state legislators guide to prescription drug policy

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T h e S TaT e L e g i S L aT o r S g u i d e To

Prescription Drug Policy


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The State Legislators Guide to Prescription Drug Policy

2010 American Legislative Exchange Council

All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of thispublication may be reproduced or distributed in any form or by any means, or stored in a database or

retrieval system without the prior permission of the publisher.

Published by

American Legislative Exchange Council

1101 Vermont Ave., NW, 11th Floor

Washington, D.C. 20005

Phone: (202) 466-3800

Fax: (202) 466-3801

www.alec.org

Designed by Drop Cap Design

ISBN: 978-0-9822315-3-1

The American Legislative Exchange Council (ALEC) is the nations largest nonpartisan, voluntary

membership association of state legislators, with nearly 1,800 members across the nation. ALECs mission

is to promote free markets, limited government, individual liberty, and federalism through its model

legislation in the states.

Guided by the principle that the best health care is patient-driven, not government-driven, ALECs Health

and Human Services Task Force has been a national leader in promoting free-market, pro-patient health

care reform at the state level. Since 2005, 22 states have enacted model legislation developed by ALECs

Health and Human Services Task Force.


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About this Guide

About the Author

ALEC Model Legislation on Prescription Drug Policy

Price Controls

Purchasing Coalitions

Sales and Marketing Restrictions

Reimportation

Medicaid Formularies

Table of ConTenTs

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iii

iv

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7

11

17

21

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ii The State Legislators Guide to Prescription Drug Policy

With rising health care costs and declining tax revenues, state legislators are increasing-ly looking or ways to cut spending and reorm our health care sector. And despite the

act that prescription drug spending has reached its lowest rate o growth in 45 years,some lawmakers view health reorm through the lens o price controls on liesavingprescription drugs; restrictions on pharmaceutical ads that help inorm patients; andrestrictive drug ormularies that harm our most vulnerable citizens.

As an ALEC legislator, you know health reorm legislation should mirror the same Hip-pocratic Oath that guides the practice o medicineFirst, do no harm. And you alsoknow the best health care is patient- and market-driven, not government-driven.

Thats what makes ALECs State Legislators Guide to Prescription Drug Policy an essentialtool in navigating the complex world o prescription drug policy with an eye towardour common principles.

The Guide will provide plain English denitions o common prescription drug policyissues youll hear in your statehouse. It will identiy the harmul, unintended conse-quences o these reorms to help you in foor debate. And most importantly, it willhelp you identiy eective health reorm solutions that curb rising health costs withoutrestricting access to prescription drugs.

I youd like to learn more about health care reorm and prescription drug issues, ori youd like access to any o ALECs model bills, please contact ALECs Director o theHealth and Human Services Task Force, Christie Herrera, at (202) 742-8505 or [email protected].

aboUT THIs GUIDe


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iii

Christie Herrera is director o the Health and Human Services Task Force at the Ameri-can Legislative Exchange Council (ALEC), the nations largest nonpartisan voluntary

membership association o state legislators.

Using her public policy and national campaign experience, Christie drives model leg-islation, conducts research, builds coalition support, and heightens media awarenessin support o pro-patient health care policy. Since Christie joined ALEC in 2005, 22states have enacted model legislation drated by ALECs Health and Human ServicesTask Force.

Christie has testied beore the Arizona, Idaho, Kansas, Kentucky, Michigan, Okla-

homa, Texas, Virginia, and Wisconsin legislatures, and she has been a keynote speakerto legislative caucuses, nonprot organizations, trade associations, and business groupsacross the country. A contributing editor to Health Care News, her work has appearedin the New York Times and FoxNews.com, and has been eatured on the Fox NewsChannel, MSNBC, and the Atlantic Politics Channel, among other local and nationalmedia outlets.

Christie holds a B.S. in communication studies and an M.S. in political science romFlorida State University.

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iv The State Legislators Guide to Prescription Drug Policy

The Cancer Drug Donation Program Act establishes a voluntary program through whichcancer patients can donate their unused prescription drugs to indigent patients.

The Clinical Trial and Results Registries Actairms that access to clinical trial inormationadds value to science and medicine, and that a state wishing to provide clinical trialinormation to citizens should link to the U.S. Food and Drug Administration (FDA)-established database, ensuring that clinical trial inormation is timely and consistent.

