and others.

Conclusion

There is nominal good news about prescription drug costs. In 2007, sales grew
3.8%, the lowest annual increase since 1961, but still at a faster pace
than inflation. Still, total sales were a staggering $286.5 billion —
reason alone to ramp up the pressure on big-PhRMA and advance solutions
to increase access to quality drugs and restrict the industry’s abusive
and cost-driving marketing practices.

Resources

Increasing Access to Affordable Prescriptions and Reducing Drug Costs