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Strengthen Negotiating Power with Drug Makers

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.

Health Care for All: Policy Options for 2009

Download a copy of the report in PDF format here.  View the HTML version of the report here.

OVERVIEW

As NLARx documents, 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.

  • Multi-State Purchasing Pools: At least five multi-state bulk purchasing pools are currently negotiating 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 Maine would save $5 million in state and federal Medicaid costs by participating in the purchasing pool.  As Prescription Policy Choices reports, Oregon could save $17 million annually by combining the drug purchasing of all its state programs.
  • Pharmacy Benefit Managers (PBMs): PBMs negotiate rebates and manage drug benefit programs on behalf of public and private health plans and many self-insured businesses. However, the PBM industry is highly corruptible.  To get their 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 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 requires greater transparency of negotiations, disclosure of conflicts of interest, and new ethical standards.  PBM laws in Maine and DC have been upheld by the federal courts.
  • Pricing Reforms: Worries about price gouging and artificial price inflation on celebrity drugs are driving states to shed light on the pricing practices of pharmaceutical companies.  Wisconsin and Colorado laws 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.

Resources:

NLARx - Model legislation: the Excessive Drug Pricing Act, the Drug Retail Price Disclosure Bill

Prescription Policy Choices - Model Legislation: PBMs Transparency and Fiduciary Standards

Focus on Prescription Drug Reform

$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.

Health-Care-for-All On the Installment Plan

Incremental steps to improve the health care system can lay the foundation for comprehensive reform that provides health care for all. Comprehensive reforms enacted in Massachusetts, Vermont, Maine and San Francisco were, in large part, the result of pragmatic incremental steps those states had already taken. For example, a Families USA report discusses the many reforms Massachusetts put in place over the years that led to its comprehensive 2006 reform. Not every state is as far along in moving comprehensive health care reform, but each state does have numerous options for increasing access to coverage, reducing the growth of health care costs, and improving the quality of care.