Rx Policies - Cut Health Care Costs and Promote Broader Health Care Reform

Rx Policies - Cut Health Care Costs and Promote Broader Health Care Reform

Monday, January 26, 2009



BY adam Thompson


Rx Policies - Cut Health Care Costs and Promote Broader Health Care Reform

One of the biggest challenges our country's leaders face as they seek to address the nation's health care crisis - a challenge faced by federal leaders and state lawmakers alike - is the ever-rising cost of health care.  A key driver of health care costs is the price of prescription drugs, which accounted for 14% of all health care spending in 2007. 

A perfect storm has arisen - of high costs, budget deficits, and a public that is frustrated with the current system and eager for a new one - making 2009 prime for bold health care reform.  An essential piece of reform involves increased scrutiny of prescription drug costs and the drug industry, which manipulates the health care system to increase its profits. On the policy front, pursuing Rx reforms will help states reduce budget gaps and achieve important health policy goals, such as reducing drug prices and achieving greater access to life-saving medications.

Putting the Drug Lobby on the Defensive: Politically, state leaders can increase the scrutiny of prescription costs and the drug industry itself to highlight the need for broader health care reform and tap into the public's growing frustrations with the drug industry.  This will strengthen the political support for comprehensive reform at the federal and state levels.  If nothing else, such state campaigns will force the industry to spend its resources defending its own abuses, rather than using them to undermine comprehensive state and federal reforms.

This Dispatch highlights the favorable political climate around Rx reform and lays out numerous policies available to state lawmakers to cut drug spending without limiting access to safe and effective medications.  These policies, from bulk purchasing to clamping down on PhRMA marketing tactics, will help states fill budget gaps and cut health care costs for families and businesses, as well as hospitals and other drug purchasers. 

Resources for Policy Changes: A leading resource for state Rx policy sourced throughout this Dispatch is the National Legislative Association on Prescription Drug Prices (NLARx), led by Maine State Rep. Sharon Treat, a longtime state health care reform expert.  NLARx works directly with state lawmakers across the country to write legislation, provide expert testimony, and help move legislation to enactment.  The NLARx website - - has the latest news and analysis on state Rx policy, as well as model legislation.  Other important Rx policy resources include Prescription Policy Choices and The Prescription Project - its state public policy page has both model policies and fact sheets which can be turned into testimony and op-eds. 

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Harness Public Opinion to Rein in Drug Industry Political Power

In many cases the pharmaceutical industry has abused its position to drive up costs to the consumer -- and the public is angry.  While progressive leaders face the challenge of a well-financed lobby, they also have public opinion on their side. Progressive state leaders can link campaigns for lower prescription costs to the urgent need to balance state budgets and efforts to promote transparency and ethics reforms in government.

Faced with Rising Costs, Public Supports Rx Reform: The public is clamoring for state and federal lawmakers to rein in drug costs and the drug industry. A new survey from the Kaiser Family Foundation and Harvard School of Public Health finds that 52% of Americans believe there isn't enough government regulation of the price of prescription drugs. And 9 in 10 support allowing the federal government to use its buying power to negotiate lower prices from drug companies, something which states are increasingly doing.  According to a 2005 Kaiser Family Foundation poll, 70% of Americans believe the drug industry puts profits ahead of people and almost 60% of Americans blame the drug industry for rising health care costs. The public's perceptions are not unfounded. 

In 2007, the U.S. spent $287 billion on pharmaceutical drugs, as stated earlier, representing 14% of all health care expenditures and a significant driver of health care costs.  Driving this expense is the drug industry, which spends $30 billion a year on marketing - often pitching the most expensive drugs over less expensive yet equally or more effective medications, like generics. At least $7 billion of PhRMA's money is targeted directly at physicians. In fact, the drug industry spends more money marketing drugs than it does developing new medications, according to a 2005 report from the Center for Public Integrity, Drug Lobby Second to None: How the pharmaceutical industry gets its way in Washington.  

