5_florida_case_study.pdf

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___________tateate udget Cutsdget CutsLike many states, Florida has seen dramatic increases in Medicaid prescription drug costs in

recent years. In response, Florida has created an innovative program to moderate that trend.

This program, which the state implemented in 2001, combines negotiated manufacturer rebates

with 1) a prior-authorization program that has physician education as its focus and 2) disease

management programs that have the goals of reducing Medicaid spending and improving pa-

tients health status.1It is too soon to know how successful Floridas approach will be in reduc-

ing costs and whether some aspects of the program might end up delaying patients access to

drugs. It is not even certain that the program will survive a legal challenge from the drug indus-

try. But Floridas program, if it is upheld in court, bears watching. Advocates should evaluatewhether the program reduces drug costs and changes physician prescribing and whether it di-

minishes access to drugs. If the overall evaluation is positive, Floridas approach can be repli-

cated by other states that wish to moderate spending on prescription drugs without reducing

the drug benefit.

Case Study:Case Study:Case Study:Case Study:Case Study:

FFFFFloridaloridaloridaloridaloridas Supplemental Rs Supplemental Rs Supplemental Rs Supplemental Rs Supplemental Reeeeebababababate Prte Prte Prte Prte ProoooogggggrrrrramamamamamAn Approach to Reducing Drug Prices

Floridas Quandary: Medicaid Deficits and Rising Drug Spending

In light of the impending deficits, Floridas

Office of Program Analysis and Government Ac-

countability evaluated Medicaid prescription

drug spending. That evaluation concluded that

the increase in expenditures was due primarily

to physicians switching patients to high-priced

drugs, with price increases for existing drugs be-

ing a secondary factor. To promote more efficient

and less costly prescribing, the evaluation report

recommended that the states Agency for Health

Care Administration develop a preferred drug list

and negotiate rebates with manufacturers that

would be in addition to those already received

through the federal rebate program. (See Prescrip-

tion Drugs in this kit for a discussion of the fed-

eral Medicaid drug rebate program.)

In Floridas Medicaid program, spending for

prescription drugs reached $1.3 billion in fis-

cal year 1999-2000. Prescription drugs ac-

counted for 17 percent of Floridas total Med-

icaid spending, making drugs second in expen-

ditures only to nursing homes.2During the five

fiscal years prior to 2001, Medicaid outpatient

drug spending had increased at an average an-

nual rate of 21 percent.3The state estimated that

spending increases would continue unabated un-

less changes were made to the program. At the

same time that spending on prescription drugs

was rising, Florida was facing an estimated Med-

icaid budget shortfall of $1.5 billion in FY 2001-

2002, with 37 percent of that amount attributed

to prescription drug spending.4


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CASE STUDY: FLORIDA 2

Floridas Supplemental Rebate Program

In May 2001, Florida lawmakers approved legis-

lation allowing the state to negotiate additional

rebates with drug manufacturers and to create a

list of preferred drugs. Some aspects of the pro-

gram were implemented in July.5

To go forwardwith the entire program, the state needed ap-

proval from the U.S. Department of Health and

Human Services (HHS).6

Federal Medicaid rules allow states to develop a

formulary, or preferred drug list, but states can

only exclude drugs from this list if the drugs do

not have a significant, clinically meaningful

therapeutic advantage over other drugs on the

formulary. (Excluded drugs must be available toMedicaid beneficiaries, but they can be subject

to prior-authorization requirements.7) Florida

wanted to develop a preferred drug list that

excluded drugs not only for clinical reasons but

also if their manufacturers did not enter into a

supplemental rebate agreement with the state.

