MINUTES OF THE meeting
of the
ASSEMBLY Committee on Health and Human Services
Seventy-First Session
April 2, 2001
The Committee on Health and Human Serviceswas called to order at 1:30 p.m., on Monday, April 2, 2001. Chairman Ellen Koivisto presided in Room 3138 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mrs. Ellen Koivisto, Chairman
Ms. Kathy McClain, Vice Chairman
Mrs. Sharron Angle
Ms. Merle Berman
Mrs. Dawn Gibbons
Ms. Sheila Leslie
Mr. Mark Manendo
Ms. Bonnie Parnell
Mrs. Debbie Smith
Ms. Sandra Tiffany
Mr. Wendell Williams
COMMITTEE MEMBERS ABSENT:
Mrs. Vivian Freeman
STAFF MEMBERS PRESENT:
Marla McDade Williams, Committee Policy Analyst
Darlene Rubin, Committee Secretary
OTHERS PRESENT:
By teleconference: Alan Sager, Ph.D., Professor of Health Services/Co-director, Health Reform Program, Boston University School of Public Health
Laurie Squartsoff, R.Ph., Pharmacist II, Department of Human Resources
William C. Moell, Administrator, Division of Purchasing, State of Nevada
Chairman Koivisto announced that Dr. Alan Sager, Boston University School of Public Health, would testify via teleconference. Dr. Sager’s curriculum vitae included Professor of Health Services and Co-Director of the Health Reform Program in Boston. Dr. Sager’s written testimony, entitled Winning Affordable Medications for All Citizens of Nevada (Exhibit C), was provided to committee members, and included a study Dr. Sager had developed that indicated Nevada could save up to $185.7 million on prescription drugs.
Dr. Sager opened his testimony by considering the dual aspects of the prescription drug problem: First was coverage, second was cost. It appeared that over half a million citizens, three in ten people, of Nevada had no prescription drug insurance. The two-page fact sheet attached to Dr. Sager’s testimony (pages 8 and 9, Exhibit C) provided a breakdown of elders, people without insurance, and people with insurance through their employer that might not cover prescription drugs. In the nation as a whole, one-fourth of all Americans were without prescription drug insurance, and many who did have insurance had very meager coverage, particularly older people who might have a Medi-Gap supplemental policy that limited drugs to $1,000, and some HMOs had been imposing limits in different parts of the country of $500 or $600 a year for drug coverage.
Worse yet, Dr. Sager said, many older people were at great risk of losing even the meager prescription drug coverage they had, due in part to employers who in the past had been generous in offering that coverage through their retiree health plans, now were cutting back those plans because of the skyrocketing cost of prescription drugs. Further, when seniors purchased individual Medi-Gap policies that covered prescription drugs, rising drug prices raised the premium and often put the Medi-Gap policy out of their reach. Many HMOs were leaving the Medicare program and that could continue, Dr. Sager said, because the evidence he had seen showed that HMOs did not save money from Medicare overall, owing partly to the tendency of healthier people to enroll in HMOs. Thus, the coverage that many seniors had for prescription drugs was in danger of drying up for some people.
On the cost side, spending on prescription drugs per American citizen was the highest of any country in the world, even though those other countries covered everyone. At current rates of increase, prescription drug spending would double in five years, from around $160 billion in 2001 to more than $300 billion. Studies done for Congress recently showed that spending for Medicare enrollees could triple in the next decade, without a prescription drug benefit. The chart on page 2 (Exhibit C) showed that prescription drug spending had more than doubled since 1995, but overall health care spending in the U. S. had only risen by one-third.
Therefore, in the face of those coverage and costs problems, Dr. Sager said there were only four choices:
Some of the causes of the problem, Dr. Sager pointed out, were the low coverage and the high cost seemed to be caused largely by American unwillingness to restrict drug maker prices, which was something all other wealthy nations did without exception. Americans had been unwilling to do that for three reasons:
None of those arguments was true.
