Medicaid Preferred Drug Lists: Florida Suit Will Test Quality Arguments

A class action lawsuit brought by the Florida public defender against the state Medicaid program will test the limits of state preferred drug lists, Health Strategies Consultancy Managing Director Dan Mendelson predicted.

"Class action lawsuits that are focused on quality, I think, have a much better chance of holding things back" than challenges on procedural grounds, Mendelson told attendees of the Schwab Washington Research Group conference May 2.

"This is actually a very serious legal threat, because if they can really show that the PDL is restricting their access there, I think there is much more of a basis in law to address the PDL under that kind of mechanism than was in the prior PhRMA lawsuit," Mendelson said.

The Pharmaceutical Research & Manufacturers of America unsuccessfully sued to block the Florida program, which creates a preferred drug list using supplemental rebates. The program also has a four-brand-per-month limit for Medicaid beneficiaries (¹ (Also see "Florida Medicaid Formulary Challenged By PhRMA Lawsuit" - Pink Sheet, 13 Aug, 2001.) p. 16).

PhRMA also filed suit to attempt to block Michigan from establishing a preferred drug list. An injunction granted to the trade association was overturned on appeal.

One other avenue open to PhRMA to challenge the Michigan program would be a suit against HHS claiming that the department lacked the authority to approve the prior authorization plan. Industry observers expect the suit to be filed. PhRMA would first inform HHS Secretary Thompson and Centers for Medicare & Medicaid Services Administrator Tom Scully.

The Florida suit, filed on behalf of the Florida Transplant Survivors Coalition and five other individuals, asks for an injunction to require the state to offer formal notice and hearing rights in cases where a prescription is not covered.

Florida's Agency for Health Care Administration responded that hearings would create undue administrative burdens and impose high costs on the state. "Granting hearing on every one of these claim rejections would so burden the agency that it would have to consider severely limiting or ending the Medicaid prescribed drug services benefit," AHCA said in an early May court filing.

AHCA's response emphasizes the healthcare quality (rather than cost implications) of its prior authorization program.

The preferred drug list "is a cost and quality control measure which seeks to encourage physicians to use drugs which are on a list of preferred drugs as their primary prescribing source," AHCA said. "The agency does not ever, under any circumstances, deny a non-PDL drug to the recipient as long as the provider has considered the drugs that are on the PDL."

The four-brand-per-month limit operates similarly, AHCA said. In order for a patient to receive a fifth branded prescription in a month, the provider "speaks with a licensed pharmacist, who reviews the patient's drug profile with the prescriber." The consulting pharmacist may recommend generic alternatives to one or more prescriptions, AHCA notes.

"The consultation also gives the prescriber the opportunity to examine the patient's entire drug profile to see whether complications may exist due to multiple prescribers and different disease states."

"Should the prescriber wish to stay with the original, branded drug, no justification is required," AHCA adds. "Prior authorization is automatic, and the drug is prior authorized for 12 months." If the prescriber is unable or unwilling to review the profile with the consulting pharmacist, prior authorization is valid for only one month.

The need for Medicaid agencies to demonstrate that preferred drug lists are based on therapeutic considerations - not simply on a desire to cut costs - means that many states will not be able to follow Florida's lead, Mendelson suggested.

"Florida has between 40 and 50 pharmacists running their PDL and they outsource this all to a private company," Mendelson said. "It is actually a relatively efficiently run system."

However, "it is expensive to put into place, and for a small state, it's really beyond the reaches of what they can accomplish."

In the short term, Florida's ability to achieve significantly higher rebates using a preferred drug list could drive federal action to mandate higher rebates nationwide (see ² ).

In the long run, Mendelson predicted, it is inevitable that states will become more like private managed care companies in their approach to pharmacy budgets.

State Medicaid programs are "changing as purchasers. They're going to become more sophisticated buyers of products and they're going to look a lot more like the managed care world and a lot less like the traditional Medicaid world," he said.

There is a "fundamental shift" in which "we see states beginning to request some of the same types of quality data that has been requested historically in the managed care environment."

Mendelson said that over the next four or five years, Medicaid administrators will have to adjust to the changing healthcare market and determine how to incorporate more expensive therapeutics, especially biotechnologies, into their programs.

"The profile of the market is going to change....You're going to see genomics coming in and designer drugs," Mendelson said.

"The more forward-thinking Medicaid people are beginning to become worried about biotech. And they're beginning to think, you know, we're having our problems now, but...when there's kind of a whole new group of drugs that are coming through the pipeline that cost a thousand bucks a month, what are we going to do about that, and will the prior authorization strategies...be sufficient?"

Mendelson pointed to Illinois, Louisiana, New Mexico, Oregon and West Virginia as the states to watch as the PDL debate unfolds "because they have legislation that's actually been passed."

Maryland and Tennessee both have pending legislation that would create Medicaid PDL lists. Although it passed the House and Senate, the Maryland PDL might not be enacted into law because of "fairly active lobbying" and the fact that it is an election year, Mendelson noted (³ (Also see "State Medicaid Proposals Stymied By Push For New Drug Formulary Exemption" - Pink Sheet, 15 Apr, 2002.), p. 17).

The brand name pharmaceutical industry is also keeping an eye on Texas, which does not have a legislative session in 2002. However, industry observers are concerned about the tone of recent debate over pharmacy budgets in that state.