This required that HHS approve an amendment

to the states Medicaid plan. HHS Secretary

Tommy Thompson granted that approval on

September 18, 2001, and the program was fully

operational by October 2001.8

The Florida law requires that manufacturers of-

fer the state a supplemental rebate before their

drugs can appear on the preferred drug list.9In

lieu of such supplemental rebates, manufactur-

ers can provide programs, such as disease man-

agement services or health education, as long as

the manufacturer can demonstrate that the pro-gram will save Medicaid $16 million per year (see

box, Disease Management Pilot Programs). If

program savings are less, the manufacturer must

pay the difference between actual savings and

$16 million.10

Drugs that are not on the preferred list are avail-

able to Medicaid beneficiaries, but a doctor must

get verbal authorization from Medicaid programstaff before the prescription can be filled. The

threat of prior authorization was a necessary

incentive to bring manufacturers to the negoti-

ating table. The Florida Medicaid program says

that it will not deny authorization; instead, the

agency plans to use the prior-authorization pro-

cess to educate physicians about less costly al-

ternatives. When a physician calls, he or she will

be informed about lower-cost drugs availablefrom manufacturers that participate in the re-

bate program and will be asked if the prescrip-

tion could be changed. The inconvenience of

calling should cause physicians to favor drugs

on the list.

Initial results from Florida suggest that place-

ment on the preferred drug list makes a differ-

ence in the use of a manufacturers drugs. This

conclusion is illustrated by changes in the useof two anti-migraine drugs in the same thera-

peutic class since the preferred list went into

effect: The Medicaid market share for Imitrex

(GlaxoSmithKline PLC), which is not on the list,

dropped from 60 percent to 6 percent while the

market share for Maxalt (Merck & Co.), which is

on the list, rose from 16 percent to 89 percent.11

The state estimates that the supplemental re-

bate program will reduce Medicaid drug expen-ditures by $214 million, or 15 percent, in the

first year.12


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TheDrugIndustrysReaction:The required supplemental rebates will not only reduce thestates outpatient drug costs, they will also reduce drug industry profits. Recognizing the po-

tential widespread application of Floridas approach, PhRMA, the drug industry lobby, sued the

state in Federal District Court in northern Florida to stop the program. PhRMA claimed that the

states law violated a federal rule requiring that all prescription drugs be available to Medicaid

beneficiaries unless the drug offers no clinically meaningful benefit.13In January 2002, the court

held that the preferred drug list directed doctors and patients toward certain drugs, but pa-

tients were not prevented access to drugs not on the list. The court allowed the program to

continue. The legal battle, however, is not over. PhRMA is planning to appeal the case to the

Eleventh U.S. Circuit Court of Appeals in Atlanta.14

Floridas Disease Management Pilot Programs

Pfizer and Bristol-Myers Squibb agreed to provide programs for Florida Medicaid beneficiaries in lieu of

supplemental rebates. Pfizers program will include disease management, health education, and ex-

panded drug donations. The focus will be on four chronic conditions: congestive heart failure, diabetes,asthma, and hypertension. Pfizer has guaranteed that its programs will save Florida Medicaid $33 mil-

lion over two years. Bristol-Myers Squibbs program will focus on 1) managing the health of Hispanic

and African-American Medicaid beneficiaries with select chronic conditions and 2) placing lay health

care workers in Community Health Centers to help Hispanic beneficiaries overcome language and cul-

tural barriers.

If these programs achieve their goalsimproving overall beneficiary health and reducing emergency

room use and hospitalizationsthey will be worth examining and possibly replicating in other states.

What advocates should keep in mind, however, is that manufacturers sponsor these programs. Safe-

guards should be in place to ensure that the programs actually focus on health outcomes and are not

simply a means of promoting a manufacturers products when less costly or more appropriate alterna-tives may be available. Additionally, savings and health benefits will be difficult to measure accurately.

The state may receive less from the programs than it would from supplemental rebates. Any state

considering similar disease management agreements should examine how Florida is accounting for

savings and evaluate whether that approach makes sense.

Source: National Governors Association,Addendum to Stat e Pharmaceutical Assis tance Programs , Public -Pri vate Partnerships:

The Florida Medicaid-Pfizer Inc. Pharmaceutical and Disease Management Pilot Program andFlori da Medicaid and Bristol-Myers

Squibb(Washington: National Governors Association, October 2001.