Dr. Sager suggested possible solutions, among which were four ways to expand coverage:
He also suggested three ways to cut prices:
Dr. Sager suggested a somewhat broader approach. Its main provisions were:
Together, Dr. Sager said, those five steps protected all parties, patients, payers, physicians, and drug makers, from the problems caused by exploding drug spending. If a program such as that went ahead expeditiously the problem of an angry future Congress slashing prices could be avoided.
Assemblywoman Leslie asked if what Dr. Sager proposed had been tried in the United States. Dr. Sager said it had not been tried in the United States, but it was close to patterns that prevailed in other nations where prices were lower, all citizens were covered for prescription drugs, and it appeared the volume of prescription drug use was higher than in the United States. Ms. Leslie struggled with the thought that if it was such a good idea why were drug companies not opting to go that way. She restated his proposition that although the drug companies’ profits were being restricted, they would make up for that in volume, was that correct. Dr. Sager said it was, at least for a five-year period, as he would not want to restrict their profits any longer than that. He wanted to protect their profits at the current level, as a percentage of revenue or equity. After the five-year period he would like to see movement up or down, and condition their profits on more breakthrough drugs, as the British had done. The British, he said, had a very innovative drug industry; they rewarded breakthrough drugs instead of “copy cat” drugs. Most of the elements of the proposed approach had been tried elsewhere in the world.
The drug makers had not jumped on board, however, and Dr. Sager felt they were digging in their heels and wanted more money for business as usual. They were afraid of the unknown, they might not trust government, and it was difficult to sign a multi-year arrangement with legislatures that were often constitutionally prohibited from binding their successors. The drug makers would rather administer prices and live in the highly profitable world they have been in, where they were the most profitable industry year after year. Dr. Sager worried the drug makers were writing their own demise; they had no fallback position.
Ms. Leslie wanted to clarify that the increase in volume would come from people who currently could not afford prescriptions they were given. Dr. Sager said that was correct. It would come first through higher private market volume from people who were able to afford some medications, but perhaps they were taking one pill out of every three, and now due to lower prices they could fill the prescription as they were supposed to. For other people who could not afford even the newly discounted prices, they would rely on publicly subsidized payments that would lower the price to them greatly, even close to zero or a small copay. Thus, it would be higher private plus higher public spending to replace all of the revenue lost by drug makers through the price cuts. Some of the lost revenue would be private and some would be public, through the Medicaid program. Dr. Sager likened the idea to “squeezing out waste water and cleaning it and recycling it to fertilize your field.” The money was squeezed out through lower prices, but recycled back to the drug makers as they filled more prescriptions and covered more people.
Vice Chairman McClain felt Dr. Sager had a very comprehensive and interesting approach to the problem, although it was a long-range plan. She liked his statement that at the minimum each state should consider extending the present Medicaid discount, and she asked if there were other states besides Vermont, Maine, and Nevada looking into that type of program. Dr. Sager had heard of discussions in other states but they had been vague and he could not name them individually. He added the people who were tracking that information were Richard Cauchi and his colleagues, at the National Conference of State Legislatures, in Denver, Colorado. Ms. McClain asked if he could see the proposal as the precursor to a more comprehensive approach in the future. Dr. Sager felt it was a step in the right direction.
Assemblywoman Berman found Dr. Sager’s approach interesting because she also had a bill to reduce drug prices but had not brought it forward because the concept had not appeared to be working in California. She asked what would happen to research and development (R&D), and what he saw as the impact from instituting the plans he proposed. Dr. Sager said he valued R&D and was concerned that the drug makers had exaggerated their real expenditures on R&D and minimized their marketing expenditure. He would like to see greater spending on R&D and lower wasteful marketing spending, such as junkets, inducements to physicians, Super Bowl tickets, and so on. Those things did not save lives. He added that at least 40 percent of R&D spending was on “copy cat” drugs, the so-called “me, too” drugs. Sometimes those drugs helped by avoiding side effects seen with the original drug, but that type spending did not do nearly as much to save lives, alleviate pain, and overcome disability, as did investment in breakthrough research.
