States Working Together to Lower Prescription Drug Costs

NGA Issue Brief Spotlights State Efforts to Pool Resources, Reduce Rising Costs, Improve Quality

Access to quality affordable prescription drugs is critical for an aging America. As the cost of prescription drugs continues to rise, a recently released report from the National Governors Association (NGA) Center for Best Practices shows how states are increasingly joining forces to develop and implement innovative and creative strategies to combat these price hikes.

Currently prescription drugs account for about 10 percent of national health expenditures and that number continues to rise--growing more than 15 percent in 2002 alone. The brief, "Purchasing Pools for Prescription Drugs: What's Happening and How Do They Work?" outlines various solutions states are employing to reduce the costs associated with prescription drugs while more efficiently managing the wide-range of pharmaceutical benefits.

In an effort to cut costs and improve quality, states are collaborating to form purchasing pools to help protect access to this important benefit. Typically, purchasing pools involve state agencies that collaborate with neighboring states to negotiate manufacturer rebates and manage benefits more effectively.

By pooling their resources, states can increase their market clout while making it easier to negotiate with manufacturers who are more likely to offer favorable rebates to larger pooled groups of state agencies, department, and programs, the brief says. In addition, using a single administrator or negotiator improves patient safety and care management, which, the report says, encourages "integration in a largely fragmented health care delivery system."

In Georgia, for example, the state's Department of Community Health utilizes a single Pharmacy Benefits Manager (PBM) to negotiate manufacturer discounts and to manage the prescription drug benefits for its state employee health plans, Medicaid program, and state board of regents, a move that saved the state $60 million between October 2000 and January 2003.

The RxIS Coalition of Delaware, Missouri, New Mexico, Ohio and West Virginia use a single PBM to negotiate manufacturer discounts on prescription drugs for nearly 700,000 state employees and retirees.

With the permission of the Centers for Medicare & Medicaid Services (CMS), a growing coalition of states, Alaska, Michigan, New Hampshire, Nevada and Vermont, have collectively teamed up to purchase prescription drugs for their Medicaid programs through a joint contract with First Health Services.

The trend in pooling shows little sign of slowing down, the NGA Center report says. "As the impending federal Medicare benefit begins to provide prescription drug benefits for those dually eligible for Medicaid and Medicare--the Medicaid program's highest utilizers--states may see their ability to negotiate supplemental rebates in the Medicaid program reduced, making pooling strategies more appealing," according to the brief.

Contact: John Blacksten
Office of Communications
Contact: Christine LaPaille
Office of Communications