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					          OHIO LEGISLATIVE SERVICE COMMISSION

                          STATE HOUSE

                     COLUMBUS, OHIO 43215




SENATE MEMBERS                                   HOUSE MEMBERS

Richard H. Finan                                    Larry Householder
Chairman                                               Vice-Chairman

Greg L. DiDonato                                            Gary Cates

Randy Gardner                                           Patricia Clancy

Leigh Herington                                             Ray Miller

Jay Hottinger                                          Jon M. Peterson

Bruce E. Johnson                                       James P. Trakas

Doug White                                       Charles A. Wilson, Jr.




                          Robert M. Shapiro
                              Director


                        RESEARCH STAFF
                Laurel E. Mannion, Research Attorney
                      Kathryn E. Madden, Intern
       Shelagh Baker, Division Chief, Health and Human Services
       This publication is a report of the research staff of the Legislative Service
Commission. The report consists solely of information relating to the subject
matter as prepared by the research staff. It does not purport to represent the
findings and opinions of the Legislative Service Commission.

       The Legislative Service Commission authorized its staff to prepare and
publish the report pursuant to the mandate of Am. Sub. S.B. 192 of the 123rd
General Assembly, but the Commission has taken no position in regard to the
material contained in the report.
                                             TABLE OF CONTENTS


Executive Summary........................................................................................................... i


I. Introduction.................................................................................................................... 1


II. Insurance coverage of prescription drugs for the elderly ....................................... 3


III. Trends in prescription drug expenditures..............................................................11


IV. Nexus between tobacco-related illness and prescription drug expenditures ....27


V. Other states' senior pharmaceutical assistance programs .....................................29


Addendum........................................................................................................................38


Glossary ...........................................................................................................................39


Appendix-Figures 1 through 30
                           EXECUTIVE SUMMARY

       This report discusses trends in insurance coverage and expenditures for
prescription drugs for older Ohioans. A mandate in Am. Sub. S.B. 192 of the
123rd General Assembly required the Legislative Service Commission to research
these trends, particularly as they relate to low-income elderly Ohioans suffering
from tobacco-related illnesses. This report is in response to that mandate.

       Almost a third of all Medicare beneficiaries have no insurance coverage for
outpatient prescription drugs, and nearly half were uninsured for at least
part of the year. Of those with coverage, employer-sponsored coverage is the
most common source, followed by Medicaid, individually purchased plans
(Medigap), Medicare+Choice plans (Medicare HMOs) and other sources.
Employer-sponsored coverage is the most stable source of coverage, but many
employers have limited, or are considering future limitations on, prescription drug
coverage for retirees. Few Medigap policies offer prescription drug coverage, and
those that do are significantly more expensive than policies without drug coverage.
Many Medicare HMOs have withdrawn entirely from the program in recent years,
and some of the remaining HMO plans do not offer drug coverage as a basic
benefit.

       National prescription drug expenditures, $99.6 billion in 1999, are expected
to reach $366 billion by 2010. Prescription drug spending for the Medicare
population is estimated at $56 billion for this year. Expenditures for prescription
drugs comprise a small but rising percentage of personal health expenditures, and
drug spending has been one of the fastest growing components of health care
spending in the past decade.

       Rapidly escalating drug spending can be attributed to two factors: rising
drug prices and increased utilization. The average cost per prescription for senior
citizens grew by over 48% between 1992 and 2000. Prices for brand-name drugs
have risen much more rapidly than prices for generic drugs. Manufacturer price
increases are responsible for about a fifth of the increase in drug spending, but
nearly 40% of the increase is caused by a shift to the use of newer drugs.

       Scientific research and shortened regulatory review have resulted in the
introduction of many new drugs to treat conditions that were previously
untreatable, as well as of drugs that replace other medical interventions like
surgery or provide better outcomes with less significant side effects. These new
drugs are significantly more expensive than older drugs. Even the rise in the
number of generic drugs prescribed has not slowed escalating drug prices, because
consumers are often shifted to newer drugs when a brand-name drug's patent
expires.
                                         ii

       Increased use of prescription drugs is responsible for nearly half of recent
increases in prescription drug spending. The average number of prescriptions per
senior citizen has grown from 19.6 to 28.5 since 1992 and is expected to reach
38.5 by 2010. Several factors drive rising utilization of prescription drugs. The
aging of the U.S. population means that a greater number of people suffer from
chronic and acute conditions that are treatable with medication. The rise in the
number of people enrolled in managed care has resulted in a shift in the share of
drug expenses paid for by private insurance. Increased access to primary care and
low co-payments for prescription drugs mean that more prescriptions are
prescribed and filled.       Finally, dramatic escalation in direct-to-consumer
advertising, particularly on television, has resulted in greater consumer demand for
medications consumers have seen or heard advertised.

       Insurance coverage has a major impact on drug spending and utilization.
Both are significantly higher for Medicare beneficiaries who have coverage for
prescription drugs. Nonetheless, despite using fewer prescriptions, out-of-pocket
expenses for those without coverage are nearly double the expenses of those with
coverage.

       Prescription drug therapy may be particularly important in helping to
reduce smoking-related diseases. Smoking is responsible for one in every five
deaths and is a major preventable risk factor for cancer, heart disease, stroke, and
respiratory disease. It results in more than $50 billion in medical expenditures per
year. Recent research by the federal government indicates that when drug therapy
is used in combination with a doctor's help, smoking cessation rates increase by
two to four times as much as counseling alone. Stopping smoking at any age
substantially reduces the risk of death and disease.

       More than half of the states have established a pharmaceutical assistance
program to assist low-income senior citizens in paying for prescription drugs,
although Ohio has not. In general, these programs are funded with general
revenue funds, although some have received Medicaid waivers and several are
using tobacco settlement funds. Most of the programs involve direct subsidies to
seniors. A number of states are considering legislation to create similar programs
or to expand existing ones.
                                          1


                            I.     INTRODUCTION

        The 123rd General Assembly,           dramatic        increase     in       drug
in Am. Sub. S.B. 192, required the            spending: price       and     utilization.
Legislative Service Commission to             After reviewing causes of recent
study      issues    concerning     the       increases in drug prices and
availability of prescription drugs for        utilization, the report analyzes the
low-income elderly Ohioans who                impact of drug coverage on spending
suffer from tobacco-related illnesses.        and utilization. Part IV discusses the
The General Assembly required that            impact of smoking on medical
the report discuss the methods used to        expenditures and mortality rates and
obtain prescription drugs, drug costs,        examines the role of prescription
utilization,    and    research    and        drugs in smoking cessation. Finally,
development. The report is to present         the      report      describes      senior
information regarding (1) average             pharmaceutical assistance programs
annual drug costs per person,                 in ten states. In researching this
(2) average annual drug costs per             report, the authors consulted a variety
prescription, (3) drugs with the              of sources, including state and federal
highest volume usage, and (4) drugs           law, legislation, and legislative
with the highest cost. The General            materials; newspaper articles; and
Assembly directed that the report             publications      of    the    following
examine how managed care and                  entities: state and federal agencies,
physician practices affect prescription       the     American       Association      of
drug cost and availability. It must           Retired Persons, the National
also discuss other states' efforts            Conference of State Legislatures,
concerning prescription drug for              the Pharmaceutical Research and
senior citizens. The report is not to         Manufacturers         Association       of
include legislative recommendations.          America, Families USA, the National
                                              Association       of     Chain       Drug
       This report first discusses in         Stores, The Henry J. Kaiser Family
Part II rates and sources of                  Foundation,         Project        HOPE,
prescription drug coverage for the            pharmaceutical consulting firms, and
elderly. Part III examines major              the American Medical Association.
trends     in   prescription    drug
expenditures and analyzes the
primary contributing factors to the
                                          3

