Prescription Drug Study

lEG/SLATlV,~~~~=~~~~~~~=~~ bi;l~~iii~il Prescriptiod 1..119 Stud, A Rept)rtto the MinlJesClta Legislalure; onthePrestr;pt;on··Drug/4:arke" April 1994 Health Economics Program Division of Health Care Delivery Systems Minnesota. Department of Health . RA 401 .M M6 1994 c.2 Prescription Drug Study A Report to the Minnesota Legislature on the Prestription Drug Market April 1994 Health Economics Program Division of Health Care Delivery Systems Minnesota Department of Health For additional information or copies, please contact the Health Economics Program at (612) 282-5641 or at the following address: Health Economics Program Division of Health Care Delivery Systems Minnesota Department of Health P.O. Box 64975 St. Paul, Minnesota 55164-0975 Attention: Denese McAfee PRESCRIPTION DRUG STUDY TABLE OF CONTENTS ~E;urEIID Executive Summary C1C.I..l.~ J9~.~.UBiiNli i Introduction ~I§IAl1VE._..::J!',: ,..h •••••••••• .i · d' ""-. Summar! 0 f KFey m mgs : "' SlAlE"wmI'"'MJlt• ...:.:. · : 11.. ConclUSIons and RecommendatIons "' IV " Chapter 1: National and State Prescription Drug Expenditures and Trends 1 Chapter 2: Description of the Private Market for Prescription Drugs 15 Chapter 3: Description ofState Programs for Prescription Drugs ~ 59 Chapter 4: Prescription Drug Provisions ofPresident Clinton's Health Security Act 75 Chapter 5: International Perspective 83 Chapter 6: Legislative Reform Options ; 95 Bibliography 117 Appendices: A. Legislative Language Authorizing the Prescription Drug Study , 131 B. Contact List ~ 135 C. Interview Guide/Study Questions 143 D. Retail Drugstores' Antitrust Action Against Drug Manufacturers 157 E. Other Relevant Minnesota Legislation 169 . Acronym List ~ .. 177 Glossary ofTerms 181 EXECUTIVE SUMMARY PRESCRIPTION DRUG STUDY INTRODUCTION The State ofMinnesota is in its third year ofbipartisan effort ofhealth care reform. The 1992 HealthRight Act (now known as the MinnesotaCare Act) addressed issues ofaccess through the phase-in ofa subsidized health insurance program for children, their parents, and eventually all uninsured Min nesotans. This legislation also created the Minnesota Health Care Commission, a 25-member commis sion ofproviders, payers, and consumers, to develop a detailed cost containment plan. This plan pro- ~. vided the framework for the COSt containment provisions included in the 1993 MinnesotaCare Act. The goal of the plan is to reduce the rate ofgrowth ofhealth care expenditures by ten percent per year for the next five years. Minnesota's approach to cost containment includes elements ofboth .competition and regulation. The competitive approach is based on change in the service delivery system and focuses on Integrated Service Networks, prepaid health plans that will compete on price and quality. The regulatory component includes rare setting for payers outside ofthe ISN system and oversight authority based on expenditure limits for statewide health care spending. Minnesota's health care reform legislation has moved the state closer to a seamless delivery system with universal access to affordable quality health care. The three key components ofthe reform plan include: 1) Integrated Service Networks (lSNs) that agree to provide a standard set ofbenefits for a fixed price; 2) Regulated All-Payer Option (RAPO) for providers that do not participate in ISNs; and 3) overall limits on the rate ofgrowth in health care expenditures. The 1993 MinnesotaCare Act also required the Minnesota Department ofHealth to study the state's prescription drug market and make recommendations to the Legislature on controlling its costs. In preparing this report, Health Department staff conducted an extensive literature review and met with close to 100 individuals representing retail and other pharmacists, drug manufacturers, consumers, hospitals, nursing homes, physicians, health maintenance organizations, other stakeholders and persons with relevant expertise and interest. Staffalso consulted with the State ofMinnesota Departments of Administration, Employee Relations, and Human Services, the Minnesota Health Care Commission, and with the University ofMinnesota's PRIME Institute. The purpose ofthe report is to describe the prescription drug market and the numerous factors that influence drug expenditures. As the report indicates, the pharmaceutical industry is multi-layered and extremely complex. Any attempt to influence pricing mechanisms in one segment ofthe system may produce unintended and occasionally undesirable effects in another segment. In addition, although the United States' drug market is one of the least regulated in the world, federal Medicaid policy has had a significant influence on the market over time. In many respects, federal Medicaid policy presents a significant