As a result, costs are rising for states, employers, families, hospitals, and insurance companies.  These spiraling costs mean more Americans are unable to fill their prescriptions.  The New York Times reports that 1 in 7 Americans went without prescribed drugs in 2007, up from 1 in 10 in 2003.  Even working adults who have private employer-based insurance are being hit, with 1 in 10 unable to pay for their medications. As the Times reports, higher health care and prescription costs and the economic downturn are hurting low-income Americans the most, with 3 in 10 unable to fill a prescription because of the cost.  Even 1 in 4 adults on Medicaid or other state programs said they had difficulty paying for medications.

PhRMA's Shifting Tactics: A recent presentation from Prescription Policy Choices details many of the emerging strategies that PhRMA - the Pharmaceutical Research and Manufacturers of America - is using to increase drug industry influence over the prescribing decisions of providers.  While some of these are worthy endeavors, such as disease management and improving patient/doctor communication, PhRMA's involvement is a bit too much "fox in the henhouse" and raises serious concerns around conflicts of interest and patient privacy.  In response, states should be on the look-out for the growing presence of the drug industry in the provision of medical care.  Lawmakers should strengthen standards for third-party contracts, HIPAA protections, anti-trust regulations and other steps to prevent PhRMA from gaining an even stronger foothold into doctor's offices and the patient/doctor relationship. 

PhRMA is also ramping up its presence in state houses.  As NLARx reports on 2008 state Rx activity, at least 25 states worked industry-sponsored legislation that would restrict generic drug prescribing for epilepsy, five of which were enacted. In 2003 and 2004, according to the Center for Public Integrity, PhRMA spent $44 million in state lobbying to prevent sensible Rx reforms.  Washington State Rep. Jamie Pedersen, who in 2008 sponsored a ban on data-mining by pharmaceutical marketers (HB 2664), attributes the failure of the bill in the House to the "intense lobbying... by the industry creating enough doubt and confusion" after passing the Senate.

Historically, PhRMA's focus has been on Washington DC - in 2002 Public Citizen reports that PhRMA deployed 7 lobbyists for each US Senator. In 2003 PhRMA spent $141 million and dispatched over 1,000 lobbyists to push a law which prevents Medicare from using its massive bargaining power to negotiate lower prices from the industry.  In 2007, the Center documents in Pushing Prescriptions that the industry spent a record $168 million lobbying Congress, successfully furthering its agenda. With President Obama's support of Medicare price negotiations with the drug industry and continued Rx reform in state legislatures, PhRMA is assuredly preparing a heavy lobbying push across the country. 

Blunting the Political Power of the Drug Industry:  The following are political strategies and regulatory steps states can take to reduce the influence of PhRMA lobbyists and their cash in state legislatures.

  • Enact Campaign Finance and Ethics Reform: Arizona, Maine and Connecticut all now allow for public financing of state legislative campaigns. This helps to take the money out of politics and reduce the influence lobbyists and campaign contributors have over state policy. It is arguably no accident that Maine, which has the longest history with clean elections, has repeatedly enacted path-breaking policies to restrain the drug industry, since its elected leaders are not reliant on industry donations for their elections.
  • Promote Ethical Standards at Medical Schools and Professional Medical Societies: As RxP reports, states can take action to help medical schools and teaching hospitals play a central role in establishing ethical standards for relationships between medicine and industry. Recently, the Oregon Academy of Family Physicians, the largest medical society in the state, announced that it will no longer accept industry support for its organizational or educational programming. Unfortunately, almost two-thirds of medical schools lack institutional standards to prevent conflicts of interest. The RxP works directly with medical center leaders to address these issues and reports that in several states policy change has been stimulated by state legislators who have taken an interest in this area and started asking medical centers to account for their current policies. 
  • Use Physicians as Spokespeople: Just as the industry recruits physicians to pitch new drugs to their peers, physicians are strong spokespeople for promoting legislation to reduce PhRMA influence in exam rooms. In Washington State, initial success in the House of Rep. Jamie Pedersen's ban on data-mining (HB 2664), was due in part to the Coalition for Prescribing Integrity, which includes the Washington State Medical Association, the Healthy Washington Coalition, AARP, the State Labor Council, the National Physician's Alliance and others.

