Court upholds Michigan Medicaid drug limits

Pharmaceutical makers weigh whether to appeal the ruling.

By Tanya Albert, amednews staff. April 26, 2004.

Michigan's Medicaid drug rebate program won round two in the federal court arena.

The U.S. Court of Appeals for the District of Columbia Circuit in April upheld a lower court decision that the law requiring physicians to get prior authorization for medications that aren't on a formulary is legal.

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This latest ruling wasn't surprising, Michigan State Medical Society officials said.

The state Supreme Court last year upheld the law, and earlier federal rulings on the Michigan program and similar initiatives elsewhere came down on the states' side.

The law, implemented in 2002, has been a hassle for Michigan doctors who treat Medicaid patients, but it was also necessary to keep costs under control so physician payments wouldn't be cut, said Colin Ford, MSMS's manager of state government affairs. The program saves the state about $42 million annually. "It's a zero-sum game for us," Ford said.

A state panel looks at drugs' clinical effectiveness and safety and names two in each therapeutic class as the "best." Doctors don't have to get prior authorization for those medications or cheaper drugs.

But to make that "best-in-class" cut, drug makers in many cases must offer a rebate beyond the federal Medicaid discount. The manufacturer also must provide the additional rebate to two other state health programs.

Because not all pharmaceutical companies are willing to cut their prices, the program has meant more physician time on the phone trying to get prior authorization.

"To a certain extent, it's a savings on their backs because they are not being reimbursed for their extra time," Ford said.

Michigan is one of about two dozen states that have enacted legislation aimed at controlling soaring medication costs through preferred-drug lists, prior authorization, supplemental rebates, generic drug substitution, co-payments and other methods, according to the National Conference of State Legislatures. At least a dozen states have laws similar to Michigan's.

Plaintiffs in the lawsuit, which was filed against U.S. Health and Human Services Secretary Tommy Thompson, are debating whether to appeal the ruling. The deadline is 90 days from the April 2 opinion.

The Pharmaceutical Research and Manufacturers of America, one of the plaintiffs, argues that Michigan's program violates the Medicaid statutes and harms patients.

"We just don't feel the government should be making these decisions, especially when they are made on cost," PhRMA spokeswoman Wanda Moebius said. "We believe physicians should be making the decisions."