Court upholds states' prescription rules

Drugmakers challenged strategy for encouraging use of cheaper medicines


WASHINGTON - A federal appeals court has upheld methods used by more than half of the states to control the cost of prescription medicines bought for Medicaid recipients and other low-income people.

In its ruling Friday, the court rejected a challenge by the pharmaceutical industry, which had attacked Michigan's strategy for encouraging low-income patients to use lower-cost medicines.

The decision is significant because a rapidly growing number of states have adopted "preferred drug lists" like Michigan's as a way to control soaring drug costs. The National Conference of State Legislatures says 26 states are using such lists and that 10 others have enacted laws authorizing their use.

Michigan established a list of preferred drugs, first identifying what it considered the most effective products in each of 40 therapeutic categories. Among those drugs, the least expensive are automatically covered under Medicaid and two other health programs operated by the state. Other products can get on the list if manufacturers pay supplemental rebates to the state, in effect reducing prices to the level of the preferred drugs.

Before dispensing drugs not on the list, pharmacists must obtain approval from the state's pharmacy benefit manager. Drug companies contend such "prior authorization" requirements limit access to particular drugs and force some patients to accept inferior alternatives.

In affirming the decision of a lower federal court, the U.S. Court of Appeals for the District of Columbia said, "The available data confirm that, in practice, the prior authorization requirement has proved neither burdensome nor overly time-consuming."

The appeals court also said Michigan was within its rights to use its Medicaid program as leverage to obtain discounts on drugs bought for low-income people in the two programs, which serve the elderly and pregnant women.

A state can "establish a Medicaid prior authorization program in order to secure rebates on drugs for non-Medicaid populations if a state demonstrates, through appropriate evidence, that the prior authorization program will further the goals and objectives of the Medicaid program," said the opinion, written by Judge Karen LeCraft Henderson for a unanimous three-judge panel that also included Judges Judith W. Rogers and Stephen F. Williams.

Drug companies argued that Michigan was improperly using the Medicaid program to benefit elderly people and pregnant women at the expense of Medicaid recipients.

Henderson rejected that argument. By making prescription drugs available to people with incomes slightly above the ceiling for Medicaid, she said, the state helps them stay healthy so that they will be less likely to qualify for Medicaid.

As a result, the court said, "more resources will be available for existing Medicaid beneficiaries."

Henderson concluded that the Michigan program "serves valid Medicaid goals." Moreover, she noted that "the prescribing physician has the final say" because nonpreferred drugs will still be available as an option if a doctor certifies that they are medically necessary.

Janet Olszewski, director of the Michigan Department of Community Health, said that by encouraging doctors to use the list of preferred drugs, the state had sharply reduced the growth of Medicaid drug spending.

In the three years before the program took effect, Olszewski said, "we saw annual increases of 11 percent per prescription; now it's just 4.2 percent."

The lawsuit was filed by the Pharmaceutical Research and Manufacturers of America, a lobby for makers of brand-name drugs, against Tommy G. Thompson, the U.S. secretary of health and human services, who approved Michigan's program in 2002.

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