Maine’s Bid to Cut Drug Prices Before High Court

The Supreme Court, raising the stakes in the increasingly populist battle over the high cost of prescription drugs, said Friday that it would consider the pharmaceutical industry’s challenge of state efforts to force drug prices lower.

The court’s decision prevents Maine from implementing a program adopted two years ago to finance prescription drug coverage for 325,000 uninsured residents with discounts won in strong-arm negotiations with drug manufacturers.

The pharmaceutical industry immediately went to federal court to have the Maine Rx law overturned, arguing that it violates federal Medicaid law as well as constitutional rules on interstate commerce.

The Pharmaceutical Research & Manufacturers of America, or PhRMA, succeeded in blocking the program, but the state had won the latest round of the legal battle, in the U.S. 1st Circuit Court of Appeals. Maine also garnered the endorsement of the Bush administration, which filed a brief urging the Supreme Court to let the program go forward.

Escalating drug prices have strained the budgets of private consumers and state governments in recent years, and lawmakers of both political parties have sought to respond to growing demands for political action. Yet the high court’s intervention in the Maine case, coming hours after the Republican-controlled House passed an industry-supported Medicare drug benefit that Democrats criticized for failing to address the cost issue, highlighted the significant legal and political barriers that face all cost-containment efforts.

The court’s action also is likely to reverberate in a campaign for the U.S. Senate that pits the Democratic author of the Maine Rx program against Republican Sen. Susan Collins. Both candidates expressed their disappointment over Friday’s court action, but former state Sen. Chellie Pingree said it underscored Congress’ responsibility to take on the pharmaceutical industry and makes her “even more determined to get to Washington.”

PhRMA officials praised the court’s action, calling it “great news for Medicaid patients.”

The court’s ruling, expected next year, could affect state budgets and low-income citizens across the country. Legislators in roughly half the states have been waiting to see whether Maine’s law would survive the industry’s legal challenge before enacting similar programs.

PhRMA emphasized that fact in its petition for Supreme Court action, arguing that “the harmful phenomenon of state efforts to use Medicaid leverage to exact non-Medicaid subsidies is fast spreading.”

Indeed, most state Medicaid drug budgets are out of control. In virtually every state, Medicaid drug spending has grown by more than 50% since 1997; in seven states, it has increased at least 90%.

“This is a significant national issue,” Newell A. Augur, director of legislative and public affairs for Maine’s Department of Human Services, said Friday. “It is critical for every state to be able to manage their budget and provide vital medications to the growing population of elderly and low-income people.”

Most states have focused their drug cost-control efforts on Medicaid beneficiaries--increasing co-payments and restricting the types of drugs and the number of prescriptions covered by Medicaid. California’s program, Medi-Cal, employs all those tools and for several years has also negotiated additional discounts from manufacturers.

Maine officials concentrated on reducing the cost of the drugs--and that meant taking on the pharmaceutical industry.

The goals of the Maine Rx program, which passed the state Legislature almost unanimously, were simple enough: First, the state would use its purchasing power to negotiate discounts from pharmaceutical manufacturers greater than those required by federal Medicaid law.

Drug companies that refused to provide additional rebates would be penalized in two ways: The state would publicize the companies’ refusal to lower their prices, and it would put their products on a list of Medicaid drugs that require prior authorization from the state.

Second, Maine Rx would use the money it saved in rebates to provide prescription drug coverage to about 325,000 Maine residents who do not have health insurance. Eligible residents would pay the discounted price and the state would reimburse pharmacies for the difference.

PhRMA, the industry’s largest trade association, quickly sued.

In seeking to regulate the business practices of out-of-state drug manufacturers, wholesalers and distributors, the Maine Rx program violates the Constitution’s commerce clause, PhRMA said. In addition, by using the state’s Medicaid program to extend benefits to residents who earn too much to qualify, Maine Rx violates federal Medicaid law, PhRMA argued.

In October 2000, the U.S. District Court in Maine accepted much of PhRMA’s reasoning and issued a preliminary injunction that blocked implementation of Maine Rx.

The state appealed the ruling, and in May 2001 the U.S. Court of Appeals lifted the injunction.

The court found that Maine Rx furthers Medicaid’s aim of providing medical services to residents whose “income and resources are insufficient to meet the costs of necessary medical services,” even if the individuals covered by the Maine Rx program are not poor enough to qualify for Medicaid.

As for the commerce clause, Maine Rx “does not regulate conduct occurring outside the state,” the court said.

PhRMA appealed that ruling to the Supreme Court, again forestalling the start of the program.

Last month, the Bush administration weighed in, siding with Maine.

A brief filed by Solicitor General Theodore B. Olson said the case did not merit review by the high court because Maine Rx falls within the considerable flexibility that federal law gives states in deciding how to shape their Medicaid programs.

The Supreme Court will hear arguments in the case, PhRMA vs. Concannon, 01-188, during its 2002-2003 term.

In another health-care case, the court said Friday it would decide the validity of laws in about 25 states that require health-care plans to open their networks to all physicians, pharmacies and other care providers who agree to abide by the plan’s rules.

Aetna Inc., Humana Inc. and other health plans challenged Kentucky’s “any willing provider” law, arguing that it interferes with their cost-control efforts and violates the federal ERISA law, which prohibits states from regulating employee benefit plans.

The insurers are appealing a decision by the U.S. 6th Circuit Court of Appeals that upheld the Kentucky law, finding that it was permissible because it focused on insurance.

The case is Kentucky Assn. of Health Plans vs. Miller, 00-1471.