West Virginia Prescription Drug Bill HB 4084

You asked for information on West Virginia’s bill (HB 4084) that would require pharmaceutical companies to sell prescription drugs to state programs at a price equivalent to the federal supply schedule.

HB 4084, as originally passed by the West Virginia House in January 2004, creates a commission to develop and implement a program to obtain favorable pharmaceutical prices for state agencies and other qualified entities. Among other provisions, it specifically limits payments for prescription drugs under state programs to no more than the federal supply schedule (FSS) prices. This is a negotiated price list from which federal agencies and others can buy prescription drugs at prices at least as low as the prices drug manufacturers charge their most favored large private purchasers. The bill authorizes the commission to make exceptions to the FSS prices for a variety of reasons or to establish different rates.

The Senate’s version, passed on March 5, removed the specific FSS price limits. Instead, it created an authority with the power to “explore the feasibility” of a number of options, including using the FSS to set prices in West Virginia. The Senate bill added a manufacturer-funded Prescription Drug Assistance Clearinghouse Program, a state-sponsored drug discount card program for low-income people, and other provisions.

The subsequent conference report, as passed by both chambers on March 14, creates a council that must establish a pricing schedule using either the FSS schedule, Canadian drug prices, or other appropriate standard and submit the schedule and an implementation plan to the legislature by September 15, 2004. The schedule and plan will take effect only if the legislature approves it by concurrent resolution. The bill gives the legislature until the end of the 2005 session to pass or reject the resolution, but also allows it to pass the resolution subsequently.

FSS prices are supposed to be equivalent to what pharmaceutical manufacturers charge their “most favored” private customers. But the negotiated prices vary and can sometimes be higher than the prices the most favored customers pay. The FSS prices are available to the Veterans Administration, various federal agencies, the District of Columbia, U. S. territorial governments, Indian tribes, and certain other entities. The Veterans Administration buys the majority of prescription drugs under it.

HB 4084, in its original House version and as finally passed, defines “federal supply schedule (FSS)” as the price available to all federal agencies for the purchase of pharmaceuticals authorized in the Veterans Health Care Act of 1992, P. L. 102-585. It states the FSS prices are intended to equal or better the prices manufacturers charge their “most-favored” non-federal customers under comparable terms and conditions.

According to a January 20, 2004, statement in support of the West Virginia bill by Governor Bob Wise, FSS prices on average are about 18 cents per pill lower than what the West Virginia Public Employees Insurance Agency pays and 35 cents per pill lower than what Medicaid pays. On average, the FSS prices are about 42% of retail (the price paid by an uninsured individual who does not receive state assistance), according to the governor’s statement.

HB 4084, the West Virginia Pharmaceutical Availability and Affordability Act, as the House first passed it on January 22, 2004, creates a program to obtain favorable pharmaceutical prices for state agencies and other qualified entities. It creates the West Virginia

Pharmaceutical Commission, consisting of the heads of a number of state departments and some public members with health insurance experience. It gives the commission, among other powers, authority to:

1. create a program to obtain favorable rates and set dispensing fees for pharmaceuticals entering the state; gather marketing reports;

2. prepare an analytical report on the program’s effectiveness every two years with an analysis of savings, benefits, and problems;

3. enter into cooperative agreements to carry out the program, including contracts with similar plans in political subdivisions or other entities;

4. determine the most effective method for implementing the program through wholesalers, either directly or through a rebate program;

5. recommend needed legislation;

6. contract with appropriate legal, actuarial, and other services to accomplish its functions;

7. investigate the feasibility of buying prescription drugs from sources in Canada, including the feasibility of the state serving as a wholesale distributor (if the commission decides this is feasible, the bill authorizes it to pursue whatever federal waivers may be needed to accomplish it); and

8. develop other permissible strategies to manage rising drug prices and increase residents’ access to affordable prescription drugs.

The bill creates a special revenue account in the state treasury named “the pharmaceutical fund” to contain all fees and penalties the bill authorizes, which are to be used for the costs of legal actions on the commission’s behalf.

The bill prohibits the amount paid for pharmaceuticals under a number of state-run insurance programs from exceeding prices listed on the FSS plus a dispensing fee, except in those cases where the commission establishes different rates. The programs affected include the public employee insurance agency, Medicaid, the Children’s Health Insurance Program, and the Workers’ Compensation Program. The bill also states that it does not preclude the commission from negotiating prices lower than the FSS prices. In addition, it limits prices for drugs not on the FSS list to no more than average wholesale price (AWP) minus 30% plus a dispensing fee (the commission can also adjust this percentage based on current market conditions.

The bill allows qualified entities such as private insurers, self-insured employers, free clinics, and other entities that provide pharmaceuticals to West Virginia residents, at their option, to apply to participate in the program.

Pharmaceutical manufacturers can ask the commission for a waiver from the FSS rates for a particular drug if (1) they are its sole source or (2) the development, production, distribution and other reasonable costs, and reasonable profits (but not marketing and advertising costs) are more than the FSS rate. Waiver applicants must pay a fee the commission sets.

Generic drug manufacturers can also request a waiver from the FSS rates for the same reasons. Or, the commission can determine the state has an incentive to provide a preferential price to a generic manufacturer to increase program participants’ generic drug use to further reduce overall costs.

The bill exempts Medicaid and the Children’s Health Insurance Program from participation in the program until the federal Center for Medicare and Medicaid Services grants its approval, if the commission determines such approval is needed.