The Drug Liability Actdeclares that the lack o clear limitations on prescription drugliability creates disincentives or the research and development o new drugs, and pro-vides those drug liability limitations in statutory orm.

The Drug Reimportation Liability Act extends limited liability protections to physiciansand pharmaceutical companies rom damages caused by illing a prescription outsideo the United States.

The Good Samaritan Drug and Medical Supply Donation Act encourages the donation omedical supplies and drugs by the private sector to nonproit organizations or distri-bution to needy individuals without the threat o liability.

The Prior Authorization Resolution memorializes the state to eliminate prior authoriza-tion systems and preserve access to prescription drugs or Americas indigent popula-tion.

The Resolution Concerning the Prohibition of Imported Prescription Drugs opposes the ille-gal importation o non-FDA-approved prescription drugs.

aleC MoDel leGIslaTIon on PResCRIPTIon DRUG PolICY


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ALEC Model Legislation v

The Resolution in Support of the PhRMA Code and Corporate Self-Regulation airms thepharmaceutical industrys commitment to ethical patient and physician interactions

without government intererence.

The Resolution on Federalism in Recycling Narcotics memorializes the ederal governmentto work with states in establishing recycling and redistribution programs or narcoticsin health care acilities and other established state drug repositories.

The Resolution on Negative Impacts of Pharmaceutical Price Controls airms that govern-ment-mandated price controls on pharmaceuticals negatively impact the quality ohealth care by increasing prices, curtailing competition, and stiling drug research and

development.

The Resolution on Prescribing Data commends the American Medical Association orestablishing the Physician Data Restriction Program and urges the state medical societyto inorm all licensed physicians about the program.

The Resolution on State Use Tax on Prescription Drug Samples recognizes that prescriptiondrug samples allow patients new orms o therapy and provide much-needed subsidiesor the uninsured, and memorializes the state to pass legislation providing a tax exemp-

tion on prescription drug samples.

To access ALECs model legislation, visit www.alec.org.


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PRICeConTRols

Price

Controls


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2 The State Legislators Guide to Prescription Drug Policy

Faced with some consumers who areunable to aord prescription drugs, somestate lawmakers are considering pricecontrols to keep drug prices low.

Forced drug rebates are an implicitorm o price controls. A 1990 ederal lawrequires drug manuacturers to rebate asmuch as 35 percent o drug prices to theederal government so states can receive

ederal Medicaid unds or coverage othose drugs.

In 2000, Maine signed into law theMaine Rx program, which threateneddrug manuacturers with prior authoriza-tion and preerred drug lists i they didnot extend Medicaid rebates to a non-Medicaid population. In other words,i a drug manuacturer did not agree to

Maines price controls, Maines Medicaidprogram would limit beneiciaries accessto those drugs.

A lengthy legal battle ensued overwhether Maine could extend Medicaidrebates to citizens who earn too muchto qualiy or the program, and whetherMedicaid beneiciaries could be heldhostage in avor o lower drug prices.Although Maine eventually backed downrom implementing Maine Rx, some cash-strapped states are now requiring eder-

ally approved supplemental rebates toeither orce manuacturers to give thestate extra cash or block those manuac-turers drugs rom the Medicaid ormu-lary. Since 2004, six states have enactedMaine Rx or similar programs.

More explicit price controls alsoabound. In 2005, the District o Colum-bia passed the Prescription Drugs Exces-

sive Pricing Act, which made it illegal tosell patented medications or an exces-sive pricedeined as a wholesale price

THE ISSUE

Price controls reer to when the government sets a maximum or minimum price or a par-

ticular product.

How price controls aect the states

$

Number o states that have

enacted Maine Rx or similar

programs.6


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Price Controls 3

30 percent higher than that same drugsprice in Australia, Canada, Germany, or

the United Kingdom. I a drug was oundto be excessively priced, D.C. residentscould sue manuacturers or being over-charged, or the D.C. government couldsteal that drugs patent and give it to an-other manuacturer to sell or less. (Thelatter is called compulsory licensing andis oten used by countries with single-payer health systems to similarly extort

price controls on drug manuacturers.)The D.C. law was struck down by a ed-

eral court on grounds that it was uncon-stitutional and that it violated interstatecommerce and patent laws. Despite thisruling, since 2004, 10 statesColorado,Connecticut, Georgia, Hawaii, Maryland,New Jersey, New York, Oklahoma, Penn-sylvania, and Vermonthave introducedsimilar price control measures.

