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GPhA Letter to the Centers for Medicare and Medicaid Services

August 3, 2004

The Honorable Mark McClellan, M.D., PhD.
Administrator
Centers for Medicare and Medicaid Services
Department of Health and Human Services
100 Independence Avenue, S.W.
Washington, D.C. 20001

Dear Dr. McClellan:

On behalf of the Generic Pharmaceutical Association (GPhA), I would like to share some suggestions about ways to remove barriers to achieving substantial Federal and State savings through the greater utilization of cost-effective generic pharmaceuticals.

For most Medicaid agencies, increasing the use of generic medicines is the most readily available means of reducing prescription drug expenditures. According to various studies, generics can be as much as 80 percent less than brands -- the average retail price for a brand drug is $84.21 while the average retail price of a generic is $30.56. On average, health insurance programs have a ratio of about 50 percent brand and 50 percent generic, yet cost to the programs is closer to 90 percent for brands and 10 percent for generics.

While most states use mechanisms to encourage greater use of generic pharmaceuticals, there is clearly room for moving a larger percentage of prescriptions from brand to generic. Regrettably, there is wide variation in the degree to which states are employing aggressive methods that demonstrably increase generic utilization. The following is a sample of mechanisms that have proven to be effective and can be used as models:

I. AVOID EXPENSIVE, NEEDLESS DRUG CARVE-OUTS THAT INHIBIT THE USE OF GENERICS.

There are currently over 60 major mental health drugs on the market that include anti-depressants, anti-psychotics, anti-anxiety, and stimulants. Just 15 of the top mental health drugs accounted for over $18 billion in brand name drug sales in 2001. Sales of anti-psychotics totaled $6.5 billion in 2003. About a third of those sales were to state Medicaid programs whose costs have ballooned largely as the result of mental health drug “carve-out” provisions that effectively override generic substitution laws. The policy rationale for these provisions is based on the erroneous assumption that chemically equivalent generic drugs undermine treatment outcomes of patients with mental illness. As you know, there is no scientific or medical basis for this policy nor is it consistent with FDA’s determination of therapeutic equivalence. Simply stated, the“carve-out” policy increases state and federal Medicaid program costs by millions of dollars without any credible, independent evidence-based studies of better outcomes.

“Carve outs” for mental health drugs have proven to be very expensive for the State of Florida. Two years after the state implemented a preferred drug list with a carve out for mental health drugs, an analysis by state officials showed that the carve out cost Florida approximately $30 million a year. [Florida Fiscal 2004-2005 Governors Recommended Appropriation Bill]

The issue of carve-outs is eerily similar to the narrow therapeutic index debate that occurred between 1997 and 2000, which was an ultimately unsuccessful attempt by the brand industry to block access to generics through inaccurate claims that they provided substandard care. Moreover, the carve-out policy now being used directly contradicts the long-stated position of the President and the Food and Drug Administration (FDA) that generics are equivalent to -- and just as safe as -- brand name drugs.

With this in mind, we would strongly recommend that your office issue a revision to the State Medicaid Manual and a Memorandum to State Medicaid Directors encouraging them to eliminate mental health carve-outs in their programs. Particularly with your background as the former FDA Commissioner, we believe it entirely appropriate and necessary for the Department of Health and Human Services and the Centers for Medicare and Medicaid Services (CMS) to reiterate the Administration’s position that generic drugs can be safely substituted for their brand name counterpart. It would be of particular assistance if the FDA explicitly addressed the issue of substitutability specifically as it relates to mental health drugs -- much like the agency’s efforts on the NTI issue a few years back.

Those states that have rejected arguments by certain brand name industry representatives advocating for carve-outs have achieved substantial savings without any impact on health outcomes. In fact, one year after a policy change in the state of Kentucky that treated an anti-psychotic drug like all other medications covered by the state, “mental health advocates said they could trace no ill effects to the decision.” [States Try to Limit Drugs in Medicaid but Makers Resist; New York Times; December 18, 2003.] Since twenty-four (24) states have some legislative or administrative requirement, guidance from the department in this area could be crucial to achieve savings for the program and taxpayers without in any way undermining medical outcomes.

II. IMPLEMENT COST CONTAINMENT GENERIC SUBSTITUTION POLICIES.

While many states desire to encourage the use of cost-effective generics, some states have instituted brand drug-industry supported practices that make it extremely easy for physicians to bypass generic drug substitution laws and access expensive brand drugs with little or no medical justification. As FDA has repeatedly made clear, therapeutically equivalent (AB-rated) generic drugs are, by definition, chemically equivalent to their brand counterparts and provide the same quality of care. As you know, FDA-approved generics must have the same active ingredients, efficacy (bioequivalence), manufacturing standards and dosage levels as the reference brands. Repeatedly, the FDA has stated that a generic drug, declared to be therapeutically equivalent, can be safely substituted for its brand counterpart. Accordingly, substitution of these products should be a common and cost-effective Medicaid coverage practice.