Dr. Sager felt what was needed was to reward breakthrough research in a more concentrated way, and not reward “copy cat” research. Doing that could liberate $10 billion a year to increase investment in breakthrough R&D. Further, marketing spending by drug makers was very high, and in fact they had quoted $13.9 or $14 billion spent in 1999. Dr. Sager felt that figure was much higher; that could be seen in the share of drug maker work force where nearly one-third of their workers were in marketing. Therefore, Dr. Sager said, if the proposed approach could guarantee their profits as long as they conducted more breakthrough research, they would not need to have “detailers” going door-to-door to the doctor’s offices, buying lunch for the staff and cruises for the doctors in the hope of changing prescribing patterns. It was, he said, a very bad way to do business.
Ms. Berman asked for an example of a “me, too” drug, and, how Dr. Sager proposed to reward breakthrough research. Also, she said she liked to read about drugs she saw advertised in women’s magazines, because her experience in her own doctor’s office showed she had only five to seven minutes to talk to him and she went armed with research and data she had found in order to make the best use of that short time. She did not object to that kind of advertising that made her a better-informed patient. Dr. Sager responded it would be difficult in the United States to outlaw prescription drug advertising in magazines or on television, as most other countries had done. It was, he said, a question of balance; more information from the National Institutes of Health and from the Food and Drug Administration on which patients would benefit from which medications. There had been strong allegations in medical journals that drug advertising, even when direct to doctors, had not been accurate and unbiased, therefore, Dr. Sager worried that advertising might not be a reliable source of information. However, he did feel that motivated, interested consumers such as Ms. Berman should have access to the best research studies presented in a clear and understandable way. As to the “me, too” drug, he said one company came along with the first cholesterol medication and other companies came up with something different enough to be patented, but still doing the same thing.
The money to finance breakthrough research could come from the federal government, in fact Congress had been asked to double the research budget at the National Institutes of Health, but where drug makers used their own money for research they should be entitled to very generous financial rewards. The current returns on equity in the range of 25 to 35 percent, Dr. Sager said, seemed reasonable as a way of rewarding drug makers who really developed the innovative life-saving drugs.
Assemblywoman Tiffany asked about Dr. Sager’s statement about states requiring information for costs of marketing, research, and manufacturing, and how states could do that if, for example, the manufacturer was not in their state or not in the country. Dr. Sager said what he meant was that the states would, relying on the best available evidence, use the Federal Supply Schedule prices if the state was acting as wholesaler, and try to buy the drugs from the manufacturer at a negotiated price close to Federal Supply Schedule.
Next, Ms. Tiffany asked about his reference to a state-run organization, that it would exempt the state from the commerce clause. She wanted to know how that could be when Maine, who had tried to regulate prices, was involved in a legal case for that reason. Dr. Sager said the Maine approach was a regulatory approach. If the state instead acted as a wholesaler, the actual behavior would not be that different, but the state could then be viewed by the court as a market participant, not as a regulator. But, he added, there might still be a regulatory role, a mixture of being a market participant and a regulator. If one was a market participant, the commerce clause did not apparently apply.
Finally, Ms. Tiffany noted doctors frequently gave out drug samples to patients who had no prescription coverage and she asked if Dr. Sager wanted that practice discontinued. Dr. Sager said he was more interested in substituting something better, because many patients found it hard to even pay the doctor and they might not go to the doctor to get those samples. He added that he had in the past benefited from drug samples even though he had insurance, so he felt the samples often were not well targeted to patients in need. Moreover, he said, there was “no free lunch.” The samples were paid for by all of us when we filled prescriptions.
Assemblywoman Gibbons noted that in the past longer hospitalization was the rule but, now, being treated with prescription drugs allowed many people to stay out of the hospital. How could it be made more affordable, she asked, and would it be better to mandate insurance companies cover prescription drugs, making it part of the health care package. Dr. Sager felt people were angry at the drug makers because often new medications were available but they could not afford them. Sometimes drugs did save money; it was great when pills could be found that made surgery unnecessary. For example, a pill to dissolve coronary artery plaque would eliminate opening a person’s chest to do a coronary bypass graft and angioplasty through catheters.