As the following sections of the Dispatch emphasize, state leaders are promoting a wide range of policies to effectively reduce the costs of prescription drugs.


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Change Prescription and Purchasing Rules to Lower Costs

Through changing the rules for prescribing drugs, reviewing costs in state purchasing systems like Medicaid, and changing bulk buying patterns within those public programs, states can significantly lower the costs for prescription drugs and find significant savings for state budgets. 

Generics: As NLARx reports, generic drugs cost $45 less on average than brand name drugs, or from 30% to 80% less than their brand name counterparts.  Over the next 4 years, $38 billion worth of sales of brand name drugs are going to lose their patents, meaning generics will flood the market.  According to Prescription Policy Choices (PPC), another leading source for Rx policy, Massachusetts saved more than $150 million annually by emphasizing generics over brand name drugs and Texas saved $223 million by making it easier for doctors to prescribe generics.  In fact, the growth in US Rx spending in 2007 experienced the lowest rate of increase in more than 30 years.  This is attributed in part to greater use of generic medications.  Now is a good time to promote the use of equally, or more effective generics over brand name celebrity drugs. 

As part of Medicaid and other public programs, states can require that, when available, equally or more effective generics must be prescribed over more expensive celebrity drugs.  Rules should allow treating physicians to overrule this requirement.

The brand-name drug industry is actively sponsoring legislation to curb the use of generic medications.  NLARx reports that at least 25 states had bills during the 07-08 biennium to restrict generic drug prescribing for epilepsy, five of which were enacted, and other bills to "carve out HIV-related conditions and mental health treatments from preferred drug lists, or generally to limit generic drug substitutions."

Preferred Drug Lists (PDL): States can reduce drug costs by prioritizing drugs that are safe, highly effective, and typically less expensive than brand name drugs.  As Prescription Policy Choices reports, at least 40 states have some sort of PDL regulating physicians' prescribing practices.  Maine's PDL has kept Medicaid drug cost increases to below 3% annually. During the same period, the federal government saw increases of 13%.  Texas' PDL saved the state's Medicaid and SCHIP programs $116 million in 2007. Preferred Drug Lists, are a good way to expand the use of generic medications and to steer providers to drugs that have a longer track record.

Prescriber Review Systems: As Rep. Sharon Treat described during an interview, Maine saved many millions of dollars through better state review of prescribing practices within Medicaid. For instance, when a certain number of brand name drugs per month per person are prescribed, there is an automatic review and if generics are available the state suggests them to the prescriber. This process is in addition to a Preferred Drug List, and is not a hard cap, yet it can save millions of dollars. Maine's review system allowed the state to save $3.5 million last year in a small Medicaid waiver program, enabling the state to preserve the benefit instead of eliminating it, which was the original budget proposal.

Electronic Prescribing:  A new study from the federal Agency for Healthcare Research and Quality shows that complete use of electronic prescribing systems could reduce drug spending by up to $3.9 million per 100,000 patients each year. While such universal use of effective e-prescribing systems may take awhile to implement across the country - and privacy must be protected as e-records make it easier to transfer personal data - there are numerous options available to state legislatures this year for reducing costs for states and other drugs purchasers, while increasing access to life-saving medications.

Price Negotiations and Bulk Purchasing — As NLARx documents, pooling the bargaining power of drug purchasers, like state Medicaid and state employee health plans, increases their individual leverage to negotiate cheaper prices from the industry. 

