You asked for information on prescription drug bulk purchasing activities in other states, including any savings realized.

SUMMARY

Rising pharmaceutical costs contribute significantly to the growth of overall health care costs generally and to state budgets, particularly Medicaid. As a result, many states are implementing or exploring innovative prescription drug cost containment mechanisms such as bulk purchasing. One type is multi-state purchasing and collaboration, wherein states attempt to enhance their bargaining clout, generally through a common pharmacy benefits manager (PBM) when negotiating drug prices with manufacturers. Because drug prices and rebates are tied to volume, potential savings to states increase as participation in a purchasing pool expands, according to the Commonwealth Fund (see http: //www. cmwf. org/publications).

States may pool purchasing for Medicaid beneficiaries, state children’s’ health insurance program (SCHIP) enrollees, and other groups on whose behalf states buy pharmaceuticals.

Another form of bulk pharmaceutical purchasing involves pooling within a state, involving many state agencies. Like multi-state purchasing, intrastate pooling allows states to stretch their dollars by increasing their purchasing power through administrative streamlining.

As of the summer 2005, according to a National Conference of State Legislatures (NCSL) report, there are three operational multi-state prescription drug bulk-purchasing pools. These are the: (1) RX Issuing States (RXIS) project, lead by West Virginia; (2) Minnesota Multi-state Contracting Alliance for Pharmacy (MMCAP), which involves 41 states; and (3) National Medicaid Pooling Initiative (NMBP) involving nine states (see http: //www. ncsl. org/programs/health/bulkrx. htm).

Georgia uses a single pharmacy benefits manager (PBM) to negotiate manufacturer discounts and to manage the prescription drug benefits for a variety of state programs, including the state employees health plan, Medicaid and the state children’s health insurance program.

Maine recently established a “Pharmaceutical Cost Management Council” to address to address the joint purchasing of pharmaceuticals by the state.

MULTI-STATE PRESCRIPTION DRUG BULK PURCHASING INITIATIVES

RX Issuing States (RXIS)

The RXIS project, lead by West Virginia, covers public employees in five states including Delaware, Missouri, New Mexico, and Ohio. (The program began in FY 2002-03, Ohio was not one of the original members; it joined as of July 1, 2004). RXIS is designed to address the increase in prescription drug costs faced by states by consolidating negotiating power, achieving efficiencies, and capturing rebates through a multi-state purchasing collective. The goal is to contain spending and thereby stretch limited dollars on pharmaceuticals for public employees and SCHIP program enrollees.

The participating states contract with a single PBM (Express Scripts, Inc. ) to negotiate and purchase pharmaceuticals for certain groups and agencies within the states. RXIS aggregates nearly 700,000 lives; about 210,00 in West Virginia and 490,000 in the other states. The group serves as a bargaining unit to negotiate with the drug manufacturers, through the PBM, based on their total market share. Members pay the PBM an administrative fee and the states receive 100% of the rebates provided by the drug manufacturers.

RXIS savings derive from the following:

• States receive 100% of manufacturer rebates. These are larger than the increase in administrative fees. (This is West Virginia’s main source of savings from RXIS; the state’s Public Employees Insurance Agency (PEIA) receives rebates worth about 10% of total prescription drug spending.

• Securing this type of rebate arrangement with the PBM is attributed in part to the collective power of the states.

• The rebates grow as drug costs escalate.

• Administrative fees are based on a sliding scale tied to volume, so pooling individuals in multiple states means lower per-unit administrative costs;

• It is expected that as the pool grows, bulk purchasing should enable the PBM to negotiate lower drug prices as well as higher rebates.

• It is less expensive to conduct periodic audits of the PBM when all participating states share the cost.

West Virginia realized $ 7 million in net savings (after accounting for higher administrative fees paid to the PBM) in its initial year (July 2002-June 2003). It expects about $ 25 million in net savings over the three-year contract period. More information on the West Virginia experience can be obtained from Felice Joseph, West Virginia PEIA Pharmacy Director, 304-558-7850; FJoseph@wvadmin. gov).

Ohio estimated savings at $ 5 million per year. The Economic and Social Institute, according to NCSL, reported that Missouri expects savings of $ 1. 4 million, or 2% of the plan costs, in its first year. New Mexico expects $ 2 million in savings, while Delaware reports $ 1. 9 million in rebates.

Minnesota Multi-State Contracting Alliance for Pharmacy (MMCAP)

Background. MMCAP is a coalition of states and governmental units formed to standardize and consolidate state requirements for pharmaceuticals, supplies, and services, and to cooperatively contract for such requirements. It was created in 1985 as a free, voluntary group purchasing organization operated and managed by the Material Management Division of the state of Minnesota’s Department of Administration for government-run health care facilities. It combines the purchasing power of its members to receive the best prices available for the products and services for which it contracts.

MMCAP currently has 43 participating entities—42 states (Connecticut is not a member) and the city of Chicago, with over 4,000 participating facilities (see http: //www. mmd. admin. state. mn. us/mmcap/background. htm for the member list). Upon joining MMCAP, each participating entity designates its state contact—one purchasing representative and one pharmacy representative. The state contacts meet at an annual meeting and elect the MMCAP Advisory Panel. The panel provides guidance to MMCAP staff and meets regularly via conference calls.

MMCAP contracts with over 150 pharmaceutical manufacturers, and also has contracts for distribution (to support the pharmaceutical contracts), hospital supplies, drug testing, returned good processing, influenza vaccine, and vials and containers. MMCAP member facilities purchase over $ 800 million per year and have national account status with all of the major brand name and generic pharmaceutical manufacturers.