Price controls interfere with the

competitive marketplace and leadto rationing.

Buyers and sellers, not the government,know the best price or any product.When bureaucrats articially depressprices, buyers will hoard those productsand sellers will leave the marketplacebecause o an inability to recoup pro-its. This results in shortages that not only

lead to ewer product choices, but otenresult in the government rationing prod-ucts and resources. Proponents o pricecontrols rightly point out that rationingbased on price already existsindeed,rationing is a act o lie since most con-sumers cant purchase everything theydesire. But price controls ensure that thegovernment, rather than individuals, will

do the rationing.

Price controls hinder new drug

development.

The most damaging eect o price con-trols on pharmaceuticals is that they willdiscourage manuacturers rom develop-

ing additional liesaving drugs because

they will not be able to recoup the costso the research and development (R&D)process. Price controls encourage manu-acturers to shit resources rom R&D tothe marketing o existing drugs becauseinvesting money in experimental drugswould not be cost-eective. The result isnot only harmul or patients, but inev-itably leads to devastating cuts in R&D-

related jobs.

Price controls lead to increased drug prices.

Simple economics reveal price con-trols almost always increase prices inthe long run. Thats because every com-pany engages in whats called dierentialpricingcharging dierent prices orthe same product based on how much is

purchased, when it is purchased, etc. (Forexample, dierential pricing is responsi-ble or the deep discounts customersreceive at Costco or Sams Club.) Dier-ential pricing means a manuacturer cansell a product at a lower rate and still turna prot. In the case o price controls, i

Problems with price controls


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a manuacturer is orced to sell its prod-uct at the bulk rate to everyone, then its

rational or the company to raise its low-est price or everyone. While the intentiono price controls is to reduce the price oprescription drugs, it will inevitably resultin higher prices or all consumers.

Price controls raise overall health care

costs.

Prots allow the private sector to invest in

the medicines o tomorrow. Price controlslimit prots, which means some drugswill never be invented, or that some newdrugs will never enter the marketplace.The shortage o cost-eective, innovativedrugs will mean some patients must con-tinue to rely on more taxing, and moreexpensive, orms o treatment. Similarly,price controls in public programs mean

government purchasers o prescriptiondrugs will pay less than market valueresulting in a cost shit to those with pri-vate coverage to make up those unds. In

other words, Medicaid drug price con-trols will likely result in higher prices and

increased premiums or those with pri-vate insurance.

Price controls may crowd out the

private sector and result in a single-buyer

system for prescription drugs.

In the case o Maine Rx, governmentwould have eventually become the onlypurchaser o prescription drugs in the

state. This is called crowd out, whichmeans that when the government beginsto provide a service, it crowds out pri-vate-sector alternatives already in themarketplace. In Maine, government o-cials would have threatened compulsorylicensing to orce below-market pricesor prescription drugs. This would havegiven those with private drug purchasing

arrangements incentives to instead buydrugs through the state. Eventually, pri-vate drug procurement would be squeezedout in avor o the Maine Rx program.

Simple economics reveal that price controlslead to higher drug prices. I a company isrequired to sell its product at the lowest rate toeveryone, then its rational or the company to

raise its lowest price or everyone.


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Price Controls 5

State legislators cant regulate or extortlow drug prices into existence. Instead,they should work to protect a ree andcompetitive marketplace that results inlower drug prices and increased innova-

tion.The private sector is already meeting

this challenge. The Partnership or Pre-scription Assistance (PPA) is an industry-unded eort that serves as a single pointo contact or more than 475 patientassistance programs, including nearly200 oered by pharmaceutical compa-nies. Since its inception in 2005, PPA

has helped nearly six million Americansaccess ree or discounted medications.More inormation about PPA can be oundat www.pparx.org.

