Feds approve program to reduce costs of drugs in Alaska and 4 other states

Five states negotiate deal that's the first of its kind in Medicaid history

Posted: Friday, April 23, 2004

WASHINGTON - The government Thursday approved a joint drug-buying program among five states - including Alaska - that has saved millions of dollars in prescription costs, a decision that could lead other states to form similar agreements.

"This is the first time in the history of the Medicaid program that states have been able to work together like this to negotiate lower drug costs," said Mark McClellan, administrator of the federal Centers for Medicare and Medicaid Services.

Michigan, Vermont, New Hampshire, Nevada and Alaska are now participating in the program, McClellan said, and Hawaii has applied to join it.

The program was started by Michigan in 2002 pending the federal approval which was granted Thursday. The program requires states to adopt a list of drugs that doctors should use when treating low-income Medicaid patients. States then bargain together for discounts on the drugs.

Drug companies, which filed lawsuits over the program, said the decision will harm Medicaid patients.

"This effort will likely turn the vital Medicaid program for our poorest citizens into the equivalent of a government-run HMO, making decisions based on cost rather than patients' individual needs," said Wanda Moebius of the Pharmaceutical Research and Manufacturers of America, which represents drug companies.

Health and Human Services Secretary Tommy Thompson defended the decision, saying lowering the cost of drugs will help states continue to provide medications to low-income citizens.

"I'm a person who likes competition," said Thompson, adding that he envisions regional or even national drug-buying agreements in the future.

Indiana, Illinois and Tennessee are among the states that have considered joining the program. More than 40 states already have preferred drug lists in place, according to the National Conference of State Legislatures. McClellan said he will be sending letters to states about forming drug-buying pools in the next few weeks.

Joel Gilbertson, Alaska's Health and Social Services commissioner, said the state is expected to spend more than $100 million on prescription drugs this fiscal year, and that costs have been rising an average of 25 percent per year for the past four years.

With the multi-state pool and other cost-saving measures, Gilbertson said he expects the state to save about $20 million next year.

If other states are allowed to join the pool, he said, the savings could be greater.

"We're encouraging them to move forward and let others join our purchasing pool," Gilbertson said.

Michigan was spending around $1 billion annually on prescription drugs before the program began in 2002. The Michigan Department of Community Health says it saved $8 million last year because of discounts from multi-state bargaining.

The state says it saved $32 million from using the preferred drug list.

McClellan said Vermont expects to save $1 million from the multi-state program this year, while Nevada expects to save $1.9 million. New Hampshire Gov. Craig Benson said his state will save $2.5 million annually.

Around 900,000 Medicaid patients in the five states will be covered by the program, McClellan added.

Michigan Gov. Jennifer Granholm said in February that the Centers for Medicare and Medicaid Services was threatening to end the program because it wanted more companies to be able to bid to administer the program, but Thompson said the program was never in jeopardy.

McClellan said Thursday that the states wound up meeting the federal competition requirements.

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