News Release

HHS Approves Second Multi-State Purchasing Pool to Lower Medicaid Drug Prices

HHS Secretary Mike Leavitt today approved plans by three states -- Louisiana, Maryland and West Virginia -- to pool their collective purchasing power to gain deeper discounts on prescription medicines for their state programs.

This is the second multi-state purchasing plan using the framework established by the Centers for Medicare and Medicaid Services (CMS) in 2004. The first multi-state plan, approved in April 2004, included five states: Michigan, Vermont, New Hampshire, Alaska and Nevada. Since its approval, Hawaii, Minnesota, and Montana have joined that original pool.

"These pooling plans will help lower drug costs for the states involved," Secretary Leavitt said. "The ability to purchase drugs at a lower cost will help the participating states continue to provide critical medications to the millions of low-income citizens who depend on the Medicaid program."

Louisiana estimates that it will save $27 million in its Medicaid program in 2006 as a result of the arrangement. Maryland reports that its Medicaid program will save $19 million in 2006 because of the purchasing pool, while West Virginia expects to save $16 million. Altogether, the pooled purchasing program will cover over 1.3 million beneficiaries.

"This approach builds on our efforts to help states use the best private-sector purchasing tools to lower costs, while assuring appropriate standards for proper access to medicines and quality care," said Mark B. McClellan, M.D., Ph.D., administrator of CMS, which oversees the Medicaid program.

Under the Medicaid law, drug manufacturers, in order to receive federal funding for their drugs, must first enter into discount -- or rebate -- agreements with HHS. The Bush administration has currently approved around 30 state plans to negotiate extra, or supplemental rebates with manufacturers. States generally achieve negotiated discounts greater than those established by law for Medicaid by relying on a private pharmacy benefit manager to negotiate discounts based on a list of preferred drugs established by the state for their Medicaid beneficiaries.

CMS has worked with each of these states to assure effective implementation of price negotiations, including appropriate consideration of clinical impact. In determining what drugs are on the preferred drug list, states use a committee of clinicians and pharmacists to review medical needs before considering the discounts offered by drug manufacturers. The review ensures that the preferred drug list will provide Medicaid beneficiaries access to all drugs generally needed. In addition, federal law requires that drugs not on the list may still be prescribed for Medicaid beneficiaries but often require prior approval, generally leading to less utilization. Consequently, drug manufacturers often provide additional discounts to keep their drugs on the preferred drug list.

All three of the states in today’s announcement have signed agreements with Provider Synergies to negotiate lower prices on their behalf with manufacturers. Although the states are pooling their efforts in buying drugs, they all will maintain their own preferred drug lists and exercise clinical oversight of those lists to assure adequate access to needed medicines for their beneficiaries. Because there are overlaps on the preferred drug lists, pooling across states can lead to larger discounts on certain drugs.

In September 2004, CMS issued a State Medicaid Directors letter giving guidance to states on how to implement multi-state pooling arrangements that both achieve cost savings and protect the interests of the Medicaid beneficiaries while promoting competition.

Medicaid is a state/federal partnership program that provides health care coverage to over 53 million low-income children, elderly and disabled Americans. Over $295 billion was spent on the Medicaid program in 2004.