Together Rx Access is a privatelyunded, ree prescription savings programor those without drug coverage. Underthe program, otherwise-eligible amiliesearning up to $105,000 per year can save

25 to 40 percent on brand-name medi-cines, and can save thousands on genericproducts. Nationwide, Together Rx Accessboasts more than 1.8 million cardholders

who have saved over $81 million in pre-scription drug costs. State legislators mayget more inormation or their constitu-ents at www.togetherrxaccess.com.

Policymakers should work toward a

deregulated, competitive marketplace orprescription drugs and insurance cover-age. State legislators can also promoteprice transparency by helping consum-ers shop or the best drug prices in theirstate. For example, Florida has estab-lished MyFloridaRx.com, a website thatprovides retail prices or the 100 mostcommonly used prescription drugs state-

wide. More inormation can be ound atwww.myforidarx.com.

To counter price control proposalsin the statehouse, legislators may alsointroduce ALECs Resolution on NegativeImpacts of Pharmaceutical Price Controls,which arms that government-mandatedprice controls on pharmaceuticals nega-tively impact the quality o health care by

increasing prices, curtailing competition,and stifing drug research and develop-ment.

Eective solutions or state legislators

Hugh Rocko, Price Controls, Concise Encyclopedia o Economics,The Liberty Fund: www.econlib.org.

For urther reading


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PURCHasInGCoalITIons

Purchasing

Coalitions


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Twenty-seven states and the District oColumbia participate in one o ive multi-state Medicaid drug purchasing coali-

tions. Nearly all o these states have indi-vidual Medicaid ormularies in whichcertain medications are covered by thestate Medicaid program, and those not onthe list require permission rom the state(called prior authorization) in order tobe covered. And many states have coer-cive supplemental rebate laws that orcemanuacturers to hand over extra cash, or

risk exclusion rom that states Medicaidormulary.

THE ISSUE

Some states are pooling their collective purchasing power to get bulk prescription drug dis-

counts or either Medicaid beneciaries or state employees, or a combination o the two pop-ulations. Lower-cost drugs are negotiated and those savings are passed along to taxpayers.

How purchasing coalitions aect the states

It makes sense or states to take advantageo economies o scale in an attempt tonegotiate discounts. However, state legislatorsmust consider the tradeofs beore joining apurchasing coalition.

Number o states (and the

District o Columbia) that

participate in multi-state drug

purchasing coalitions.

27


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Purchasing Coalitions 9

Problems with purchasing coalitions

It makes sense or states to take advantageo economies o scale in an attempt to ne-gotiate discounts. However, state legisla-

tors must consider the tradeos beorejoining a purchasing coalition.

Purchasing coalitions may give

participating states incentives to limit

access to certain prescription drugs.

A 2005 Texas Health and Human ServicesCommission (HHSC) study explainedthat under the TOP$ purchasing pool,

discounts are based on the number ostates that include a particular drug intheir ormularies. For example, the studysays, a discount might be $0.20 per uniti two TOP$ states include an identicaldrug on their ormularies, but a discounton the same drug might increase to $0.30per unit i our TOP$ states include thatdrug on their preerred drug lists. While

this does allow states to retain adminis-trative control over their ormularies, italso gives them incentives to avor cer-tain drugs over others in order to realizeadditional savings. Clinical eectiveness,rather than cost, should be the basis orMedicaid drug coverage.

Purchasing coalitions may result in

paltry savings.

The Texas HHSC study also determined

the cost beneits and easibility o eitherestablishing a multi-state purchasing poolor joining TOP$, an existing purchasingpool. The study concluded Texas wouldmiss out on signiicant savings because20 percent o its Medicaid-covered drugswere not included in TOP$. As a result,Texas has not joined TOP$ or any otherpurchasing coalition. Similarly, any pur-

chasing coalition that combines the needso Medicaid and non-Medicaid popula-tions may not produce additional savings,because ederally mandated rebates al-ready dictate the Medicaid best price ordrugsor the act that the Medicaid bestprice doesnt apply to individuals not onthe Medicaid program. And despite theact that a purchasing coalition may ini-

tially save money by centralizing drugpreerences, an individual state must stillpay or additional doctor visits or hospi-talizations that may result rom changesin medication.

Legislators should work to ensure that drugpurchasing coalitions aggregate purchasingpreerences rather than dictate them.


