Not Quite What the Doctor Ordered
When Bernice Speliotis downs the nine pills she takes each day or reaches for the inhaler she relies on to keep her asthma in check, the 72-year-old Lynn resident admits to some doubts about the blessings of retirement. “The golden years–they’re not that golden always,” she says ruefully. But if glaucoma, high blood pressure, and elevated cholesterol–among other ills–have put a crimp in Speliotis’s leisure days, she does have one big thing to be thankful for. The cost of her medications–which runs to more than $6,000 a year–is paid almost entirely by the Commonwealth of Massachusetts.
While a national debate rages over how to provide prescription drug coverage to the elderly, Massachusetts has stepped forward as the first state in the nation to offer prescription drug insurance to all seniors, with unlimited coverage. The sweeping new program, known as Prescription Advantage, is modeled on a proposal presented to state officials last year by the Heinz Foundation. For Speliotis, a former substance abuse counselor whose retirement income, combined with her husband’s, is less than $22,000 a year, the Massachusetts program is nothing short of a lifesaver. “I don’t know what I’d do without it,” she says.
But the state coverage she and many other seniors regard as a lifeline is being viewed by others as a potential budget buster, a program whose costs could spiral out of control just as the state enters a period of economic uncertainty and phases in a voter-approved income tax cut.
State officials say they’re determined to make the program work. But here, as in Washington, the devil will be in the details. A prime area of contention is whether the state should simply be working to provide drug coverage to those who need it or aggressively trying to restrain the rising cost of those drugs as well, a move that pharmaceutical companies and the burgeoning Massachusetts biotechnology industry say will stifle research into promising new medications.
It’s not just those holding the public purse-strings who are wrestling with the surge in drug costs. HMO chiefs and leaders in private industry are howling, too, as rising prescription drug bills drive up insurance premiums. And with the labor market softening, employers are feeling increasingly emboldened to pass those cost increases directly on to workers, meaning millions of Americans with prescription coverage are starting to feel the drug-cost pinch in ways they never did before.
All this is making prescription drugs and their cost the health care issue of the day. The new cures may not be worse than the diseases they treat, but figuring out how to pay for and ensure access to them is causing headaches all around.
As good as it gets for drug makers
There is something about the rapidly changing health care system–and consumer anxieties about it–that encourages the casting of villains. When the managed care revolution swept through America in the 1990s, the cost-conscious health maintenance organizations wore the unenviable label of health care bad guy. Through the prism of popular culture, the condemnation was expressed more bluntly. “Fucking HMO bastard pieces of shit,” spewed Helen Hunt, in the 1997 movie As Good As It Gets. If a sequel were released today, there’s little doubt it would be the pharmaceutical industry on the receiving end of a similarly salty fusillade.
“The new public enemy number one is the pharmaceutical industry,” says John McDonough, professor of health policy at Brandeis University and a former state representative. That demonization may not be deserved, McDonough says, but the industry could well remain the chief focus of health care ire “for most of this decade,” since it may take Congress that long to devise a long-term solution to the drug coverage conundrum. “If the industry were smart,” he says, “they would cut a deal now while the going is good, because it’s only going to get worse.”
The rumble of discontent with the pharmaceutical industry is already pretty loud, having grown over the course of a decade of soaring US drug expenditures. Since the early 1990s, pharmaceutical drug spending has increased 10 to 15 percent per year, two to three times the rate of increase of other health care costs, according to a recent study by the Schneider Institute for Health Policy at Brandeis and PCS Health System. In just one year, from 1999 to 2000, drug spending rose an astonishing 18.8 percent, climbing from $111.8 billion to $131.9 billion.
Still, prescription drugs represent only about 10 percent of the more than $1.2 trillion in annual US health care expenditures. Why, then, the cries of drug-cost distress? “Because people are paying for this out of pocket, and for a share of people who are very sick and who do not have drug coverage, this is extraordinarily scary,” says Robert Blendon, a professor of health policy at Harvard’s School of Public Health.
Dr. James Taylor, the longtime medical director of East Boston Neighborhood Health Center, says the situation has caused “an almost panic in the elderly population.” There is no doubt that some older patients are “adjusting their doses or skipping doses,” he says, if not “making choices between heating oil and rent and medicine.”