             II. INSURANCE COVERAGE OF PRESCRIPTION
                      DRUGS FOR THE ELDERLY

       Prescription drug use increases        many elderly individuals live on
with age, along with the prevalence           fixed, limited incomes. Fourteen per
of chronic and acute conditions, but          cent of elderly Ohioans have incomes
the elderly are less likely than the          of less than 100% of the federal
general     population     to     have        poverty guidelines, compared with
prescription drug coverage. Just over         9.9% of non-elderly adults.3 Lack of
three-quarters (77%) of the non-              prescription drug coverage is not a
Medicare population had coverage              problem limited to the low-income
for prescription drugs in 1996, while         elderly population, however. The
almost a third (31%) of Medicare              near-poor, those with incomes
beneficiaries had no drug coverage.1          between 100 and 150 percent of the
Although nearly all persons age 65 or         federal poverty guidelines, have the
older are eligible for Medicare, the          lowest rate of coverage (40%) among
Medicare program does not generally           the elderly, in part because some of
cover prescription drugs on an                the poorest elderly receive coverage
outpatient basis.     Medicare is a           under Medicaid. Lack of prescription
federal program that provides                 drug coverage is also a problem for
hospital insurance, known as Part A           the over 40% of Medicare
coverage, and supplementary medical           beneficiaries who have incomes
insurance, Part B coverage. Part B            below 200% of the federal poverty
covers primarily physician and                guidelines.4 (See Appendix Figure
outpatient services.      An elderly          1.) Most of these beneficiaries rely
person who is eligible for coverage           on Social Security as their main
under Part A may receive Part B               source of income.5 (See Appendix
coverage     by    paying      monthly        Figure 2.) Additionally, one in four
premiums. But Medicare only covers            elderly persons with higher income
prescription drugs if they are                (greater than 400% of the federal
administered in institutional settings        poverty      guidelines)   has     no
                                                                          6
or if they belong to limited drug             prescription drug coverage. Recent
categories,          such            as       surveys revealed that 16% of elderly
immunosuppresives, erythropoiten,             individuals have failed to fill a
oral anti-cancer drugs, hemophilia            prescription because of cost, 21%
clotting factors, and some vaccines.          have had to give up things to buy
In 1998, for example, Medicare paid           prescription drugs, and 9% have had
only one per cent of the total national       to give up basic necessities, such as
prescription drug expenditures.2              food, to pay for medicine.7 (See
                                              Appendix Figure 3.)
       The Medicare population is
particularly vulnerable to escalating               There are a number of sources
costs for prescription drugs because          of prescription drug coverage for
                                          4

Medicare beneficiaries. By far, the           probability of coverage by 90%. 11
largest source of coverage is                 Those who are 85 years of age or
employers (31%), followed by                  older are more likely to lack drug
Medicaid (11%), Medigap (10%),                coverage than those between the ages
Medicare HMOs (8%), and other                 of 65 and 74 (38% vs. 29%).12 (See
sources (9%).8       (See Appendix            Appendix Figure 7.)
Figures 4 and 5.)        Sources of
coverage for Medicare beneficiaries           Employer-sponsored coverage
vary significantly by income. (See
Appendix Figure 6.) There are other                  At 31%, employers are by far
ways that seniors obtain medications          the largest source of prescription drug
as well, such as through a drug               coverage for Medicare beneficiaries.
manufacturer, physician, discount             It is estimated that employers spent
card program, or purchase outside             nearly $15 billion on retiree
this country. While not technically           prescription drug benefits in 2000.13
prescription drug coverage, these             Employer coverage is a relatively
sources     do     provide   needed           stable source of coverage and the
medications either for a discount or          benefits are usually more generous
free.                                         than those available under Medigap
                                              or a Medicare HMO. In general,
       Even for those who have                Medicare beneficiaries with higher
prescription drug coverage, stability         incomes who have prescription drug
of that coverage is an issue. The             coverage are covered by an employer.
number of Medicare beneficiaries              Half of Medicare beneficiaries with
finding, losing, or switching coverage        incomes above 200% of the federal
during the year is almost as large as         poverty guidelines in 1996 had
the number with stable coverage.9             employer-sponsored        supplemental
Only slightly more than half (53%) of         coverage, compared to only a quarter
Medicare beneficiaries had drug               of the near-poor and 8% of the poor.
coverage for an entire year.10
Medicare beneficiaries who are near                  Despite the significance of
poor, very old, and living in rural           employer coverage as a source of
areas are most likely to be without           prescription drug coverage, there has
drug coverage. Simple geography               been a steady erosion of retiree health
can boost the probability of drug             benefits during the 1990s.           The
coverage by 300%, with the western            number of large employers offering
United States having the highest rates        health benefits to their elderly retirees
of coverage, while the Midwest has            declined from 80% in 1991 to 66% in
the lowest. Residence in a state that         1999.14     The statistics are even
operates a pharmacy assistance                bleaker with respect to smaller firms.
program increases the probability of          Only 22% of firms with 500-1000
coverage by 60%. Residence in an              employees offered retiree health
urban versus a rural area increases the       benefits in 1999, and only 8% of
                                          5

firms with less than 200 employees            between     10    and     15    years'
offered retiree health benefits in            employment to qualify for benefits
1998.15     Some drug coverage is             (30% in 1991, 49% in 1998)19 or
provided in 80% of retiree health             requiring Medicare-eligible retirees
benefit plans.16 In addition, a recent        to pay the full cost of their benefits
employer survey revealed that over            (28% in 1995, 40% in 1999).20
40% of employers are considering
cutting back on prescription drug             Medicaid
coverage      for    Medicare-eligible
retirees in the next 3-5 years.17 (See               Eleven per cent of Medicare
Appendix Figure 8.) The impact of             beneficiaries in 1996 received
the decrease in employer coverage             prescription drug coverage through
has, to a great extent, not yet been          Medicaid. Medicaid is an entitlement
felt, because most firms that have            program for low-income people
dropped coverage have done so for             financed by federal and state
the employees planning to retire in           funds and administered by the states
the future, not current retirees.             according to federal guidelines.
                                              Coverage for outpatient prescription
       The decline in employer                drugs is an optional Medicaid benefit,
coverage has been attributed to two           but all Medicaid programs currently
developments in the healthcare                offer prescription drug coverage.
delivery system: (1) the widespread           Pharmaceuticals are a rapidly
use of managed care plans, such as            growing part of total Medicaid
health maintenance organizations              spending. Medicaid spending for
(HMOs) and preferred provider                 prescription drugs tripled between
organizations, which offer a distinct         1990 and 1998. In 1998 alone, an
drug benefit that requires only a co-         average of $893 was spent for each
payment rather than a deductible and          elderly Medicaid beneficiary for
coinsurance percentage, and (2) the           prescription drugs.21
growth in the use of pharmacy
benefits managers.     An estimated                  Medicaid        coverage     is
78% of people with non-Medicaid               generally available only to those with
prescription drug coverage are in             very low incomes. In 1996, half of
plans managed by a pharmacy                   the Medicare beneficiaries with
benefits manager, while the rest are          incomes below the federal poverty
in plans managing their own benefits          guidelines     were     covered    by
or in unmanaged plans.18                      Medicaid; the other half did not
                                              qualify. Medicare beneficiaries who
        Many employers that have              also qualify for Medicaid are known
retained prescription drug coverage           as "dual eligibles."22
for retirees have tightened eligibility
rules by, for example, requiring                    In general, Medicaid must
employees 55 and older to have                cover   all   prescription  drugs
                                              manufactured by a company that has
                                            6

