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RALEIGH There's a simple way for North Carolina to save $28million a year in Medicaid spending, but it has been impossible to get anyone at the legislature to act – until Tuesday.
For years, putting limits on what drugs could be prescribed for Medicaid recipients has been untouchable because it would displease the drug companies and cost them millions. And few at the N.C. General Assembly want to upset the drug companies.
But the severity of the $4.5billion budget shortfall for the next fiscal year may finally push lawmakers to make drug companies share the pain. When the House Appropriations Committee rolled out its 481-page budget Tuesday, it included a plan that would force pharmaceutical companies to lower prices.
Adam Searing, an advocate for better and inexpensive health care as director of the Health Access Coalition, has argued for such a “preferred drug list” for years. Each time, he has lost, leaving North Carolina as one of only six states that don't save Medicaid money by requiring generics.
“The pharmaceutical industry is enormously politically powerful in North Carolina,” Searing said. “They've blocked every move to establish a preferred drug list.”
Tuesday's development doesn't mean Big Pharma won't flex its muscles at the General Assembly. And it doesn't mean lawmakers won't back down. While in past years, textile and tobacco companies held sway on Jones Street, these days the clout belongs to homebuilders, banks, hospitals and the health care industry.
The state's prison system, for example, has tried for years to negotiate cheaper rates on medical care for inmates treated outside prison. Costs have nearly doubled to $83.4million in the past five years.
Rebuffed by the legislature, the department has not been able to tie rates to Medicaid or the State Health Plan, which could save up to $21million a year, according to an actuarial study done last year for the department . Again, the budget crisis is forcing lawmakers to act: The House budget rolled out Tuesday would tie the cost of inmate care to Medicaid.
The pharmaceutical industry has been a boon to the state's economy. North Carolina has 18,673 jobs in pharmaceutical and medicine manufacturing. These jobs pay well, with an average annual salary of $73,904.
Sen. Bill Purcell of Laurinburg, a physician and senior budget writer, said his colleagues know how important these jobs are.
“From a political standpoint, you've got to be darn careful,” said Purcell, a Democrat. “Drug companies don't like preferred drug lists. At least we can say we're friendly to the drug industry.”
And the drug companies have been friendly to state politicians, donating nearly $700,000 in campaign money over the past four years, including $532,755 for legislators.
Purcell helped craft a Senate budget in April that took baby steps toward creating a preferred drug list. The Senate's list would start a year from now, but only if the state can't produce $20million in savings in the next 12 months just from encouraging doctors to prescribe generics. Instead of looking first for voluntary savings, the House budget rolled out Tuesday makes the list mandatory.
Preferred lists
There's big money in Medicaid, the government's health care program for the poor. In North Carolina, Medicaid spends about $1billion a year on prescription drugs. Federal spending accounts for two-thirds, while state taxpayers pay the rest.
Drug costs have been going up. Every year, Medicaid covers more people. Every year, more drugs become available to cure or control diseases. The new drugs can be more effective and are generally more expensive.
A preferred drug list would push physicians to prescribe generic drugs or, if a generic isn't available, one of the less-expensive brand-name drugs on the list. The lists use a “pay to play” scheme: Pharmaceutical companies must offer rebates to get their name-brand drugs on the preferred list.
Doctors would have to get prior approval to prescribe a drug not on the preferred list, so sales of nonapproved drugs would generally go down.
Preferred drug lists are common: Blue Cross and Blue Shield has one, as do Aetna, the federal departments of Defense and Veteran Affairs and other health care plans. The State Health Plan has one, but lawmakers inserted a catch when they mandated that the preferred drug list be “open.” As a result, the plan must pay for virtually any drug prescribed, except for cosmetic and erectile dysfunction prescriptions.
Forty-four states and the District of Columbia have adopted preferred drug lists in their Medicaid pharmacy programs. Many also participate in “pooled purchasing drug plans,” in which states combine their purchasing power to nudge drug manufacturers into giving greater rebates. Other states buy drugs directly from manufacturers to cut costs. Florida saved $61million annually earlier this decade.
According to the National Association of Chain Drug Stores, every state program emphasizes that patient safety and clinical efficacy come before cost savings.
North Carolina could save up to $84million a year – $28million in state funds and $56million in federal money – if it adopted a preferred drug list and rebate plan, according to a March report by the Mercer Group, a Minnesota consulting firm.
Political money
Such a move would be opposed by the drug industry, which prefers voluntary measures such as having state officials encourage doctors to prescribe more generics.
Officials at GlaxoSmithKline declined to be interviewed for this story, but a spokeswoman for North Carolina's largest drugmaker issued a statement saying preferred drug lists interfere with the individual relationship between a doctor and a patient.