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State legislators should ensure any pur-chasing coalitions are ree rom coercion,and do not orce manuacturers to extendederal Medicaid drug price controls ona non-Medicaid population. Legislators

should also work to ensure that drug pur-

chasing coalitions aggregate individualstates purchasing preerences rather thandictate them. Such coalitions should notbecome de acto central committees thatmake decisions on which drugs are avail-

able to Medicaid beneiciaries.

The American Legislative Exchange Council and the Institute or Policy Innovation,Purchasing Coalitions, The State Legislators Desktop Reference to Prescription Drug Pol-icy, January 2005.

For urther reading


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sales&MaRKeTInGResTRICTIons

Sales& Marketing

Restrictions


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At issue or state legislators is whetherpharmaceutical sales and marketing tac-tics lead to increased state spending onprescription drugs or Medicaid recipientsand state employees. Nine states and the

District o Columbia have enacted lawsor resolutions restricting pharmaceuticalmarketing.

Legislative restrictions on pharmaceu-tical sales and marketing can take manyorms, including restrictions on direct-to-consumer advertising or prescriptiondrugs; licensure o sales representatives;

limits on, or reporting o, gits to doctorsover a certain value; bans on prescriber-identiiable data used or commercial

purposes; or the mandatoryreporting o trade secrets suchas marketing or direct-to-con-sumer advertising disclosures.

THE ISSUE

In 1997 the U.S. Food and Drug Administration relaxed its rules regarding pharmaceutical

broadcast advertising. The new rules spurred an increase in new television and radio ads ea-turing prescription drugs. Also controversial are promotional eorts directed at physicians

who prescribe those drugs.

According to IMS Health, in 2007the last year or which data are availabledrugmakers

spent $4.8 billion on direct-to-consumer advertising and $6.3 billion on direct-to-physician

marketing, which includes the employment o sales reps and their related activities.

Critics claim pharmaceutical marketing drives up drug prices; spurs unnecessary drug usage;

and causes a conict o interest between manuacturers who make prescription drugs, doc-tors who prescribe them, and patients who use them.

Number o states (and the

District o Columbia) that have

enacted laws or resolutions

restricting pharmaceutical

marketing.

How sales and marketing restrictionsaect the states

9


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Sales and Marketing Restrictions 13

Sales and marketing restrictions are anti-

competitive.

Sales and marketing are essential parts oour ree-market economy, and restrictions

on them amount to an assault on reespeech. Sales and marketing spur compe-tition among drug manuacturers, whichresults in more choices, better consumerinormation, and lower prices. In con-trast, mandatory sales and marketing dis-closures could give competitors proprie-tary inormation about each otherthusdecreasing competition and innovation,

and increasing overall health costs.

Sales and marketing restrictions lead to

bigger government.

State-level sales and marketing restric-tions would introduce more governmentintererence into an already-overregulatedindustry. Drugmakers business practicesare already subject to myriad ederal laws

enorced by the U.S. Department o Jus-tice and guided by the U.S. Departmento Health and Human Services. Whatsmore, any state-level sales and market-ing restrictions would require additionalbureaucracies and state taxpayer dollarsto enorce those provisions.

Sales and marketing restrictions keep

drug prices high.Critics claim advertising keeps drug priceshigh, but the National Institute or HealthCare Management estimates hal o whatmanuacturers call promotion is actu-ally spent on ree samples, which bene-t patients. And there is no correlation

between marketing expenses and drugpricing. Advertising spurs sales, increas-ing the incentive or drugmakers to bringnew products to market, thus spurring

competition and lowering prices.

Sales and marketing restrictions

contribute to worsening health outcomes.

Direct-to-consumer advertising raisespatient awareness and spurs the diagnosisand treatment o previously undisclosedconditions. Researcher Jacob Arwedsoncites surveys that indicate between 33

and 40 percent o patients say ads promptthem to discuss health issues with a doc-tor. Early disease detection, coupled withprescription drug treatment and liestylechanges, may lead to better health out-comes and can help patients avoid cost-lier interventions (such as hospital stays)later on.

Sales and marketing restrictions harmindustry-physician collaboration, an

essential part of medical research and

development.

