You asked whether the state of Connecticut could sponsor a drug discount card for all state residents, similar to what Nassau County, New York recently did.

Information on selected private and state-sponsored drug discount programs, as reported by the Kaiser Family Foundation in a 2002 report, can be found at http: //www. kff. org/medicare/loader. cfm?url=/commonspot/security/getfile. cfm&PageID=14156.

SUMMARY

In June 2004, a half-million of Nassau County’s residents received free drug discount cards under a county sponsored program operated by one of the nation’s largest pharmacy benefits managers (PBM), AdvancePCS. County officials recently reported that in the program’s first three weeks of operation, cards were used over 5,000 times and residents saved on average $ 17. 86 “per order,” or about 24%. And CVS, one of the nation’s largest pharmacy chains, announced that its stores would accept the county-sponsored card.

Connecticut could sponsor a drug discount card for state residents. According to the Kaiser report, five states were already sponsoring such programs in 2002. But such a program might face opposition from two groups: pharmacies, especially independent stores, and the pharmaceutical industry, which has a very strong presence in the state. Proponents of such a plan would include consumers, especially those with no or limited prescription coverage who need high cost or maintenance drugs, who would get a cost-free card and cheaper prescriptions at a nearby pharmacy.

Other issues could stymie such an initiative here. For example, consumers, especially seniors, including Connecticut Pharmaceutical Connecticut Pharmaceutical Assistance Contract to the Elderly and Disabled (ConnPACE) recipients, could be confused since many of them have already signed up for Medicare prescription discount cards and might find it difficult to compare benefits.

NASSAU COUNTY PHARMACY DISCOUNT CARD

In fall 2003, the Nassau County comptroller, Howard Weitzman, initiated the county’s drug discount program, NassauRx. According to Allen Morrison, communications director for the county comptroller’s office, Weitzman initiated it because he has a strong background in health care and was concerned about burgeoning drug costs to consumers.

The county issued a request for proposals on October 31, 2003, for which the county paid a consultant less than $ 10,000 to help prepare. It received a number of proposals. Among other things, the RFP made it clear that the vendor would have to have at least (1) three years’ experience in planning, implementing, managing, and operating discount plans, along with meeting any requisite state and federal licensing requirements and (2) 75% of the county’s pharmacies participate in its pharmacy network. The proposal also had to include the estimated cost savings to consumers, the different classes and types of prescription drugs for which discounts would be available, and how the savings would be derived, including providing detailed information on the average discount and other pricing elements. According to Morrison, the county solicited bids from the PBM trade association.

The RFP asked the potential vendor to offer a simplified enrollment process, including creating enrollment forms, a toll-free number, issuing identification cards, and an estimate of funds that would be allocated to advertise the program. It also had to ensure that the enrollment fee would be none or minimal and that no fees would be charged to the county. Finally, the vendor had to disclose expected drug manufacturer rebates and any other compensation that it expected to receive from drug companies and how it would use these funds to “secure greater pricing concessions” for county residents who participated in the program.

The county awarded the contract to AdvancePCS, a subsidiary of Caremark RX, Inc. of Nashville, Tennessee in June 2004. Since then, the company has issued 500,000 cards to county residents, which county officials assert is the largest distribution of a locally sponsored discount card. A recent report from the comptrollers’ office stated that the cards were used over 5,000 times in the first three weeks alone and Morrison suggests that as many as 1. 3 million county residents could benefit from the card.

Since the pharmacists would appear to suffer some financial losses, we asked Morrison what the county did to encourage their participation. He reported that the county met with Long Island’s pharmacist trade group and invited them in after the program was launched to hear their complaints. He also noted that 85% to 90% of a store’s prescriptions were not cash transactions, meaning that most pharmacies’ drug business already comes from consumers with insurance coverage and that this “new” discount business would represent a very small portion of a pharmacy’s prescription revenues. And he mentioned that many pharmacies already accept discount cards (e. g. , AARP).

PROS AND CONS OF DISCOUNT CARD PROGRAMS

Pros

Having the state sponsor a discount card could offer a number of advantages. For one, it would provide an aggregating function, bringing together a large potential pool of consumers and creating economies that ensure a discount for the state’s residents who have none or limited drug coverage.

Cons

The state’s pharmacies, in particular the independents, would probably be the biggest losers if the state were to embark on a discount program. The authors of the Kaiser report asserted that the main factor behind the discounts was the ability to get concessions on the pharmacy mark up on drugs (i. e. , the difference between what it pays to acquire the drugs and what it charges the consumer). Moreover, the pharmacies would face competition from companies providing drugs through mail order since many discount programs, including Nassau County’s, include a mail-in option. According to Nassau county’s Morrison, the pharmacies are paying 90% of the discount’s costs (these include paying a fee to the PBM and absorbing the agreed-upon discount). (Morrison added that most pharmacies believe they can make up some of the loss on volume. )

Moreover, during the last several years the state’s pharmacies have been hit with a series of reductions in reimbursements for drugs they dispense under state assisted pharmacy programs. To ask them to take additional cuts would likely affect profits even more, and potentially force some independents out of business.

The drug manufacturers would likewise be concerned about a statewide discount program, having already created their own discount programs. Indeed, drug companies located in the state offer a number of discount programs to consumers. They might be resistant to having to negotiate further discounts under such a plan.

Other Considerations

Ability to Compare Costs. In addition to the above-mentioned considerations, the state will need to be cognizant of other matters when deciding whether to pursue a statewide or pilot discount program. Since there are many different discount cards already on the market, introducing another one may confuse potential consumers. As the Kaiser survey found, although pricing information may be readily available, it may be difficult to compare discount plans if the information is not provided uniformly. For example, one program may provide price information for a 90-day supply, while another may have it for smaller amounts. The survey data also illustrate that while a card’s discounts may be better for some drugs, they may be much smaller for others, thus complicating further the comparison.

Lack of Regulatory Framework. Although the state already has experience with PBMs and contracts, it is important to note that in general, few PBM programs are regulated by states, although many are considering doing so. (See OLR report 2004-R-0071 for a recent summary of state initiatives in this area. )

Who Pays? While Nassau’s program charges no fees to consumers, someone has to pay for the discount. In this instance, the retail pharmacies are in effect paying, having to charge a lower price for the drugs and pay a participation fee to the PBM. If Connecticut were to adopt such a plan, it would have to decide whether this would be the best way to pay. The Kaiser report indicated that Iowa’s state-based drug discount program requires all discounts to be based on manufacturer rebates that the PBM negotiated with the drug companies. Thus, retail pharmacies did not have to offer any price concessions and did not have to enter into formal participation agreements with the PBM. The authors also noted that all of the private drug discount programs charged a participation fee except for the Advance PCS program.

Who Oversees the Program? Connecticut’s program would need a “home,” which could be in a number of state agencies, including the Comptroller’s Office, the Department of Social Services (DSS), Department of Public Health (DPH), and the Insurance Department (although such programs are almost universally not considered insurance programs). DSS might be a particularly good candidate as it is currently keeping track of the companies providing drug discount cards for the new federal Medicare prescription drug program, which offers discount cards to most Medicare eligible individuals in the state. If the state were to embark on such a program, it would probably want to coordinate it with the Medicare discount program as a means to both provide comparison data for consumers and offer them potentially bigger discounts.

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