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Drug companies litigate against state preferred drug lists

US state governments find themselves faced with rising pharmaceutical costs and responsibility for drug procurement through programs such as Medicaid, so they have adopted ways of negotiating drug prices.  Preferred Drug Lists (PDLs), first used by California in the 1990s, but now used by over 40 states, allow states to fund purchases necessary for the provision of quality care to their citizens.   Federal trade officials, however, have recently sought to make drug price negotiations in other countries more favorable to brand name pharmaceutical firms. Through provisions in free trade agreements and through less well-publicized bilateral pressures, the federal governments actions may put state PDLs at risk.

State use of Preferred Drug Lists

Though each state's program is unique, PDLs generally work by guiding prescribers towards the most cost effective medicine for a specific illness or condition. An appointed committee evaluates existing therapies based on safety, efficacy and price to determine the most cost effective medicines. When a particular listed drug is not right for a patient, he or she may be reimbursed for a different drug after prior authorization is obtained by the prescriber from a state office set up for such authorizations.

It should be stressed that PDLs are open formularies - non-preferred drugs can always be prescribed and reimbursed, but normally must first receive prior approval.  Federal law mandates that state Medicaid programs cover all drugs for which the manufacturer has agreed to provide a rebate to the federal government, so states lack the ability to refuse to pay for drugs whose manufacturers do not offer optimal prices.  Additionally, most states require that the approval process be simple and efficient.    In Missouri, for instance, three quarters of prior approvals are granted instantly online, and 97% of the rest are handled within the first two and a half minutes of the first call to the Prior Approval hotline.    

State PDLs successfully encourage doctors to prescribe the preferred drugs and for drug companies to compete to have their drugs on the preferred list, so savings to states have been substantial.  Texas saved 140 million over two years.   Florida saved almost half a billion dollars between 2000 and 2002 in drug purchases for its 2.2 million Medicaid recipients.   Inflation-adjusted Medicaid spending on pharmaceuticals actually declined in 2005, even while drug spending as a whole increased double the rate of inflation.  

PDLs allow states to negotiate drug prices in a similar way used by nearly all other bulk purchasers of medicines, including private health plans, the Departments of Defense and Veterans Affairs within the U.S. federal government, and other developed countries. Nonetheless, the branded pharmaceutical industry is strongly opposed to effective price negotiations by their customers.  The industry launched three separate lawsuits against state programs in Maine, Michigan and Florida, claiming federal Medicaid laws prevented their use of PDLs in their programs. However, the plaintiffs lost all three cases, with federal courts, including the US Supreme Court upholding states' rights to negotiate prices through PDLs.  

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