signed a drug rebate agreement. For             Medigap policies
a state to receive federal Medicaid
matching funds, the manufacturer                       Medicare beneficiaries may
must agree to rebate a portion of drug          buy         individual        Medicare
payments back to the government in              supplemental policies, known as
return for Medicaid covering the drug           Medigap, from private insurers.
products manufactured by the                    Medigap         policies       provided
company. Additionally, federal law              prescription drug benefits for about
allows states to establish a formulary          10% of Medicare beneficiaries in
to limit coverage of specific drugs.            1996. By 1999, of the six million
Drugs not included in the formulary             beneficiaries with standard Medigap
must be available with prior                    policies, only 9% had drug coverage.
authorization, which requires that              Medigap is not as stable a source of
physicians or pharmacists obtain                drug     coverage      for    Medicare
official permission before dispensing           beneficiaries as employer-sponsored
a particular drug.                              coverage, because 48% of those who
                                                have drug coverage from this source
       There is considerable variation          have it for only part of the year.25
in Medicaid drug benefits from state
to state. Most Medicaid programs                       By federal law, an insurer
currently enroll at least some                  selling Medigap must offer one or
beneficiaries       in     managed-care         more of ten standardized policies,
organizations. In 1992, only 12% of             known as Plans A-J.26 Although the
Medicaid beneficiaries were enrolled            plans are established by federal law,
in managed care. That number had                states regulate how the plans are
increased to 54% by 1998, but many              priced and offered to the public. Of
states that use Medicaid managed                the ten plans, only three, Plans H-J,
care have excluded prescription drugs           cover some drug costs. Plans H and I
from the contract.23 As managed care            have a $250 deductible and cover
grows, an increasing share of                   50% of drug costs up to $2,500. Plan
Medicaid expenditures for drugs                 J covers 50% of drug costs up to
shifts from fee-for-service payments            $6,000.27 Many carriers do not offer
to prepaid arrangements. Most states            the plans with drug coverage and
place limits on the number, quantity,           those that do may refuse to cover
and refills of all prescriptions. Thirty-       applicants perceived to be high risk.
two states require co-payments for              Insurers must accept an elderly
prescription drugs ranging from 50¢             beneficiary during a limited open
to $3 per prescription for certain              enrollment period that ends six
beneficiaries.24                                months after the beneficiary first
                                                qualifies for Medicare, as well as a
                                                beneficiary who lost supplemental
                                                coverage as a result of the
                                          7

termination of a Medicare HMO                 for purchasing a Medigap policy with
contract.                                     drug coverage was greater than the
                                              maximum value of the drug benefit.32
        There is wide variation in
premiums for Medigap policies,                       Some Medigap plans have
which have risen an average of                begun to use pharmacy benefits
20.2% between 1998 and 2000                   managers to negotiate lower drug
alone.28    Annual premiums range             prices for H, I, and J policyholders at
from about $1,400 to as much as               preferred pharmacies and offer point-
$4,700 depending on where a                   of-sale co-payments.        But most
beneficiary lives, the type of                Medigap plans are traditional
coverage the plan offers, and the             indemnity plans that reimburse
beneficiary's age.29 Premiums for             participants      for    their    drug
plans with prescription drug coverage         expenditures after the fact and do not
are much higher than for other                manage the benefit.
Medigap plans, both because of the
drug benefit itself and because the           Medicare+Choice Plans
drug benefit attracts beneficiaries
who incur higher medical expenses.                   Medicare+Choice plans, also
For     example,      premiums      for       referred to as M+C plans or Medicare
individuals aged 65 averaged $1,000           risk HMOs, are a growing source of
higher for Plan J than Plan F, the plan       prescription drug coverage for
that is most similar to Plan J but does       Medicare beneficiaries, assisting 8%
not have a drug benefit. The gap              of them in 1996 and as many as 12%
between premiums for Plans F and J            in 2000.33       When a Medicare
widens for plans that use attained-age        beneficiary chooses to enroll in an
rating, which means that the                  M+C plan offered by an HMO, the
premiums increase as policyholders            HMO receives a fixed monthly
age.30      Attained-age rating is            payment from Medicare to furnish all
prohibited in twelve states.                  Medicare covered services to the
                                              individual. If the HMO projects that
       A recent study found that              it can provide those services at a cost
individuals pay an average of 37%             less than the Medicare payment, it
more for Medigap policies with drug           must share the savings with its
coverage than they did three years            enrollees by providing supplemental
ago, compared with a 15.5% increase           benefits.    That is how Medicare
in premiums for policies without drug         HMOs have been able to offer drug
coverage. The same study found that           coverage in recent years. Medicare
the average annual cost nationally for        HMOs provide drug coverage at a
Medigap policies with drug coverage           much lower premium than enrollees
ranged from $2,347 to $3,065 based            would have had to pay for an
on quotes for a 65-year-old male.31           equivalent Medigap plan and, unlike
In some cases, the increased premium          Medigap, M+C plans generally must
                                            8

accept all applicants regardless of             enrolled in an M+C plan were in
health status or age. In Ohio, the              plans with no annual prescription
median annual M+C premium is                    benefits cap, 24% were subject to a
$432.96.34 Consequently, M+C plans              cap of $1500 or less, and another
are attractive for beneficiaries willing        25% had a cap of $750 or less per
to     accept     the    accompanying           enrollee.40 (See Appendix Figure 10.)
restrictions on provider choice.                Although one million people lived in
Nearly one-third (29%) of those who             areas in 1999 where M+C plans
have drug coverage through an M+C               offered     no     co-payments    for
plan, however, have coverage for                prescription drugs, all beneficiaries
only part of the year.                          were subject to co-payments in
                                                2000.41 Additionally, the number of
       It is unclear whether M+C                beneficiaries living in areas where
plans will continue to be a reliable            co-payments on brand-name drugs
source of drug coverage for Medicare            averaged at least $25 has more than
beneficiaries. The number of plans              tripled, affecting one million people
participating in the program has                in 2000.42
declined in recent years. In Ohio, for
example, several Medicare HMOs                  Other sources
discontinued or restricted their
operations as of January 2001, action                  State    senior      pharmacy
that the Ohio Department of                     assistance programs
Insurance expected to result in more
than     70,000      Ohioans       losing              State      senior      pharmacy
coverage. 35
                  According to the              assistance programs provide some
Department, for the year 2001, there            assistance to low-income Medicare
are no M+C HMO plans available in               beneficiaries who are not eligible for
39 of Ohio's 88 counties. The share             Medicaid. According to the National
of M+C enrollees with drug coverage             Conference of State Legislatures, as
as a basic benefit declined from 84%            of February 2001, 26 states
in 1999 to 78% in 2000.36 (See                  have authorized some type of
Appendix Figure 9.) Eleven states               pharmaceutical assistance program,
did not have access to any plan                 22 by legislative enactment and four
offering drug coverage in 2000.37 In            by executive action. Twenty-four of
Ohio, 15 of the 22 plans participating          the programs are in operation. The
in the M+C program offer a drug                 programs vary widely in terms of
benefit as part of their basic option. 38       structure, eligibility, and benefits.
                                                While most provide a direct subsidy
        Plans that continue to offer            to    low-income       seniors,   other
prescription benefits are starting to           approaches include discounts, tax
restrict them by capping benefits and           credits, and private insurance models.
increasing co-payments.39 In 2000,              Specifics regarding ten of these
11% of Medicare beneficiaries
                                          9