  • Multi-State Purchasing Pools: To achieve greater economies of scale and reduce costs, several states have teamed up to negotiate lower prices from drug companies. As NLARx reports, Iowa, Maine and Vermont created the Sovereign States Drug Consortium and Oregon and Washington created the Northwest Prescription Drug Consortium. In 2006, it was estimated that the purchasing pool would save Maine $5 million in state and federal Medicaid costs. As PPC reports, Oregon could save $17 million annually if it combined the drug purchasing of all its state programs. There are at least five multi-state bulk purchasing pools. 
  • Discount Programs: Maine Rx negotiates with drug companies to bring more affordable drugs to residents living below 350% of the poverty line. The program, as NLARx reports, achieves average savings of 25-50% on generic and brand name drugs.  The program uses the leverage of the state's Medicaid program to negotiate lower prices for residents not eligible for Medicaid, who get an Rx card for the purchase of medications. Hawaii, California and Massachusetts have similar laws.
  • Pharmacy Benefit Managers (PBMs): PBMs negotiate rebates and manage drug benefit programs on behalf of public and private health plans and many self-insured businesses. However, the PBM industry is highly corruptible.  To get their drug on a health plan's benefit list or formulary, drug companies make payments to PBMs that are proportionate to how often the drug is prescribed. PBMs boost their profits by pocketing some or all of these payments instead of passing them along to their customers.  Three PBM companies administer 80% of all private prescription coverage and pocket annual revenues exceeding $15 billion.  Model legislation compiled by PPC and NLARx requires greater transparency of negotiations, disclosure of conflicts of interest, and new ethical standards.  PBM laws in Maine and DC have been upheld by the federal courts.  State laws regulating the business practices of PBMs can be found here and lessons about the problems of state purchasing practices can be gleaned from the Texas State Auditor's report on PBM contracts in the state, presented at a December 2008 NLARx conference.

    As Rep. Treat mentioned during an interview, legislators need to ask more questions about public programs and their purchasing practices, including Corrections. Rep. Treat is authoring legislation to require a state purchasing specialist for all prescription drug contracts in state government as well as registration of PBMs and regular audits of state contracts.  Maine already has a PBM transparency law but it isn’t being followed. This bill comes out of reviewing the Texas audit report.
  • Pricing Reforms: Worries about price gouging and artificial price inflation on celebrity drugs are driving states to shed light on the pricing practices of pharmaceutical companies.  Wisconsin and Coloradolaw requires disclosure of manufacturer prices and "best price," and West Virginia created the Pharmaceutical Cost Management Council in 2004 (HB 4084) to continually examine the cost of prescriptions and develop ways to reduce prices in the state.  Model legislation compiled by NLARx includes the Excessive Drug Pricing Act and the Drug Retail Price Disclosure Bill
  • 340B: An obscure name, but "340B" represents a tremendous source of lower prices for drugs. Federal law allows certain "safety-net" programs to purchase prescriptions at significant discounts, often below what Medicaid pays for drugs.  Eligible entities include community health centers, hospitals that serve a disproportionately large Medicaid population, and programs that serve populations with costly medical needs, like AIDS clinics. States have options to ensure that populations and programs eligible for 340B pricing are receiving the reduced prices. Legislation in Massachusetts (H 2243) would require eligible health care centers to participate in 340B pricing and Vermont's comprehensive prescription reform act of 2007 requires the state to inform residents of the availability at 340B pricing.


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Stop the Corruption of Industry Gifts to Providers

The drug industry spends $7 billion directly influencing the prescribing decisions of physicians through catered lunches, "educational" conferences at vacation resorts, and other gifts. As the Prescription Project reports, "94% of doctors have received such incentives" and studies show that even small gifts create an unconscious "demand for reciprocity."  A recent and exhaustive series of reports from the Milwaukee Journal Sentinel details the financial ties between physicians and the drug industry - including one pediatrician who led a clinical trial funded by Merck while receiving between $35,000 and $70,000 over several years to work as a speaker and consultant for the company.  Stories like this abound, including one of Dr. Frederick Goodwin who hosted a popular NPR radio program while receiving $1.3 million from the drug industry to give marketing lectures to drugmakers - a relationship not previously disclosed on his radio program, which regularly covered topics reflecting the financial interests of his sponsors.

Compounding this inappropriate influence over physicians' prescribing decisions is the fact that the industry habitually markets the most expensive drugs over medicines that are cheaper and often equally or more effective, as the New York Times reported in 2007. This drives-up costs for state Medicaid programs, families, businesses and private insurance. A June 2008 survey by the Prescription Project finds that Americans are wary of drug industry ties to physicians.  A majority believe that drug industry gifts influence how physicians make prescribing decisions.  Key findings include:

  • 68% support requirements on the drug industry to disclose gifts to physicians
  • 86% would ban free dinners and 80% support a ban on speaking fees
  • 71% support “provider education programs” that provide unbiased clinical non-commercial information about drugs to physicians.

