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Federal court upholds Michigan Medicaid drug formulary plan

The drug industry says the initiative, copied by other states, puts patient care in jeopardy.

By Tanya Albert, amednews staff. April 28, 2003.

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More than a year after Michigan implemented a Medicaid drug formulary in an effort to save money, physicians are still working through kinks in the program, and courts are still reviewing the law to decide whether it's appropriate.

In the latest court round, the state's statute came out on top. The U.S. District Court for the District of Columbia in late March upheld the law, which requires physicians to get prior authorization before prescribing Medicaid patients medications that aren't on the formulary.

But the Pharmaceutical Research and Manufacturers of America and two patient groups in Michigan already have vowed to appeal the decision because they fear that the law will hurt patient care, particularly for Medicaid recipients who are being treated for mental illnesses.

"It's a mess," said Kathleen Gross, the Michigan Psychiatric Society's executive director. "And it's spreading, because I'm getting calls from other states that are considering similar programs."

Many eyes are on the lawsuit, PhRMA, et al. v. Tommy Thompson, et al. The current court decision allows similar laws in at least a dozen states to remain in place, according to the National Conference of State Legislatures.

In the first 10 months of 2002, 24 states enacted legislation pertaining to Medicaid preferred drug lists, prior authorization, supplemental rebates, generic drug substitution, co-payments, and prescribing and dispensing limitations, the NCSL said. The laws include everything from studying the issues to creating programs. More specifically:

• Preferred drug list programs are up and running in California, Florida, Georgia, Illinois, Kansas, Louisiana, Michigan, Oregon and West Virginia.
• This year, preferred drug list measures have been proposed in Colorado, Hawaii, Idaho, Maryland, Massachusetts, New Jersey, New York, North Dakota, South Carolina, South Dakota, Tennessee, Washington, Wisconsin and Wyoming.
• Legislatures in Connecticut, Illinois and Kansas are considering expanding existing programs in 2003.

"The momentum on this issue is gaining as problems with state budgets fail to diminish," said Claire Kammer, policy associate with the NCSL's Health Policy Tracking Service. "This court case will likely set wheels in motion in some states that were holding back implementing programs."

Arguing over "best practices"

PhRMA, the National Urban Indian Coalition and the National Alliance for the Mentally Ill of Michigan claim that the state's "Best Practices Initiative" violates the Social Security Act and the commerce clause of the U.S. Constitution.

Under Michigan's law, a panel names two drugs in each therapeutic class as the "best" based on clinical effectiveness and safety. Those drugs can be prescribed to Medicaid patients without prior authorization.

Drugs in each therapeutic class that are more expensive than the lowest-cost "best in class" medication cannot be prescribed unless a physician gets prior authorization from the state or unless the drug manufacturer gives the state a supplemental rebate to bring the cost down to the lowest-priced medication on the formulary. The manufacturer also must agree to provide that discount for other non-Medicaid state health programs.

State officials say the law saves $850,000 a week in prescription drug costs.

The Dept. of Health and Human Services, headed by Tommy Thompson, approved parts of Michigan's program, including the prior authorization program, the effort to secure supplemental rebates and the initiative for drug manufacturers to provide rebates for non-Medicaid programs.

The U.S. District Court for the District of Columbia said the federal government did nothing wrong in approving the program.

"The secretary did not act arbitrarily, capriciously or otherwise not in accordance with law," the court said. "Nor for that matter did the secretary act unlawfully in approving the pricing targets established by the initiative, which are not unconstitutional under the commerce clause."

While many Medicaid experts have been watching this case, they have had their eyes on other lawsuits challenging similar laws. State and federal courts are taking action on other PhRMA lawsuits against state programs aimed at cutting prescription drug costs:

• A federal court said a complaint filed against Florida's preferred Medicaid drug list is outside federal law because that state didn't create a formulary. PhRMA has appealed the case and is waiting to find out whether the appeals court will hear it.
• The U.S. Supreme Court heard arguments and is expected to rule this year on a challenge to the way Maine sets Medicaid drug prices and reimbursement rates.
• The U.S. Court of Appeals for the District of Columbia Circuit struck down Maine and Vermont laws that require pharmaceutical companies to extend drug discounts to people ineligible for Medicaid or face having their drugs put on the Medicaid prior authorization list.

"We understand states' concerns with budgets," said Bruce Lott, PhRMA spokesman. "But we believe these programs are detrimental to patients. We believe they will increase costs in the long run because patients could end up costing the state more through hospitalizations because they are not getting the medication they need."

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