programs will be discussed in Part V                A very small number of
of this report.                               Medicare beneficiaries are assisted in
                                              drug purchases by the Civilian Health
       Miscellaneous    federal   and         and Medical Program of Uniformed
state programs                                Services (CHAMPUS) or workers'
                                              compensation programs.
       Some        senior     citizens'
prescription drugs are covered                      Other individually purchased
through the federal Department of             coverage
Veterans Affairs (VA). Eligibility for
VA services functions as the                         Some Medicare beneficiaries
equivalent of insurance but only for          purchase individual supplemental
prescriptions written by a VA                 coverage that is not a Medigap
physician. When a VA physician                policy, such as private long-term
prescribes a drug, a veteran may fill         insurance or a drug-only policy.
the prescription at a VA pharmacy or          There is no reliable information on
through a VA mail-order program,              the number of these policies or value
usually with only a small co-                 of the benefits they provide.
payment. Under the Veterans Health
Care Act of 1992, drug manufacturers                 Industry programs
must make their brand-name drugs
available to federal agencies at the                 Some Medicare beneficiaries
federal supply schedule price in order        without prescription drug coverage
to participate in the Medicaid                may receive certain drugs for free.
program. The act requires that the            Many        manufacturers       operate
federal supply schedule price for the         programs that make certain drugs
VA be at least 24% below the price            available to uninsured people meeting
that the manufacturers charge the             specified eligibility criteria.    The
wholesalers. Although most federal            Pharmaceutical       Research      and
prescription drug purchases are made          Manufacturers of America, an
at federal supply schedule prices, in         association that represents drug
some cases, federal agencies are able         manufacturers, estimates that the
to purchase drugs at even lower               programs for which they have data
prices. For example, the VA has               filled 2.7 million prescriptions for
used national contracts awarded on a          nearly 1.5 million people in 1998.
competitive basis for specific                But these drug programs are not
drugs considered therapeutically              widely publicized and often require
interchangeable that allow the VA to          both the patient and physician to file
get larger discounts by channeling            extensive paperwork, which differs
greater     volume        to   certain        from program to program.
pharmaceutical products.43
                                          10

       Manufacturers         commonly          and Vermont, as well as advocacy
distribute samples to be dispensed by          organizations,      have   sponsored
physicians and clinics. IMS Health             organized bus runs of senior citizens
reported that from September 1998 to           to the Canadian border, where they
September 1999, companies gave                 visit a physician and then can
drug samples with a retail value of            purchase up to a six-months supply of
about $7 billion to office-based               prescription drugs.
physicians.        Physicians     often
distribute these samples to their                     In Vermont, a network of
patients to defray prescription costs.         physicians called the United Health
                                               Alliance assists doctors in obtaining
       Miscellaneous                           drugs from Canada for patients. The
                                               Alliance has published a form on its
       Other individuals without               website that a doctor can fax to an
coverage may purchase discount                 Ontario pharmacy with the patient's
cards from insurers or groups such as          credit card number. The pharmacy
the American Association for Retired           ships the drugs to the doctor's office,
Persons that enable them to receive a          and the patients retrieve the unopened
percentage discount for prescriptions          package from their doctor.         The
purchased        at       participating        practice      circumvents       federal
pharmacies. Many pharmacies also               regulations that prohibit the re-
offer discounts to seniors, either on          importation of drugs because the
their own, or through programs such            Canadian pharmacy is merely filling
as Ohio's Golden Buckeye Card                  a physician's supply order, and the
program. There is no centralized data          physician is simply passing on a
on the number of people taking                 package, not dispensing drugs. The
advantage of these discounts or the            program started last summer, but
value of the discounts they receive.44         there is no information on how many
                                               physicians have participated. There
       There is also highly publicized         is anecdotal evidence that some
anecdotal evidence concerning senior           Medicare       beneficiaries      share
citizens who travel to Canada to               medication, split pills, or skip doses
obtain less expensive prescription             of medication to save money, but
drugs.    Although buying foreign              again, no reliable data exists
drugs is not new, recently several             concerning the prevalence of these
lawmakers from states like Maine,              methods of saving on out-of-pocket
Michigan, Minnesota, North Dakota,             prescription drug costs.
                                         11

        III. TRENDS IN PRESCRIPTION DRUG EXPENDITURES


        In 1980, expenditures in the          seniors will spend $1.5 trillion on
United States for prescription drugs          drugs in the next ten years, 30% more
totaled $12 billion.        By 1990,          than it projected just last spring.51
prescription drug expenditures had
risen to $38 billion.45 The Office of                Expenditures for prescription
the Actuary in the Health Care                drugs still comprise a small
Financing Administration (HCFA) of            percentage (9.4%) of personal health
the U.S. Department of Health and             care expenditures, but prescription
Human Services recently released its          drug spending was one of the fastest
figures     for    National     Health        growing components of health care
Expenditures for 1999. In that year,          spending in the past decade,
the growth in spending for                    increasing 16.9% from 1998 to 1999,
prescription drugs continued to               compared to a 5% increase for all
outpace spending growth for other             personal health care spending. 52
health services, with total spending          Between 1995 and 1998, for
reaching $99.6 billion. The largest           example, prescription expenditures
increase in spending was for                  grew nearly 50%, compared with
antidepressants,      followed      by        physician services (14%) and hospital
cholesterol reducers, anti-ulcerants,         services (10%).       (See Appendix
oral antihistamines, and anti-                Figure 11.) HCFA projects that
hypertensive drugs.46 HCFA projects           prescription drug spending will rise
that prescription drug spending will          to 16% of total personal health care
rise at an average rate of 12.6% every        expenditures by 2010, tripling its
year until 2010, estimating that              share of total expenditures since
expenditures will reach         $116.9        1980.53
billion in 2000, $135.7 billion in
2001, and $366 billion in 2010.47                    Between 1992 and 1996, the
                                              total spending on prescription drugs
        National prescription drug            per Medicare beneficiary increased at
spending for the Medicare population          an annual rate of 9%. 54 The average
is increasing rapidly, from about $30         annual per capita drug expenses for
billion in 1996 to an estimated $56           the Medicare population increased
billion in 2001.48 From 1990 to               from $559 in 1992 to an estimated
1998,     Medicaid     spending    for        $1,205 in 2000 and are projected to
prescription drugs for elderly                reach $2,810 by 2010.55
enrollees more than doubled. 49
Prescription drug expenditures for the               In 1996, prescription drugs
elderly are projected to reach $113.6         represented 18% of Medicare
billion by 2010.50 The Congressional          beneficiaries' total out-of-pocket
Budget Office recently estimated that         health care spending, and the average
                                              Medicare beneficiary paid 47% of all
                                           12