Meanwhile, employers are feeling the drug-cost squeeze on their benefit packages. “The cost of health insurance is going through the roof,” says Richard Lord, president of Associated Industries of Massachusetts. “It’s no secret that one of the reasons for those increased premiums is the rapidly increasing cost of drugs and utilization of drugs.”
Insurance premiums for employer-based health plans rose 11 percent nationally this year, the largest increase in a decade, according to a survey of nearly 3,000 US companies conducted by the Henry J. Kaiser Family Foundation and the Health Research and Education Trust. The cost of prescription drugs was cited by firms as the primary cause of this jump. An increasing number of workers in Massachusetts decline employment-based health coverage because they can’t pay for their share of the premiums, according to Lord.
The state’s HMOs have joined the national trend toward “tiered” pricing systems for prescription drugs, with stiff co-payments assessed on brand-name medicines–even those for which no generic alternatives yet exist. HMO officials say it is crucial that patients, who have been largely insulated from drug costs, help keep pharmaceutical spending in check. But that means some patients are feeling the squeeze of drug costs even when their medicine is covered.
Norman Weatherbee worked for years for an independent grocer that provided no health benefits. So when the Everett father of five landed a job four years ago at Star Market, complete with health care coverage, his wife thought she finally would have some peace of mind. But Cathleen Weatherbee, who is disabled due to severe asthma and an intestinal condition that has required 14 surgical procedures, says she can’t afford the $25 co-payments for each of three different asthma inhalers she needs on her husband’s annual income of $31,000. If she uses them as directed, two of the inhalers ought to be replaced every two-and-a-half weeks. So Weatherbee, 51, finds herself resorting to all sorts of tricks to keep inhalers in stock. When hospitalized earlier this spring, she smuggled out inhalers issued by the hospital pharmacy, sending them home with her daughter, then telling the nurses she had lost them so she could get new ones. “It’s like stealing but there’s nothing I can do,” she says.
“Ask your doctor about…”
A number of factors account for the skyrocketing drug bill. The number of prescriptions written per patient is on the rise; costly new drugs to treat common, chronic conditions have exploded onto the market; prices have risen on medications already on the market. Then there is the marketing zeal of the pharmaceutical companies.
It is impossible to open a magazine or sit through an evening of television these days without being sold on the wonders of a new drug. Whether it’s Bob Dole pitching Viagra or a gray-haired character actor extolling the virtues of a new arthritis pain reliever, prescription drugs are hawked like toothpaste and toilet paper.
The explosion in pharmaceutical advertising is the result of a 1997 change in Food and Drug Administration regulations that significantly relaxed guidelines for “direct to consumer” advertising of prescription drugs. Spending on consumer advertising quickly ballooned to $1.3 billion in 1998, the first full year after the rule changes, and then nearly doubled to $2.5 billion by 2000.
Industry leaders see the pill peddling as empowering customers to manage their own health. “Consumers are becoming much more active in looking for all kinds of health information,” says Marjorie Powell, vice president and assistant general counsel for the Pharmaceutical Research and Manufacturers of America, the main industry trade group, known as PhRMA. Powell says everything she”s seen suggests “consumers really like” the proliferation of advertising.
But doctors and insurers don’t like it one little bit. “I hate it. Do you want it any clearer?” says Dr. Joseph Dorsey, corporate medical director for Harvard Pilgrim Health Care. “It’s very disruptive of the doctor-to-patient relationship.”
“There’s enormous pressure from patients” to prescribe many of the most costly new drugs, such as the arthritis medicines Celebrex and Vioxx or the new class of anti-ulcer drugs, says Taylor, of the East Boston health center. “They’re being bombarded probably six times during the evening news with the pharmaceutical ads, which are very attractive ads.” And while there are real benefits to these drugs over their older counterparts for some patients, Taylor and other doctors say many patients do just as well on older, far less expensive therapies.
“From a cost perspective, you’d certainly want to hold them off until everything else failed,” says Taylor. But that’s easier said than done in a health care culture where old-line treatments are dismissed as quickly as last year’s car models.
Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota, calls the surge in drug advertising “a mixed blessing.” There are “positive aspects” to the marketing, he says, suggesting that it’s made some patients aware of conditions they didn’t know they had, or brought effective new treatments to their attention. But on the negative side, he says, “It’s also created a lot of unnecessary use of drugs.”
