Prescription drug benefits: the legal battle begins. (Health Policy Update).

States are beginning efforts to control the rising costs of prescription drugs and to expand access to prescription drug coverage for low-income individuals through their state-run Medicaid and pharmaceutical programs.

This movement is the result of concerns about the rising number of low-income seniors and other individuals who lack prescription drug coverage and the failure of Congress to act on a Medicare prescription drug benefit

There are generally two types of state prescription drug initiatives: Prescription drug benefit programs and supplemental rebate programs.

Prescription drug benefit programs are designed to extend coverage to individuals without any benefits to specific groups through their Medicaid programs or by creating a non-Medicaid program to allow specified groups to purchase drugs at the Medicaid price minus a discount.

For instance, the Vermont Pharmacy Discount Program and Maine's Healthy Maine Program are prescription drug benefit programs created within their Medicaid programs using the federal 1115 wavier authority. A second Maine program called the Maine Rx Program, on the other hand, is a state-only program created by the Maine legislature. Under Maine Rx, individuals who are not eligible for Medicaid may purchase drugs at the Medicaid price minus a discount.

Supplemental rebate programs require drug manufacturers to provide states rebates in addition to those already provided to Medicaid through rebate agreements with the secretary. Both Florida and Michigan have initiated supplemental rebate programs.

In an attempt to stop these programs the Pharmaceutical Research and Manufacturers of America (PhrMA), the trade association of the pharmaceutical industry, has sued all four states and the federal government in an attempt to halt implementation of these programs.

Healthy Maine Program (HMP)

Maine's Healthy Maine Program was approved by the Centers for Medicaid and Medicare (CMS) of the U.S. Department of Health and Human Services under the federal wavier authority (Section [section]1115) of the Social Security Act.

It is designed to aid low-income individuals, not otherwise eligible for Medicaid, obtain Medicaid pharmacy benefits. Program participants purchase prescription drugs at a discounted price of approximately 80 percent of the prescription price. The remainder is covered by a state contribution of two percent and by a manufacturer's rebate of 18 percent.

PhrMA sued CMS in federal court alleging that the HMP violates a provision (42 USC [section]1396r-8(b)(1)(A)) that requires manufacturers only to pay rebates for drugs for which payment was made under the state plan.

PhrMA also claimed that CMS improperly approved Maine's addition of the two percent state payment and that the HMP violates the 'nominal" co-payment limits. (42 USC [sections]13960(b)(3))

The court granted CMS' motion for summary judgment holding that HMP's two percent contribution was a payment under the state plan. Further, the court held that PhrMA had no standing to challenge the co-payment requirements of the HMP. PhrMA appealed and the case is pending before the U.S. Court of Appeals of the District of Columbia Circuit.

Vermont Pharmacy Discount Program (PDP)

Like the Maine HMP, Vermont's PDP was a [section]115 waiver to provide certain Medicaid prescription drug benefits to individuals not previously eligible for Medicaid.

Participants were to purchase drugs at the Medicaid price minus a discount equal to the manufacturer's rebate, approximately 17.5 percent. Participants would pay approximately 82.5 percent of the price. The state made no payments under the PDP.

PhrMA sued CMS in federal court alleging that the PDP violated provisions (42 USC [section]1396r-8(b)(1)(A)) that require manufacturers only to pay rebates for drugs "for which payment was made under the state plan." In addition, PhrMA alleged that the PDP violated the nominal co-payment limitations. (42 USC [section]13960(b)(3))

The district court rejected PhrMA's claims. However, the Court of Appeals for the D.C. Circuit overruled the district court holding that the PDP violated the law because no payment was made under the state plan.

It declined to rule on the nominal co-payment issue because it ruled in PhrMA's favor on the "payment under the state plan" issue. Vermont has not implemented the PDP to date.

Maine Rx program

The Maine Rx Program is a non-Medicaid program. Under Maine Rx, pharmacies will offer drugs at discounted prices to individuals not covered by private insurance or Medicaid.

