Federal and State Laws and Regulations Affecting Managed Care

Daniel B. Moskowitz



The FDA has typically answered the question of how to balance a drug's pluses and minuses by demanding that detailed explanations be included in the fine print of a drug's prescribing information. The agency is increasingly admitting that doctors simply don't read through all the mandated material. FDA advisor Robert Califf, MD, of Duke University, estimates that, in any given year, fewer than 1% of practicing physicians have read even 1 comprehensive drug description. The FDA is readying some answers to that problem. "We are interested in the clinicians who have 30 seconds to make the prescribing decision," explains Janet Woodcock, MD, head of the FDA's drug division. "They need something right in front of them." The solution being drafted would precede the current information with a quick-read section, perhaps modeled on the food label nutrition table, that highlights the most serious warnings associated with any drug. But further down the road may be a tiered system under which only certain doctors would be allowed to prescribe certain high-risk drugs -- an expansion of the approach the FDA used 2 years ago when it began allowing use of thalidomide, but only if the prescribing doctor had taken a special course in the drug's dangers. This June, the FDA adopted a similar selective approach to designating which doctors can prescribe mifepristone.

The concept behind making warnings clearer is not only to reduce adverse effects but also to keep drugs available. Some argue that recently withdrawn drugs, such as Rezulin, Seldane, Posicor, and Propulsid, could have stayed on the market if there were some way to ensure that they would not be prescribed to patients known to be at risk from their use.

Wellpoint Health Networks' Blue Cross of California has petitioned the FDA to move the popular -- and much-advertised -- antihistamine Claritin from prescription to OTC status. That petition is part of an aggressive stance that Blues plans around the country are taking to use the levers of federal regulation to manipulate drug prices downward. One of the reasons that drug companies can charge high prices for their products is that they have enjoyed special benefits from the federal government; thus, a new study commissioned by the national Blues organization concludes that it would be appropriate to pressure Washington to take a new look at those benefits. Urging the FDA to switch drugs to OTC status more quickly is only one goal. Consultant Michie Hunt, who is the author of the study, also recommends that the official Blues' agenda includes reexamining the following government-supplied benefits to drug companies:

  • The longer patent life that drug makers won from Congress in 1984.

  • The Orphan Drug Act.

  • Pediatric exclusivity included in the 1997 FDA Modernization Act.

  • The transfer of government-developed technology to private drug firms.

  • The rules making it easier for drug makers to advertise directly to the public.

Maine has adopted the most aggressive measures to date in its fight against rising drug costs -- and it is a model that lawmakers in other states are already eyeing. Essentially, Maine has warned the entire pharmaceutical industry that if it doesn't ratchet down prices on its own, the state will impose price controls. Under the law recently signed by Gov Angus King, those price controls will begin in 2003. That's a lot less harsh than the original measure passed by the legislature, which called for price controls to begin next January, but King threatened to veto that bill. Even though the original measure had zipped through both houses of the legislature by huge veto-proof majorities, King persuaded the lawmakers to compromise. One big argument is that the new measure is not as vulnerable to legal challenge.

The new law allows the state to negotiate manufacturer rebates and pharmacy discounts on behalf of the approximately 325,000 uninsured drug buyers in Maine. The goal is to reduce prices by about 30% next year. This would bring the price paid by uninsured buyers down to the price paid by the federal government when it buys for Medicaid or the Veterans Administration and closer to the prices available over the border in Quebec. If the state health commissioner decides by the beginning of 2003 that this goal has not been achieved, he or she can decree maximum prices for "any or all prescription drugs sold in the state." In addition, the law levies fines as high as $100,000 on manufacturers who charge "an unconscionable price" or who reap "unjust or unreasonable profit" from drug sales.

An attempt by Vermont lawmakers to fashion a bill similar to Maine's was unsuccessful this year, but the issue will return there in the next legislative session. New York lawmakers interested in finding ways to cap drug costs in their state have already called Maine's Senate Majority Leader Chellie Pingree, chief author of the bill, to testify at hearings in Albany.

The scheme Arkansas cooked up to lower its outlays on drugs for Medicaid beneficiaries was declared unconstitutional in a June 7 ruling from US District Court Judge G. Thomas Eisele. The scheme was challenged in court by Wal-Mart, which is headquartered in tiny Bentonville, Ark, and by Walgreen's, which has deliberately sited many of its 13 stores in poor Arkansas neighborhoods in order to encourage Medicaid business. The ruling came in the Wal-Mart case.

On April 28, the state, with an okay from HCFA, began paying less for Medicaid prescriptions filled at chain outlets than the rates they continued to pay other pharmacies. The new formula calls for paying chains -- those with more than 10 Arkansas outlets -- 17.3% less than average wholesale price, while independents continue to get paid at 10.3% less than wholesale. The chain-store prices were set by the state to approximate the discounts those chains give major private insurers. The state says the new mandatory discounts work out to an average of $2.50 per prescription, but Wal-Mart calculates the loss at $4 per prescription. In all, the new payment system is intended to slice $4.5 million from the state's $200 million Medicaid drug bill.

The argument advanced by Wal-Mart at its court hearing is that whatever the price differential, it violates the 14th Amendment because the plan doesn't give all businesses equal treatment. Eisele agreed, calling it arbitrary and capricious.

The state had been negotiating with Wal-Mart and other chains for 6 months, trying to come up with an acceptable alternative to the 2-tier payment approach. But it refused to accept Wal-Mart's key suggestion that the state insist that any drugstore that wants to be part of the Medicaid program must match the lowest price any store offers for a drug. Ray Hanley, medical services director for the state's Department of Human Services, explains that many smaller stores that offer around-the-clock service and home delivery -- vital to the most at-risk patients but not on the Wal-Mart menu -- would not be able to meet the admittedly low Wal-Mart prices. Wal-Mart's 46 Arkansas stores fill more Medicaid prescriptions than any other retailer in the state.

Texas and California have come up with the same solution to the rising cost of providing prescription drugs to state workers -- make those workers pick up more of the tab. As part of an austerity plan in which the state is also cutting back on the number of HMOs among which state workers can choose, Texas is boosting copays. For a 3-month supply of a drug that is not on the preferred formulary and is not bought through a mail-order service, the copay in Texas will increase to $70. Workers will pay $30 for mail-order purchases of formulary drugs. At the drugstore, the copay will rise to $35 per prescription for nonformulary branded drugs and $35 for those on the preferred list. Buying a generic, however, will continue to cost the workers just $5 out of their own pockets.

At the same time, the California Public Employees Retirement System (CalPERS), which runs the health coverage program for all state workers, came up with a scheme to hold premium increases for 2001 to less than the initially predicted 9.2%. It calls for doubling the copay on brand names to $10, while holding the cost for generics at the $5 level. The CalPERS board, at the same time it accepted the 2-tier drug copayment, turned down the suggestion of its benefits committee that it also increase copays for doctor's office visits from $5 to $10. The higher copay for those who opt for brand-name prescriptions rather than generics does not apply to patients who have had an adverse reaction to a generic formulation or for whom it is in some other way unsatisfactory. It also does not apply to first-time prescriptions of branded drugs for which there is no generic equivalent, although it does apply to refills of that prescription. As a way to further nudge employees to use lower-cost sources of drugs, drugstore prescriptions are limited to a 30-day supply while a mail-order house can fill a 90-day prescription for the same copay. That is not a change in policy, but CalPERS is putting new emphasis on the savings available to patients who use mail order.


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