prescription drug costs out of pocket.          entire growth in benefit outlays by
Levels of spending vary from state to           private third parties between 1993
state    based     on    the     state's        and 1998, and drugs rose from 7.6%
level of Medicare payments to                   to 13.8% as a percentage of private
Medicare+Choice plans in the state,             third-party benefit payments. During
the state's Medicaid eligibility levels,        that same period, drug spending by
the existence of a state pharmacy               private third parties grew 130%,
assistance program, and state                   while      consumer     out-of-pocket
insurance regulations. In Ohio, 14%             spending grew only 17%. 60
of all out-of-pocket health care costs
for Medicare beneficiaries were for                     The reasons for the dramatic
prescription    drugs,    and      Ohio         rise in prescription drug spending are
beneficiaries paid 52% of their drug            varied, but can basically be
costs out of pocket.56 Relative to              categorized as increases attributable
expenditures for other household                to pricing and increases attributable
consumer goods and services,                    to utilization. Among the causes of
however,        prescription        and         escalating prescription drug prices are
nonprescription drugs play a very               (1) price increases for existing drugs
small role, constituting only 2.7% of           and (2) the prevalence of new drugs
out-of-pocket consumer spending. 57             in the marketplace that either replace
                                                older drugs in the same therapeutic
       The annual average out-of-               category      or      represent     new
pocket expense for prescription drugs           innovations in drug therapy. Factors
for the Medicare population increased           resulting in increased utilization of
from $390 in 1996 to an estimated               prescription        drugs       include
$686 in 2001.58 Nearly a third of               (1) demographic changes in society
Medicare beneficiaries are expected             as the population ages and more aged
to incur less than $250 in out-of-              people with chronic conditions live
pocket expenses, while 8% will have             longer, requiring long-term drug
drug expenses of at least $4,000.               therapy, (2) an increasing number of
These 8% account for over a third of            persons enrolled in managed care
drug spending for all Medicare                  plans that provide drug coverage
beneficiaries. Twenty per cent of               for a minimal co-payment, and
beneficiaries are expected to spend             (3) a change in federal policy in 1997
more than $1,100 out of pocket.59               that      enabled       pharmaceutical
(See Appendix Figure 12.)                       manufacturers to advertise directly
                                                to consumers through mass media.
      The impact of escalating drug             One report by The Henry J.
spending is felt not only by                    Kaiser Family Foundation attributes
consumers, but also by private third-           57%       of     the     increase     in
party payers, like employers and                prescription drug spending since
health plans.    Prescription drugs             1993 to pricing-related factors and
alone accounted for 37.6% of the
                                         13

43% to increased utilization. 61 (See                It is important to note that
Appendix Figure 13.)                          there is no one price for a specific
                                              drug product. Research-based drug
Escalating prices of prescription             companies have considerable latitude
drugs                                         in setting prices for their various
                                              products. In the prescription drug
       From 1992 through 2000, the            market, there are multiple customers,
average cost per prescription for             multiple     distribution     channels,
senior citizens grew from $28.50 to           multiple       prescription       drug
$42.30, an increase of over 48%. The          reimbursement systems, multiple
average cost per prescription is              purchasing arrangements, multiple
projected to reach $72.94 by 2010.62          pricing    methodologies,      multiple
The average annual increase in the            marketing techniques, and multiple
retail price of a prescription was            cost control tools. For example, the
6.7% from 1991 to 1998, exceeding             average price differential between the
both general inflation (2.6%) and             price that would be paid by a senior
medical care inflation (4.6%),                citizen and the price that would be
according to the Consumer Price               paid by the drug company's most
Index. Retail prescription drug price         favored customers is 134% for the
increases differ from manufacturer            five drugs with highest sales to
price increases because the retail            seniors.64
price reflects not only manufacturer
price increases for existing drugs but                Rising prices of prescription
also shifts in use from older, cheaper        drugs are caused by two primary
drugs to newer, more expensive                factors: (1) price    inflation,   and
drugs. Prices of prescriptions for            (2) the entrance of new, higher priced
brand-name drugs increased more               drugs on the market.65 Recent price
rapidly (8.8% per year) than for              increases are related more to changes
generic drugs (6.5% per year). (See           in the type of drugs dispensed than to
Appendix Figure 14.) Brand-name               manufacturer price increases for
drugs representing new alternatives           existing drugs. Approximately 18%
for disease treatment typically cost          of the increase in drug spending is
more than their precursors, and a             attributable to price increases for
prescription for a brand-name drug is         older drugs, while 39% of the
on average triple the price of a              increase is caused by the use of
generic drug. 63     For example, in          newer, more expensive drugs.66
1998, according to the National
Association of Chain Drug Stores, the                 Increases in prices of existing
average brand-name price was                  drugs
$61.33, while the average generic
price was $18.41.                                    Price inflation refers to price
                                              increases    for     existing   drugs.
                                              Manufacturers have increased the
                                         14

price of existing prescriptions at an         the way pharmaceuticals are being
average rate of 4.2% annually for             developed. Proteins, not chemicals,
drugs introduced in 1991 or earlier.67        are the building blocks of the new
From January 1994 through January             generation of drugs.
2000, the prices of the 50 drugs most
widely prescribed for seniors                        In some instances, new drugs
increased by twice the rate of                have replaced other health care
inflation. 68 Attached as Appendix            interventions.   For example, new
Figure 15 is a chart describing the           medications for the treatment of
five most expensive drugs of those            ulcers have virtually eliminated the
most commonly used by senior                  need for some surgical treatments.
citizens that includes the cumulative         Other new drugs provide better
price changes from 1994-2000.                 outcomes or fewer side effects than
Increases in the price of existing            earlier medicines. As a result of
drugs have not been a major factor in         these innovations, the importance of
recent trends in drug expenditures            drugs as part of health care has
and price increases. The shift to             grown.70
newer, more expensive drugs and
increased utilization have been far                   The Pharmaceutical Research
more significant.                             and Manufacturers Association of
                                              America (PhRMA) estimates that
      Shift to use of newer, more             drug manufacturers spent $26.4
expensive drugs                               billion on research and development
                                              in 2000, more than three times the
        In recent years there has been        $8.4 billion that the industry spent in
an explosion of scientific knowledge,         1990. (See Appendix Figure 16.)
resulting in a significant increase in        Every       year       since      1980,
new medicines that prevent and treat          pharmaceutical      companies     have
disease and improve quality of life.          increased research spending by
Advances in scientific knowledge and          double digits, except in 1994 and
technology have enabled researchers           1995.       PhRMA attributes the
to target more complex diseases,              flattened spending for those two
providing treatments for conditions           years to the price controls proposed
that could never before be treated.           as part of the Clinton health care
As the biotechnology revolution               reform plan. In addition to industry
advances, our understanding of                spending, the National Institutes of
disease and therapy is undergoing a           Health, part of the United States
profound shift.           Before the          Department of Health and Human
completion of the Human Genome                Services, spent $17.8 billion on
Project, there were 500 known targets         research and development in 2000.
for drug innovation; now that number          President Bush's FY 2002 budget
has increased to at least 3,000.69 The        allocates over $23 billion to the
study of genetics has revolutionized          National Institutes of Health. 71
                                           15