RFP Process. Annually, MMCAP issues an RFP to pharmaceutical manufacturers for over 6,000 products. RFPs are issued less frequently for its other services. All RFPs are announced in the Minnesota State Register. For the pharmaceutical products, MMCAP has an annual award meeting where representatives from the participating entities (one purchasing official and one pharmacist) meet to determine which products will receive an award.

Contracts. MMCAP does not establish a formulary but compiles a list of frequently used drugs from its facilities. MMCAP facilities are encouraged, but not required, to exclusively use MMCAP contracts and contract pricing since it creates the volume that results in the best value for all members. MMCAP pricing and administrative fees/distributor credits (see below) are not available for any purchases made outside of the MMCAP program using non-MMCAP drugs or non-MMCAP contracts. MMCAP relies on participating entities to ensure that MMCAP contract purchases comply with program contract terms and all applicable laws, regulations, and policies.

As an arm of a Minnesota state agency, MMCAP must follow Minnesota law governing actions of state agencies. When establishing contracts, MMCAP must comply with competitive procurement laws found in Minnesota statutes. Once contracts are established, program facilities place purchase orders for their needs directly with MMCAP distributors.

Funding through Administrative Fees and Distributor Credits. MMCAP has eleven staff members supporting program operations and is funded through the payment of administrative fees by manufacturers. Currently the fee is 1. 5% of purchases from MMCAP contracts. Since only a portion of the administrative fees collected is needed for program operations, over 75% of the fees received in a given contract are returned to participating facilities as credits through the distributors. These credits are in proportion to the amount of fees generated by contract orders.

Savings. According to NCSL, MMCAP staff report that the program achieves average savings of approximately 23. 7% below the average wholesale price (AWP) for brand name pharmaceuticals and 65% below AWP for generics.

National Medicaid Buying Pool (NMBP)

This program, also known as the Michigan Multi-State Pooling Agreement (MMSPA), began in 2003 when three states (Michigan, Vermont, and South Carolina) announced the formation of a “National Medicaid Pooling Initiative” for prescription drugs. This was aimed at lowering costs in the states’ respective Medicaid programs. Led by Michigan, the states wanted to get involved in multi-state prescription drug buying to save money by cutting significant dollars from their Medicaid drug costs.

As of June 2005, NMBP includes nine states. The original program became operational in Michigan and Vermont while Nevada, Alaska, and New Hampshire were added in 2004 after the federal Department of Health and Human Services (HHS) approved their Medicaid State Plan Amendments, which were originally filed in 2003. Other states having just received state plan amendment approval or in the process of preparing applications for approval are Minnesota, Tennessee, Kentucky, Hawaii, and Montana. South Carolina withdrew its state plan amendment from HHS in the fall of 2004 because of “bureaucratic delays” at the federal level. (See the NCSL report, p. 4, cited above for more information as well as “HHS Approves First-Ever Multi-State Purchasing Pools for Medicaid Drug Programs” HHS Release, April 22, 2004). It should be noted that the federal government’s approval notices in 2004 formalized a new name for the pool: the Michigan Multi-State Pooling Agreement.

Together, the pooled purchasing program for the nine states covers about 3. 5 million lives, with purchasing costs of approximately $ 5 billion annually.

In terms of savings, Michigan estimates it will save $ 8 million in its Medicaid program in 2004 as a result of the program. Vermont reports that it will save $ 1 million in 2004 because of the purchasing pool, Alaska estimates $ 1 million in 2004, and Nevada estimates $ 1. 9 million for 2004.

INTRA-STATE POOLING

Georgia

Georgia’s Department of Community Health (DCH) uses a single PBM to negotiate manufacturer discounts and to manage the prescription drug benefit for its state employee health plans, its Medicaid and SCHIP programs, and its State Board of Regents. This approach saved the state $ 60 million overall between October 2000 and January 2003. The goals of DCH include insuring 2 million state residents, maximizing the state’s health care buying power, planning for coverage of the state’s uninsured, and coordinating health planning for state agencies.

The state used internal staff, consultants, and external interested parties to develop an RFP for a PBM contract. Express Scripts, Inc. was awarded the contract in July 2001. The state pays a preset administrative fee to the PBM and allows the PBM to share in the rebates, including Medicaid rebates. The PBM manages the Medicaid contracted networks with rates specified by the state and maintains PBM-contracted custom networks for the state employees plan.

The Georgia program includes a preferred drug list, a maximum allowable cost expansion, tiered copayments for all programs, a provider generic substitution incentive program, and a prior authorization system. The PBM negotiates expanded rebates in the Medicaid program, including items that fall outside of the federal Medicaid rebate program, such as diabetic supplies. The unique characteristics of Medicaid have lead to a separation between rebates negotiated for it and for the other pooled programs.

For more information on the Georgia program and other state initiatives, see “State Purchasing Pools for Prescription Drugs: What’s Happening and How Do They Work?” National Governors Association Center for Best Practices, Issue Brief, August 2004.

Maine

Recently passed Maine legislation (Chapter 343 of the 2005 Maine Laws, H. P. 923, L. D. 1324) establishes the “Pharmacy Cost Management Council” responsible for making recommendations to public purchasers concerning joint purchase of pharmaceuticals with the state to reduce costs for all participating parties and to maximize savings. The council must coordinate and exchange information among state agencies, stakeholder groups, advisory committees, organizations and task forces looking into options for reducing the cost of prescription drugs. The council must report to the legislature by February 1, 2006.

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