Dr. Sager said that what he had tried to do in his approach was to lower prices to make medications more available to people in the hope of reducing the doctor and hospital costs that concerned everyone. But, if the patient could not afford the drug the benefits of reduced hospital stay or staying out altogether could not be won. The only way to make the medications more affordable was to cut the price. It was a win-win situation, he said, once the drug makers could be persuaded to trust the approach.
Chairman Koivisto asked if Federal Supply Schedule prices were easily obtainable. Dr. Sager said they were available on-line, and he offered to e-mail a link to staff where the prices were posted. He said there were different schedules for different federal agencies. Some were higher, some lower.
Mrs. Koivisto next asked how a state would act as a wholesaler without taking physical possession of the drugs. Dr. Sager said just as commodity traders bought and sold without ever taking possession, so too, could the state, by briefly interposing itself between the drug makers and the wholesalers or pharmacies.
Vice Chairman McClain remarked that a small state like Nevada could join with California and have more buying clout. Also, part of her A.B. 398 bill, the Medicaid discount to uninsured people, was that while samples and medicines were often given as part of treatment at the emergency or quick-care centers, it was the follow-up medication or prescription that poor people had trouble affording. Lastly, she referred to Dr. Sager’s statement, that drug makers were alleged to have worked to suppress marketing of drugs by generic manufacturers, Ms. McClain said it was no longer “alleged.” She had heard on the morning news that the FDA was charging Shearing-Plough with that offense.
Chairman Koivisto thanked Dr. Sager for his testimony and told him how much the committee appreciated the information he had provided. Dr. Sager offered to answer any further questions by e-mail or mail.
Next to make a presentation was Bill Moell, Administrator of the Purchasing Division, State of Nevada. Mr. Moell referred to his memorandum dated March 27, 2001, addressed to Assemblywoman Ellen Koivisto, copies of which had been provided to the committee (Exhibit D). In reference to Dr. Sager’s testimony, he said it was easy to hypothesize about programs but much harder to implement, and he did not envy the committee’s job in trying to put together the kind of legislation being discussed.
Mr. Moell provided background on the Purchasing Division’s (PD) history and experience in multi-state procurement of pharmaceuticals, which he had been doing for 12 years. The PD had been doing multi-state procurement of other commodities for five years. The success of PD’s multi-state procurement was that it was simple, they were dealing with drug manufacturers but only with one delivery system; state employees dispensing prescribed drugs. He said that a multi-state procurement was doable because it had to have a limited number of vendors, a limited commodity scope, and should be relatively similar in ways that the commodity was dispensed or purchased. The problem with prescription drugs for 2 million people was that it meant dealing with a large number of vendors, tens of thousands of drugs, a host of prescription drug delivery systems, and then for a multi-state situation dealing with states whose individual laws made it almost impossible to do multi-state purchasing. It was, he added, a very difficult process, and although a worthy undertaking, he did not think it was doable in today’s environment. Mr. Moell believed that leveraged buying whenever possible saved money, but said he could not emphasize strongly enough how difficult a global approach to prescription drug procurement would be.
Mr. Moell’s biggest concern was infrastructure. What was being saved on the front end in drug costs would be eaten up in the middle with how to get that to the customer, how to bring it in-house, and how to keep track. It was a dilemma how to deal with the details of getting from the manufacturer through a wholesaler, even through a PBM to the end customer. In the Minnesota Coalition of about 36 states there were small rebates, the volume was around $12 million a year in purchases; a very small piece of the prescription drug pie. It was done for local health districts wherever possible, as well as direct-service providers that were state agencies.
