Bargain hunting

June 06, 2005

MARYLAND IS going drug shopping with West Virginia and Louisiana. More precisely, the three states are pooling their purchasing power to negotiate a lower price from pharmaceutical manufacturers for their Medicaid beneficiaries.

The resulting discounts are projected to lower drug expenses only about 3 percent to 4 percent below cost-saving measures already in place. But in Maryland, that reduction will total about $20 million a year - money that will more than come in handy to a health care program for the poor and disabled that gobbles a whopping 25 percent of the state budget.

Call it smart shopping, penny-pinching or stretching every which way to make ends meet. By whatever name, there's going to have to be a lot more of it over the next few years to minimize the impact on the quality of care to Medicaid beneficiaries as health care costs continue to climb.

Anytime that savings can be found on the cost end instead of the care end, it's a victory for sane and humane policy.

Pharmaceutical prices are an obvious target because they are a major driver of health care costs, rising at a rate of about 15 percent a year. Private health insurers have been negotiating discounts with manufacturers for years. But government programs - principally Medicare, which is federal, and Medicaid, for which states pick up half the tab - still mostly pay retail.

For the past dozen years or so, state Medicaid programs have been guaranteed the so-called best price offered by drugmakers for specific products - or rebates for amounts they had overpaid - for a savings of about 20 percent off full retail.

More recently, many states - including Maryland - assembled preferred drug lists that make it easier for patients to obtain pharmaceuticals that manufacturers have agreed to sell at a deeper discounted rate. That practice shaves another 8 percent or so off the retail price.

Maryland expects to achieve still greater savings by joining with West Virginia and Louisiana in order to leverage their combined buying power.

Federal officials have approved such multistate purchasing pools, but generally make it very difficult for government programs to be smart shoppers because of the enormous influence of the pharmaceutical lobby. States are prohibited, for example, from combining their employee or prison populations with Medicaid beneficiaries to win further drug discounts.

With the growth of Medicaid over the next 10 years expected to far exceed the states' ability to pay their share, such profit protections for the pharmaceutical industry are indefensible.

Congress is likely to be asked soon to approve a combination of benefit cuts and boosted co-pays and deductibles in order to produce $10 billion in Medicaid savings demanded by its budget blueprint for next year. Before any such cuts go through, states ought to be allowed to take advantage of whatever bargains they can find.

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