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States Move to Cut Cost of Drugs

Medicine: While Congress struggles to reform Medicare, many seniors in California and elsewhere pay less for prescriptions as local lawmakers take actions to rein in spiraling prices.


While Congress struggles with Medicare reform, prescription drug prices already are falling for many elderly consumers as states take aggressive actions to control drug costs.

Twenty-nine states, including California, have enacted programs that shave the costs of medications for senior citizens, many of whom do not have insurance for prescription drugs.

In California, the cost of the average prescription has fallen to $32, from about $40, according to the state pharmacists' group, as a result of a law that took effect last year that requires pharmacies participating in Medi-Cal, the state Medicaid program, to extend Medicaid discounts to senior citizens.

Maine and Vermont have passed controversial laws that extend mandatory discounts to senior citizens who don't qualify for Medicaid, the state-federal program for the poor. New Mexico and West Virginia are setting up buyers' clubs with enough clout to negotiate lower prices.

And bills under consideration in 40 other states would deepen existing Medicaid discounts or expand the number of people eligible for price breaks. Proposed legislation in California would use voluntary rebates from drug makers to save Medicare recipients an estimated $750 million a year.

To Theresa Johnson, a 65-year-old widow with chronic pulmonary disease, the legislation would mean a monthly savings of as much as $140. She now pays $700 a month for 16 medications that treat her lung disease and other ailments.

"It'd be nice to get some help," said Johnson, a retired respiratory therapist who lives near Sacramento.

Prescription drug prices rose an average of 3.9% last year, according to industry statistics. But total expenditures rose 14.9% as Americans turned to new and more costly medications.

Pharmaceutical firms argue that the drugs will prove to be cost effective because they can help consumers avoid hospital stays. But, industry representatives admit, such savings can take years to materialize, as in the case of cholesterol drugs used to lower the risk of heart attack.

"It doesn't reduce what the provider is paying right now," said Marjorie Powell, general counsel for Pharmaceutical Research and Manufacturers of America, or PhRMA, whose members produce most brand-name medications.

The industry opposes mandatory price curbs. PhRMA said lower profits hurt everyone, because it means drug makers will have less money to plow into research. Manufacturers say it takes $500 million to bring a new drug to market.

But there is growing skepticism about the impact of price cuts on innovation. The advocacy group Public Citizen last week said the federal government--through National Institutes of Health research grants--heavily subsidizes drug development. Actual research expenditures by pharmaceutical firms average $110 million per drug, Public Citizen said.

The state-level reforms come as Congress seems unable to agree about adding a prescription drug benefit to Medicare. President Bush this month proposed a national prescription card for Medicare recipients that would be issued through private health insurers. Senior citizens would pay as much as $25 for a card entitling them to discounts of 15% to 25%. But advocates for the elderly said that does not offer enough help.

State legislators have strong incentives to take matters into their own hands. According to the National Conference of State Legislators, state Medicaid programs are coming in over budget, partly because of higher drug prices. In Oregon, where a law to curb spending recently was passed, Medicaid costs are expected to swell 60% over the next two years.

At the same time, lawmakers feel compelled to assist elderly constituents with their prescription bills. Nationally, 30% of those age 65 or older, or about 13 million people, have no prescription coverage.

"State legislatures have two quite distinct motivations," said Richard Cauchi, a health policy expert with the National Conference of State Legislators. "They want to help people who need assistance, but as lawmakers, they are concerned with saving the state money."

Many of the state programs already in place use government funds to subsidize prescription drug costs. But, as state Medicaid tabs climb, legislators have come up with innovative ways to share the burden with drug makers and, to a lesser extent, pharmacies--whether they like it or not.

Like Clumps of Seaweed, Lobbyists Hit Town

Nearly two dozen lobbyists for drug companies swarmed the Oregon Capitol last month, intent on watering down a bill creating a preferred drug list, or formulary, said Kurt Furst, policy advisor to the Oregon Department of Human Services. "They traveled in clumps, like seaweed."

The final bill omits price control language the industry considered onerous. It nonetheless will save the state Medicaid program--which is being expanded to include 50,000 low-income senior citizens--an estimated $100 million over five years.

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