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Michigan Preferred Rx List Wins Appellate Blessing

Published on Thu Apr 15, 2004

State can leverage its Medicaid buying power for enrollees in state programs.

A federal appellate court has okayed a Michigan program that leverages the state's Medicaid population to achieve lower prescription-drug prices for Medicaid recipients and enrollees in other state programs.
 
The opinion could have widespread significance. Twenty-five states besides Michigan have Medicaid preferred drug lists, and 10 other states have authorized such lists but not yet established them, according to the Associated Press.
 
The U.S. Court of Appeals for the D.C. Circuit ruled April 2 that the federal government did not act arbitrarily or capriciously in approving the Michigan Best Practices Initiative as an amendment to the state's Medicaid plan. The court rejected pharmaceutical industry arguments that the approval, granted by Health and Human Services Secretary Tommy Thompson in 2002, violated the federal Medicaid statute and the federal Constitution's Interstate Commerce clause.
 
Under the BPI, Michigan has designated at least two best-in-class drugs in each of 40 therapeutic classes, based solely on clinical considerations without regard to cost. These drugs automatically go on the Medicaid preferred drug list, and the best-in-class drug that is available at the lowest price anywhere in the United States becomes the reference drug. To get other drugs on the preferred list, manufacturers must agree to offer them at the reference price to Michigan's Medicaid program and two additional state programs, the Elder Prescription Insurance Company and the Maternity Outpatient Medical Service, which serve low-income seniors and at-risk pregnant women and girls.
 
The 7th Circuit said Thompson had reasonably concluded that the BPI satisfies the Medicaid statute's requirements for "prior authorization" programs because it provides for prompt appeals and authorizes emergency supplies of requested drugs when necessary.
 
Writing for a unanimous three-judge panel, Judge Karen Henderson acknowledged that the secretary's reading of the statute reduced its more restrictive "formulary" language to "an alternate, and more cumbersome, means of subjecting drugs to prior authorization." But Henderson said that the tension between the prior authorization and formulary provisions "is a necessary consequence of the language that Congress drafted"; she suggested that Thompson's interpretation was the less objectionable of two unsatisfactory alternatives.
 
Henderson also found that BPI's leveraging of the Medicaid population to obtain discounts for EPIC and MOMS enrollees was consistent with the "best interests" of Medicaid recipients, as required by federal law.
 
The judge noted that EPIC and MOMS serve "borderline" individuals that Michigan estimates could end up on Medicaid in significant numbers without the programs' assistance. "While the record of support for Michigan's estimates is less than overwhelming, it is sufficient to persuade us that the secretary's determination of Medicaid-related benefit is not arbitrary, particularly given the absence of any demonstrable significant impediment to Medicaid services from Michigan's prior-authorization requirement," Henderson wrote.
 
Henderson rejected the argument that the BPI violates the Interstate Commerce Clause because it "has the practical effect of controlling out-of-state prices."
 
The Pharmaceutical Research and Manufacturers of America had maintained, for example, that a manufacturer might be deterred from lowering the out-of-state price of a reference drug because "doing so would require the manufacturer to lower the price of other drugs in the same therapeutic class in Michigan if it wishes to avoid prior authorization."
 
Henderson opined that "PhRMA's theory rests on an attenuated and speculative causal relationship" that "will occur only sporadically and incidentally," if at all. She noted that "any interstate effect on prices is the result not of provisions peculiar to the BPI, but of the federal Medicaid rebate" requirement that prohibits drug manufacturers from offering lower prices to other purchasers than they give to state Medicaid programs.

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