Rx Reforms to Address Budget Deficits and Ensure Quality of Medications

Rx Reforms to Address Budget Deficits and Ensure Quality of Medications

As part of our Shared Multi-State Agenda, the Progressive States Network is working with legislators, advocates and leading experts to promote Rx reforms in 2010 that will reduce health care costs for consumers, businesses, and state and local governments, and will help ensure access to safe and effective medications.  Through coordinated, strategic support, PSN and our allies will be working to introduce and advance Rx reforms that will help address state budget deficits and improve access to quality medications in as many states possible; providing model legislation, policy analysis, messaging and more - all of which has been gathered and will be constantly updated on our Prescription Drug Reform Shared Agenda web page.

Our policy staff are also available to answer questions and supply information not on the website.  Legislators and advocates can contact us about supporting Rx Reform campaigns through our website or by emailing

Table of Contents:

- Summary of Rx Reform Policies and Why They Matter

- Messaging on Prescription Drug Reforms

- Building Rx Reform Campaigns

- Additional Models and Key Facts on Prescription Drug Reforms

- PSN Support in Your State

Summary of Rx Reform Policies and Why They Matter

Faced with state budget deficits in 2010 and years to come, reduced spending on prescription drugs can be an important source of savings. In 2007, the U.S. spent $287 billion on pharmaceutical drugs, representing 14% of all health care expenditures and a significant driver of health care costs.  Driving this expense is the drug industry, which spends $30 billion on marketing each year, with $6.7 billion spent on physicians in 2007.  The industry habitually markets the most expensive drugs over less expensive, yet equally or more effective medications, like generics.  In fact, drug manufacturers spend more money marketing drugs than developing new ones, resulting in 70% of Americans saying the industry puts profits before people.  As a result of high costs, 1 in 7 Americans reportedly went without prescribed drugs in 2007, up from 1 in 10 in 2003.

The following model policies, divided into two categories - Marketing and Safety and Cost Savings, represent the leading edge of prescription drug reforms to rein in the industry's inappropriate marketing practices and to reduce drug costs, while helping to increase access to life-saving medications. 

Bill Summaries:

- Summary of Bill to Lower the Costs of Prescription Drugs

- Summary of Bill to Ensure Safety and Accuracy in Prescribing

Model Legislation:

- Model Legislation to Lower Prescription Drug Costs and Protect Against Unfair Prescription Drug Practices

- Model Legislation for an Act to Ensure Safety and Accuracy in the Prescribing of Prescription Drugs and Medical Devices

Key Provisions include

  • Gift Ban and Disclosure:  Require the industry to disclose information about advertising and marketing spending, and prohibit gifts and payments to health care practitioners from pharmaceutical and medical device manufacturers.  Studies show that even small gifts create an unconscious "demand for reciprocity."  Disclosure laws have exposed millions of dollars spent on payments to physicians and conflicts of interest.  A review of Minnesota data showed that, as payments to psychiatrists increased, so did the writing of prescriptions for drugs made by those companies.
  • Evidence-Based Prescribing:  Establish a Prescriber Education Program, or “academic detailing” initiative, for the dissemination of scientific and clinical data about the effectiveness and costs of pharmaceuticals and medical devices.  Studies of existing state programs, like Pennsylvania’s Independent Drug Information Services, which is a partnership between the state and Harvard Medical School, show that every dollar invested in these programs results in $2 in savings.  States have several options for funding education programs outside of the general fund, including a fee on manufacturers and federal grants.
  • Access Reduced Drug Prices:  Create a task force to study and report how best to maximize participation in 340B pricing, a provision of the Federal Public Health Act that authorizes discounted drug prices (below Medicaid levels) for certain populations and safety net health care providers, like many rural hospitals, federally qualified health centers and prison populations.  States have numerous options to ensure that populations and programs eligible for 340B pricing are receiving the reduced prices, resulting in savings for state budgets and consumers.
  • Regulate Pharmacy Benefit Managers (PBMs):  Regulate PBMs, who act as middlemen between drug manufacturers and public and private health plans, negotiating prices for prescription drugs. The PBM industry is highly corruptible and lax oversight of PBM practices has resulted in ethical lapses and instances of PBMs pocketing discounts they negotiated for health plans, rather than forwarding discounts through to clients.  Require transparency, a fiduciary relationship, and annual audits of all PBMs to ensure that the full value of negotiated discounts, rebates, or other financial considerations are passed through. 