A prime example, Schondolmeyer says, is the blockbuster new anti-ulcer drug Prilosec, the top-selling prescription drug in the US, with sales last year of $4.1 billion. Patients are using Prilosec for “the bad pizza they had last night,” says Schondolmeyer. “And it works for those things, but so would Alka-Seltzer or Maalox. So we’re. . .using a $3-a-day medicine when a 25-cent-a-day medicine would work.” With sales of some of the most heavily advertised new drugs jumping 30 to 50 percent each year, says Schondelmeyer, the drug makers’ marketing success is one “we all pay for in our premiums.”
Complementing the direct advertising to consumers is the $16 billion a year the industry spends on its army of 83,000 sales representatives, who push their wares directly to doctors, handing out everything from free samples to tote bags and pens–even invitations to all-expenses-paid seminars at golf-friendly resort locations.
Powell says that doctors would be lost without such “detailing” visits, as they are called. “As drugs become more complex, it’s more and more important that doctors and other health professionals know how to use them,” she says. “And the only way they’re going to know that is through information provided by the manufacturers.”
Marcia Angell, a former editor of The New England Journal of Medicine and vocal industry critic, likens the practice to “having the beer companies educate you about alcoholism.” But experts admit that most doctors learn about new medications from sales calls. “They like to say it’s the journals,” says Dr. Stephen Soumerai, director of the drug policy research program at Harvard Medical School. But “for the practicing physician out there, the drug company is the major source of information, no matter what they say.”
And that’s precisely what troubles state Sen. Richard Moore, cochairman of the Legislature’s health care committee. The Uxbridge Democrat has filed bills this year requiring drug makers to disclose how much they spend on direct-to-consumer advertising in Massachusetts and mandating that physicians renewing their licenses file a disclosure form listing anything of value they have received from pharmaceutical company representatives. The Massachusetts Medical Society testified against the physician disclosure bill, and Powell, the PhRMA official, says the legislation is akin to “saying [the state] doesn’t trust their doctors to be professionals.” But Moore, who has lined up a bipartisan roster of cosponsors, says he’s asking doctors to divulge nothing more than what he and his colleagues must disclose on their annual ethics filings, and for much the same reason. “Why would medical professionals be any different? We’re all human,” says Moore. Patients should know whether doctors are “acting in my interest or acting because a drug company took them to Florida in the winter for a seminar,” he says. “There is a creeping influence here that is not healthy.”
Battle of the bulge
If there is growing concern about the sweep of pharmaceutical industry influence in health care, it is surely exacerbated by the growing awareness that Americans pay the highest prices in the world for their medications. In both Canada and Mexico, prescription drugs are often sold for half the US cost or less. That’s because nearly every other developed country regulates prices or restricts profit margins to keep the cost of prescription drugs down. In the US, where there are no price controls, pharmaceutical companies cash in.
“It’s the equivalent of having this large balloon, and everyone squeezing except for one place,” says Schondelmeyer, the University of Minnesota professor of pharmaceutical economics. “And what’s going to happen? It’s going to bulge out.”
There is some balloon squeezing going on here as well. Since insurers–both private and government programs such as Medicaid and the Veterans Administration–are able to obtain 25-to-50 percent discounts off full retail prices, those who pay for prescription drugs out of pocket get hit with the highest prices. In the US, that means those who lack health insurance that covers these medications–primarily the uninsured working poor and the roughly one-third of seniors citizens who have no prescription drug coverage.
Senior citizens have been a prime focus of the drug coverage debate for good reason. Although Medicare, the federal program providing health insurance for all Americans 65 and older, provides a health care safety net for all older Americans, it does not pay for outpatient prescription drugs‹an anomaly dating to its passage in 1965, when prescription drugs represented an inconsequential portion of health care costs. Today, although seniors represent just 14 percent of the US population, they account for roughly one-third of all spending on pharmaceuticals.
With efforts to add a prescription drug component to Medicare at a standstill in Congress, more and more states have picked up the ball and tried to come up with ways to help seniors as well as others without drug insurance. At least 29 states have established or authorized some type of pharmaceutical assistance or insurance coverage for uninsured residents, according to the National Council of State Legislatures. But none has gone as far as Massachusetts.