A. ENSURE THAT THE STATE’S PRESCRIPTION PAD FORM REQUIRES PHYSICIANS TO MAKE CONSCIOUS DECISIONS & TAKE AFFIRMATIVE STEPS BEFORE MANDATING BRAND DRUG DISPENSING.

The format of a prescription pad can vary from state to state. Yet, the format can have a profound impact on whether physicians are more or less likely to mandate dispensing of brands over generics. At least 33 states require a prescriber to make a conscious decision and handwrite “no substitution”, “dispense as written” or a similar mandate on the pad. Other states may allow an easier override such as a check off box or signing on a different line if brand dispensing is being mandated. Yet, simply refining the prescription pad form, which is mandated by state law/regulation, can provide tremendous savings to public and private healthcare providers and consumers.

For example, in 2001, the State of Texas switched from a two-line prescription pad that had allowed signing the “brand only” line as a means to override generic substitution. The new pad required a physician to handwrite “Brand medically necessary” in order to prohibit generic substitution. An analysis by the University of Texas estimated savings from this simple change at $223 million. [May 2001, Center for Pharmacoeconomic Studies, University of Texas at Austin] We recommend that your office issue a Memorandum to State Medicaid Directors in which they are encouraged to review their state’s requirements for prescription pad forms and generic substitution.

B. ENSURE THAT STATES ADOPT FURTHER MEASURES TO YIELD ADDITIONAL COST SAVINGS.

In Massachusetts, Medicaid officials have taken a series of steps in the past three years that the state estimates shaved $150 million off the annual tab for drugs. A large part of the savings came from a change in a policy that required pharmacists to dispense generic drugs unless a doctor specified that he/she wanted brand-name drugs instead. Doctors were routinely asking for brand name drugs by writing “dispensed as written,” and Medicaid was paying $10 million to $11 million a month for brand-name drugs that had generic equivalents. After reviewing the situation, Medicaid put in place a tougher policy: If a doctor wanted to use a brand-name drug he had to explain why, in writing, and get permission from the Medicaid program to make the switch. Once the new policy went into effect, spending on brand-name drugs in these categories dropped dramatically to $200,000 to $300,000 a month. [Tough Medicine is Paying of For State; Boston Globe; February 17, 2004]

Accordingly, we recommend that your office issue a Memorandum to State Medicaid Directors in which they are encouraged to review their state’s rules regarding physician override to ensure that no unnecessary barriers to cost-effective generics exist. Requiring adequate documentation of the need to access a brand is also essential and must be done in the context of both e-prescribing and prescription pads. These prescription mechanisms should be reviewed to ensure the best possible outcome in terms of generic utilization.

III. AVOID COUNTER-PRODUCTIVE SUPPLEMENTAL REBATE PROGRAMS.

Generic pharmaceutical manufacturers are pleased to participate in the Medicaid program and to provide Medicaid beneficiaries with the medicines they need while helping the program achieve significant cost savings. However, when states have attempted to extract rebates higher than the national Medicaid standard of 11 percent for generics, some generic manufacturers have determined that they could not afford to participate in the state programs.

Unlike their brand industry counterparts, generic manufacturers face robust price competition and operate on significantly less profit margins Even the federally mandated standard rebate level of 11 percent for generic drugs results in a financial loss for generic manufacturers on some prescription drugs provided to Medicaid and other state pharmaceutical assistance programs. In Missouri and New Jersey, state officials found that supplemental rebates which were intended to produce revenue for the state actually yielded significant increases in state expenditures as a result of reduced access to affordable generic pharmaceuticals. In fact, Missouri’s SeniorRx Program estimated that increasing generic rebates would have increased state costs by $8.5 million in the first year alone. New Jersey officials recently estimated that increasing rebates on generics used in their PAAD and Senior Gold programs would have increased state costs $18 million in the first year alone.

Supplemental rebates on generic drugs are not the answer to budget shortfalls or increasing Medicaid costs. In fact, such a proposal could have a significant adverse effect on the state’s budget situation. Accordingly, we request that your office, when considering waivers for state programs, discourage state Medicaid directors from implementing counter-productive supplemental rebate programs, as well as issue a Memorandum to State Medicaid Directors that explains why increasing the rebate percentage on generic drugs can have unintended adverse consequences.

IV. PUBLISH THE FEDERAL UPPER LIMIT (FUL) MORE FREQUENTLY.

Federal Medicaid law imposes ceilings on the federal government match for payment amounts to pharmacists for the prescription drugs they dispense to Medicaid beneficiaries. The FUL is the ceiling for drugs with three or more versions. The payment ceiling for each drug is set at 150 percent of the published price for the least costly therapeutic equivalent that can be purchased by pharmacists in quantities of 100 tablets or capsules. [Kaiser Family Foundation, Medicaid: Purchasing Prescription Drugs, January 2002.] The FUL is currently published by CMS only twice a year. However, cost-effective generic versions of drugs are constantly being introduced. Publishing updates only twice a year results in an artificially high FUL because the lower cost of the newest generic version of the drug is not included in the calculation. A frequently updated FUL by the states would therefore encourage greater use of cost-effective generic drugs. With this in mind, we recommend that the FUL be revised and published no less than once per month. To ensure broader federal savings, CMS should also consider being more aggressive on enforcing federal matching rules for those states that submit costs/claims in excess of the FUL.