Messaging on Prescription Drug Reforms

The Public Strongly Supports Rx Reforms:  Lawmakers can tap into the public's frustrations with and perceptions of the drug industry to build support for these initiatives.

  • 74% of the American public believes the pharmaceutical industry makes too much profit, according to a November 2009 Associated Press poll.
  •  A June 2008 survey found 68% of Americans support requirements on the drug industry to disclose gifts to physicians; 86% would ban free dinners; 80% support a ban on speaking fees; 71% support “provider education programs” that provide unbiased clinical non-commercial information about drugs to physicians.
  • 9 in 10 Americans support the government using its buying power to negotiate lower prices form drug companies, which many states are already doing, according to a recent Kaiser Family Foundation/Harvard poll,

The Industry Keeps Increasing Prices:  The pharmaceutical industry is raising its prices at the fastest rate since 1992.  Critics identify this as an attempt to wedge in higher prices before Congress passes health reform that may clamp down on exorbitant drug prices and begins expanding coverage to millions of Americans.  Leading up to the creation of the Medicare Part D drug benefit, which notably lacked authority for Medicare to flex the taxpayers' purchasing power and enter into direct negotiations with the industry for lower prices, drug manufacturers raised their prices at the widest margin in 6 years.  The industry has so far protected its profits by spending more than almost all other lobbies in Washington, DC.

Rx Industry Markets More Expensive and Often Less Effective Medicines:  To reap its record profits, the pharmaceutical industry, as news reports indicate, habitually markets the latest and most expensive drugs over those that are less expensive and often equally or more effective. 

The Rx Industry Leverages Relationships With Doctors to Drive Up Rx Costs:  Studies show that industry gifts to physicians, in the form of lunches or all-expense paid trips to resort conferences, create an unconscious “demand for reciprocity”.  The industry uses traditional advertising, but gets the greatest bang for their buck by developing personal relationships with physicians through gifts and by providing biased information on a drug’s efficacy. 

  • In 2007, the industry spent $6.7 billion on direct-to-physician marketing.
  • On average, $8,800 in marketing is spent on each physician in the US.  The industry sends out 90,000 sales reps, or detailers, and fellow physicians paid by the industry to pitch the newest “celebrity” drugs in doctor’s offices and hospitals, armed with an expensive meal, office supplies with the company logo, and drug samples.  
  • 94% of doctors have received industry incentives and studies show that even small gifts create an unconscious "demand for reciprocity."  
  • "Doctors who have close relationships with drug makers tend to prescribe more, newer and pricier drugs" regardless of a drug’s value compared to less expensive medications, as the New York Times reported in 2007.

Protecting the integrity of the patient/doctor relationship from the profit-motive of drug industry marketers will improve health care quality and reduce consumers’ costs:  States can intercede by providing physicians with unbiased clinical information on drugs and eliminating the “quid pro quo” created by the exchange of gifts that are the hallmark of the industry’s sales strategy.

Evidence-Based Prescribing Can Improve Medical Care and Save Money:  Prescriber education programs, also known as "academic detailing", aim to provide better information to medical providers and consumers about which drugs are the most effective and have the least adverse effects, as well as the costs of these drugs.  Unlike drug company detailers, who are in fact salespeople who focus on a particular drug sold be the salesperson’s company, these programs provide objective, clinical information on a range of treatments including non-pharmaceutical options.

  • Academic detailing saves money by supporting chronic disease management and reducing purchases of unnecessary or more costly pharmaceuticals that have the same — or lesser — degree of efficacy, or medicinal value.
  • A formal cost-benefit analysis of a 4-state Medicaid study involving 435 doctors showing savings of $2 for every $1 the program cost, based on just Medicaid paid claims data. 

State 340B Pricing Reforms Can Cut Drug Prices:  340B pricing, a provision of the Federal Public Health Act, authorizes discounted drug prices (below Medicaid prices) for certain populations and safety net health care providers, like federally qualified health centers, prison populations, hospitals that serve a disproportionately large Medicaid and uninsured population, and clinics for homeless people.  The Senate health reform bill would expand discounts to include inpatient drugs and extend eligible participation to critical access and sole community hospitals, cancer hospitals, and other providers.