Filling the Heinz perscription
It was with considerable fanfare in April 2000 that Teresa Heinz unveiled a blueprint for what she hoped would be a comprehensive drug insurance program for Massachusetts seniors and low-income disabled residents–and a model for other states and, ultimately, the federal government. Heinz, who is married to US Sen. John Kerry, is the widow of the late US Sen. John Heinz of Pennsylvania and serves as chairman of the Heinz Foundation, which drafted the prescription drug proposal. She has pursued the prescription drug issue with a personal passion to honor the legacy of her late husband, a Republican who, in the late 1980s, introduced the first bill calling for Medicare to cover drug costs.
Last April, the state launched Prescription Advantage, a first-in-the-nation effort that may blaze a trail for others to follow. But the plan may also serve as a cautionary tale about the pitfalls of forging a state-based solution to the drug-coverage problem. And in a potential clash of good intentions that underscores the limits of a patchwork approach to the prescription drug issue, one threat to the program comes from an effort to make lower-cost prescriptions available to seniors and others who don’t have
Although sweeping in scope, the Heinz-inspired plan is not the state’s first foray into drug benefits. Since 1996 the state has provided an annual drug benefit–capped initially at $750 and later increased to $1,250–to low-income seniors. And in January 2000, the state expanded its efforts, offering coverage of catastrophic drug costs for seniors with somewhat higher incomes.
Unlike the earlier programs, however, which offered subsidies to a set population of approximately 81,000 low-to-moderate income seniors, Prescription Advantage is open to all senior citizens in Massachusetts, offering unlimited prescription drug benefits. Premiums and deductibles are subsidized for low-income seniors, and operate on a sliding scale for those at higher incomes, with maximum monthly premiums of $82 and deductibles of up to $500. Low-income seniors are assessed co-payments of $5 for generic drugs and $12 for brand-name drugs, while higher-income seniors have co-pays of $10 and $25.
With roughly one-third of the state’s 860,000 seniors carrying no drug insurance, and many of those with coverage incurring drug expenses that exceed their benefit caps, the potential subscriber pool for the program is enormous. So is the financial risk.
“Give them credit for gutsiness,” says McDonough, the Brandeis health policy expert and former lawmaker. “From a state fiscal responsibility point of view, it’s a little bit breathtaking.”
All the more breathtaking considering how Prescription Advantage emerged from the legislative sausage factory, where an assortment of interests obtained changes to the original Heinz plan that put the state on the hook for more costs. The state’s biotechnology industry succeeded in stripping a provision that would have kept high-cost “non-preferred” drugs, such as those biotech companies are now bringing to market, from counting toward the cap on out-of-pocket expenses, which triggers full coverage of all additional drug costs. Senior citizen advocates got their legislative allies to raise the income ceiling for full subsidy from 150 percent of the federal poverty level to 188 percent, or $21,828 for a married couple, $16,152 for a single senior. Co-payments were reduced for lower-income seniors, and the $3,000 cap on out-of-pocket costs was cut to $2,000 or 10 percent of gross household income, whichever is less–changes that were made so that the new program, which offered benefits to elders of greater financial means, would not be less generous toward lower-income seniors than the programs it replaced.
These changes were enough to worry the program’s patrons about its viability. Even as Prescription Advantage was launched in April, Teresa Heinz was suggesting publicly that the program might need an overhaul. In a Worcester Telegram & Gazette op-ed, Heinz cautioned that it “will challenge the political will of the Legislature and the governor to determine whether they will make the additional tough choices necessary to ensure the long-term financial health of the Prescription Advantage Plan.”
The Legislature’s sweeteners cost the state “the ability to control the cost of the program,” says Jeffrey Lewis, executive director of the Heinz Foundation. The state will have no choice but to revisit the overly generous terms of Prescription Advantage, he says: “It’s not a question of if, it’s only a question of when.”
Based on the more restrictive terms of the initial proposal, the Heinz Foundation projected that the program would cost $113 million by its third year. But in the still unfinished fiscal 2002 budget, which will cover the program’s first full year, the administration has called for $110 million for Prescription Advantage, while the Senate has authorized $114 million and House $87 million. Meanwhile, the Massachusetts Taxpayer Foundation has projected that costs could reach $150 million or more.