Promotional items rom drug manuac-turers, such as notepads or a ree lunch,are unlikely to have a signicant impact

Problems with sales and marketing restrictions

Sales and marketingare essential partso our ree-marketeconomy.


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State legislators should airm that any

business has the right to communicatewith its potential customersand recog-nize that pharmaceutical sales and market-ing yield societal beneits such as improvedhealth, more choices, and lower prices.

The private sector, not governmentbureaucrats, should decide how, when,and i to market products to potential cus-tomers. To that end, state legislators may

introduce ALECs Resolution in Support ofthe PhRMA Code and Corporate Self-Regu-lation, which airms the pharmaceuticalindustrys commitment to ethical patientand physician interactions without gov-ernment intererence.

And instead o legislating blanketbans on prescribing data, state legislators

should recognize the societal beneits o

sharing non-patient-identiiable prescrib-ing data while airming the rights o in-dividual doctors to restrict access to theirpersonal prescribing data. The AmericanMedical Association (AMA) has estab-lished a voluntary solution, the PhysicianData Restriction Program, which allowsdoctors to withhold their prescribing datarom pharmaceutical sales reps while still

making that inormation available ormedical research purposes.To that end, state legislators may also

introduce ALECs Resolution on PrescribingData, which commends the AMA or es-tablishing its program and urges the statemedical society to inorm all licensedphysicians about the program.

on prescribing behavior. Critics also con-demn the act that drugmakers und aca-

demic research programs and pay physi-cians to participate in clinical trials. Butattempts to squash industry-physiciancollaboration through burdensome dis-closure requirements will produce a chill-ing eect on doctor participation and, byextension, medical progress.

Sales and marketing restrictions may harm

the state economy.

Currently, more than 42,000 clinical tri-als are underway in the United States.These clinical trials not only oer accessto innovative drug therapiesthey alsocreate jobs. States that threaten exposureo proprietary inormation related to clin-ical trials would encourage companies tomove those jobs to a less-regulated state.


The private sector, not governmentbureaucrats, should decide how, when, and i tomarket products to potential customers.


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Sales and Marketing Restrictions 15

Doug Bandow, Answering the Critics: Five Reasons Why Pharmaceutical MarketingHelps, Not Hurts, Patients,ALEC State Factor, July 2009.

For urther reading


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ReIMPoRTaTIon

Reimportation


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In 2004, Illinois launched its I-Sav-eRx program, through which residentscan purchase 120 common name-brand

medications rom state-approved phar-macies and wholesalers in Canada, theUnited Kingdom, and other countries.

Since then, our other statesKansas,Missouri, Vermont, and Wisconsin havealso established the I-SaveRx model. Butlast January, the programs Canadian sup-plier dropped out o the program, citingpoor participation. In the ive participat-

ing I-SaveRx states, only about 6,000 indi-viduals actually enrolled in the program.

Despite the administrative problems

with I-SaveRxand even with the ederalreimportation ban in placesome cash-strapped states still view reimportation asa way to cut drug spending despite the actthat existing programs are nonoperational.

THE ISSUE

Some consumers are clamoring to purchase lower-priced prescription drugs in countries

that have government-imposed price controls, like Canada. Reimportation reers to drugsthat are made by American manuacturers, sold to other countries, and then shipped back to

American consumers.

Passage o the 1987 Prescription Drug Marketing Act banned reimportation to ensure the

saety and efcacy o the prescription drug supply o the United States. Despite the ederal

ban, Internet and mail-order sales o reimported prescription drugs are on the rise. Thats be-

cause its virtually impossible or the U.S. Food and Drug Administration to monitor all o the

prescription drugs entering the country. Recent ederal laws have authorized imported drugs

rom Canada, so long as the U.S. Secretary o Health and Human Services (HHS) can vouch ortheir saety. Thus ar, however, HHS has not been able to make that claim.

In March 2009, U.S. Senator Byron Dorgan introduced S. 525, the Pharmaceutical Market Access

and Drug Safety Act, which would allow American consumers, pharmacies, and wholesalers to

reimport FDA-approved drugs rom Australia, Canada, Europe, Japan, and New Zealand.

How reimportation aects the states

Number o states (and the District

o Columbia) that have enacted

laws or resolutions that allow or

encourage drug reimportation.