How the Program Is Operating:

Protecting Consumers Interests in State Prior-Authorization ProgramsIdeally, additional rebates could be extracted

from manufacturers and physicians could be per-

suaded to alter prescribing practices to favor

the least costly appropriate medicationand

both could be done without states needing to

resort to prior authorization. However, this is

highly unlikely. What is more likely is that drug

manufacturers will continue to focus their mar-

keting on the highest-cost therapies, leading

physicians to favor those therapies, and will

continue to raise drug prices. This will require

states to look for innovative ways to obtain

lower drug prices and to change prescribing be-

havior.


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As noted, Floridas prior-authorization process

for the supplemental rebate program serves

principally as a means of educating doctors. Phy-

sicians calling for prior authorization are made

aware of lower-cost alternativesan approach

that could serve to counter excessive pharma-

ceutical industry advertising and promotion of

high-priced brand drugs.

Although the states position is that there will

be no prior-authorization denials, consumer

groups in Florida have identified cases of prior-

authorization denials in which beneficiaries did

not receive adequate notice of their rights.15

This underscores potential program pitfalls.

If the program is not managed properly and ifpharmacists and physicians do not work to-

gether, there could be delays in access or in-

stances of beneficiaries forgoing medication

because they do not fully understand their

rights. Therefore, advocates in states contem-

plating Floridas approach should keep in mind

Medicaids requirements and operational issues

that could affect consumers access to drugs.16

Some Medicaid requirements and consumerprotections that should be incorporated in any

program are listed below.

!!!!! Prior authorization does not mean that a drug

is not covered; it means that it must be ap-

proved in advance.

!!!!! Medicaid requires that prior-authorization de-

terminations be made within 24 hours and

that a 72-hour supply of a drug be dispensed

without prior authorization in the case of anemergency.17

!!!!! Physicians and pharmacists need to have easy

access to the list of drugs requiring authori-

zation and instructions for completing the

process.

!!!!! Good communication is essential. Beneficia-

ries need to understand their rights, and physi-

cians and pharmacists need to understand

their responsibilities. Patients should not

leave a pharmacy without a prescription or

without understanding when they can pick up

their prescription if prior authorization is

needed and cannot be obtained immediately.

! Beneficiaries need to understand Medicaids

required turnaround times and emergency

access provisions. If there is a delay in get-

ting a prescription or there is a denial of a

prescription, beneficiaries should receive

timely written notice explaining the denial

and information on their right to appeal;

they should also receive full coverage of re-

fills until the appeal is complete.

! Pharmacists should be prepared to explain

the prior-authorization requirement to pa-

tients and should not tell patients that a

drug needing prior authorization is not

covered. Pharmacists dispensing fees

should be adequate.

! Whenever a pharmacist receives a prescrip-

tion requiring prior authorization, the

pharmacist should notify the state pro-

gram, which should have primary respon-

sibility for interacting with the physician.

The state should have strict, prompt turn-

around requirements for responding to the

pharmacists regarding dispensing.

!!!!! The individuals providing prior authorization

should to be qualified. Floridas program is staffed

by pharmacists and pharmacy technicians.

!!!!! Program glitches may occur at the outset. Ad-vocates should monitor new programs care-

fully, identify problems, and work with the

state to correct them. Advocates should also

be prepared to involve the press as necessary

to bring attention to any access or operational

issues that are not resolved quickly.


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The Future for Florida and Other States

Floridas supplemental rebate approach holds some promise for a state struggling with rising

drug spending and budget shortfalls. Other states, such as Michigan, are following Floridas

lead. As in Florida, PhRMA has sued to stop the Michigan program.

If done properly, Floridas strategy can save money with fewer limitations on access than some other

approaches that states are considering to reduce Medicaid drug spending. But advocates will need tobe vigilant. They need to make sure that prior authorization does not prevent access to drugs not on

the preferred list but, rather, serves to educate physicians about prescribing options. Advocates

should watch and learn as Floridas program unfolds. Ultimately, however, the courts will decide

whether Floridas approach can be used in other states. The outcome of the Florida and Michigan

cases should be monitored closely by advocates throughout the country.

