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Adam Thompson on March 24, 2008 - 9:25am
$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.
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.
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.