  • Under 340B, drug prices are 19% below the average Medicaid best price net or rebates, 39% below the average reimbursement from insurers, and 51% less than average wholesale price (AWP). 
  • Texas saves $10 million per year using 340B pricing for its prison population
  • Hospitals that are eligible for and are utilizing 340B pricing save state Medicaid programs an average of $300,000 per year
  • 340B pricing can make specialty drugs more accessible for patients, and more affordable for states and providers.  Examples include medications for Multiple Sclerosis, Cancer, Antivirals, and Rheumatoid Arthritis.

Regulating Pharmacy Benefit Managers (PBMs) Can Ensure that Consumers Get the Best Deal:  To get a drug on a health plan's benefit list or formulary, drug companies make payments to PBMs that are proportionate to how often the drug is prescribed.  PBMs boost their profits by pocketing some or all of these payments instead of passing them along as savings to their customers.  Consumers benefit by requiring transparency, a fiduciary relationship, and annual audits of all PBMs to insure that the full value of negotiated discounts, rebates, or other financial considerations are passed through.  Several states have enacted PBM transparency laws, but Texas, Maine, Maryland, and the District of Columbia have the strongest.

Possible Federal Action Creates Potential for States to Go Further:  Federal reform may set the state for states to greatly expand their Rx reform initiatives, most notably those included in this Agenda.  While the House reform bill authorizes Medicare to negotiate with the drug industry for reduced prices, a key and necessary reform, the Senate bill simply calls for a study of Medicare Part D drug prices.  Importantly, both bills require greater marketing transparency and disclosure of gifts to prescriber, called "sunshine" provisions.  The strongest language is in the House bill and both would prohibit states from collecting the same information.  However, states would not be prohibited from collecting additional information or prohibiting gifts, which the federal bills fail to do. 

Additionally, both bills greatly expand the 340B price discount program by, in part, including inpatient settings and expanding eligibility for the discounts to include children's hospitals, certain cancer and rural hospitals, like critical access hospitals.  And, the Senate bill and House bill, which has stronger language, both require greater PBM transparency and reporting, including instances where a PBM switches a covered individual from a less expensive to a higher cost drug.  This would help shine a light on PBM practices and ensure that these decisions are clinically-based, rather than an unethical agreement between the PBM and a drug manufacturer.  If federal reform passes this year or early next, and includes these provisions, it will be incumbent upon states to act quickly to maximize participation in these programs and regulations and to build on them.

Building Rx Reform Campaigns


PSN is working with its allies, notably the National Legislative Association on Prescription Drug Prices (NLARx), so state leaders can tap resources from those groups to help them in their legislative work.  We will be working with those allies to strengthen communication between legislators and organizational allies across the states working on Rx reforms, while providing other technical support as needed during policy campaigns.  Key organizations are listed below along with critical resources for waging a campaign.

National organizations working on Rx reforms includeNational Legislative Association on Prescription Drug Prices (NLARx), Prescription Policy Choices, National Physicians' Alliance, American Medical Students Association, Community Catalyst, and Pew's Prescription Project.

Key Resources: These and other organizations provide a number of key resources for Rx reform campaigns, including:

  • Polling: See Pew and Community Catalyst's public opinion survey on American's concerns about drug industry gifts and other ties to physicians and a recent Kaiser Family Foundation/Harvard/NPR survey on the public's opinion of the role of health care interest groups in health reform.
  • Policy and Legislation - NLARx provides testimony, legal analysis, bill drafting, examples of successful legislation, campaign strategy, and other support, and serves as an industry watchdog with its PhRMA Watch program.  NLARx staff regularly travel to states to visit with legislative caucuses to discuss a state's Rx reform opportunities. Prescription Policy Choices has best practices on a medley of Rx reforms and is a recognized leader in supporting prescriber education programs with its Academic Detailing ToolkitCommunity Catalyst provides fact sheets, model legislation and policy summaries, and campaign support including legislative strategy and organizing.  Pew's Prescription Project provides similar resources and tracking of Rx news and successes.
  • Fact Sheets: Key policy resources can be found in PPC's Best Practices, NLARx's Model Legislation with policy details and examples of successful campaigns, Pew's State Public Policy with fact sheets, and Community Catalyst's Prescription Access and Quality with fact sheets and other policy details.
  • Physicians - Physicians are among the most trusted voices in the health care reform debate.  The National Physicians Alliance, can help identify local physicians to participate in campaigns, become spokespeople, and testify in support of legislation.  NPA is a membership organization representing doctors and is actively engaged in reducing the drug industry's marketing influence in the exam room.  In fact, the organization does not accept donations from the pharmaceutical industry. The American Medical Student Association is a similar membership organization representing our nation's future health care practitioners and concerned with the inappropriate influence of drug manufacturers over the prescribing decisions of medical professionals.  AMSA can help identify future medical leaders to participate in campaigns as spokespeople and organizers.