V. CONSIDER USING THE MAXIMUM ALLOWABLE COST (MAC).

States have the flexibility to establish their own payment ceilings for multiple source drugs, so long as it does not exceed the federal payment ceiling for FUL drugs. Slightly over half the states have taken advantage of this cost containment tool, which would enable them to limit their liability with regards to drug pricing. MACing has resulted in significant savings for private health insurers as well. We recommend that CMS revise Section 6305 of the State Medicaid Manual to remind State Medicaid Directors that they may use a MAC formula in establishing the Medicaid Estimated Acquisition Cost for multiple source drugs.

VI. UTILIZE A DIFFERENTIAL INCENTIVE FEE FOR PHARMACISTS.

The drug specific payment ceilings calculated at CMS allow for -- but do not require - the payment to pharmacists of a “reasonable” dispensing fee established by the state Medicaid agency. CMS regulations do not define “reasonable” for this purpose. There is great variation among the states in the amount of the dispensing fee and the manner in which it is calculated. [Ibid] More importantly, most states offer no differential at all between the dispensing fee paid for brand-name prescription drugs and generic drugs. Creating such a differential and securing a higher dispensing fee for generic drugs encourages greater dispensing of generic drugs at the pharmacy. As such, GPhA encourages CMS to adopt drug specific payment ceilings that require a reasonable pharmacist dispensing fee for generic prescriptions.

VII. DEVELOP AN EDUCATION CAMPAIGN BY CUSTOMIZING GPHA’S EDUCATIONAL MATERIALS.

While significant progress had been made in consumer education, there is still much misinformation and misperception about the sameness and the effectiveness of generic drugs and their brand counterparts. For example, some states have enacted laws that require Medicaid to pay for brand name drugs for particular patient groups even when generic equivalents are available despite the fact that there is no clinical justification for favoring certain brands over their FDA-approved generic equivalents. State Medicaid Directors should be encouraged to consider undertaking a campaign to educate physicians and beneficiaries on the value and effectiveness of generic drugs.

The Generics First program initiated by Medco Health Services shows how significant a counter-detailing or generics education program can be. In 2002, Medco sent pharmacists to hold face to face clinical discussions with 1700 physicians in 10 states. In addition to the meetings, the pharmacists left patient education materials and generic samples behind that the physicians could provide to patients. The effort focused on educating the physicians on the availability, clinical benefits and economic value of generics and encouraged their use as a first line treatment. [The Bergen (NJ) Record, November 5, 2002]

According to published reports, at least six (6) states have experimented with similar “counter-detailing” efforts. The Wall Street Journal reported that in October 2000, a Florida “counter-detailer” visited 88 physicians who tended to prescribe brand-name anti-inflammatory drugs such as Vioxx and Celebrex. An analysis of those physicians prescribing habits done three months later showed a change in prescribing that was expected to save Florida $196,000 a year. [The Wall Street Journal, August 22, 2001]

West Virginia launched a pilot “counter-detailing” program in 2002. The head of West Virginia’s Public Employee Insurance Agency predicted at the outset that a 2% increase in generic utilization (from 43% to 45%) would save his state $1 million. [The Washington Post, August 5, 2002] We believe Medicaid can enjoy similar savings simply by increasing awareness of the safety and efficacy of generic versions of brand drugs.

GPhA also recognizes the need to educate consumers and health care providers on the tremendous value of generics. Toward this end, GPhA has developed consumer educational campaign materials designed to maximize awareness of generics. This program can be made available and distributed directly or indirectly and customized to suit any health care provider’s needs. For example, a state Medicaid program could partner with CMS and GPhA to support generic product use and consumer acceptance within their program - without the additive cost of developing such a campaign.

In sum, we request that CMS: (1) develop a program that provides information on generic drug substitution to the states and supports their educational initiatives; (2) encourage states to undertake educational campaigns; and/or (3) at minimum, partner with GPhA in its educational program as a content supporter to educate consumers, health care providers and policy makers on the tremendous therapeutic and economic benefits of generic pharmaceuticals.

VIII. CONCLUSION

GPhA is convinced that strong direction from CMS, FDA and HHS on the above-mentioned generic drug utilization “best practices” has extraordinary potential to assure both high quality care and to produce significant cost savings. While the above issues are not all inclusive, we strongly encourage you to issue CMS guidance letters to the states on these issues. We stand ready and willing to provide whatever assistance we can to assist you in this critically important endeavor, including meeting with you to further discuss these important suggestions. As always, we look forward to working with you in your ongoing efforts to improve federal health care programs for the beneficiaries they serve and the taxpayers who support them.

Sincerely,

Kathleen Jaeger President & CEO
Generic Pharmaceutical Association

cc: Ladd Wiley, HHS