Federal Court Approves State’s Medicaid Drug Savings Plan

SEPTEMBER 23, 2002 VOLUME 10, NUMBER 12

Like other states, Florida is experiencing runaway cost increases in Medicaid, the federal/state program which provides medical care for the poor. One particular area of concern has been the cost of prescription drugs (unlike the Medicare program, Medicaid covers medication costs). Last year the Florida legislature took steps to control those drug costs by establishment of a state “formulary,” or list of approved drugs.

The concept of a formulary is not really new. Managed health care plans (including HMOs) often maintain similar lists of approved drugs. Any physician wanting to prescribe a medication not on the list must either get approval before writing the prescription or change to a drug that is on the approved list.

Florida’s approach is different in two regards. First, the formulary is advisory rather than mandatory. While a prescription for any drug on the list is approved automatically, any drug not on the list requires the prescribing physician to first call the state to request permission. The pharmacist suggests drugs that are on the formulary instead, but if the physician insists he or she is permitted to issue the prescription for a non-formulary drug.

The other difference in Florida’s approach to a formulary is that drugs are included on the list based not on tests of efficacy, or reports of limited side-effects, but on the willingness of the manufacturer to pay a “supplemental rebate” (usually at least 10% of the drug’s cost) to the state. In other words, Florida’s formulary lists only those drugs which will cost less than the pharmaceutical manufacturer is entitled to charge according to federal regulations.

In the first three months of the new program, the state reported that over half of the prescriptions that would have been written for a non-formulary drug were switched to the approved, lower-cost alternative. Concerned about the effect of this approach on its members, a national pharmaceutical trade group brought suit to enjoin the state from operating its formulary program.

After the Florida program was upheld by the Federal District Court, the industry appealed. The Eleventh Circuit Court of Appeals, sitting in Atlanta, Georgia, agreed with the District Court and dismissed the pharmaceutical industry’s challenge to the Florida formulary law.

Florida’s inclusion of cost effectiveness in its drug program did not violate federal law, ruled the Circuit Court of Appeals. In fact, Florida’s program is not really a “formulary” at all, but merely a “prior authorization program.” Since doctors are guaranteed the right to prescribe the drug of their choice after talking to the state pharmacist, Florida’s plan is permissible under federal Medicaid law. Pharmaceutical Research and Manufacturers of America v. Meadows, September 6, 2002.

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