Assemblywoman Tiffany asked if the approach would be easier to accomplish if, for example, a governor’s western states conference decided that was a priority and removed some of the barriers of the individual laws in the states, or would it sill be complicated by other factors. Mr. Moell said it would be complicated regardless because of all the factors he described above. Even using the Federal Supply Schedule, as Dr. Sager testified, there were many different schedules for different agencies and groups. In order to do that kind of program required a considerable infrastructure. Moreover, California had not been too helpful in cooperative purchasing. Cooperative purchasing in general had been done through the smaller western states, with simple commodities like computers, loaders for Nevada Department of Transportation (NDOT), WIC (Women, Infants and Children Program) infant formula, but for something as involved as prescriptions, other than those dispensed by state employees, it would be a very difficult task.
Ms. Tiffany asked about the period when Ex-President Clinton had proposed purchase co-ops and wondered if purchasing people had been brought into it. Mr. Moell said the National Association of State Purchasing Officials had looked into participation in General Services Administration (GSA) pricing and the Federal Supply Schedule, however, they were prohibited from doing that by the federal government.
Assemblywoman Leslie commented that the whole system seemed so fundamentally unfair because the people who did not get rebates or discounts were the poorest people, and those were the ones who went without drugs because they had no insurance. However, when one saw the deep discounts allowed some groups it did not make sense. It was not enough to say it was too complicated; something had to be done. She then asked what Nevada could do in a “baby step” that would help to develop a way to provide those discounts to the low income residents in the state. Mr. Moell said there were some steps. Medicaid had a way of reaching some low-income people, the Governor’s Senior Rx Program was a start to reaching some low-income people, and some of the drugs prescribed that were dispensed through the State Health Division and Washoe District Health was another way of reaching that population. It had to be a multi-faceted approach; he did not think there was a simple answer that achieved the goal as far as adequately targeting that population.
Ms. Leslie also asked Mr. Moell why California was not part of the Minnesota Coalition, and he said until recently California had a law that prohibited them from joining with other states and they retained that attitude.
Assemblywoman Parnell asked if California’s Medical program included prescription drug coverage. Mr. Moell did not know. Ms. Parnell noted that California had had state-subsidized MediCal for many years, and if they also had prescription drug coverage they were far ahead of the game as far as offering that assistance to their citizens.
Next to speak was Laurie Squartsoff, Pharmacist for the Nevada Medicaid Program, Division of Health Care Financing and Policy (HCFP), who discussed the prescription drugs covered by the Nevada Medicaid program. The HCFP provided a prescription coverage benefit to Nevada Medicaid recipients. The program reimbursed pharmacists for prescription services. In fiscal year 1999 the state paid approximately $30.5 million to pharmacies for 932,273 prescriptions. In fiscal year 2000 the state paid approximately $46.1 million for 856,000 prescriptions. Medicaid’s reimbursement rate for prescriptions was the lower of usual and customary charges, average wholesale price minus 10 percent, plus a dispensing fee, or maximum allowable cost plus a dispensing fee. The current dispensing fee reimbursed by Medicaid was $4.76. The MAC (maximum allowable cost) pricing was established for multiple source products commonly referred to as generic medications by the Health Care Financing Administration (HCFA) and had been adopted by Nevada Medicaid.
Most pharmacies in Nevada were Medicaid providers, which assured access to services for the recipients. Ms. Squartsoff added that if a pharmacy was able to purchase medications at a Public Health Service price, the pharmacy passed on the savings to Nevada Medicaid by charging the cost of the medication plus a dispensing fee. Currently there were two pharmacy providers who were able to purchase medications at the discounted rate, and it was important to note that the division did not purchase drugs directly but reimbursed the pharmacies for the services they provided.