The commission, in its sole discretion, can defer the program’s implementation based on the extent of participation and completion of negotiations.

The bill imposes penalties on pharmaceutical price fixing, monopolistic, and anti-competitive activities.

The bill requires all manufacturers and labelers of prescription drugs dispensed in the state that use marketing representatives to report their advertising and marketing costs to the commission. The reporting is intended to assist the state in its role as a purchaser, program administrator, and guardian of the public interest, to determine the scope of marketing costs and their effect on the cost of health services.

The bill specifically authorizes the commission to negotiate drug prices that program participants pay. These negotiated prices must be available to all program participants. It also allows pharmacies to potentially be eligible for a rebate determined by the commission to prevent them from losing income because of their participation.

The bill allows program savings, in the legislature’s discretion, to be directed toward maintaining existing state health programs and expanding insurance programs for uninsured and underinsured people.

The Senate amended the House-passed bill in a number of ways and passed it on March 5. The Senate version removes all reference to prohibiting prices higher than the FSS schedule. It only requires the authority (similar to the House commission – see below) to explore the feasibility of using or referencing the FSS, the price set by the Canada Patented Medicine Prices Review Board, or any other appropriate referenced price to set prices for brand name drugs in the state. The authority must also review and determine pharmacy dispensing fees for such a program.

Instead, the Senate version requires the brand name drug manufacturers to create and implement a State Prescription Drug Assistance Clearinghouse Program to help low-income and uninsured residents gain access to prescription drugs through existing private and public programs and manufacturers’ drug assistance programs. It requires the manufacturers to use available computer programs to connect people with appropriate programs and to provide education to promote the program and expand enrollment. The manufacturers are responsible for the cost of establishing the program and then must transfer ownership of the technology, website, and other program features to the state. After that, they must contribute funds for the ongoing program and public relations efforts to promote it.

The same bill also establishes a state-sponsored drug discount program for low-income uninsured people with incomes up to 200% of the federal poverty level. It allows the state to negotiate voluntary discounts with manufacturers and pharmacists and requires the total discount received from a manufacturer to pass through to the individual. But a manufacturer’s failure to participate in the voluntary discount card program will not result in prior authorization for the company’s drugs under the state’s Medicaid program. It also prohibits the state from establishing a formulary, preferred drug list, or prior authorization for the discount card. The bill allows manufacturers to extend their existing assistance programs to this group of residents.

Like the House bill, the Senate version creates a program to obtain favorable pharmaceutical prices for state agencies and other qualified entities and exempts Medicaid and the children’s health insurance program until federal approval is obtained, if that is necessary.

The Senate version also contains the multi-state discussion group. It renames the commission the West Virginia Pharmaceutical Cost Containment Authority, with somewhat different membership and powers. Under this version, the authority, among other powers, can contract for the purpose of implementing the bill’s cost containment provisions and execute as permitted drug purchasing agreements with state agencies, other states, and regional or multi-state purchasing alliances. The authority can also explore:

1. strategies to manage drug costs and increase access;

2. enactment of fair prescription drug pricing policies, discount prices or rebate programs, and manufacturers’ assistance programs;

3. requirements for manufacturers to disclose their advertising, marketing, and promotion expenses to the authority;

4. establishment of counter-detailing programs;

5. disease management programs;

6. drug purchasing agreements with large private sector purchasers and pharmacy benefit managers;

7. the feasibility of using or referencing the FSS or the price set by the Canada Patented Medicine Prices Review Board, or any other appropriate referenced price to set prices and pharmacy dispensing fees for brand name drugs; and

8. a number of other options.

The Senate version, like the House bill, authorizes the authority to investigate the feasibility of buying prescription drugs from sources in Canada and having the state serve as a wholesale distributor and allows it to seek related federal waivers.

The Senate version also contains the same restraint of trade prohibitions and civil and criminal penalties, as well as the reporting requirement for advertising costs.

While the conference report, which passed both chambers on March 13, contains most of the provisions in the Senate version, it reemphasizes the FSS schedule but in a more flexible way than the House bill did. The conference report still creates a program to obtain favorable pharmaceutical prices for state agencies and other qualified entities. It renames the commission/authority as the West Virginia Pharmaceutical Cost Management Council. It requires the council to establish a pricing schedule using or referencing the FSS prices, the prices set by the Canada Patented Medicine Prices Review Board, or any other appropriate referenced price that will maximize savings to the broadest percentage of the state’s population.

The final bill (same as the conference report) requires the council, by September 15, 2004, to report back to the legislature the pricing schedule it has developed and a strategic implementation plan. It allows the council to implement the schedule and the plan only following a concurrent resolution by the legislature. If the legislature does not pass the concurrent resolution, it must then accept or reject a concurrent resolution to implement a pricing schedule and strategy using or referencing the FSS. The acceptance or rejection must occur before the end of the 2005 legislature’s regular session. But if neither resolution passes in 2005, the bill still allows the legislature to pass one subsequently.

The conference report also gives other qualified entities such as private insurers, self-insured employers, free clinics, and others an option to join the program. It also allows pharmaceutical manufacturers to request a waiver from the to-be-adopted pricing schedule.

The Herald Dispatch, in a January 26, 2004 article, quoted estimated savings of $ 308 million a year by applying FSS prices to brand name prescriptions as the original House bill proposed:


March 22, 2004		2004-R-0310
WEST VIRGINIA PRESCRIPTION DRUG BILL HB 4084

By: Helga Niesz, Principal Analyst