November 21, 2004

States' Tactics Aim to Reduce Drug Spending

By ROBERT PEAR and JAMES DAO

WASHINGTON, Nov. 20 - Alarmed at soaring pharmaceutical costs, states are trying a wide range of new tactics to curb spending on prescription drugs for Medicaid recipients, public employees, prisoners and other residents, bringing them into lobbying combat with the drug industry.

A dozen states have joined purchasing pools in an attempt to use market power to reduce costs. Dozens more are requiring Medicaid recipients to use generic or lower-priced drugs from preferred lists.

Worries about pharmaceutical costs have risen so high in West Virginia that the governor called a special session of the Legislature this week to consider legislation that authorizes a single state coordinator to negotiate deep discounts on drugs purchased for virtually all the state's insurance and health care programs. The measure passed unanimously.

And in one of the more innovative programs, Oregon and 11 other states have joined in an ambitious effort to compare the safety and effectiveness of hundreds of drugs. Medicaid officials steer doctors and patients away from costly drugs found to have no proven clinical advantage over cheaper products.

The West Virginia plan is considered the most comprehensive of its kind, potentially covering more than a third of West Virginia's 1.8 million residents, including prisoners, veterans, state employees and disabled workers. Private employers and individuals could join the state's drug-purchasing pool in the future.

"No other state has gone this far,'' said John Luehrs, who works on state prescription drug policies for AARP, the lobby for older Americans.

In addition, many states have filed lawsuits against drug manufacturers, saying they defrauded state Medicaid programs by charging inflated prices. Attorney General Jim Petro of Ohio, a Republican, has filed six such suits this year, including one this week asserting that a manufacturer had charged the state up to four times as much as it charged wholesalers for certain drugs.

Drug companies are fighting most of the state initiatives, which they say will deny patients access to valuable treatments.

States will be the main arena for lobbying battles over drug prices because Congress is not expected to do much more with the issue next year.

"My sense is that Congress is not coming back to this for a while, but the problem hasn't gone away,'' said Gov. Bob Wise of West Virginia, a Democrat who pushed the drug purchasing program. "So now it is being fought out in 50 state capitals.''

Medicaid spending, which increased almost 50 percent in the last four years, is among the fastest growing items in state budgets, and drug spending is one of the fastest growing components of Medicaid.

"Sixty percent of our cost increases in any year are tied to drug spending increases - not just higher prices, but also higher utilization,'' said Anne Marie Murphy, the Medicaid director in Illinois.

A recent report from the nation's governors and state budget officers said Medicaid spending this year would, for the first time, exceed state spending on elementary and secondary education, forcing cutbacks in welfare and other programs.

"This is rising higher on states' agendas,'' Mr. Luehrs said. "State officials are confronting some very serious budget problems, and one thing that sticks out is the cost of prescription drugs.''

Cost-control policies, tested in a few states, spread quickly. Most states - 37 at last count - now require that generic drugs be dispensed to Medicaid recipients if they are available.

"This is a safe approach to lowering drug costs,'' said Dr. Mark B. McClellan, administrator of the federal Centers for Medicare and Medicaid Services. "Generics, on average, cost 70 percent less than brand-name drugs.''

Many states have joined purchasing pools to obtain lower prices. One group, led by West Virginia, is buying drugs for public employees and retirees in five states. Another group, led by Michigan and Vermont, is buying drugs for Medicaid recipients in eight states, with encouragement from the Bush administration.

And more than 30 states have established lists of preferred drugs for Medicaid recipients. In many cases, doctors can prescribe other drugs, but need permission from the state to do so. Drug makers typically offer discounts and price concessions in return for having their drugs included on these lists. In West Virginia, officials intend to create a single preferred drug list, not just for Medicaid, but for all state agencies.

The Pharmaceutical Research and Manufacturers of America, a trade group for brand-name drug companies, has unsuccessfully challenged these lists in court. "We get very concerned when government bureaucrats limit access to drugs for Medicaid recipients, who are far more vulnerable than most patients,'' said Wanda Moebius, a spokesman for the organization.

The Oregon-based project, comparing drugs used to treat the same illness, will help officials manage more than $30 billion a year in drug spending in 12 states, including Arkansas, Michigan, Missouri and North Carolina. AARP and Consumers Union support the project, which is coordinated by former Gov. John A. Kitzhaber and the Oregon Health and Science University, in Portland.

George L. Oestreich, director of the Medicaid pharmacy program in Missouri, said the studies provided "unbiased evidence'' that the state used in deciding which drugs to recommend in each therapeutic class.

The Food and Drug Administration can approve a drug if it is safe and effective, but does not usually ask whether the drug is safer and more effective than the alternatives.

In the Oregon project, state officials begin their work with an exhaustive review of all published medical and scientific evidence on drugs in a particular class.

Dr. John S. Santa, medical director for the project, said, "In most of the 15 drug classes reviewed to date, we found no evidence that one drug was more effective than others intended to treat the same illness.''

In such cases, state Medicaid officials often decide to recommend the lowest-price drugs. But if the expert reviewers find that one drug is more effective than the alternatives, state officials often allow doctors to prescribe it, even when it costs more.

Ms. Moebius, the spokeswoman for the Pharmaceutical Research and Manufacturers of America, criticized the state initiative. "The idea of evidence-based medicine has been around for years,'' she said. "But it's been distorted in Oregon so that it's based more on economics than on evidence.''

Oregon invited Pfizer to submit a dossier of evidence on Zoloft, its widely used antidepressant, but the company declined to do so.

"We are unwilling to engage in a process designed to disguise cost containment initiatives as credible scientific analyses,'' said Dr. Lisa Egbuonu-Davis, a vice president of Pfizer. State officials have a financial interest in limiting access to medicines, she said in a letter to the Oregon reviewers.

Experts from Oregon and other states have reviewed 15 classes of drugs and plan to review at least 10 more.

Dr. Santa, medical director for the project, said state reviewers detected evidence of safety problems with Vioxx, the arthritis and pain medication, two years ago. As a result, he said, Oregon Medicaid officials decided to exclude it from their list of preferred drugs.

Merck announced on Sept. 30 that it would stop selling Vioxx because a study had shown that the drug increased the risk of heart attacks and strokes in some patients.

The Oregon project reviewed five heartburn and ulcer drugs, but did not find enough evidence to conclude that one was better than the others. One of the drugs, Prilosec, is available without a prescription for about $20 a month, whereas the other drugs often cost more than $100 a month.

James N. Gardner, an Oregon lawyer for the Pharmaceutical Research and Manufacturers of America, said the state's evaluations were severely flawed. When state officials find no evidence that one drug is superior, he said, they make the mistake of concluding that all drugs in that class are equivalent.

But, Mr. Gardner insisted, "the absence of evidence is not the same as evidence of the absence of any difference in clinical effectiveness.''

West Virginia has moved aggressively to hold down drug prices because its finances have been strained by skyrocketing Medicaid and workers compensation costs, and because it has one of the nation's oldest and poorest populations.

According to a recent study by Boston University's School of Public Health, West Virginians spend a larger share of their personal income on prescription drugs - 3 percent - than people in any other state except Tennessee.

Governor Wise, who will leave office in January, warned that tougher measures may lie ahead if the industry attempts to oppose the state's cost containment measures.

"I would argue that if the industry can't work within this model,'' Mr. Wise said, "then many states will come through with more severe measures, including price controls.''