Ms. Squartsoff said Nevada’s Medicaid pharmacy benefit allowed for three prescriptions per month for each eligible person, plus prescriptions for insulin, family planning, prenatal vitamins, medications as a result of a Healthy Kids screening, tuberculosis medications, or anti-infective agents (antibiotics). If a patient needed additional prescriptions, the physician might fill out a payment authorization request that was sent to Medicaid for review, then returned to the physician and the pharmacy. The division did participate in the federal Drug Rebate Program. Federal legislation, which included formulary development, was passed in the Omnibus Budget Reconciliation Act of 1990 and modified in 1993. The state, in order to participate in the rebate program, agreed to provide coverage for new pharmaceuticals introduced into the marketplace. In fiscal year 1999, the state received approximately $7.5 million in rebates from the manufacturers. So far for fiscal year 2000, $3.9 million had been posted, and for fiscal year 2001, $8.9 million had been received. The rebates were based on an agreement between HCFA and the pharmaceutical manufacturers. It was based on a percentage discount ranging from 11.5 percent to 15 percent on the average manufacturer’s price for a product.
In order to monitor drug utilization, Nevada Medicaid had a retrospective utilization review program in place that reviewed medication use based on nationally-recognized criteria. It was an educational program that worked with physicians, pharmacists, nurse practitioners, physician assistants, and dentists. The program reviewed paid claims history for pharmacy services and might send an educational letter to a health care provider documenting concerns identified such as over-utilization of a medication, over-prescribing of a brand-name product if a therapeutic equivalent generic was available, or under-utilization of a medication by a patient which may result in less than therapeutic response to the prescribed regimen. Further, the program coordinated continuing education programs for the health care providers. Ms. Squartsoff provided a copy of the most recent quarterly newsletter (Exhibit F), and a copy of the asthma treatment guidelines (Exhibit G) that was sent to providers.
Ms. Squartsoff reported that Medicaid was currently working on implementing a point-of-sale (POS) system that would allow upfront prospective drug utilization review of prescriptions dispensed to its recipients. It was anticipated the program might provide up to 5 percent savings in reducing unnecessary expenditures on prescriptions through reasons such as reductions in over-utilization, early refills, and reductions in therapeutic duplication. Additional prescription benefit management tools might be available to the agency once the POS system was operational. The Senior Rx Program was a subsidized insurance premium that allowed Nevada seniors with an income of less than $21,500, who had been residents for a year, and at least 62 years of age, access to an insurance plan that covered prescription medications. Included in that plan was a POS system used to monitor appropriate drug utilization, and most pharmacies were participating in that program as well.
Chairman Koivisto thanked Ms. Squartsoff for her comprehensive presentation.
Assemblywoman Berman asked if Ms. Squartsoff was able to see any of the drug companies’ contracts with HMOs or PPOs, to be able to make a comparison between those contracts and her division’s contract relative to drug pricing. Ms. Squartsoff said for Nevada Medicaid recipients in managed care the capitated rate included the cost of the prescriptions along with physicians’ services and other ancillary services, therefore, those particular reimbursements to the pharmacies were not available to us directly but were included in the reimbursement from the HMO to the pharmacies.
Vice Chairman McClain asked if the rebates were negotiated for Medicaid at the federal level through HCFA. Ms. Squartsoff responded that the rebate per unit amount was established by agreement with HCFA and the pharmaceutical manufacturers. It was based on the percentage of average manufacturer’s price. Ms. McClain asked if it was correct that the average wholesale price was very difficult to determine, and that the drug manufacturer’s profit was already built into that. Ms. Squartsoff said the average wholesale price utilized for reimbursement for prescriptions under Medicaid came from a nationally-recognized data file compiled for her division by First Data Bank, San Bruno, California. Their methodology for determining the average wholesale price was based on surveys between multiple wholesalers and that information was used to determine the average wholesale price that was on that document. Ms. McClain said that was not necessarily the cost of producing the drug; it was much higher than that cost. Ms. Squartsoff said to the best of her knowledge that was proprietary and she did not have access to that information.
Chairman Koivisto welcomed Myrna Williams, a former assemblywoman.