15


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Reimportation 19

O course, the saety o reimporteddrugsand the liability o states that as-sist in reimporting themis o seriousconcern. But the ree-market implications

o imposing oreign price controls on theAmerican market are much more severe.

Reimportation allows Canadian-style

health care regulation to dominate

the American drug market.Proponents claim reimporting pharma-ceuticals rom Canada means promotingree trade. There are a ew libertarian-

minded advocates who view reimporta-tion as a way to right the market, butthe majority o its supporters are anti-ree-traders who want drug companies tobecome charitable institutions rather thanproit-making businesses. They know theCanadian drug market is the antithesiso ree trade, because Canadian drugprices are set by government bureaucrats

rather than by the marketplace. And theysee a similar opportunity or governmentintervention here at home.

Reimportation may lead to higher drug

prices.

Price controls do keep oreign drug priceslow. But widespread importation wouldmean large American demand or pre-

scription drugs will meet Canadas limitedsupplyand orce prices to rise.

Reimportation forces American

pharmaceutical companies to either

participate in foreign price fixing or risk

being exploited for their intellectual

property.Legalizing drug reimportation would putAmerican drug manuacturers in a toughposition. In order to enter the market inanother country, they would be orced ei-ther to sell their products at the lowestregulated price there or ace compulsorylicensing that would allow the oreigncountry to steal the patent and manuac-

ture the drug itsel.

Reimportation hinders research and

development of lifesaving new drugs.

When price controlsoreign or domes-ticare imposed on any new industry,they reduce returns on investments, aswell as hinder manuacturers ability todevelop new drugs, und innovative re-

search, or increase production.

Reimportation will negatively impact jobs

and the economy.

David Tuerck o the Beacon Hill Instituteestimates that reduced R&D spending at-tributable to reimportation would be dev-astating to state economies. In Massachu-setts, the home o numerous biotech and

pharmaceutical companies, reimporta-tion would destroy nearly 4,000 jobs andwould result in the loss o $247 million ineconomic activity.

Problems with reimportation


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Mary Katherine Stout, Drug Importation: A Solution to the Cost o PrescriptionDrugs?, Texas Public Policy Foundation Policy Perspective, December 2005.

For urther reading

State legislators looking or lower-priced prescription drugs should look to

competition and innovation in the pri-vate sectornot ree trade between theU.S. and price-ixing countriesto pro-duce high-quality, aordable prescriptiondrugs.

Competition has already spurred intoexistence private-sector patient assis-tance programs, like the Partnership orPrescription Assistance (www.pparx.org)

and Together Rx Access (www.together-rxaccess.org).

State legislators can also ensure con-sumers have the ability to shop or prescrip-tion drugs and other health care services

based on price. Florida has already estab-lished a website, www.myloridarx.com,

which provides retail prices or the 100most commonly used prescription drugsin the state.

To counter reimportation proposals inthe statehouse, state legislators may alsointroduce ALECs Drug Reimportation Li-ability Act, which extends limited liabilityprotections to physicians and pharma-ceutical companies rom damages caused

by illing a prescription outside o theU.S., or ALECs Resolution Concerning theProhibition of Imported Prescription Drugs,which opposes the illegal importation onon-FDA-approved prescription drugs.


When oreign price controls are imposed viareimportation, they hinder manuacturers abilityto develop new drugs, und innovative research,or increase production.


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MeDICaID

foRMUlaRIes

Medicaid

Formularies


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THE ISSUE

A Medicaid ormulary (otherwise known as a preerred drug list) is a limited list o prescrip-

tion drugs that are paid or by Medicaid. A beneciary can petition the state Medicaid pro-gram to cover a non-ormulary drug as long as his doctor rst asks permission rom the state

to prescribe it (called prior authorization).

Formularies exist to create a list o efcient drugs that combine clinical eectiveness and

cost savings, and to curb the use o marginally eective drugs. States with Medicaid ormu-

laries have a Pharmacy and Therapeutics (P&T) Committeemade up o physicians and phar-

maciststo decide which drugs make the list. The P&T Committee typically evaluates drugs

based on clinical trials data, evidence-based treatment guidelines, and cost to the state.

