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Florida's Big Pharma Deal Fizzles

Medicaid contract for disease management fails a fiscal test.

Florida is changing its controversial partnership with Pfizer and other drug companies, after auditors questioned whether pharmaceutical companies' disease-management programs are saving Medicaid enough money.

Florida is a pioneer in using disease management, which aims to lower health costs by teaching patients how to live with an acute disease. Pfizer expanded Florida's experiment in 2002, offering the state $33 million in guaranteed savings from Medicaid patients with asthma, diabetes and hypertension. Pfizer had an incentive to do this, as did three other companies who offered similar but smaller programs. Florida was setting up a "preferred drug list" to cut its prescription drug costs. In order to make the list, drug companies had to pay Florida a cash rebate. Or, they could use a loophole and find Medicaid savings through some other approach, such as disease management.

Two years into the expanded program, the legislature's auditor is not impressed. A pair of skeptical reports argue that estimates of savings attributed to disease management are inflated--and may be impossible to calculate anyway. Meanwhile, the preferred drug list would save Florida much more money if the drug companies were simply paying rebates, rather than running disease-management programs whose savings are "less tangible and less immediate." If the state had insisted on rebates instead, one report found, Florida would have saved an extra $62 million last year alone.

The legislature took the auditor's report seriously. A line-item in the state's most recent budget closed the loophole, as of next September. The move doesn't end Florida's experiment with disease management, nor does it boot the drug companies out of that business. What it does, however, is de-link disease management from the complex economics and politics of pharmaceutical pricing. Pfizer may continue as a disease management vendor--but it will still have to pay Florida rebates if it wants to keep its pills on the preferred drug list. "We'll still buy disease-management services," says state Senator Durell Peaden Jr., who chairs the appropriations subcommittee on health. "We just won't trade it for anything."

The move is a blow to the drug companies, who have fought hard to maintain their pricing power--even suing to try to stop the preferred drug list from taking effect in the first place. Pfizer argues that Florida is acting too quickly, and that once lawmakers see the positive results from the second year of its disease-management program, they'll change their minds. Without a program like this, maintains John Sory, a Pfizer vice president, more people would go to the emergency room and be in the hospital longer than they are now, which would cost the state more money. "I still hold out hope that when they see what this has done," Sory says, "they'll want to see it continue."

For the rest of the country, Florida remains a cautionary tale in Medicaid's use of disease management. Whether dealing with drug companies or other vendors, Florida has always emphasized dollar-for- dollar savings from disease management--a foolhardy approach, according to the auditor's reports. In fact, the state remains locked in litigation with Coordinated Care Solutions, a disease-management vendor, over disputed savings from a diabetes contract several years ago. Al Lewis, head of the Disease Management Purchasing Consortium, says savings are generally hard to calculate but are nonetheless real. "Vendors are too enthusiastic about the savings, and buyers are too skeptical," Lewis says. "The truth is somewhere in between."

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