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