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Pharmaceuticals Group Files
Suit to Ban State Drug Lists

By: Russell Gold and Scott Hensley
The Wall Street Journal, July 2, 2002


The pharmaceuticals industry is stepping up its counterattack against a host of state programs forcing companies to slash drug prices or lose market share.

The drug industry's main trade group filed suit in U.S. District Court in Washington, D.C., urging that states be banned from "putting bureaucrats and bean counters" in charge of dispensing drugs. The lawsuit, filed Friday by the Pharmaceutical Research and Manufacturers of America, argues that federal regulators lacked the authority to approve a price-control program in Michigan, the most aggressive state effort so far.

The suit reflects mounting industry worries that other states are moving to enact similar programs to rein in double-digit-percentage annual growth in drug costs for Medicaid, the joint state-federal health-insurance program for the poor and disabled, and other health programs. The industry fears widespread adoption of such price-control systems would undermine its pricing power in the U.S., its most profitable market.

Already, Michigan's surprisingly successful, five-month-old program prompted two drug companies -- Merck & Co. and AstraZeneca PLC -- late last month to sharply cut costs of key drugs to get on the state's list of preferred drugs in order to arrest big losses in market share to competitors.

At the same time, Pfizer Inc., the industry's biggest player that so far has refused to cut its prices in Michigan, has joined forces with two heath-advocacy groups and quietly bankrolled an effort to discredit the Michigan program.

The lawsuit was filed against U.S. Health and Human Services Secretary Tommy Thompson and Thomas Scully, administrator of the Centers for Medicare and Medicaid Service, for approving Michigan's program. While PhRMA has tried to stop individual state efforts in the past, this lawsuit is aimed at preventing the federal government from allowing any state to try preferred lists. The lawsuit essentially challenges the legality of states using such lists to extract any price concession from drug makers.

Bill Pierce, a spokesman for the Health and Human Services Department, said the federal government is well within its rights and says Mr. Thompson continues to support giving states flexibility to experiment with their Medicaid programs.

Jim Haveman, director of the Michigan Department of Community Health, said Michigan is simply following the private sector by creating a preferred list and requiring prior authorization for drugs not on the list. "I have prior authorization with Blue Cross Blue Shield in Michigan," said Mr. Haveman. "People have it with HMOs. It's just a way of life." Michigan officials said their program, which started in February, is saving the state $800,000 a week and is projected to save $50 million a year.

PhRMA lawyers contend that Medicaid must pay for a drug unless there is a clinical reason for excluding it.

In Michigan, if a company's drug wasn't included on a list of preferred drugs picked by a group of doctors and pharmacists, it faced a choice: Either cut prices or lose market share. Merck and AstraZeneca were among several companies that refused to cut prices late last year, but the stand cost them. For example, Merck's Zocor plummeted to 1.4% from 15.6% of the cholesterol-lowering medicine market in Michigan, while AstraZeneca's Nexium grabbed less than 2% of the heartburn market during the first five months of Michigan's program. The companies acted before July 1, when the state printed its annual list of preferred drugs to be sent to doctors.

AstraZeneca confirmed that the company late last month agreed to deeper discounts to get three more drugs -- including Nexium -- on the state list, though it declined to disclose details. "We have to do business in Michigan," said a spokeswoman. She said AstraZeneca supports the industry's lawsuit and will adjust its pricing if the Michigan program is quashed in court.

Pfizer, meanwhile, has been quietly gathering ammunition against the program. In April, the drug maker began bankrolling a series of radio spots and newspaper ads in Michigan urging patients to call a toll-free number if they had been forced to switch prescription medicines because their doctors "didn't get preapproval from a bureaucrat."

The responses, some of which were chilling, were circulated weekly to key lawmakers being lobbied to rescind the state program.

"I'm manic-depressive, and this is really upsetting me a lot. I used to be real violent. I feel like I am starting to get the same way," said an unidentified woman from Saginaw, according to one circulated report. The ads say they were paid for by the Michigan Partners for Patient Advocacy, an umbrella group of about 60 health-advocacy groups. Actually, the campaign was put together by only two members of the coalition and funded with a $160,000 grant from Pfizer, whose name doesn't appear anywhere in the campaign.

The campaign stirred controversy among some of the advocacy groups, but also changed some legislators' minds. One powerful early backer of the drug list, Sen. Alma Wheeler Smith, said she now plans to support a bill that would gut the program.

Andy McCormick, a Pfizer spokesman, said the company plans to use the material gleaned from the toll-free calls "as a cautionary note to policy makers in other states."

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