GSK employs about 5,000 people in Research Triangle Park. Besides being the state's largest pharmaceutical employer, the company is the largest political contributor among N.C. drug companies. Between 2004 and 2008, Glaxo's political action committee and executives contributed at least $218,940 to state candidates. Other drug company PACs and executives contributed at least $456,205 in the same period.
Drug companies are a formidable presence at the General Assembly.
“They are like tobacco companies,” said Rep. Verla Insko, an Orange County Democrat and budget writer. “They are a major part of our industrial base.”
Insko said there was scant support for a preferred drug list until last week, when budget writers learned they had to trim an additional $254million from Medicaid.
This forced even more draconian cuts: on payments to doctors, nursing homes and community support services.
“The preferred drug list doesn't have any direct impact on patients,” Insko said. “The impact is spread on big drug companies based all over the world.”
Proposed drug restrictions have run into trouble in the past. In 2002, as the state was grappling with a budget crisis, DHHS Secretary Carmen Hooker Odom announced her plan to cut the rise in Medicaid costs with a preferred drug list.
Key lawmakers killed the plan after drug companies put on a full-court press at the legislature.
“I've never seen so many thousand-dollar suits and gold watches in one place,” said Searing, whose Health Access Coalition is part of the N.C. Justice Center.
Paying top dollar
Changing the way drugs are prescribed to treat mental illness could save the state millions of dollars.
When the General Assembly killed Odom's attempt to implement a preferred drug list, lawmakers specified that the secretary of Health and Human Services could not create such a list for a class of drugs known as atypical antipsychotics, which can be very expensive.
Last year, DHHS set up a committee of doctors and pharmacists to examine how much money could be saved using a preferred drug list for the mental health drugs.
According to minutes of the panel's March meeting, Dr. Michael Lancaster, director of the Division of Mental Health, said the state could save $8million a year, but only if the General Assembly repealed the prohibition it passed in 2002.
Dr. Marvin Swartz of Duke was curious about the political climate: Would the proposal be dead on arrival at the General Assembly? Not this year, because of the budget, Lancaster said.
One way to save huge amounts of money would be to keep doctors from prescribing expensive drugs for uses not approved by the FDA, Swartz said.
One example was Seroquel. In North Carolina, Medicaid spends more on Seroquel than all other drugs: $29.4million. The FDA has approved Seroquel for treating two serious mental diseases: schizophrenia and bipolar disorder.
Yet doctors were prescribing Seroquel for other uses: for insomnia or for children 5 and under who are too young to be diagnosed as bipolar or schizophrenic. Neither of these uses is approved by the FDA, but DHHS has no power to stop such prescriptions short of a preferred drug list.
Mental health drugs are not the only area where a preferred drug list could produce savings.
Two of the costliest Medicaid drugs are used to treat gastroesophageal reflux disease: $7.8million was spent on Nexium and $6.7million on Prevacid.
Searing pointed out that there is a generic, over-the-counter drug that tests show is roughly equal in effectiveness and safety: Prilosec, at 1/10th the cost of the prescription drugs.
“It is equally effective for most people,” Searing said.
Expensive prisoners
As the state's prison population has grown, so have the medical costs associated with aging inmates, mental illnesses and chronic diseases. Inmates go to hospitals for operations or emergencies.
In the last fiscal year, the department spent $83million on hospitals and other medical providers outside prison walls. There have been attempts to cut these costs. In 2002, the House passed a bill that tied the cost of inmate medical care at UNC Hospitals to Medicaid reimbursement rates. Sen. Tony Rand, a Fayetteville Democrat, helped kill the bill in the Senate.
“I'm sure it had to do with what it would have cost UNC,” Rand said. “It would have cost them a lot of money.”
Hospital officials say that inmates cost more to treat than regular patients.
Karen McCall, spokeswoman for UNC Hospitals, said inmates require private rooms and separate check-in and registration. And even though the prison system provides a guard, the hospital must make sure there is 24-hour security. UNC does give a 10 percent discount off the billed price to the prison system, McCall said.
In 2007, the State Health Plan estimated that the correction department could save 27 cents on the dollar if the hospitals were reimbursed at State Health Plan rates. Last year, an actuarial firm studied how much the department would have saved if the prison system had paid rates under 15 other plans: Medicaid, the State Health Plan and private insurance plans. Savings ranged from $6.5million a year to $21million.
But in the past few years, the Department of Correction has not been aggressive in pushing such a plan. Neither Rand nor lawmakers who write the department's budget were aware of the results of the actuarial study.
The department cannot just demand to be billed at Medicaid rates, said Jennie Lancaster, chief operating officer at the Department of Correction. That would require legislative action.
The House budget proposal announced Tuesday would provide prison officials new leverage: Hospitals could charge no more than 150 percent of Medicaid rates.
Not surprisingly, the N.C. Hospital Association does not support the change, said Hugh Tilson, the association's lobbyist.
“We're working on a compromise,” he said.
