Policy Background

A few states are involved in multi-state purchasing pools. A 2005 survey found that 6 of 37 states surveyed reported pooling drug purchasing across several states, and 3 states pooled purchasing across several state programs. Two examples are the Sovereign States Drug Consortium which currently includes Iowa, Maine and Vermont, and the Northwest Prescription Drug Consortium, involving Oregon and Washington. The Sovereign States initiative is a first in the nation, state-administered Medicaid supplemental drug rebate pool, and received CMS approval in July 2006. Each state in the pool has its own preferred drug lists, and any state can participate regardless of whether it administers its Medicaid benefit directly or through contracted services. Pool activities include data compilation, rebate bid solicitation, bid review and clinical criteria development. The Northwest initiative issued its first RFP in August 2006, and is expected to begin joint purchasing within the year. It will bring together an Oregon prescription-drug purchasing pool for low-income seniors with a similar plan in Washington State.

Cost savings. In Maine it is anticipated that the Sovereign States pool will save the Medicaid program nearly $5 million in federal and state monies for the state fiscal year that began July 1, 2006. A recent report from the Heinz Family Philanthropies found that Oregon could save up to $17 million a year by combining purchasing for all of its state programs through a purchasing consortium. As another measure of the cost savings potential, the fiscal note on SB 1, passed this year by the Colorado Legislature but vetoed by the Governor, found savings of 2% or nearly $3 million annually in Colorado’s Medicaid program by joining a multi-state purchasing pool combined with a PDL.

The most comprehensive state prescription drug discount program is Maine Rx Plus which since January 2004 has provided average discounts of 25-50% on generic and brand name drugs to Maine citizens with incomes up to 350% of the federal poverty level. Maine Rx Plus uses a “carrot and stick” approach to encourage manufacturers participating in Medicaid to enter into additional rebate agreements to benefit state residents not eligible for Medicaid. Companies participating in the rebate program benefit from increased market share, and their participation in the program is publicized. If a company refuses to voluntarily provide rebates, the law gives the state additional bargaining power: authority to place one or more of that company’s drugs on a “prior authorization” list in the Medicaid program. The Maine Rx Plus program was unsuccessfully challenged in court by the drug manufacturers’ trade group PhRMA. The case went all the way to the U.S. Supreme Court, which in 2003 allowed the program to go forward and rejected PhRMA’s constitutional arguments. The federal courts have also rejected challenges to the program under Medicaid law. In 2006 California enacted a similar program, the California Discount Prescription Drug Program, which requires the state to attempt to negotiate specified discounts with drug manufacturers. If these discounts are not achieved within three years, the state may use prior authorization requirements to encourage greater drug company participation.

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