The discount is funded by rebate agreements with drug manufacturers. As an inducement to provide rebates, Maine Rx will publicly identify manufacturers and will impose prior authorization in its Medicaid program for the drugs of manufacturers refusing to participate. The Medicaid connection is that Maine Ex uses Medicaid to obtain benefits for non-Medicaid program.

PhrMA sued in federal court in Maine alleging that the Maine Rx prior authorization requirement violates federal law because it does nothing to advance the purposes of Medicaid.

As a result, it alleges that the Maine law violates the supremacy clause of the U.S. Constitution. In addition, PhrMA claimed that Maine Rx's rebate mechanism violates the commerce clause of the Constitution in that it attempts to regulate drugs prices outside the state of Maine.

The U.S. District Court enjoined implementation of Maine Ex holding that it violated both the supremacy clause and the commerce clause. The U.S. Court of Appeals for the 1st Circuit vacated the preliminary injunction. The case is pending before the U.S. Supreme Court. Although Maine Px is a benefit program, it is more relevant to the supplemental rebate cases.

Michigan supplemental rebate program

The Michigan Medicaid program established its supplemental rebate program through a state plan amendment approved by CMS. The program requires drug manufacturers to provide supplemental rebates. Manufacturers that do so have their drugs placed on a preferred drug list.

Initially, PhrMA sued the Michigan Medicaid Program in a state court. After losing its bid to enjoin the Program in the Michigan State courts PhrMA filed a separate lawsuit in federal court.

In the state court action, PhrMA alleged that the Michigan legislature had not authorized the new program and that the program violated the separation of powers provisions of the Michigan constitution. In addition, PhrMA claimed the supplemental rebate program violated the commerce clause of the U.S. Constitution. PhrMA later dropped this issue in the state action.

The county circuit court granted PhrMA's request for injunctive relief and enjoined the department from implementing the program. The Michigan Court of Appeals, however, lifted the injunction and the supplemental rebate program began in March of this year.

Then, in June, PhrMA filed suit against CMS in federal district court for the District of Columbia alleging that (42 USC [section]1396r-8(d)) a state may place a drug on a restricted formulary only for clinical reasons, and not on the basis of price.

PhrMA also made several other claims. It alleged that Medicaid laws do not allow threats to Medicaid benefits to obtain discounts for non-Medicaid programs, that the program violates the commerce clause by attempting to regulate out-of-state prices, and that states may not obtain separate supplemental rebate agreements in addition to those negotiated by CMS. The case is pending in the federal district court of the District of Columbia.

Florida supplemental rebate program

Florida has also established a supplemental rebate program pursuant to legislation passed last year. The law requires that drug manufacturers provide an additional 10 percent rebate in order for their drugs to be included on the Medicaid program's preferred drug list. Prior authorization is required for all drugs not on the preferred drug list.

PhrMA sued the Florida Medicaid program in federal court alleging that the supplemental rebate program violates the Medicaid rebate law (42 USC [section]1396r-8(d)(4)(B)-(C)) because it excludes drugs based on price.

PhrMA asserts that a state Medicaid program may exclude from its Medicaid formulary only those drugs that provide no significant, clinically meaningful therapeutic advantage. PhrMA alleges that the Florida law conflicts with federal law and violates the supremacy clause of the U.S. Constitution.

The District Court denied PhrMA's request for an injunction. PhrMA appealed this decision to the U.S. Court of Appeals for the 11th Circuit. The court ruled in favor of Florida in September.

Courts and health care

These are examples of the court's increasing role in determining health policy. While it is unclear how the courts will rule in each of these cases, health advocates hope the courts will rule in favor of reduced costs and expanded access to needed pharmaceuticals.

Georges Benjamin, MD, FACP, is the Secretary of the Department of Health and Mental Hygiene in Baltimore, Md. He can be reached by calling 410/767-6505 or by e-mail at [e-mail] Chris Cashiola is an assistant attorney general far the state of Maryland. He can be reached by phone at 410/767-1855.