       According to an industry                 corrections, mental health, and
survey conducted by PhRMA, nearly               welfare spending more than health
700     new     medicines      are    in        care spending. 73
development for seniors, including
350 for cancer, 122 for heart disease                  Drug Patents. On average, it
and stroke, 28 for respiratory and              costs $500 million and takes 12 to 15
lung disease, 26 for Alzheimer's                years to bring a new drug to market.74
disease, 26 for depression, 25 for              Despite      those    costs,    Fortune
diabetes, 16 for Parkinson's disease,           magazine        has     ranked       the
14 for osteoporosis, 11 for                     pharmaceutical industry as the most
rheumatoid      arthritis,    11     for        profitable in the United States. (See
gastrointestinal disorders, and 9 for           Appendix Figure 17.) Companies
prostate disease. One hundred new               that are successful in discovering
drugs were approved for marketing in            drugs obtain patents. Patents are
1997 and 1998.             Some are             granted by the United States Patent
breakthrough treatments, while others           and Trademark Office and give the
are incremental improvements over               owner the right to exclude others
existing therapies, often referred to in        from making, using, or selling an
the industry as "me too," drugs.                invention for 20 years from the date
                                                of application. Patents do not grant
       Newer       drugs    contribute          complete monopoly power in the
significantly to the increase in                pharmaceutical industry, because
prescription     drug    expenditures,          other companies may introduce
because they are much more                      therapeutic alternatives. The first
expensive than older drugs. In 1998,            drug using a new mechanism to treat
the average price per prescription for          an illness (often referred to as a
new drugs (those introduced in 1992             "breakthrough drug") usually has
or later) was $71.49, while the price           between one and six years before a
for previously existing drugs was               therapeutically similar patented drug
$30.47.72 Moreover, there is no real            (a "me too" drug) is introduced.
evidence that the use of these drugs            Research-intensive manufacturers try
decreases other medical costs, even             to price their products so that the bulk
though it may replace more                      of their research and development
expensive medical treatment, because            costs      are     recovered      before
since patients live longer, short-term          competitors enter the market.
savings may not equal the long-term
spending increase over the life of the                 According to HCFA, nearly
patient. It is possible that some               $27 billion in brand-name drugs with
savings realized by the use of these            annual revenues of $200 million or
newer drugs may not show up in                  more are likely to lose patent
health care expenditures, because, for          protection during 2004-2005, which
example, anti-psychotics and other              compares with $15 billion in brand-
psychiatric drugs could impact                  name drugs likely to lose patent
                                          16

protection in 2000-2003.75 Some of             increased     use     of    pharmaco-
the top-selling drugs facing upcoming          economic        studies,    (3) patient
patent expirations include Prozac,             recruitment/retention issues, and (4) a
Pepcid, Augmentin, Claritin, and               focus on chronic and complex
Prilosec.76 HCFA projects that the             conditions. The average effective life
likely    appearance      of   generic         of a patent for new molecular entities
equivalents of these drugs will                approved in the late 1990s was 9.5
depress spending growth slightly in            years. With patent extensions, the
the coming years.                              total estimated patent life may reach
                                               13.9 to 15.4 years.77
       Regulatory review.           The
effective life of a manufacturer's 20-                 Generic Drugs. When the
year patent is reduced by the time it          patent on a drug expires, generic
takes to obtain approval of the                drugs can enter the market.          A
drug from the federal Food and                 generic equivalent is essentially a
Drug Administration (FDA).            A        drug that is chemically identical to
manufacturer is required to conduct            the brand name and is also
extensive clinical trials of a new drug        bioequivalent.78     Due to several
over a period of years to determine            factors, the number of generic drugs
that the product is both safe and              sold has increased dramatically in
effective for its intended therapeutic         recent years. First, the enactment of
application. After the clinical phase          the Drug Price Competition and
of research and development is                 Patent Term Restoration Act of 1984
concluded, the manufacturer can                (commonly referred to as the Hatch-
submit a new drug application to the           Waxman Act) made it easier and less
FDA for regulatory review. The                 costly for manufacturers to enter the
average number of new drugs                    generic market. The Hatch-Waxman
approved by the FDA per year has               Act permits generic drugs to come to
increased from 19 in the early 1980s           market as soon as a drug patent
to 38 in the late 1990s, and the length        expires, rather than requiring clinical
of time for FDA approval of new                trials.
drugs has decreased from an average
of 33 months in 1986 to 12 months in                  Many states have passed drug
1988.       Accelerated review has             substitution    laws    that    allow
generated some criticism in recent             pharmacists to dispense a generic
years due to several highly publicized         drug even when the prescription calls
drug recalls.                                  for a brand-name drug. Moreover,
                                               government and private health plans
        Despite shortened FDA review           actively promote generic substitution.
times, the time it takes to                    Although these efforts have increased
develop a drug has lengthened in               the volume of generic drugs sold,
recent years, primarily due to                 there     remain     concerns     that
(1) larger clinical trials, (2) the            manufacturers attempt to forestall the
                                          17

introduction of generics. As recently          Zantac and its generic equivalent,
as April 2001, the Federal Trade               ranitidine, with the two new branded
Commission announced that it is                drugs attaining a 63% market share in
investigating allegations that certain         1998.81
major pharmaceutical companies
have paid smaller rivals to delay              Increased utilization of prescription
generic competition.                           drugs

       Although almost 45% of all                     Utilization, which can be
prescriptions dispensed are for                measured as the overall number of
generic drugs, they account for less           prescriptions dispensed annually or
than 20% of prescription sales in              on a per capita basis, is responsible
dollars because they are less                  for 43% of the increase in
expensive. (See Appendix Figure                prescription drug spending in recent
18.)    Brand-name drugs are, on               years.82 Utilization of prescription
average, three times more expensive            drugs has accelerated rapidly.
than generic drugs, and research-              Between 1992 and 1998, the number
based companies do not immediately             of prescriptions dispensed increased
lower the price of brand-name drugs            by 37%, compared to 6% growth in
in reaction to the introduction of             the U.S. population. 83 The National
generics. Sales of generic drugs have          Association of Chain Drug Stores
not kept pace with sales of brand-             (NACDS) projects that the total
name drugs as innovative drugs                 prescription sales volume for 2000
carrying higher prices replace older           was 3.15 billion, up 5.5% from 2.97
drugs.79 Physicians and consumers              billion in 1999, which was 9.1%
who attach great importance to brand           more than the 2.73 billion
names may be willing to demand and             prescriptions dispensed in 1998.
pay more for a research-based drug             NACDS estimates that the number
than others. Additionally, as the              will increase to 4 billion in 2005.84
period of patent protection nears
expiration, manufacturers move the                    On average, each American
market share to newer drugs. For               used about ten prescriptions in
example,      for     treatment      of        1998.85 But the average number of
gastrointestinal diseases, the indirect        prescriptions per elderly person has
inhibitor Zantac went off patent in            grown from 19.6 in 1992 to 28.5 in
1997. Within one year, its market              2000 and is expected to reach 38.5 by
share fell to about 15% and to 10%             2010.86 According to HCFA, nearly
within two years.80 But Zantac's loss          nine out of ten Medicare beneficiaries
of market share was not primarily due          report using prescription drugs on a
to the introduction of a generic               regular basis. Utilization rates for
equivalent. Rather, the new branded            women are consistently higher than
proton pump inhibitors Prilosec and            those for men. 87     Overmedication
Prevacid have largely replaced                 among the elderly population is a
                                           18

