Management & Labor

Drug Deals: A Pact to Lower State Employee Pill Prices

Driven by the effect of rising drug prices on state budgets, seven states are banding together to change the way they buy pharmaceuticals for their employee-benefit plans.
by | December 2001
 

Driven by the effect of rising drug prices on state budgets, seven states are banding together to change the way they buy pharmaceuticals for their employee-benefit plans.

Their immediate goal is to use their combined market share--1.4 million state employees and drug purchases totaling $852 million--to change the business model. Instead of paying pharmacy benefits managers a percentage of the drug buy to manage their plans, the states want the PBMs to accept a flat fee to administrate the plans.

"In a time of rapid drug-price inflation, the percentage approach works well for the PBMs but not for the states," says West Virginia Governor Bob Wise. "The sicker we get, the healthier they get."

West Virginia has taken the lead in the cooperative purchasing group, which also includes Louisiana, Maryland, Mississippi, Missouri, New Mexico and South Carolina. In part, that's because West Virginia's problem is particularly acute: While most states are dealing with 20 percent annual inflation on drug prices, West Virginia's drug costs are rising by 35 percent a year. Drug costs account for one-fifth of total health care costs for employees in West Virginia's benefit plan.

The coalition took its first major step in October. West Virginia's Public Employees Insurance Agency, on behalf of health plans in the other states, issued a request for proposals for pricing based on volume. Bids from PBMs are due this month.

The fixed-fee approach, which is used by most Medicaid programs, isn't the only change the group hopes to make. It also plans to use market share to leverage lower prices from manufacturers. The seven-state effort is an offshoot of the Multi-State Rx Workgroup, a coalition of 15 state governments.

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