Myrna Williams, Clark County Commissioner, noted that most prescriptions filled under insurance were generic but there were some drugs, particularly heart medications and some others that had no generic equivalent. Those medications were very expensive. Consequently, many seniors did not have the financial ability to get the medication they really needed. She asked if that issue had been raised. Mrs. Koivisto said it had been raised frequently but had not heard a solution to that problem.
Assemblywoman Parnell related she just changed health carriers and on getting a prescription filled at Raley’s asked the pharmacist for the generic brand or formulary. The pharmacist said that depended on whom she had health coverage with. She asked if it would be the same no matter which carrier she had. The pharmacist said no, it was done randomly. Therefore, apparently, one health care provider would consider a prescription at a certain price, but if one changed providers, as she had, the prescription could suddenly be formulary, which put it into the $45 to $50 range. She concluded there was no consistency in whether a prescription was brand or formulary, which she felt was shocking.
Next, Marla McDade Williams, Committee Policy Analyst, presented an overview of bulk purchasing as it related to prescription drugs. Her written testimony was provided (Exhibit H). She said members would recall from the presentation made by Richard Cauchi, National Conference of State Legislators (NCSL) that many states were looking for ways to offset the cost of prescription drugs. A variety of methods had been proposed to reduce those costs, including:
Other strategies included:
One analysis from representatives from William M. Mercer discussed prescription drug benefit trends and opportunities through PBMs. Ms. Williams referred to the handout, Pharmacy Benefit Management (Exhibit I), and the table on page 2, Comparing the Value of Aggregate Purchasing on Pharmacy Management Arrangements. That table showed, depending upon the particular network used, that an employer might expect retail savings on brand name drugs of 12 to 15 percent off the average wholesale price (AWP) using a collective purchasing group of more than 200,000 employees.
Ms. Williams reported that for orders by mail, an employer with less than 10,000 employees might expect savings in the range of 17 to 20 percent off the AWP. For employers with 10,000 to 50,000 employees, mail order savings might range from 19 to 21 percent. However, under the collective purchasing group, with more than 200,000 employees mail order savings might amount to 22 percent or more off the AWP.
For generic drugs through mail order, the collective purchasing group would save an employer 10 to 15 percent more than if the mid-size or large-size employer were to go out and secure his own pharmacy benefit management arrangement.
The final point illustrated in the table was that the rebate per prescription at the retail level under an open formulary for the collective purchasing group might be 50 cents more than an employer could secure on his own, and 25 cents more than a large size employer could secure on his own. For mail order, the rebates might be $1 more per prescription than a midsize employer could achieve, and 50 cents more than a large size employer could obtain.
Ms. Williams reported that currently it appeared only two states had actually adopted a law to move in the direction of aggregate purchasing: Maine and Massachusetts. Another handout, the NCSL report on Massachusetts Senior Pharmacy Assistance Program: 1999 Changes (Exhibit J) contained the relevant text of the Massachusetts law. On page 2 of that document, Section 271 set out the language that required certain state agencies to develop a program to aggregate the purchase of prescription drugs for participants in the state’s Senior Pharmacy Program, enrollees in the state’s group insurance program, enrollees in the state’s Medicaid program, any other individuals on whose behalf the state subsidized the purchase of prescription drug benefits, and uninsured or under-insured individuals. The law in Maine concerning aggregate or bulk purchasing permitted the state to enter into a tri-state arrangement with the states of New Hampshire and Vermont for PBM services. Essentially, the law read:
The state may negotiate and enter into purchase alliances and regional strategies with the governments of other jurisdictions and with other public and private entities for the purpose of reducing prescription drug prices for residents of the state.
Ms. Williams said she had a copy of the tri-state RFP if any member wanted to see it.
Assemblywoman Berman asked if anyone had done a price breakout on how large a purchase had to be, and how many states were needed to co-op with to decrease drug prices by 50 percent. Ms. Williams was not aware of any breakout like that. The Mercer study she referred to earlier in her testimony was the closest thing to that. In talking with other states, Ms. Williams said those states that were highly involved in putting together a program were doing it with a minimal staff; the largest was eight people, but most were doing it with two people. One state told her that every time their drug cost exceeded $100 for any manufacturer, they called that manufacturer and asked for a discount. It was up to the states and how aggressive the staff was in pursuing the discounts.
