Develop a Pharmaceutical Program for Texans Over Age 65

The state should develop a pharmaceutical program to help citizens over 65 buy prescription drugs at a lower cost.

High pharmaceutical prices have adversely affected Americans aged 65 and over. This group accounted for 34.3 percent of retail prescription spending in 1988, but comprised only 12.4 percent of the population. Medicare, which is the major insurer for this g roup, does not cover outpatient pharmaceuticals, whereas other insurance plans cover pharmaceuticals for most people under 65. 1

The media have reported instances in which the elderly have to choose whether to buy prescription drugs or pay for rent and groceries. They may not take their medicine as often as they should or may ask pharmacists for fewer dosages than prescribed. 2

More Texans will face this problem in the future as the state s population grows older. According to the 1990 Census, there were more than 1.1 million Texans over age 65; by 2010, this population will increase to 3.1 million. Lowering the elderly s prescription expenditures can help control health-care costs.

Health-care buying organizations, such as health maintenance organizations (HMOs) and self-insured groups, use their buying power to obtain price concessions from pharmacists. Some have even opened their own in-house pharmacies or mail-order pharmacies for their members.

New companies have developed recently that advise these groups how to operate pharmaceut ical programs. Others give advice on which drugs do the best job for the money. Due to its large volume purchasing through its Medicaid Vendor Drug Program, the State of Texas could use its buying power to get a better deal on drugs for elderly Texans. Thi s could be accomplished at little added cost to the state and would provide a tangible customer service to an important and growing segment of our population.

Federal law mandates that no pharmaceutical manufacturer can sell their products to anyone for less than they sell them to state Medicaid programs. Each state Medicaid program negotiates with participating pharmacists the amount it will pay them.

Nine states have adopted programs that help those over 65 buy prescription drugs at a lower price. They accomplish this by using the leverage from the Medicaid negotiation process to achieve a lower cost for specific drugs used primarily by those over 65 w ho are not eligible for Medicaid. These states also use state funds to help these low-income elderly residents purchase the drugs, although this is not necessary to receive some lower prices through negotiation.

New Jersey s program, Pharmaceutical Assistance to the Aged and Disabled (PAAD), works similarly to an HMO. The state becomes a payor for prescription drugs purchased by the elderly whose income falls into the lower income brackets. Anyone qualified for th e program receives a card that, when presented to a participating pharmacist, allows the purchaser to receive the prescription for only a $5 co-pa yment. The program covers all drugs approved by the Food and Drug Administration. Under the PAAD program, the state pays pharmacists the same price as paid by their Medicaid program. The $180 million PAAD program is financed with a dedicated casino tax and general revenue. 3

Such a program in Texas would cost far more than the $180 million that New Jersey spends in prescription subsidies and administrative costs; however, because of the large size of Texas Medicaid Vendor Drug Program, the state has consid erable untapped leverage that could be used to lower costs for some drugs for the elderly without a state subsidy. While other states with such programs use a subsidy, discussions with their negotiators indicate that a subsidy would not be necessary to achieve lower costs.

To eliminate the administrative costs that New Jersey incurs from serving only low-income persons and, therefore, requiring an eligibility determination process, the program in Texas could include all elderly over age 65. Only a driver s license or picture identification with date of birth would be needed to establish eligibility for the discount at the pharmacy.

It is possible that some manufacturers could offer rebates in the negotiation process, which means that some revenue could accrue to the state.

The Legislature should mandate that the Department of Health conduct ongoing negotiations with vendors to establish reduced prices for pharmaceuticals benefiting citizens 65 years of age and older. The Legislature should direct further that any revenue accruing to the state as a result of manufacturer rebates from this program should be placed in the General Revenue Fund.

All citizens 65 years of age and older should be eligible for the program, regardless of income. This would eliminate the cost of eligibility determination. Citizens 65 years and older could present a picture identification, like a driver s license or state-issued identification card, that indicates their age to pharmacists.

While the recommended program would not subsidize any costs of prescription drugs purchased by the elderly, it would allow them to take advantage of the state s purchasing power to purchase drugs at a lower price than they are now paying.

Most pharmacies would be willing to negotiate with the state because they would not want to be excluded from a recommended provider list for all Texans over 65. For the same reason, most manufacturers would negotiate with the state to sell certain drugs di rectly to pharmacists at a lower price than at present. Purchasers would have the option of choosing the lower-priced drug.

Fiscal Impact
There would be no significant costs to the state other than time spent in the negotiating process, which should be minimal. If manufacturer rebates were negotiated, some revenue could accrue to the state, but insufficient data exist to develop estimates.

1 Stephen W. Schondelmeyer and Joseph Thomas III, Trends in Retail Prescription Expenditures, Health Affairs (Fall 1990), pp. 131-145.
2 Debra Beachy, Drug costs impoverish elderly, Houston Chronicle (September 17, 1992), p. 1B.
3 Interview with Kathy Mason, Medical Assistance and Health Services Division, State of New Jersey, August 4, 1992.