The National Governors Association (NGA) announced on October 24 the release of a report on pharmaceutical purchasing pools, touted by West Virginia Governor Bob Wise during a media blitz he used to launch the Southern States Coalition’s pharmacy working group.
The NGA report, issued by the Health Policy Studies Division of the group’s Center for Best Practices, outlines state efforts to control escalating prescription drug costs, including the development of purchasing cooperatives that enable participants to negotiate lower pharmaceutical prices, secure greater discounts and rebates with manufacturers, and improve quality of care due to the alliances’ increased market power.
Focusing on two interstate purchasing pools—the Southern States Coalition and the New England Tri-State Prescription Coalition—and the intrastate efforts of Georgia, Massachusetts, and Texas, the report offers background and analysis of the development, structure, and goals of the various purchasing pools and their organizational status.
Southern States Coalition Issues RFP
The NGA report was released less than one week after the West Virginia Public Employees Insurance Agency issued a request for proposal for a multi-state pharmaceutical purchasing effort.
The new Southern States Coalition purchasing pool will serve state employees in Louisiana, Mississippi, Missouri, New Mexico, South Carolina, and West Virginia. The coalition creates a purchasing pool of approximately 1.4 million people, with at least eight additional states expressing interest in participating in the group.
“We’ve taken a unique approach in the development of the Southern States Coalition,” said West Virginia Governor Wise. “We found that with the dramatic increases in pharmaceutical spending, we could best serve our constituents by partnering with states that share a similar view about health care.”
The RFP issued on behalf of the coalition differs from traditional pharmacy benefit manager (PBM) arrangements in its reduction of rebate levels and the maximization of administrative fees paid to the managing group. This, explained Wise, “eliminates increased profits for the PBM should more people get sick and our expenditures increase.”
New England Unites
The New England Tri-State Prescription Coalition unites Maine, New Hampshire, and Vermont in an effort to address rising prescription drug costs for the states’ uninsured, under-insured, and those covered by government programs. The plan went into effect November 1. The coalition hopes to enhance the availability of prescription drugs for its beneficiaries, while also saving between 10 and 15 percent of the three states’ combined $387 million annual Medicaid bill.
While interstate programs offer great potential for negotiating pharmaceutical discounts, they are not the only option available to states. In fall 2000, Georgia launched a multi-program purchasing cooperative that combined the state employees insurance plan, higher education health insurance programs, Georgia Medicaid, and the children’s health insurance program, PeachCare for Kids.
Similarly, the FY 2000 budget for the Commonwealth of Massachusetts created a bulk purchasing program aimed at saving approximately $200 million by grouping into one pool an estimated 1.6 million senior pharmacy assistance participants, Medicare and Medicaid enrollees, state workers, and uninsured and under-insured individuals. Implementation of the plan has not yet begun.
In June 2001, Texas created a multi-agency bulk purchasing system serving all state agencies that purchase pharmaceuticals, including the Departments of Health and Mental Health, state employees, retirees, teachers, and the prison system. The law creates the Interagency Council on Pharmaceuticals Bulk Purchasing, which the state estimates will save approximately $13 million in its first two years, beginning September 1.
Skyrocketing Costs
In 1998, state Medicaid programs spent $11.7 billion on pharmaceutical purchases, an increase of $1.5 billion from 1997. Between 1990 and 1998, state spending on outpatient prescription drugs increased over 300 percent, from $4.8 billion to $14.8 billion.
“Pharmaceutical costs are one of the fastest growing state budgetary issues currently facing governors,” noted John Thomasian, director of NGA’s Center for Best Practices. “The development of both intrastate and interstate purchasing pools offers states the opportunity to wield significant market power and may result in the savings of hundreds of millions of dollars annually as additional states participate in such groups. West Virginia and the coalition states are at the forefront of developing new policies that hold down the rising costs of health care.”
Founded in 1908, the NGA is the instrument through which the nation’s governors collectively influence the development and implementation of national policy and apply creative leadership to state issues. Its members are the governors of the 50 states, three territories and two commonwealths.
Christine LaPaille works in the Office of Public Affairs at the National Governors Association. She can be reached at 202/624-5334, email [email protected].
For more information . . .
The full text of the NGA’s October 24 Issue Brief, “Pharmaceutical Purchasing Pools,” is available in text, HTML, and PDF at the NGA Web site, www.nga.org. The PDF document is also available through PolicyBot, The Heartland Institute’s free online research service. Point your Web browser to www.heartland.org, click on the PolicyBot icon, and search for document #3264427.