Doing the math
It’s not just generous benefits that present a challenge to the state’s prescription drug plan. In order to remain financially viable, Prescription Advantage needs to enroll higher-income, premium-paying seniors and, just as importantly, those who currently have only modest medication needs but an interest in guarding against future costs. In other words, the program needs to protect against an insurance phenomenon known as “adverse selection”–that is, when only customers whose needs far outweigh the premiums they pay will sign up, driving costs through the roof.
In a private insurance plan, adverse selection sets off a kind of death spiral: Too many high-cost beneficiaries drive up premiums, then higher premiums drive out the remaining low-need policy-holders. That was the fate Massachusetts HMOs went to federal court to avoid in the late 1990s, when they succeeded in overturning a state law forcing them to provide unlimited drug coverage to seniors who buy insurance to supplement Medicare. In the case of the state-run insurance plan, if the only seniors who sign up for coverage are those who pay no premiums, because they are low income, or who have expensive drug needs, the result could be soaring costs.
The state hopes to head off the problem by aggressively marketing Prescription Advantage to a large pool of seniors with a wide range of drug needs. The state’s Executive Office of Elderly Affairs was given $1.9 million for marketing and promotion last year, and another $1 million in the fiscal 2002 budget, which on October 1 had still not been finalized. Gov. Jane Swift has pitched in, too, appearing at a Randolph senior center in September to help drum up interest in the senior insurance program. By early fall, the program had enrolled 52,000 seniors, but since most were participants in the state’s previous drug programs for low-income elders, three-quarters fell in the fully subsidized bracket.
Saying the program is navigating uncharted waters, state officials claim they have no enrollment projections. They also don’t yet have any data on the level of benefit use among the enrollees, but the track record from other states is not encouraging. Six months before the launch of Prescription Advantage, The New York Times reported that in five other states that subsidized drug costs for seniors who pay an annual fee or premium, “the programs are a magnet for those with the heaviest drug expenses.” Scott Serota, president of the national Blue Cross and Blue Shield Association, told the Times, “Seniors do the math, and when the premium exceeds their projected costs, they won’t buy it.”
Earl and Rosemary Morgan have done the math, and the results don’t bode well for Prescription Advantage. With a raft of health problems ranging from high blood pressure and elevated cholesterol to a chronic form of Lyme disease, Earl Morgan figures he’ll get more than his money’s worth from the state program. The 77-year-old retired school psychologist is now paying a monthly premium of $52, based on his and his wife’s combined income, to get his prescriptions paid for.
Rosemary Morgan has had health problems, too. Last December she was diagnosed with breast cancer, and following surgery, chemotherapy, and radiation treatment, she’s now on a five-year course of therapy with the anti-cancer drug tamoxifen. But rather than sign up for the new state program, she’s joined a growing band of drug-cost-weary Americans who get medications from pharmacies in Canada. Though technically against the law, the practice is now easier than ever, as seniors can forego bus excursions over the border in favor of a few clicks of a computer mouse.
With her Internet drug order, Morgan gets a 100-day supply of tamoxifen that would cost $371 at her local pharmacy for $43, including shipping charges. That’s far less than the $52 per month that it would cost her to get her medication covered by the state like her husband’s. So Rosemary Morgan sees no advantage in Prescription Advantage.
To discourage such short-term calculations, state officials may impose a surcharge on seniors who join the state pharmacy program only when they need it, but the 66-year-old retired social worker sounds unfazed. “If I need to pay a surcharge down the road, I will,” says Morgan, who contends that, when that time comes, such a price penalty will be the least of her problems. “I think if I get sick again, I’m going to get really sick.”
Stories like this may become common, with troubling implications for the state budget, says Blendon, the Harvard health policy researcher. That, he says, is because states have been reluctant to require all seniors to participate, regardless of their means and needs–a solution that might be more palatable on the federal level. “Nobody has solved this,” says Blendon, “because nobody’s talking about anything that’s compulsory.”
Driving a hard bargain
If pooling risk is one way to keep prescription-drug benefits affordable for the state, pooling buying power is another. That’s exactly what lawmakers had in mind in November 1999, when, at the urging of former US representative Joseph Kennedy, they approved a rider to the 2000 state budget ordering the administration to look into using the combined might of various state insurance plans to wring price concessions from drug makers.
