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Florida Medicaid Preferred Drug List

ATLANTA -- Staggered by a one-two punch of fast-rising drug and hospitalization costs and deficits spawned by a sagging economy, state Medicaid planners are scrambling to cut costs in the midst of painful budget cuts that could leave some patients--and some pharmacy providers--with a bitter pill to swallow.

Medicaid is in trouble. Jointly funded by the federal government and the states, the massive program provides drug and health care benefits to 36 million lower-income and disadvantaged Americans. According to the Centers for Medicare and Medicaid Services, spending for Medicaid rose more than 8 percent in 2000, topping $224 billion. Last year, the growth in Medicaid spending was closer to 11 percent.

Hit by the double whammy of surging health costs and lowered revenues due to a recession, states are facing huge shortfalls in funding the health care safety net for low-income residents. Medicaid administrators are being told to lop tens of millions of dollars from their 2002 spending plans. In response, they're sharpening their cost-cutting axes and trading ideas about how to cope--either by lowering services to patients or cutting reimbursements to providers.

Some examples:

* In Colorado, the Medicaid reimbursement rate to pharmacies is being cut to the average wholesale price of a drug, minus 12 percent, plus a $4 dispensing fee.

* In Connecticut, reimbursements are expected to shrink to AWP minus 13 percent plus $3.60.

* In Maryland, Gov. Parris Glendening has proposed that Medicaid prescription payments be cut sharply, to AWP minus 13 percent.

* Mississippi state legislators are trying to cover a reported $124.6 million Medicaid budget deficit this fiscal year, and Mississippi Medicaid has hired a consultant to help cut the program's rising prescription costs.

* Missouri Gov. Holden is mulling a 2 percent tax on prescriptions to help cover Medicaid, raising concerns from state pharmacy groups.

* In New York, pharmacy leaders were able to modify Gov. George Pataki's proposal for steep Medicaid reimbursement cuts. Pataki is asking the federal government for additional funding.

* Indiana is considering both reductions in pharmacy payments and the introduction of a preferred-drug formulary that would require Medicaid patients to get permission for the heavy use of brand-name medications. Idaho is mulling a similar provision.

* Rhode Island, Maine and other states are pushing legislation that would allow them to extract discounts, or rebates, from drug manufacturers participating in Medicaid.

* In Kentucky, the House Health and Welfare Committee reportedly has approved legislation that would kill a planned increase in the Medicaid dispensing fee.

'Everybody's looking at how to save moneys'

Contributing to a deepening budget crisis are prescription drug costs, which are soaring well beyond overall health care spending rates. "The rate of growth in prescription drug spending exceeded that of other health services by a wide margin," noted a recent report from CMS, "increasing 17.3 percent in 2000."

CMS attributed the spike in drug spending to "the aging of the population and the introduction of new therapies for chronic conditions," as well as the rise in third party payment plans. Those factors led to a rise in per capita prescription use to 10.5 per person in 2000, the agency noted, compared with 8.3 per person in 1995. Nevertheless, despite the jump in spending for drugs, hospitalizations and other services, reimbursements for care of Medicaid patients nationwide have risen an average of just 2 percent a year, according to an estimate from the American Association of Health Plans that was reported last month in the Wichita Business Journal.

For pharmacies, it is often even worse. Traditionally, states' efforts to cut their Medicaid drug budgets often have begun and ended at the pharmacy counter, where reimbursements are at the mercy of ever tighter cost-cutting formulas that lop a hefty percentage off the average wholesale price of a drug.

The Medicaid crisis has many pharmacy leaders worried. "Everybody's looking at how to save money. The price of prescriptions is going sky high," complained one senior executive at a Midwest chain.

"Medicaid issues in the states are certainly among our top priorities this year," said Catherine Polley, vice president of state government affairs for the National Association of Chain Drug Stores. "If you look at overall Medicaid expenditures, the growth in prescription drug costs is coming from the number of prescriptions recipients are getting and in the use of brand name drugs and the cost increases associated with those," added Polley. "The provider fees paid to community pharmacies are not what's raising the spending in the states. In fact, in inflation-adjusted dollars, we're losing money.

"A lot of our focus is to educate lawmakers," Polley told Drug Store News. "Many legislators in the states are just not familiar with how the Medicaid pharmacy component is operated--or with community pharmacy's piece of that. Seventy-eight percent of the cost of providing prescription services has to do with the drug itself, and community pharmacy has no control over those costs. But that's a message that sometimes doesn't get communicated.

"We don't see the budget crises in the states getting any easier," she added. "So we have been working with the states to help them come up with cost saving alternatives and better ways to look at drug utilization and overall drug spending."

Sharing the pain

This year, with drug prices getting an increasing share of the blame for budget shortfalls, drug makers themselves are beginning to share some of the cost-cutting pain as states look increasingly at restrictive drug formularies, increased rebates from manufacturers and other methods to control drug spending.

Increasingly, Medicaid administrators and brand name drug makers are at loggerheads over rebates. Led by Florida and Michigan, a growing number of state Medicaid plans are considering preferred drug formulary programs as a way to offset rising drug costs and bring their budgets back into line.

Under the plans--which have prevailed against legal challenges from drug manufacturers in Florida and Michigan--manufacturers must agree to pony up additional rebates, or discounts, in order for some of their higher-priced products to gain inclusion on the preferred drug list. If they don't, doctors who treat Medicaid patients will have to obtain approval before they can prescribe a non-formulary medication, or patients themselves will have to pay extra.

The Pharmaceutical Research and Manufacturers of America has waged a fierce legal campaign against states' efforts to control drug-price inflation.

Encouraging signs

One encouraging development on the Medicaid front, according to NACDS, is an indication that the Department of Health and Human Services' Office of the Inspector General is eyeing a revision of its calculation of what retail pharmacies pay for drugs provided to Medicaid recipients. "We were encouraged to see that agency officials might consider a new calculation that would separate 'single source' drugs from innovator multiple source and 'branded generics'," noted NACDS in a report to its members.

Originally, the OIG concluded from a survey last year that retail pharmacies pay an average of nearly 22 percent below average wholesale prices for the drugs they obtain. State Medicaid administrators jumped on those findings in their efforts to reduce the costs of drug reimbursements to pharmacies. But distinguishing between the average costs pharmacies pay for branded vs. generic drugs could lead to a somewhat more liberal reimbursement policy for the Medicaid program.

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