The Federal Physicians Payment Sunshine Act, designed to bring greater public review of these relationships, has been reintroduced in 2009.  As NLARx's Sharon Treat says, legislators should contact their congressional delegation to be sure the law does not pre-empt stricter state disclosure and gift limit laws, such as:

Model Policy: Minnesota, in 1993, became the first state to limit gifts from the drug industry to physicians, banning gifts of more than $50. Minnesota also requires companies to disclose payments to physicians in excess of $100.  In 2008, Massachusetts enacted limits (S.2526) on drug industry gifts to medical professionals and will require public disclosure of gifts valued at more than $50.  Several other states have enacted disclosure - or "sunshine laws" - including Vermont, Maine, West Virginia and the District of Columbia. Disclosure laws have exposed millions of dollars spent on payments to physicians and conflicts of interest. A review of Minnesota data showed that, as payments to psychiatrists increased, so did the writing of prescriptions for drugs made by those companies.

Model Legislation: Compiled by the Prescription Project and the National Legislative Association on Prescription Drug Prices — The Drug and Medical Device Marketing Restrictions and Disclosure Act

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Protect Prescription Privacy and Cut Costs - Ban “Data-Mining”

A particularly manipulative marketing tactic by the drug industry is collecting physicians' prescribing history and using the data to tailor marketing and sales to individual physicians.  Called “data-mining”, the practice allows drug companies to exploit physicians’ prescribing habits for profit-gains, resulting in higher health care costs for consumers, businesses and public and private health plans.  Drug makers use the information to design marketing pitches for their newest and most expensive drugs, often ignoring less expensive but more effective medications.

Data-mining is increasingly a concern for medical-privacy advocates, particularly as the practice expands to patient records.  A 2008 report by the Washington Post shows that the industry is “mining” patient records to provide insurance companies with a health “credit report”, based on a patient’s use of prescription drugs, which is used to charge consumers higher insurance rates or to deny coverage entirely.  Little is being done to regulate this practice and preserve the privacy of patient records.

Model Policy — In 2006, New Hampshire became the first state to ban data-mining with passage of HB 1346. Maine and Vermont soon passed similar bans on data-mining. A November 2008 federal appeals court ruling upheld the New Hampshire law. Earlier in 2008, the Washington State Senate passed SB 6241 to ban the use of prescribing history for marketing use. Although the measure failed in the House, the effort is part of a growing trend among states and the District of Columbia to protect prescription privacy and reduce PhRMA's undue influence on the prescribing habits of physicians. The Prescription Project provides an excellent "myths and rebuttals" fact sheet on data-mining and a legal analysis on the "Constitutional Battle over State Regulation of Data Mining."  Washington DC has passed first-in-the-nation legislation regulating drug company detailers, establishing a certification and licensing process and a code of ethics for industry detailers.  

Model Legislation —
Compiled by the Prescription Project and the National Legislative Association on Prescription Drug Prices — Prescription Record Privacy Act

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Drug Quality and Safety - Prescriber Education Programs

To help physicians stay on top of the latest scientific information about drug quality and effectiveness and to reduce the industry’s influence over physicians' prescribing decisions, states are establishing “Prescriber Education Programs”, or "academic detailing" initiatives.

The drug industry spends an average $8,800 directly marketing to each of the 817,000 physicians in the US.  90,000 sales reps, or detailers, and fellow physicians paid by the industry pitch drugs directly to physicians. This is called "detailing".  As the New York Times reported in 2007, "doctors who have close relationships with drug makers tend to prescribe more, newer and pricier drugs" regardless of a drug’s value compared to less expensive medications.  The adverse consequences of industry marketing can be costly, and deadly.  As The Prescription Project reports, $209 million was spent marketing the pain-killer Vioxx. This drove up utilization even though Vioxx was not clinically proven more effective than existing, less expensive drugs and before the medical community had a full understanding for the drug's side effects, resulting in 139,000 people suffering heart attacks.