concern. Research released in April             person reaching age 65 had an
2001 by the National Institute on               average life expectancy of 82.7
Drug Abuse, part of the National                years.91
Institutes of Health, estimates that
17% of people age 60 and older                         People age 65 and older use a
misuse or abuse prescription drugs.88           disproportionate        amount       of
                                                medication as compared with the
        There are several factors               general population, consuming 34%
driving increased utilization of                of all prescription drugs. They also
prescription drugs, including the               account for 42 cents of every dollar
aging of the U.S. population,                   spent on prescription drugs.92
increased third-party payment for               Prescription use triples between the
drugs under managed care, the advent            ages of 45 and 75, in part due to the
of        drug-intensive         disease        increased incidence of acute and
management programs, an increased               chronic conditions in older adults.
number of available prescribers                 According to a 1998 survey by the
resulting from legislation granting             Ohio Department of Health, more
prescriptive authority to non-                  than 57% of Ohio's senior citizens
physicians such as nurse-practitioners          report that they have at least one
and     physician    assistants,     and        chronic condition. 93          This is
advertising targeted directly at                considerably better than the national
consumers.                                      average, in which nearly seven in ten
                                                Medicare beneficiaries report having
       Demographic factors resulting            two or more chronic conditions,
in rising drug use                              including        arthritis       (56%),
                                                hypertension (53%), and heart
        The U.S. population is aging.           disease (36%).94       (See Appendix
According to a recent profile                   Figure 21.) In many cases, outpatient
conducted by the AARP, there were               drug therapy has come to substitute
33.9 million Americans age 65 or                for inpatient hospital care to manage
older in 1996.89         The federal            chronic conditions.        Attached as
government estimated that the                   Appendix Figure 22 is a list of the 30
number would rise to 34.4 million by            prescription drugs most commonly
2000 and then increase rapidly as the           used by senior citizens as of January
“baby boomers” reach age 65, more               31, 2000.
than doubling 1996's numbers by
2030. (See Appendix Figure 19.) In                     Managed care cost shifting
2000, 12% of the U.S. population                and low co-payments increase
was 65 or older. That number is                 prescription volume
projected to reach 19.6% by 2030.90
(See     Appendix      Figure    20.)                  Expenditure increases for
Additionally, the senior population             prescription drugs have been affected
itself is getting older. In 1996, a             by a profound shift in the share of
                                          19

prescription expenditures paid for by          enrolled in managed care is smaller,
private insurance. In 1965, private            but rising.
insurance covered only 3.5% of
prescription drug spending.      This                 The impact of managed care
increased to 20.1% by 1980 and by              on prescription drug spending has
1998 had reached 52.7%. 95 At the              been mixed. On the one hand, many
same time, out-of-pocket spending              health plans hold down costs by
has declined dramatically from                 managing their drug benefits through
92.6% in 1965, to 66% in 1980, and             negotiated discounts and formularies,
26.6% in 1998.                                 but on the other hand, low co-
                                               payments may lead to greater use of
        In addition, managed care has          drugs and their policies may favor
transformed      the    pharmaceutical         drug use as an alternative to costlier
market.       In the past, insured             treatments.96
individuals purchased drugs at retail
pharmacies at retail prices and then                   Many employers, managed
sought reimbursement from their                care organizations, and other insurers
insurer. Under managed care, third-            use a pharmacy benefits manager to
parties influence which drug is                manage      their     drug      benefits.
purchased, how much is paid for it,            Pharmacy        benefits       managers
and where it is purchased.           In        currently manage an estimated 71%
conventional insurance plans, also             of the volume of prescription drugs
known as indemnity or fee-for-                 dispensed though retail pharmacies
service plans, enrollees can receive           that are covered by private third-party
care from any physician or hospital            payers.97        Pharmacy        benefits
they choose, but must pay some                 managers provide a number of
initial amount of health care spending         services, including negotiating rebate
(the deductible) and an additional             contracts with drug manufacturers,
percentage of costs beyond that                developing        and       maintaining
(coinsurance). Providers are paid on           formularies, implementing programs
a fee-for-service basis. In contrast,          to promote the use of generic drugs,
managed care plans encourage                   managing      drug     utilization     by
beneficiaries to use a limited network         requiring prior authorization in
of health care providers and often             certain    circumstances,       profiling
reimburse physicians a fixed monthly           physician prescribing practices to
amount per enrollee. Enrollees pay a           encourage the use of best practices,
fixed amount (co-payment) for                  negotiating     pharmacy         network
services. It is estimated that 26% of          contracts,        offering         health
full-time    workers     with    health        management programs, and operating
insurance were enrolled in managed             mail service pharmacies.            (See
care plans in 1988. By 1995, that              Appendix Figure 23.)
number had increased to 61%. The
number of Medicare beneficiaries
                                           20

       Pharmacy benefits managers               formulary,      and     two-thirds      of
often negotiate rebates with drug               physicians that were required to
manufacturers in exchange for their             switch a patient's prescription
use of incentives for patients to use           reported that patients suffered
the manufacturers' drugs. Rebates do            problems such as worsening health or
not affect the price of the drug, but           side effects as a result of the switch. 99
they do lower the health plan's
overall costs. Information about the                   The fastest growing trend is
relative    size,    prevalence,     and        the use of a formulary that covers all
characteristics of rebate agreements is         drugs but varies beneficiary cost-
limited because they are confidential,          sharing for different drugs. As of
private contracts between the                   August 2000, Scott-Levin Inc., a
manufacturers and pharmacy benefits             pharmaceutical      consulting    firm,
managers, but rebates are estimated             reported that 80% of HMOs and
to range from 2% to 35%, depending              pharmacy benefits managers have
on the contract and type of drug. 98            adopted a three-tiered co-payment
                                                structure, requiring different co-
        A formulary is a common                 payments for generic drugs, brand-
price control technique used by                 name drugs included in the
managed care organizations. It is a             formulary, and brand-name drugs that
list of drugs grouped by therapeutic            are not included in the formulary.
class and may be open, closed, or               Reduced co-payments have also been
tiered. Under an open formulary,                used to encourage consumers using
consumers suffer no penalty if                  maintenance drugs for chronic
physicians prescribe a non-preferred            conditions to obtain them from
drug.     Closed formularies, which             particular suppliers, such as a mail-
provide reimbursement only for                  order pharmacy.100 Some managed
preferred drugs, have generated                 care organizations even encourage
consumer dissatisfaction.          For          patients to split higher level doses of
example, the TennCare Program,                  medications in half by offering lower
which replaced Tennessee's Medicaid             co-payments.
program in 1994, provides medical
care including prescription services to                 To encourage people to enroll
enrollees through 12 managed care               and accept a limited network of
organizations that use restrictive              providers, managed care plans charge
formularies.    A 1996 survey of                lower co-payments than traditional
physicians participating in TennCare            fee-for-service plans. The resulting
found that 98% said they have been              transfer of responsibility for payment
unable to prescribe their drug of               to third parties tends to increase the
choice because it was not covered by            use of physician services, which in
formulary, 95% had been advised to              turn increases the demand for drugs.
change a patient's prescription                 It is estimated that 60% of physician
because it was not covered by the               visits result in a prescription. In a
                                         21

study of elderly individuals in               spending is projected to exceed $2
Pennsylvania, prescription coverage           billion for 2000.104
increased drug use by approximately
3% for every 10% reduction in out-                    To stimulate the use of
of-pocket cost to consumers.101               prescription drugs, manufacturers
Managed care plans also generally             promote them in several ways.
have more extensive drug coverage             By far the largest share of
than most fee-for-service plans.              promotional spending (52%) is for
Therefore, although some managed              the distribution of free drug samples
care techniques put downward                  to physicians and hospitals, followed
pressure on drug spending by                  by "detailing" (31%), in which a
lowering the prices paid for drugs and        representative     makes      personal
promoting the use of generic drugs,           selling visits to physicians, and
others, such as lower co-payments,            advertising in medical journals
tend to increase drug use and                 (4%).105 Pharmaceutical companies
spending. 102                                 also have played a growing role in
                                              sponsoring      continuing    medical
       Direct-to-consumer advertising         education and in contributing to
increases consumer demand for                 medical literature by ghostwriting
specific medications                          articles and paying doctors to submit
                                              them to medical journals.106
        As mentioned previously, it
costs nearly $500 million to develop                  In 1983, the FDA issued a
a new drug from the laboratory                moratorium on direct-to-consumer
through the FDA approval process.             advertising while studies were
Once a drug has been approved for             conducted to assess its potential
marketing, the manufacturer may               impact. The ban was lifted in 1985,
spend an equal amount promoting the           and companies were allowed to
drug to medical professionals and             directly advertise their products to
consumers. The explosion of direct-           consumers, provided that the ads did
to-consumer       advertising      has        not make false or misleading claims
contributed significantly to increased        and       included     a     balanced
utilization of prescription drugs in          representation of the benefits and
recent years. For example, the ten            limitations of the product. Direct-to-
drugs most heavily advertised                 consumer advertising remained a
directly to consumers in 1998                 very small share of overall
accounted for 22% of total increase in        promotional expenditures until 1997,
drug spending between 1993 and                when the FDA issued new guidance
1998.103 Compared to 1996, when               regarding broadcast advertising that
drug companies spent $220 million             dramatically increased direct-to-
on direct-to-consumer advertising,            consumer advertising, particularly on
$1.13 billion was spent in 1999, and          television.     Today, this type of
                                              advertising constitutes 13% of total
                                         22