“We are overpaying for drugs,” says state Sen. Mark Montigny (D-New Bedford), chairman of the Senate Ways and Means Committee. “We can allow taxpayers and seniors to continue to be ripped off by the industry, or we can negotiate from a point of strength.”
Such an approach would aggregate buying power totaling roughly $1 billion, the combined state spending on pharmaceuticals for Medicaid, state workers, the Department of Public Health, and Prescription Advantage. The savings that could accrue from using this bargaining leverage would benefit all these buyers but are, in Montigny’s view, critical for the new prescription-drug program. Without forcing drug prices down, he says, “we can’t afford it. It isn’t going to work.”
The budget called for the administration to report back on the feasibility of bulk buying within 60 days, but neither Gov. Cellucci, who signed the measure into law, nor Gov. Swift has followed through, even though the Legislature renewed its call in the 2001 budget. Charging the Republican administrations with “pandering” to industry, Montigny says the bulk-buying initiative hasn’t been implemented “because the pharmaceutical and biotechnology industry in this state said, leave our free lunch alone.”
Indeed, the biotech industry has made no secret of its opposition to the bulk-buying scheme. At the time it was inserted in the budget, Janice Bourque, president of the Massachusetts Biotechnology Council, called the plan “a giant step forward for mandatory state price controls,” which she said would have “potentially disastrous consequences for the state’s biotechnology industry.”
Using volume to bargain for discounts is hardly imposing price controls–Montigny, in fact, calls it “Capitalism 101”–but Stephen Crosby, state secretary of administration and finance, says that reaping savings from bulk buying is “infinitely more complicated” than just driving a harder bargain. The biggest discounts come from restricting so-called drug formularies, or the menu of covered medications–something neither drug makers nor patients are keen to see. These restrictions include requiring the use of generic drugs or covering only one particular drug in a given class, an arrangement that allows buyers to exact large price concessions from companies in return for a guaranteed share of the market. Montigny says he’s open to considering such restrictions, but only as long as they are “only restrictive of waste.” But one man’s waste is another’s want, making efforts to limit drug choices a nettlesome business–as both state and private insurers have found (see “Doing Battle,” page 44).
Although Montigny sees bulk buying as a boon to Prescription Advantage, the program’s architects see it as a potential threat. The Legislature’s order also called for exploring ways to provide drug discounts to residents who don’t have insurance coverage. That provision set off alarms at the Heinz Foundation, whose officials worried that making cut-rate drugs more available could undermine Prescription Advantage’s appeal to the moderate income-moderate need seniors the program desperately needs to sign up. Just as Rosemary Morgan eschewed the state plan, opting to buy lower-priced drugs from Canada herself, why would seniors who could fill their prescriptions on the cheap opt into Prescription Advantage?
In August 2000, Teresa Heinz wrote to Cellucci, urging him to hold off on the bulk-buying initiative until her foundation completed an analysis of its potential impact on Prescription Advantage, a report she promised by the end of the year. Word of the letter set off a juicy dust-up between Heinz and bulk-buying booster Kennedy, which splashed onto the front page of The Boston Globe. The story painted a picture of not just clashing drug plans but egos, suggesting that Heinz and Kennedy were each eager to use Massachusetts as a springboard for taking their efforts national. As of late September, 10 months past the self-imposed deadline, the Heinz Foundation had yet to release the promised report.
Even without it, however, administration officials seem to have concluded that a state-run discount plan for the uninsured would operate at cross purposes with Prescription Advantage. “Even if there weren’t economic inconsistencies, which I think there are, there certainly are marketing inconsistencies,” says Crosby. “There’s no way the Commonwealth could effectively market two different programs to seniors.”
Now, the state won’t have to. Growing weary of the state’s inaction on the initiative he brought to Beacon Hill, Kennedy struck out on his own, introducing a drug discount program for seniors called Citizens Health. Taking a page from his nonprofit discount oil program for low-income residents, Kennedy’s newest effort will, for a modest annual fee, offer uninsured residents of Massachusetts, Connecticut, and Rhode Island prescription drugs at discounts of as much as 50 percent off retail price. (Billboards are starting to pop up urging uninsured residents to call 1-800-JOE-K-4RX.)
