Policy Background

According to the National Conference of State Legislatures, as of late 2005, more than three-quarters of the states had enacted, authorized or created some type of PDL as part of a cost containment strategy. At least 40 states have some PDL policies that apply to Medicaid and at least 13 states also have sought to use PDLs for other programs, such as programs to provide reduced-price drugs to the elderly or disabled. Another recent study put the number of states with “enforceable” Medicaid PDLs at 34. PDLs combined with a prior authorization (PA) program can effectively cut program costs without negatively affecting patient health, as long as needed medications can still be prescribed in a timely manner.

PDL and prior authorization best practices
A PDL should be based on clinical judgments about which drugs that are most effective, and have the least adverse effects, and not just list the cheapest drugs. For example, more than a dozen states are involved in the Oregon Drug Effectiveness Review Project which provides access to clinical data. New York’s PDL law required the state to join the Drug Effectiveness Review Project to insure that PDL decisions would be informed by the best evidence. Other best practices include a minimum of red tape and a quick turnaround on prior authorization decisions to avoid effectively denying access to a needed medication, special rules for the most vulnerable, and a short-term supply of medications while PA requests are pending or awaiting appeal of denial. Effective outreach to medical providers, pharmacists and patients about how the process works is critical to the success of the program. Finally, while it important to have a transparent review process to determine the criteria used to develop the PDL, it is also important to avoid pharmaceutical industry influence and conflicts of interest in that process.

Cost savings
Maine’s PDL, which has been in place for many years and is one of the most comprehensive, has kept state Medicaid drug cost increases below 3% annually, at a time when the Federal government estimates average increases around 13%. A recent study assessing the savings that would be achieved if an “enforceable” PDL were implemented in Oregon pegged the savings in state spending at $4.5 to $5 million annually. The Georgia Medicaid program reduced its prescription-drug costs by $20.6 million over a one-year period by requiring enrollees to get permission before filling prescriptions for anti-ulcer medications called proton pump inhibitors (PPIs).

Health benefits
Some state PDL effectiveness and safety review processes flagged safety problems with drugs, such as the Cox-2 inhibitors Vioxx, Bextra and Celebrex, well before the FDA raised concerns and took regulatory action.

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