States limit access to Medicaid prescription drugs in a number o ways. In addition to ormu-

laries and prior authorization, state Medicaid programs may place arbitrary caps on the num-

ber o prescriptions a beneciary may have at one time or require step therapy programs in

which patients must rst use low-cost drugs beore moving to costlier and riskier therapies.

A 1990 ederal law allows statesto engage in prior authorization orparticular drugs, and in 1993 thelaw was amended to allow statesto exclude certain drugs rom theirormularies i the drug lacks signi-

icant, clinically meaningul thera-peutic advantage in terms o saety,eectiveness, or clinical outcome.

How Medicaid ormularies aect the states

What is best or patients overall might not workor an individual patient.

Number o states that have

Medicaid ormularies.43


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Medicaid Formularies 23

Medicaid formularies can increase

overall health care costs.

Prescription drugs help patients managechronic diseases and avoid costlier proce-

dures. Some ormularies may discourageoverall prescription drug use and limit ac-cess to new, but costly, treatments. Morerestrictive ormularies shit spending toother high-cost health care interventions,such as oice visits, invasive medical pro-cedures, or hospitalization.

Medicaid formularies put a bureaucratic

barrier between doctors and patients.Formularies place bureaucratic limits onthe prescribing habits o doctors, whichinterere with the doctor-patient relation-ship. With the availability o treatmentoptions indirectly controlled by the gov-ernment, doctors will make ewer andewer decisions without bureaucratic ap-proval.

Medicaid formularies politicize medicine.

Nearly hal the states exempt (or carveout) certain classes o drugs, or certainbeneiciary groups, rom Medicaid or-mulary restrictions. Writes IndependenceInstitute Senior Fellow Linda Gorman,Now that ormulary laws have begunto speciically exempt diseases that a-

ect patients with well-organized lob-bying groups, the people most likely tobe harmed by the arbitrary drug denialscommon to Medicaid drug lists are otenpoor, debilitated, and ill-equipped to pro-test poor treatment.

Medicaid formularies cater to the needs of

the group, not to the needs of individual

patients.

Medicaid ormularies decide which drugs

are covered based on population-leveldata. In other words, a drug might beplaced on a ormulary because its eec-tive or a large group o people. But whatis best or patients overall might not workor an individual patient.

Medicaid formularies can be based

on questionable evidence.

Evidence-based data should be used toinorm treatment decisions made by pa-tients and physicians. But because Medic-aid ormularies use evidence-based data tomandate which treatments are available,policymakers should ensure such datameet high research and ethical standards.However, not all evidence is equal.Some drug decisions are based solely on

randomized clinical trials, a method thatexcludes vital medical inormation. Otherproblems with evidence might includeresearcher or selection bias. Twila Braseo the Citizens Council on Health Carepoints out that each study on a prospec-tive medical treatment is a contributionto an evolving body o evidence. What isknown is known only until another study

proves dierentlyand the results o astudy may be biased or may not be trans-erable to all patients everywhere.

Problems with Medicaid ormularies


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State legislators should build a wallaround expanding Medicaid eligibility,rather than limiting access to eectivemedical treatments. The Cato Instituteound 21 percent o Medicaid-eligible

adults and 27 percent o Medicaid-eligi-ble children actually had private insur-ance, but dropped their private coverageto join Medicaid. New Jersey extendsMedicaid coverage to amilies earning350 percent o the ederal poverty lev-elthats a amily o our making over$77,000 per year. Lawmakers looking toreduce Medicaid spending can do so by

preserving the Medicaid program or thetruly needy, not extending governmenthealth coverage to the middle class.

State legislators should also ensurethat limiting Medicaid prescription drugspending does not lead to increasedspending in other areas o the pro-gramand this may be accomplished by

an annual legislative study. Policymakersshould also ensure that the evidence-based decision-making process is trans-parent and includes quality data rom anumber o sources.

State legislators may also introduceALECs Prior Authorization Resolution,which memorializes the state to eliminateprior authorization systems and preserve

access to prescription drugs or Americasindigent population.

Twila Brase, Evidence-Based Medicine: Rationing Care, Hurting Patients, ALEC StateFactor, December 2008.


For urther reading

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www.alec.org

state legislators guide to prescription drug policy

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