Though a worthy enterprise, Citizens Health will hardly be the fix for many without insurance, some experts say. “Making drugs cheaper doesn’t go near far enough,” says Soumerai, of Harvard Medical School. “It doesn¹t reduce out-of-pocket expenses. . .enough to make drugs cheap enough to ensure access for lower-income people.”
Still, as states wrestle with the prescription-drug dilemma, coverage and cost have become intertwined. The pharmaceutical industry supports government efforts to fund insurance coverage, especially for senior citizens, but “it’s always at current prices,” complains Vermont state Sen. Peter Shumlin who, along with Montigny, has organized meetings of legislators from eight northeastern states to explore a region-wide bulk-buying pool to drive down state drug costs. “Our problem is there isn’t enough money in the treasury to take care of Americans at current prices,”says Shumlin. “We’ll all go bankrupt.”
The state that has taken the most aggressive action against drug costs–and the pharmaceutical industry–is Maine, which last year enacted a law that tries to control prices essentially by threat. The Maine law authorizes the state to negotiate for deep discounts on behalf of the state’s 325,000 residents who have no prescription drug coverage. If negotiations don’t yield significant discounts after three years, the law permits the state to put the products of uncooperative companies on a “prior authorization” list of drugs that cannot be dispensed to Medicaid recipients without approval of state administrators. PhRMA, the national pharmaceutical trade group, has challenged the law in court, accusing the state of using Medicaid recipients as “hostages,” but in May the First US Circuit Court of Appeals upheld the Maine law. PhRMA has petitioned the US Supreme Court to hear the case.
Whether other states will follow Maine’s lead is unclear, but the impetus to do so is spreading. It has not escaped the notice of policy-makers here and around the country that the pharmaceutical industry has spent years at or near the top of the Fortune 500 rankings of profitability. For 2000, the business magazine ranked pharmaceuticals as the most profitable US business sector by two of its three measures of industry performance, second by the third measure.
“I think the frustration level is growing,” says Schondelmeyer, of the University of Minnesota. “My greatest fear is [the pharmaceutical industry] will remain obstinate so long that policy-makers will overreact and cut them off at the knees.”
Schondelmeyer says a profitable pharmaceutical industry is crucial for continued research and development of new drugs. But he says a widening gap between industry profits and those of other sectors “suggests to me that there’s something not working right in the market for pharmaceuticals.” He says the growing importance of prescription drugs in health care and the often limited number of drugs available in a particular class are signs that the industry is assuming some of the characteristics of a regulated utility. He says some type of effort to “squeeze back gently” at drug company prices may be in order.
But in Massachusetts, the presence of a big biotech industry, which is important to the state’s economic future, makes squeezing the pharmaceutical industry a more delicate matter. Massachusetts is one of the world’s leading centers for biotech research and development, with 28,000 people employed in 270 firms. For biotech medications in particular–some of which can cost tens of thousands of dollars per year to treat rare conditions–there will be tough questions about “who will get these drugs, how will they be distributed, who will pay,” says Stephen Mulloney, a spokesman for the Massachusetts Biotechnology Council. But any government action to fix prices on these years-in-the-making drug breakthroughs would “just send capital
fleeing,” he says. The price controls that have kept traditional pharmaceuticals affordable in other countries have “croaked the European biotech industry,” says Mulloney. “I don¹t think anyone wants that.”
For that reason, Mulloney says any talk of a law similar to Maine’s would be “a different debate down here.” But Moore, the Senate health committee chairman, says if the Maine measure survives Supreme Court scrutiny, the Massachusetts Legislature could very well take it up.“I don’t like the idea of setting prices,” says Moore. “But we’re not seeing any serious effort by the drug companies to work in partnership with us to get at solutions. We’re looking at any good idea, and maybe even some that may be not so good we’re willing to try.”
If Moore sounds a bit desperate, perhaps it’s because there is so much at stake in the prescription-drug debate, for consumers, for industry, and for the state–which, on this issue, may well be out of its depth. “The moral of the story will be that the state can’t do it alone. This is a federal issue,” says Widmer, of the Massachusetts Taxpayers Foundation, who fears that the new senior pharmacy program is a prescription for fiscal calamity. But until Congress, which the pharmaceutical industry poured $92 million into lobbying last year, takes action, doing it alone is the only way the state can do anything at all.