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Drug Benefits: The States Step into the Breach

For years, Chellie Pingree, Majority Leader in the Maine Senate, watched her elderly constituents struggle to pay rising prescription-drug bills. At the same time, Maine's spending on a 25-year-old state drug benefit--which subsidizes just 14 common drugs for very poor seniors only--was spiraling out of control.

Pingree thought: Why not use the state's purchasing power to wangle discounts from pharmaceutical houses and pass the savings on to the elderly? The result: the Maine Rx Program, which will force drugmakers to meet state-mandated discounts by 2003--an effective price cap. If it works, the plan will give one-third of Maine's population, most of them elderly, drug discounts of at least 30% and will save the state up to $500 million a year. "We wanted to expand our ability to benefit people, and there was no federal solution," says Pingree, a Democrat now campaigning for the U.S. Senate.

SORRY STATE. As Congress searches for a way to pay for a long-promised federal Medicare drug benefit, states such as Maine are showing what the bleak alternative is. Many have been moving ahead without Washington's help--but those same states are now screaming for federal relief from budget-busting costs. State drug costs rose more than 18% in 1998 and another 18% in 1999, with total spending nearing $80 billion, the National Conference of State Legislatures reports. "Drug subsidies are breaking our budgets," says Vermont Governor Howard Dean, a Democrat.

That's why lawmakers in 23 states, including California, Florida, and New York, are considering Maine Rx clones. And at least 24 states have passed laws to ease drug costs for seniors, the uninsured, and state workers--through multi-state purchasing pools, subsidies, tax credits, or Medicaid expansion.

But state lawmakers want Washington to use its federal buying power to provide even more relief. "The federal government can control prices. The state can't," says Vermont's Dean, who is telling his residents to buy drugs from Canada, where they can save between 30% and 95% per script.

The pharmaceutical industry, not surprisingly, is worried sick. Drugmakers fear that widespread state price controls could lead to federal price caps. Such a cure could be worse than the disease, the industry contends. The government's immense buying power would force prices artificially low, cutting into profits and hindering new-drug development. So lobbyists are pushing a federal benefit that places the costs on taxpayers and seniors, not industry. "If Congress would pass a Medicare drug benefit, part of the state issues would go away," says Marjorie Powell, general counsel for Pharmaceutical Research & Manufacturers of America.

States need help now. In West Virginia, state-employee drug-benefit costs will grow nearly one-third this year, to $85 million. Next year, the state has budgeted $100 million. "We'll continue to increase costs and cut benefits," says Tom Susman, director of the West Virginia Public Employees Insurance Agency. Meanwhile, Susman is meeting with officials from 14 other states--the "Pharmacy War Group"--to form a purchasing pool that might lower costs. If Washington can't find a solution, the states will. And industry might not like what they come up with. By Lorraine Woellert in Washington

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