limiting factor in reforming Minnesota's prescription drug market. This Prescription Drug Study provides an overview ofthe total drug expenditures and trends at both the national and state level and a comprehensive description ofthe private market. Information is also included co describe the different components ofthe system including drug manufacturers, wholesalers, pharmacies, consumers and third-party payers. The State ofMinnesota also plays a unique role through its purchase ofprescription drugs through the Department ofAdministration's state purchasing program, as a payer through the Department ofEmployee Relations' administration ofthe state employees health plan, and through the Department of Human Services' coverage ofprescription drugs in the Medical Assistance, General Assistance Medical Care (GAMC) and MinnesotaCare programs. A consistent theme throughout this report is the phenomenon ofchange - both in the prescription drug market and the health care systems in which it operates. Especially in Minnesota, the changing health care system has had a mostly positive impact on competition in the drug industry. The concept and implementation ofmanaged care, for example, has increased the use ofdrug management tools that have reduced overall prescription drug costs for those patients in managed care systems. On the other hand, significant problems remain for those outside ofsuch systems, particularly for retail pharmacists and the elderly and uninsured who pay for prescription drugs directly through out-of-pocket payments. It should be noted that there is significant change anticipated at the national level as well. President Clinton's Health Security Act includes prescription drugs as a covered benefit under the Medicare program and it is likely that prescription drugs will be included as a covered benefit in any national health care legislation assuring universal access. It is unclear the direction national health reform" will rake, but prescription drugs are clearly on the agenda. The following secti()ns include a summary ofkey findings ofMinnesota's Prescription Drug Study and recommendations regarding legislative options for change. SUMMARY OF KEY FINDINGS Drug Therapy and Pharmaceutical Care • Appropriate use ofpharmaceutical drugs saves the health care system millions ofdollars annually by reducing reliance on more expensive surgeries, hospitalizations and admissions to nursing homes. • Unintended adverse drug reactions increase the costs of the health care system through increased hospital admissions and additional medical expenses. Adverse drug reactions also decrease the outcomes and quality ofpatient care and accounted for 12,000 deaths in 1987. • Pharmaceutical Care is the component ofpharmacy practice that includes more direct intervention ofthe pharmacist with the patient for the purpose ofcaring for that patient's drug-related needs. The concept could have positive implications for improved patient outcomes and, in the long term, possibly decreased health care system costs iftherapeutic outcomes improve and adverse drug reactions are reduced. • Consumers should carry more responsibility for ensuring positive outcomes with drug therapy. This can be accomplished through more consumer education (particularly in understanding generic drugs and therapeutic equivalents) and greater involvemenr in decisions regarding trear ment including the importance of berrer compliance with physician and pharmacist instructions regarding drug therapy for both prescription and over-the-counter drugs. 11 Expenditures and Trends • Drugs and other medical nondurables accounted for approximately $60 billion, or 8%, ofthe estimated $750 billion spent on health care in the U.S. in 1991. Adding drugs dispensed in hospieals, nursing homes, and HMOs raises the estimate to $65 to $70 billion: • Minnesota expenditures in 1991 for retail purchases ofprescription drugs are estimated' at $548 million. Adding expenditures for drugs dispensed in hospieals, nursing homes, HMOs and other non-retail pharmacies increases the coeal expenditures co approximately $1 billion. • Nationally, prescription drug prices over the last decade have been increasing at an average annual rate of9.4%, over cwiceas fast as the general rate ofinflation. However, voluntary efforts on the part ofdrug manufacturers have brought the rate ofinflation for prescription drugs in the last year in line with the general rate ofinflation of3%. Third Party Coverage • 55% ofdrug purchases in the U.S. are paid directly out-of-pocket by consumers. In Minnesota, - 49% ofdrug purchases are paid out-of-pocket. The remainder are covered by a variety of third parey payers. • The elderly and the uninsured/underinsured represent the vast majority ofconsumers paying ouc of-pocket for

Load more