Other States laws/regulations;

OLR Research Report

June 28, 2002




By: John Kasprak, Senior Attorney

You asked for information on recently enacted Vermont legislation on prescription drug cost control and access.


On June 13, 2002, Vermont Governor Dean signed legislation (H. 31, Act 127) that creates a “pharmacy best practices and cost control program” designed to lower prescription drug prices for Vermont residents through a variety of approaches. (A copy of the law is attached.) Under the new law, the state will buy drugs for state-sponsored pharmaceutical and health assistance programs (e.g. Medicaid) from a preferred drug list. The law directs the state to (1) encourage private health plans to participate and use drugs on the preferred list and (2) negotiate supplemental rebates from drug manufacturers in addition to the rebates that they now provide under Medicaid. The state will also be able to negotiate supplemental rebates on behalf of private sector health plans that want to participate as well as for public employee health benefit plans and other public assistance programs.

The new program will use a prior authorization process with special provisions for emergency situations. Prior authorization does not apply to drugs prescribed for the treatment of severe and persistent mental illness.

The law also addresses pharmaceutical marketing by requiring all drug companies marketing drugs in Vermont to disclose gifts, fees and payments, and other economic benefits they provide to health care providers. Such disclosure must be made annually to the Vermont Board of Pharmacy.

Finally, the law implements a pharmacy discount plan, known as “Healthy Vermonters” for residents without adequate drug coverage. This plan must include a program implemented as a Section 1115 Medicaid waiver, with the state paying at least 2% of the cost of drugs dispensed to enrolled individuals. (OLR Report 2002-R-0322 provides more information on this initiative.)


Pharmacy Best Practices and Cost Control Program; Preferred Drug List

Act 127 requires the Vermont Department of Prevention, Assistance, Transition and Health Access to establish a pharmacy best practices and cost control program to reduce the cost of providing prescription drugs while maintaining high quality drug therapies. The program must include:

1. a drug list identifying preferred choices within therapeutic classes for particular diseases and conditions, including generic alternatives;

2. utilization control procedures, including a prior authorization review process (see below);

3. strategies for negotiating with drug companies to lower drug costs for program participants, including a supplemental rebate program (see below);

4. alternative pricing mechanisms, including consideration of maximum allowable cost pricing for generic and other prescription drugs;

5. education programs for physicians, pharmacists, and others authorized to prescribe and dispense drugs;

6. alternative coverage terms such as providing coverage for over-the-counter drugs when they are cost effective compared to prescription drugs;

7. a simple, uniform prescription form for implementing the preferred drug list; and

8. any other cost containment activities adopted by the commissioner of the department.

The prevention and health access department commissioner and the commissioner of the Department of Banking, Insurance, Securities and Health Care Administration must implement the preferred drug list as a uniform, statewide list by encouraging all health benefit plans to participate in the program. Private health plans are not required to adopt the list, but are invited to do so.

The prevention and health access department must implement the best practices and cost control program for Medicaid and all other state public assistance program health plans to the extend allowed by federal law. It can implement the program for any other health benefit plan in or outside the state that agrees to participate. The law also directs the state personnel commissioner to implement the preferred drug list for the state employees health benefit plan if agreed to through the bargaining process between the state and the employees' authorized representatives.

The program allows pharmacy benefit coverage for a drug not on the list if a drug on the list has not been effective or causes harmful reactions in the patient.

The prevention and health access commissioner can implement the program, or any portion of it, through a contract with a pharmacy benefit management entity.

Prior Authorization

The law requires use of a prior authorization process, “designed to minimize administrative burdens on prescribers, pharmacists, and consumers.” Prior authorization does not apply to prescription drugs for treatment of severe and persistent mental illness including schizophrenia, severe depression, or bipolar disorder.

The prior authorization process must ensure real-time receipt of requests by telephone, voice mail, fax, electronic transmission, or mail on a 24-hour, seven days a week basis. It must also provide an in-person response to emergency telephone requests by a prescriber within 10 minutes of the call. A response to an emergency request for authorization of a drug must be given within four hours from the time the program or participating health plan receives the request. In emergency situations, or if the request for prior authorization is not provided within the four hour time period, a 72 hour supply of the prescribed drug is deemed authorized.

Supplemental Rebates

The law orders the prevention and health access commissioner to negotiate supplemental rebates from drug manufacturers in addition to those rebates the companies now provide to comply with Medicaid requirements. The department can also negotiate the supplemental rebates on behalf of private sector health plans that want to participate in the program as well as for public employee health benefit plans and Vermont's non-Medicaid public assistance programs.

Pharmaceutical Marketing

The law requires every pharmaceutical manufacturing company to disclose annually to the Vermont Board of Pharmacy “the value, nature and purpose of any gift, fee, payment, subsidy or other economic benefit provided in connection with detailing, promotional, or other marketing activities by the company, directly or through its pharmaceutical marketers, to any physician, hospital, nursing home, pharmacist, health benefit plan administrator or any other person in Vermont authorized to prescribe, dispense, or purchase prescription drugs in this state.” Initial disclosure must be made by January 1, 2004 for the 12-month period ending June 30, 2003.

Trade secrets can be kept confidential and exemptions from the disclosure requirement include (1) free samples of drugs given to patients; (2) payments of reasonable compensation and reimbursement of expenses in connection with bona fide clinical trials, (3) gifts, fees, or other payments less than $25 in value; and (4) scholarship or other support for medical students, residents and fellows to attend certain professional association conferences if the recipient is chosen by the association.