1This case study looks only at Floridas manufacturer rebate program and prior authorization associated with the rebateprogram. Other aspects of Floridas Medicaid prescription drug benefit are not evaluated.

2Nursing home spending accounted for 20 percent of service expenditures in 2000. Florida Office of Program Policy Analysis and

Government Accountability Justification Review,

Growth in Medicaid Prescription Drug Costs Indicates Additional Prudent Purchasing Practices Are Needed, Report No. 01-10,

February 2001 (http://www.oppaga.state.fl.us/reports/health/r01-10s.html).

3Ibid.

4Ibid.

5The new supplemental rebates may not be less than 10 percent of the average manufacturer price (AMP, the average price paid by

wholesalers) unless either the federal rebate, the supplemental rebate, or both rebates combined equal or exceed 25 percent of AMP.There is no upper limit on the rebate amount that the state may negotiate with manufacturers. (Washington: National Governors

Association, Addendum to State Pharmaceutical Assistance Programs, Public-Private Partnership: The Florida Medicaid-Pfizer Inc.Pharmaceutical Management Pilot Program, August 2, 2001).

6Under the Medicaid program, states that elect to cover prescription drugs must cover all FDA-approved drugs from every manufac-

turer that participates in the federal rebate program with the exception of drugs that fall into one of the following eight categories:

anorexia, weight loss, or weight gain drugs; fertility drugs; cosmetic or hair growth drugs; drugs for relief of cough or cold; smokingcessation drugs; prescription vitamins and minerals; benzodiazepines; and barbiturates. [Section 1927(d)(1)(B)(ii)of the SocialSecurity Act, 42 U.S.C. 1396r-8(d)(1)(B)(ii)].

7Section 1927(d)(4)(C) of the Social Security Act, 42 U.S.C. 1396r-8(d)(4)(C) and Section 1927(d)(4)(D) of the Social Security Act, 42

U.S.C. 1396r-8(d)(4)(D).

8Florida was the first state allowed to negotiate supplemental rebates since the passage of the Medicaid Drug Rebate law in 1990.

California negotiates rebates directly with manufacturers, but that is because of contracts that existed prior to 1990.

9Agreement to pay the minimal supplemental rebate ensures that the state will consider a manufacturers drugs for placement onthe preferred list but does not guarantee placement on the list. All antipsychotics, antidepressants, anticonvulsants, and HIV-related

antiretroviral agents are exempted from the prior-authorization restriction (http://www.fdhc.state.fl.us/Medicaid/Prescribed_Drug/rebate.shtml). Bob Sharpe,Pharmaceutical Manufacturers Formulary and Supplemental Rebate Briefing(Tampa: Agency for Health

Care Administration, May 2001).

10Kaiser Network,Daily Health Report, August 8, 2001, PhRMA Sues to Block New Florida Medicaid Drug Law(www.kaisernetwork.org).

11Russell Gold, Federal Judge Lets Stand Florida Law Seeking Rebates from Drug Makers, The Wall Street Journal, January 3, 2002.

12PhRMA Sues to Block New Florida Medicaid Drug Law., op. cit.

13Russell Gold, op. cit.

14Ibid.

15Conversation with Miriam Harmatz, Florida Legal Services, on April 24, 2002. In late March, Florida Legal Services filed acomplaint in the United States District Court, Southern District of Florida, against the Agency for Health Care Administration

of the State of Florida concerning Medicaid beneficiaries experiencing denials, delays, or reductions in drug coverage without

adequate notice or opportunity for a fair hearing.16Many of the suggestions for adding consumer protections to prior authorization are from telephone conversations with Miriam

Harmatz, Florida Legal Services, on January 24, 2002, and with Sheldon Toubman of New Haven Legal Services, on January 25, 2002.

1742 U.S.C. 1396r-8.


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