The purpose of the recently enacted Florida statute is to realize budgetary savings by the state negotiating with the drug industry for supplemental prescription drug rebates in its Medicaid program.
REGIONAL CONFERENCES HELD ACROSS THE NATION
It's been a busy summer for CPA, holding regional specific conferences for literally hundreds of state legislators and state activists to debrief from the 2001 sessions and plan for 2002. Read about our regional conferences and link to participating organization's websites.
September, 2001 SECTION: BUSINESS LITIGATION; Pg. 22
"PhRMA's litigation strategy is a major weapon to influence legislators not to mess with them," says Bernie Horn, policy director for the Center for Policy Alternatives.
CONSIDERING HOW LONG the issue of paying for prescription drugs has been on the front burner, it's remarkable how little has happened. The pot keeps boiling, but nothing gets cooked.
A recent study found the price of the 50 most common drugs used by seniors rose at more than twice the rate of inflation last year. With about a third of U.S. seniors paying for their drugs out-of-pocket, it's virtually certain many are cutting corners or skipping medications entirely because they can't afford them.
Other studies suggest overall consumer confidence in the drug industry is dropping, despite a lavish PR campaign mounted to remind people how often and how profoundly they benefit from pharmaceutical companies' products. Clearly, this is a liquid moment in the development of U.S. public policy regarding pharmaceuticals and how to pay for them, and the major players are hard at work.
For the drug manufacturers, the primary trade group is PhRMA, the Pharmaceutical Research and Manufacturers of America in Washington, D.C. PhRMA represents the makers of about 75 percent of the brand-name prescription drugs in the United States.
Last year PhRMA spent a whopping $ 7.5 million on lobbyists, more than twice as much as another politically active trade group, the Biotechnology Industry Organization, according to figures assembled by Public Citizen's Congress Watch.
At the same time, PhRMA is going to court. Unlike many trade groups, PhRMA doesn't just file amicus briefs. The group has taken the initiative, using litigation as a major tool to try to ensure its interests are reflected in whatever does or doesn't occur.
"We don't often have multiple lawsuits going at the same time, but we do now," says Marjorie E. Powell, PhRMA assistant general counsel.
"GOOD POLITICS"
In Vermont, PhRMA has succeeded in a lawsuit that halted Vermont's PDP, or Pharmacy Discount Program. But PhRMA's attempt to stop another approach to controlling drug costs, the Maine Rx program, has not fared as well. PhRMA got an injunction to stop the Maine program last year, but in May, a three-judge panel of the 1st Circuit Court of Appeals allowed the program to go forward. PhRMA's request for an en banc hearing was turned down in June.
Neither Powell nor PhRMA General Counsel and Executive Vice President Russel A. Bantham would comment on overall PhRMA strategy or how the filing of lawsuits fits into that strategy. But one of PhRMA's sometimes ideological and political opponents was willing to opine.
"PhRMA's litigation strategy is a major weapon to influence legislators not to mess with them," says Bernie Horn, an attorney and policy director for the Washington D.C.-based Center for Policy Alternatives. "They are guaranteeing that if you try to do something like Maine is doing, they will sue you."
The Center for Policy Alternatives is non-profit and non-partisan, but it describes itself as a progressive public-policy group that works primarily with individual states and state policy makers.
"The strategy of maximum litigation is a scare tactic," Horn says. "I'm not saying it is improper or a bad idea on their part. It's good politics."
Vermont's Pharmacy Discount Program, now at a standstill, is a Medicaid demonstration project, based on a waiver from the Department of Health and Human Services acting through the administrator of the Health Care Finance Administration, or HCFA. (HCFA was recently renamed the Center for Medicare and Medicaid Services, or CMS.)
Therefore, in the litigation regarding the Vermont program, the defendants were the heads of two federal entities, the DHHS and the CMS, and the venue was the federal court in the District of Columbia. Under the program, PDP enrollees-basically, people who make too much money to qualify for Medicaid but are still relatively low-income-would pay 82.5 percent of the best price for a prescription, plus an administrative cost.
In other words, they would save 17.5 percent, less the administrative cost. The pharmacist would submit paperwork to the state of Vermont, which would rebate the 17.5 percent back to the pharmacist. The state would then recover that amount from the drug manufacturer.
PhRMA, putting quotes around the word "program" in its legal briefs, argued the Vermont PDP is not a government program at all. Assailing the government's position, PhRMA said a government program must involve an expenditure of government money, something the Vermont PDP does not do.
Essentially, PhRMA maintained, the PDP is nothing more than an order from the government requiring drug companies to foot costs of a drug benefit for a newly designated recipient population. For this reason, PhRMA said the PDP violated the Social Security Act, and its approval by DHHS violated federal law. (The Medicaid program is Title XIX of the Social Security Act, as amended.)
Manufacturers are not legally required to participate in the PDP, but those who refuse could be disbarred from the entire Medicaid program nationwide. This was a huge sticking point for PhRMA. In addition to eliminating an enormous market for the manufacturer, it could jeopardize healthcare, Powell says.
"I may, for example, be stabilized on a manufacturers' anti-transplant rejection drug or its chemotherapy drug may be the one that works well for me. Suddenly, under Medicaid, I can't get it, because the manufacturer has been kicked out of the program."
Only an estimated 70,000 people would be eligible for the Vermont PDP program, but PhRMA is concerned about the precedent, according to Powell. Other similar state programs are in various stages of development.
AN EXPERIMENT
The Department of Justice, in its brief for the Vermont case, noted Medicaid does not solve the social problem it was supposed to address, and many people who find it difficult to pay for medical care don't qualify. As of 1998, only 40 percent of people with incomes below the federal poverty level were covered by Medicaid, according to the DOJ's appeal brief.
