Medicare Compliance & Reimbursement

Saying it hasn't seen solid evidence of significant savings produced by disease-management and other services being provided to Florida Medicaid by pharmaceutical makers in lieu of deep drug discounts, the state legislature's Office of Program Policy Analysis and Government Accountability is calling for repeal of the programs, which include a highly touted DM initiative conducted by Pfizer.

The state's mandatory preferred-drug list and negotiated supplemental rebates saved Florida and the federal government $81 million in fiscal year 2001-2002, despite the fact that not all therapeutic categories have yet been reviewed for the list, says an April report from the agency. OP-PAGA says the state could save an additional $64 million in FY 2003-2004 if it restricted the supplemental-rebate program to cash rebates.

Two kinds of agreements between a manufacturer and the state can get a drug included on the preferred list of drugs that don't require prior authorization before being prescribed to Medicaid patients.

The report analyzes costs for several categories of drug therapeutic classes. A therapeutic class is deemed "managed" by OPPAGA if only drugs for which manufacturers negotiated supplemental cash rebates are included on the preferred list. A class is called "value-added" if at least one drug in that class is on the list not because the state obtained a supplemental monetary rebate but because a drug maker offered Florida special services in return for having the drug included as a preferred medication.

Drugs in the "managed" category generated 21 percent savings for Medicaid and saw a 16 percent increase in total rebates and a $10 drop in the average price per prescription for FY 2001-2002, according to OPPAGA. By contrast, drugs in the "value-added" group generated 11 percent savings and experienced a 6 percent increase in rebates and a $1 increase in the average price per prescription.

OPPAGA contends the value-added arrangements aren't efficacious for two main reasons. First, "value-added contracts suppress cost reductions" over an entire therapeutic class "by limiting the shift in the market to drugs with lower prices or larger rebates." That is, "while most companies must offer supplemental cash rebates, manufacturers that have a value-added contract ... do not have to do so. Thus, drug companies with competing products ... may not have to significantly lower the price of their products to be considered for the preferred drug list."

Second, OPPAGA complains that "compared to supplemental cash rebates, savings attributed to value-added contracts are less tangible and less immediate." In 2001, OPPAGA reviewed DM programs, and "reported ... difficulty in determining and reconciling cost savings" for them. For example, the savings attributed to a DM program begun in May 1999 "had not been reconciled as of January 2003."

In addition, says the agency, companies with value-added contracts generally don't even have to offer the state a standard 25 percent discount to get drugs onto the preferred list. Instead they have "had all of their drugs placed on the ... list in exchange for the guaranteed savings" they promised from providing DM or other services such as medication error-reduction initiatives to Medicaid, savings that OPPAGA counts as far from a sure thing. Other companies must offer more than a 25 percent discount to get their drugs on the list.

Florida's Agency for Health Care Administration demurs from OPPAGA's findings. In a letter of response, AHCA argues that the value-added contracts are "groundbreaking public-private partnerships" in which "all pharmaceutical manufacturers are meeting their contractual guarantees and have invested funds in addition to those required by their contracts. Unlike rebates, the value-added programs not only control costs but create new programs, improve the quality of health care, invest in people and save lives."

According to the report, actual savings from FY 2001-2002 in the largest of the value-added contracts, Pfizer's DM program, are to be determined by July of this year. Besides Pfizer, Bristol-Myers Squibb, GlaxoSmithKline, and Astra-Zeneca have value-added contracts with Florida Medicaid, according to OPPAGA.