Assemblywoman Leslie asked if a change in the statute would be necessary to allow a collective purchasing group, or could state staff pursue that without a statute change. Ms. Williams responded that there were things the state could do on its own and there would be no barrier to prevent them. Ms. Leslie felt the state staff would probably say they needed more resources in order to pursue it. Ms. Leslie said she was beginning to feel as though the state simply was not doing as much or being as aggressive as it could in this area. She pointed out that Ms. Williams, in her brief research, had shown some very significant savings. Ms. Leslie felt, too, that it was a path worth pursuing perhaps in an interim study.
Vice Chairman McClain said she had done so much research just trying to find numbers that could match up, trying to find a way to give a discount, at least, and all she found was that it was so convoluted it was “scary.” She concluded half the people in the United States were being treated less than fairly on prescription drugs. However, the more she looked into it she felt there were things that could be done and would not require specific legislation to do it. For example, incorporating the waiver, bulk purchasing, and PBMs to help out so it would not cost the state too much money.
Ms. Berman noted the Army got a federal discounted rate. She asked about having a study program to see if, for a certain group of people, the state could contract with the Army to purchase. Mr. Moell responded that his experience had been the same as Ms. McClain’s. If it was the legislature’s desire, his division would study it. If there was a study commission formed he would be glad to participate.
Ms. Berman said she thought a bill had been passed last session that allowed state agencies buy in bulk. If so, could the state buy at the Army’s rate. Mr. Moell said “no.” The federal government would not allow states to buy at GSA rates or Federal Supply Schedule rates. Ms. Berman wanted to get around that, at least for a study.
Chairman Koivisto noted she had asked Dr. Sager for the various Web site addresses to find out about the Federal Supply Schedule, and there was more than one schedule; probably the VA, the military, and so on. She commented that the deeper one dug the worse the situation became, and until the situation was understood a solution could not be found. She thought it might require federal action.
Ms. Williams reported that while she was putting together the information for the presentation, she had looked at NCSL’s Web site again and found a section called “Seniors eligible for discount prices based on the Federal Supply Schedule or lowest market rate.” Those were proposed laws for current sessions: Arizona, Arkansas, Connecticut, Illinois, Massachusetts, and New York all had bills pending. When she tried to look at those bills, the Arizona bill said that it would set maximum prices for consumer sales based on Federal Supply Schedule or Canadian prices. For the other states, she had not been able to pull out the words “Federal Supply Schedule” but believed it was conceptually how they worded it. It appeared those states were setting price controls more than purchasing at the Federal Supply Schedule.
Vice Chairman McClain commented there was no guarantee the Federal Supply Schedule offered the best prices. She felt Nevada might be better off trying to make a deal with sister states and negotiate its own deal with the manufacturers.
Ms. Berman commented that what was negotiated was a package of five drugs: “a famous drug, a hot new drug which was the loss leader, and then four older drugs.”
Ms. Parnell said that the television program 60 Minutes the previous evening had a segment on the conflict with some of the pharmaceutical R&D taking place at university hospitals where the university actually stood to gain financially depending on the research outcome. It seemed to her there was an ethical conflict in that. Those interviewed on that program had concluded, just as others had, that the federal government had to take note of people being used as Guinea pigs in hospital settings where one would expect the hospital to be the overseer, but, by virtue of the fact they had something to gain financially, there was an ethical dilemma. That was another example of the amazingly complex health care situation in the nation. Therefore, she said, if the committee asked for a resolution or legislation, that was an area that needed to be addressed.
With no further business to come before the committee, Chairman Koivisto adjourned the meeting at 3:20 p.m.
RESPECTFULLY SUBMITTED:
Darlene Rubin
Committee Secretary
APPROVED BY:
Assemblywoman Ellen Koivisto, Chairman
DATE: