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States Band Together to Cut Drug Costs

Washington, D.C., New York, Maine, Massachusetts, Connecticut, Rhode Island, Vermont, New Hampshire, Pennsylvania and Hawaii created this new organization to withstand drug companies’ promotion of high-costs drugs.

Under the current system, most states’ drug benefits for employees and Medicaid recipients are run by private pharmacy benefit managers. These companies can receive undisclosed payments from drug makers in exchange for promoting certain medications, the Times reported. The pharmacy benefit managers can then assemble lists of drugs for different ailments and frequently set prices to boost sales of promoted drugs, according to the Times.

The Heinz Family Philanthropies is funding the planning for the new group. It is being organized by the National Legislative Association.

The group formed by these states will compete with private benefit managers, with each organization developing a list of drug prices. The states that created the new group will then have a choice of lists of drugs at discounted prices, Peter E. Shumin, chairman of the National Legislative Association, told the Times.

By forming this new organization, the states plan to keep any drug company payments for themselves. The states also hope additional savings will come from using medical experts to help determine which drugs are the most cost-effective.

Organizers of this new nonprofit group say that it would cover mail-order prescriptions and drugs imported from Canada. American drug companies have fought past efforts to import Canadian prescription drugs. Drugmaker GlaxoSmithKline said Friday that it intends to stop supplying drugs to Canadian online mail-order pharmacies unless they halt sales to U.S. customers.

Prescription costs are the fastest-growing segment of overall state Medicaid spending. New York spent $2.4 billion on prescription drug sales in 2001, 7.5 percent of its total Medicaid spending and 75 percent more than it spent in 1998, the Times reported.

“New York has the most to gain,” from the new organization, Shumlin told the Times. New York, Shumin added, “is doing the least of all the states” in his group to control prescription drug costs.

The action these states are taking comes during a period when all states except for Alabama are planning to cut spending on Medicaid, the health insurance program serving 42 million poor, disabled and elderly Americans, according to a study released Monday by the Kaiser Commission on Medicaid and the Uninsured. A previous round of cuts was made by 32 states when the fiscal year began last summer.

Overall, states are facing massive budget shortfalls totaling at least $60 billion going into the next fiscal year. Medicaid makes up an average of 15 percent of state budgets.

Based on a 50-state survey, the study reports that 45 states plan tighter controls on payments for prescription drugs, 37 states plan to reduce or freeze payments to doctors and hospitals, 27 states plan to restrict eligibility for the program, 25 states plan to cut benefits such as dental or vision care and 17 states plan to increase co-payments required of beneficiaries.

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