Model Policy — Prescriber education programs help save lives and reduce costs.  To counter drug industry "detailing", prescriber ed programs send highly-educated medical professionals to doctors' offices with scientific and unbiased information about which drugs are right for a given situation. Pennsylvania has established a model program, called Independent Drug Information Services, which is a partnership between the state and Harvard Medical School.  Studies have found that every dollar spent on prescriber ed programs results in two dollars saved. Prescription Policy Choices’ new report profiles a multi-state collaborative between Maine, New Hampshire and Vermont, and discusses best practices for creating a prescriber education program. The collaborative became possible after Maine (Public Law Chapter 327) and New Hampshire (HB 1513) joined Vermont in passing legislation creating prescriber ed programs.  Elsewhere, New York, Massachusetts, and Washington DC are creating similar programs.

Model Legislation — Model Act to Create an Evidence Based Prescriber Education Service , provided by the Prescription Project and Pennsylvania's Independent Drug Information Services program.

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Promoting Rx reforms serves multiple goals for state leaders by:

  • Cutting costs for states, families and businesses while ensuring access to life-saving medications
  • Helping states address budget deficits
  • Tapping into the public's frustrations with the drug industry and shining a light on the need for bold health care reform in states and Washington DC in 2009

Progressive leaders can use these campaigns to highlight the abuses of the prescription drug industry, challenge the credibility of their lobbyists, and force the industry to spend their lobbying dollars defending those practices rather than undermining health care reform efforts.  It's a strategic campaign that is both good policy and good politics.


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Change Prescription and Purchasing Rules to Lower Costs

NLARx — State Policy Options: Savings from Generic Drugs
NLARx - West Virginia's Savings from Greater Generic Uptake
Prescription Policy Choices — Preferred Drug Lists, Prior Authorization, and Promoting Generics
NLARx — Generics and Patents: Policy Background
NLARx — Discount Plans and Purchasing Pools 
NCSL — Sovereign States Drug Consortium and Northwest Prescription Drug Consortium 

Stop the Corruption of Industry Gifts to Providers

The Prescription Project — Survey finds Americans want to know about physician payments
The Prescription Project — Control Pharmaceutical Marketing to Improve Health Care Quality and Cost: Recommendations for State Policymakers
The Prescription Project — Regulating Industry Payments to Physicians: Identifying and Minimizing Conflicts of Interest
NLARx — Minnesota Gift Ban and Disclosure Laws

Protect Prescription Privacy and Cut Costs - Ban “Data-Mining”

Progressive States Network — NH Data-Mining Ban Upheld: Blow to Drug Industry Marketing is Boon to States
The Prescription Project — Data Mining: Myths and Rebuttals
NLARx — The District of Columbia Proposes Pharmaceutical Detailer Regulations

Drug Quality and Safety - Prescriber Education Programs

Prescription Policy Choices — A template for establishing and administering prescriber support and education programs: A collaborative, service-based approach for achieving maximum impact 
Prescription Policy Choices — Science vs. Sales: Academic Detailing Offers Objective Prescription Drug Information for Your Doctor
The Prescription Project — Fact Sheet - Academic Detailing: Evidence-Based Prescribing Information
The Prescription Project — Cost-Effectiveness of Prescriber Education ("Academic Detailing") Programs
New York Times, March 21, 2007 — "Doctors’ Ties to Drug Makers Are Put on Close View"
Prescription Policy Choices — Cheerleaders vs. Clinicians: Where Do You Want Your Doctor Getting Information on Prescription Drugs?


The Stateside Dispatch is written and edited by:

Nathan Newman, Interim Executive Director
Caroline Fan, Immigration and Workers' Rights Policy Specialist
Julie Schwartz, Broadband and Economic Development Policy Specialist
Christian Smith-Socaris, Election Reform Policy Specialist
Adam Thompson, Health Care Policy Specialist
Austin Guest, Communications Specialist
Marisol Thomer, Outreach Coordinator


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