The same brief noted the legislation that defines Medicaid specifically allows for demonstration projects likely to promote the goals of Medicaid. Moreover, costs of those projects that would not otherwise qualify as Medicaid expenditures should "'be regarded as expenditures under the State [Medicaid] plan,'" the DOJ argued, quoting the Social Security Act.
The government maintained that once the secretary of Health and Human Services determines the state's expenditures as valid under Medicaid, it follows that the drug manufacturers can be required to rebate money back to the Medicaid program in the same way it sends back rebates to other large purchasers.
In the PDP, the consumers themselves would pay for what the drug companies don't. That's also a violation of the law, according to PhRMA. Section 1916 of Title XIX requires any co-payments under state law to be "nominal." The 82.5 percent of the final discounted drug price the consumer would pay under the Vermont discount program may be a substantial savings, but it's hardly nominal, according to PhRMA.
"Incredibly, Defendants assert that Section 1916 is inapplicable here, because the PDP recipients are allegedly not 'Medicaid Beneficiaries,'" PhRMA says in court documents.
As PhRMA sees it, the government's core position contradicts itself. The government called the PDP a Medicaid program when it required the companies to sell cheap, but it denied the PDP is a Medicaid program when it justified the 82.5 percent co-pay.
In January, Judge Ricardo M. Urbina, U.S. District Court for the District of Columbia, denied PhRMA's request for a preliminary injunction to keep the PDP from going forward. But his ruling was reversed in June by the Court of Appeals for the District of Columbia. That halted the program, which by then had enrolled about 4,000 people. The Court of Appeals said the question of how to fund drug benefits for the poor, and whether drug manufacturers should have to contribute, are issues for Congress. Nothing Congress has done so far, the Court added, provides a basis for approving the Vermont program.
MAINE GOES FORWARD
The Maine Rx program works differently than the Vermont PDP works, and covers a much larger piece of the drug market-anyone who is not insured for prescription drugs. That includes the flat-out uninsured, as well as approximately one-third of the elderly on Medicare, or about 350,000 people in Maine.
Maine Rx would allow the state to function as a pharmacy benefits manager, negotiating with manufacturers for price breaks.
"We are not opposed to manufacturers negotiating with purchasers," Powell says. "But we think the commercial marketplace should operate."
The difference is crucial, she says. In the case of the Maine Rx program, the state can put a manufacturer's product on a list of drugs that cannot be prescribed without prior authorization. Powell argues that by going through this process, the state is essentially practicing medicine and interfering with the relationship between the doctor and the patient.
"The state is making the decision without the patient's medical information, purely on a cost basis and not on the basis of any medical criteria," she says.
According to Powell, there are still other problems with the Maine Rx program. "The only requirement for participation is that you be a Maine resident," she says.
Representatives of business groups in Maine have suggested if the Maine Rx program takes hold, there is likely to be widespread cancellation of the drug benefit in employee-sponsored health plans, she says.
Last year, PhRMA was granted a preliminary injunction to block the Maine Rx program by the federal district court in Maine. But in May, the 1st Circuit Court of Appeals lifted the injunction, and PhRMA's motion for an en banc hearing was rejected shortly thereafter. PhRMA is contemplating an appeal to the U.S. Supreme Court.
"They can contemplate all they want," Horn says. "They are stuck with this one." In any case, the 1st Circuit panel's decision was not as definitive as it could have been. The prior-authorization option by the state could be abused, the Court noted, and it left open the possibility the issue could be revisited. "This is a close case," the Court concluded, "but we donot think that under the applicable law the state of Maine should be prohibited from putting the act into play."
According to Horn, the decision by the 1st Circuit Court of Appeals will trigger a lot of activity among the states. He says similar programs were proposed last year in 27 states, but languished because of the district court injunction against Maine Rx.
For drug manufacturers, this could prove to be the dark side of tax cuts. If the demand is politically indismissible, but the public purse is empty, politicians may be unable to resist going right to the corporate source of the product or service.
In July, as Congress continued to debate drug policy, The New York Times reported many seniors were disappointed by how little of their drug costs would be covered by the proposals under consideration.
PhRMA did not take a position for or against the Bush tax cut, according to media spokesman Jeff Trewhitt.
But Trewhitt maintains that what PhRMA wants in the way of a Medicare drug benefit will not increase the cost of the program. He points to the Breaux-Frist Medicare reform bill, which PhRMA was supporting as this article went to press, and says its cost was estimated to be $ 176 billion over 10 years, far less than for the continuation of the current government-controlled program.
MEDICARE REFORM
"Our agenda," says Powell, "is to ensure seniors get a Medicare drug benefit at the federal level, and we think these [state programs] are major distractions from that effort."
"This is a new position for PhRMA," says Horn. "And the history suggests to me it is not a sincere position."
According to Horn, PhRMA did not favor a Medicare drug benefit prior to the presidential election.
He points to ads PhRMA ran in the Washington Post and other papers in the summer of 2000. They advocated private prescription drug insurance, making no mention of Medicare. Trewhitt says PhRMA's position has been consistent since early 1999. PhRMA does want to add drug coverage to Medicare, but only in the context of other dramatic changes in the program.
PhRMA's critics would characterize those changes as a splintering of the market into chunks that will be easier for PhRMA members to bulldoze in price negotiations. PhRMA would call them reforms in the
direction of greater consumer choice.
Says Trewhitt, "We think there should be a transition away from government control over the provision of healthcare under Medicare, with its one-size-fits-all approach, to much greater reliance on a diversity of health plans in the marketplace."
GRAPHIC: Photo, "We don't often have multiple lawsuits going at the same time, but we do now," says Marjorie E. Powell, assistant general counsel for the Pharmaceutical Research and Manufacturers of America.; Photo by mary calvert