Health Care - Stopgap state prescription programs

Congress has recently expanded the Medicare Program to cover prescription drugs. However, while awaiting that action several states initiated their own prescription drug programs as stopgap measures. In fact, much happened on the state level during the year prior to Congress' foray into the area.

Preferred Drug Lists

Many states, including Florida, Maine and Michigan, have created preferred Medicaid drug lists. If a drug is listed, then a doctor does not need preauthorization to prescribe it to low-income individuals eligible for that state's Medicaid program. If the drug is not listed, then preauthorization is required.

Interestingly, these states have not only used these lists to obtain discounts from drug companies for drugs reimbursed under Medicaid, but these states also have used the lists as leverage in negotiating with drug manufacturers to provide discounts to non- Medicaid populations.

In September 2002, the Centers for Medicare and Medicaid Services (CMS) sent a letter to all states setting forth its position in this regard. CMS generally approves of preferred drug lists, and approves of using such lists to encourage drug manufacturers to provide discounts and rebates for non-Medicaid populations, provided the initiatives further the goals of the Medicaid program, and provided that a state seeking to implement such a plan first seeks CMS approval.

One such program is the Maine Rx program, which uses state funds to pay pharmacies to give discounts on prescription drugs to certain Maine residents who do not qualify for Medicaid. Maine recoups its costs by entering into rebate agreements with drug manufacturers. If a drug manufacturer does not voluntarily enter into such a rebate agreement, its drugs are removed from Maine's Medicaid preferred drug list, and preauthorizations are required before the drugs can be prescribed to Maine's Medicaid participants.

Pharmaceutical Research and Manufacturers of America (PhRMA) challenged the Maine Rx plan on the basis that it violated the Medicaid statute and the Commerce Clause of the U.S. Constitution. This past May, the Supreme Court, in PhRMA v. Walsh, held that the Maine Rx plan does not violate the Commerce Clause, and would only violate the Medicaid statute if it could be demonstrated that the plan curtails benefits to Medicaid participants.

Many states had been carefully watching the Maine Rx case, and were seriously considering implementing similar plans in light of the Supreme Court's decision and the CMS letter. Whether those initiatives will now move forward, or be put on hold, remains to be seen.

'Pharmacy Plus' Medicaid Waivers

Before Congress' recent action there had been no drug coverage under Medicare. However, the Medicaid program, which is available to the country's poorest populations, has covered prescription drugs for some time. Further, the Medicaid statute allows states to develop pilot or demonstration projects that experiment with new methods of providing health care to low-income citizens who do not qualify for traditional Medicaid. The Department of Health and Human Services (HHS) can approve such plans if the plans will assist in promoting the objectives of the Medicaid system, and if they are budget neutral - i.e., they will not increase the overall cost of Medicaid to the federal government.

Early last year, HHS announced a model state demonstration project, Pharmacy Plus, which allows states to expand Medicaid coverage for prescription drugs to seniors and others with incomes up to 200 percent of the federal poverty level. Pharmacy Plus programs act like traditional Medicaid programs in that both state and federal funds are used. To date, four states have received approval of their Pharmacy Plus programs, and eight other states have applications pending with HHS.

While not styled exactly like a Pharmacy Plus waiver, Maryland has received waiver approval for two similar demonstration programs - the Pharmacy Assistance Program and the Pharmacy Discount Program.

Discount-Only Medicaid Waivers

While the Pharmacy Plus Medicaid waivers have suffered few legal challenges, Medicaid waiver programs that attempt to accomplish the same goals, but without expending state and federal funds, have failed to pass legal muster.

One such program was an attempt to expand Vermont's Medicaid program to provide prescription drugs to seniors, with the entire cost of the expansion being recouped through forced rebates from drug manufacturers. The Vermont program was struck down in 2001 because it violated the Medicaid statute, which authorizes rebates only if the rebates reduce the cost of Medicaid to the state or federal government.

In addition to the Maine Rx program discussed earlier, Maine has also tried to expand its Medicaid drug coverage through a Medicaid waiver similar to Vermont's. After Vermont's program was struck down, Maine attempted to amend its Medicaid waiver program to prevent a similar outcome, by adding a provision that Maine could pay 2 percent of the cost of the program from state funds.

In December of 2002, the original Maine Medicaid waiver program was found unlawful by the same court that struck down the Vermont program. The court's ruling, however, was based on the pre-amended program, because HHS had never approved the amended program. Although the court did not reach the issue of whether the 2 percent payment from Maine could save the program, the court was skeptical that the provision would constitute a Medicaid payment, in light of the minimal amount of the contribution and the fact that the contribution was voluntary on Maine's part.

Conclusion

Several states took initiative while waiting for Congress to provide prescription drug coverage to seniors. Now that Congress has acted, only time will tell whether these state initiatives prove to be temporary stopgap measures or resilient attempts by the states to make prescription drugs more affordable to seniors and others.

Barry F. Rosen is the chairman and CEO of Baltimore-based law firm Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC. His practice concentrates on business and health care matters, and he can be reached at 410-576-4224 or brosen@gfrlaw.com. Cynthia A. Shay is an associate in Gordon, Feinblatt's Business and Health Care Departments. She can be reached at 410-576-4082 or cshay@gfrlaw.com.

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