Additional Models and Key Facts on Prescription Drug Reforms

The following are a few more examples of policies and facts to support reform campaigns:

Gift Ban and Disclosure - Examples of Policies:

  • Minnesota, in 1993, became the first state to limit gifts from the drug industry to physicians, banning gifts of more than $50, and to require companies to disclose payments to physicians in excess of $100.  A review of Minnesota data showed that, as payments to psychiatrists increased, so did the writing of prescriptions for drugs made by those companies.  
  • In 2008, Massachusetts enacted S2526, limiting industry gifts to medical professionals and requiring public disclosure of gifts valued at more than $50. 
  • In 2009, Vermont enacted the strongest law to date, S48.  As NLARx reports, the Vermont law sets a "nationally significant standard" by banning all gifts to physicians, including meals and travel, with few exceptions.  For allowable gifts, such as payments for speaking, consulting, or research, the law requires strict reporting and public disclosure.  Starting in 2011, Vermont will publish the disclosures through a searchable website.

Academic Detailing and Prescriber Education Programs Approaches:

  • Sources of Funding:  A state's surest way to finance a prescriber education program is to assess a fee on manufacturers.  This is a small way to hold the industry accountable for promoting the most expensive drugs regardless of their efficacy.  Other sources of revenue include Medicaid match and federal grants.  For a limited time, ARRA funds are available as part of the stimulus' promotion of comparative effectiveness research initiatives.  The Agency on Health Research and Quality (AHRQ) is accepting applications until December 16, 2009, for funding of up to $1.5 million per project.  Annual costs for these programs range from $1 million in Pennsylvania to $50,000 in Vermont.
  • Examples of Policies:  Pennsylvania’s model program, called Independent Drug Information Services, is a partnership between the state and Harvard Medical School.  Vermont’s program is run by the University of Vermont Medical School and Maine’s program is a collaboration between the Maine Medical Association and the State.  Massachusetts (HB 4900), New Hampshire (HB 1513), and New York are also implementing systems. 

Access Reduced Drug Prices- Examples of Policies: In addition to our model legislation creating a task force to identify how best to expand 340B in your state, other best practices include:

Facts on Pharmacy Benefit Manager:

  • Three PBM companies administer 80% of all private prescription coverage and each pocket annual revenues exceeding $15 billion.
  • The three largest PBM companies manage the drug benefits for 95% of Americans with prescription drug coverage.
  • From 1997 to 1999, Medco Managed Care, then a subsidiary of Merck, was paid $3.5 billion in rebates it negotiated from manufacturers, the majority of which were not passed through to health plans and consumers.
  • Illinois has estimated it could save $10 million annually by directly negotiating prescription drug prices for the state employee health plan instead of using a PBM.
  • The University of Michigan saved $8.6 million in 2003 by downsizing from 5 to 1 PBMs and better regulating the single remaining manager.
  • Several states have enacted PBM transparency laws, but Texas, Maine, Maryland, and the District of Columbia have the strongest.

PSN Support in Your States

PSN has already begun working with legislators and advocates to provide support for them as they introduce drug industry reform policies around the country.  We'd like to work with many more!

Our policy staff are also available to answer questions and supply information not on the website.  Legislators and advocates can contact us about supporting Rx Reform campaigns through our website or by emailing

As bills are introduced and sessions begin, PSN will provide ongoing resources and updates on Rx Reform legislation, as well as help coordinate strategy and information sharing with our partners among sponsors and advocates.