promotional spending and is rising            Critics argue that direct-to-consumer
rapidly. In 1999 alone, direct-to-            advertising interferes with the
consumer advertising grew 40%. 107            physician/patient relationship by
                                              encouraging consumers to demand
        Many of the products with the         vastly more expensive drugs than
highest            direct-to-consumer         they need or drugs they do not need
advertising expenditures are also             at all.
among the top prescription drugs by
sales and number of prescriptions                    The impact of direct-to-
dispensed.108 Mass media advertising          consumer advertising on consumers
is heavily concentrated among                 is significant. A recent survey found
relatively few drugs. (See Appendix           that 91% of those questioned had
Figure 24.) Six new medicines first           seen or heard an advertisement for
sold in 1999, for example, drove the          prescription drugs in the past year,
burst       in     direct-to-consumer         34% talked to their doctor after
advertising in early 2000--Vioxx,             seeing or hearing an ad, and 7%
Celebrex, Xenical, Tamiflu, Paxil,            asked a doctor to prescribe a specific
and Flovent.109 Celebrex, an anti-            drug they saw advertised. 112 (See
arthritic, was the most successful            Appendix Figure 25.)        Partly in
drug launch in history and                    response to this demand, the
contributed to the rise in overall            American Medical Association's
spending more than any other drug             House of Delegates recently adopted
during that time period. 110 A number         a series of recommendations aimed at
of the drugs targeted for direct-to-          balancing efforts to curtail drug
consumer advertising are so-called            prices with patient needs, including
"lifestyle drugs," which include              supporting FDA funding so that the
allergy medications like Claritin,            agency can monitor the industry's
Allegra, and Zyrtec, as well as other         adherence to the Association's
medications     like     Viagra   and         guidelines for direct-to-consumer
          111
Propecia.                                     advertising and advising physicians
                                              to self-monitor prescribing patterns
        The benefits and drawbacks of         that may contribute to spending
direct-to-consumer advertising are            growth. 113
the subject of much debate.
Proponents claim that it increases                   Although the FDA's 1997
patient education and awareness of            guidance became final in 1999, the
treatments, particularly in the era of        future     of     direct-to-consumer
managed care when patients have a             advertising in the broadcast media
less personal relationship with their         remains questionable.      In March
physicians. They assert that this             2001, the FDA announced that it is
advertising is an industry response to        conducting a review of its guidance
the      mass       availability    of        concerning television advertising to
misinformation on the Internet.               determine whether drug ads confuse
                                           23

consumers and adversely impact the              on drugs.117      Beneficiaries with
relationship between patients and               incomes between 175% and 250% of
their health care providers.  The               the federal poverty guidelines spend
review will include a survey of                 the most out of pocket on prescription
doctors and patients.114                        drugs.118

Impact of insurance coverage on                        In 1998, beneficiaries without
prescription drug spending and                  drug coverage spent an average of
utilization                                     $546 out of pocket ($33 per
                                                prescription), compared with $325
        The presence or absence of              for beneficiaries with coverage ($13
insurance coverage makes a major                per prescription). Among those in
difference in the amount of drugs               poor health, disparities in out-of-
people obtain and how much they                 pocket spending were even greater
spend on them. Drug spending and                ($820 vs. $490). (See Appendix
utilization are significantly higher for        Figure 26.) Out-of-pocket expenses
Medicare beneficiaries who have                 for those without coverage were
coverage for prescription drugs than            nearly the same as in 1997 expenses,
for those who do not. Even for the              but expenses increased 18% for those
one in five beneficiaries who had               with coverage. The most significant
coverage only for part of the year,             increases in out-of-pocket expenses
drug spending and utilization were              affected those who obtained coverage
well below the levels of those who              through a Medicare HMO or
had coverage the entire year.115 But            Medigap plan, with 33% and 21%
despite using fewer drugs, out of               increases respectively. 119 As a result,
pocket expenses for those without               Medicare beneficiaries paid an
coverage are nearly double the                  average of 33% of their total drug
expenses of those with coverage.                costs in 1998, compared to 31% in
                                                1997.120 (See Appendix Figure 27.)
       Senior    citizens  without
prescription drug coverage have                        The disparity in out of pocket
higher out-of-pocket costs                      expense        between      Medicare
                                                beneficiaries with drug coverage and
       The AARP estimates that                  those without not only results from
Medicare beneficiaries with some                non-covered beneficiaries paying the
drug coverage in 1999 spent 3% of               total cost of the drug out of pocket,
their income on out of pocket drug              but also because beneficiaries with
purchases, compared to 6% for                   prescription drug coverage are often
beneficiaries without coverage.116              shielded from the full effect of drug
Poor beneficiaries spent 9% of their            costs by discounts negotiated by their
income on prescription drugs, and               insurer. The gap between drug prices
poor beneficiaries who are not                  for people with direct pay third-party
eligible for drug coverage through              coverage and those without nearly
Medicaid spent 13% of their income
                                         24

doubled between 1996 and 1999,                Drug spending is higher for senior
from 8% to 15%.121 One recent study           citizens with drug coverage
found that, for the 20 drugs most
commonly used by Medicare                            Because more prescriptions
beneficiaries, cash payers (including         are filled for those with drug
beneficiaries     with     indemnity          coverage than for those without, drug
coverage) paid higher prices for              spending is higher for insured
19.122                                        individuals. In 1998, prescription
                                              drug spending was $453 higher for
       Senior      citizens     with          Medicare beneficiaries with drug
prescription drug coverage use more           coverage than for those without
medications                                   coverage (up from $330 in 1997).
                                              (See Appendix Figure 29.) For those
       The higher out-of-pocket costs         in poor health, the disparity was
for Medicare beneficiaries who lack           $910, an increase of 30% in the gap
prescription drug coverage do not             since 1997.126
result from greater utilization by
those without coverage. In fact, the                 Despite negotiated discounts
opposite is true.123         In 1998,         available for insured individuals, the
beneficiaries without drug coverage           average per prescription price is also
averaged eight fewer prescriptions            higher for covered individuals than
per year than those with coverage.            those without insurance. In 1996, the
Medicare        enrollees      without        average retail price per prescription
prescription drug coverage filled 16.7        for covered Medicare beneficiaries
prescriptions in 1998, a 2.4% decline         was $36.38, while the average for
from 1997, while those with coverage          those     without      coverage      was
purchased just over 24 prescriptions          $28.92. 127
                                                           This may be because the
per person, an increase of 9% from            relatively small difference in out-of-
1997. Among those in poor health,             pocket costs between brand-name and
beneficiaries who lacked coverage             generic     drugs      gives     insured
averaged      almost      15     fewer        individuals little financial incentive to
prescriptions than their insured              choose generic drugs. There is also
counterparts. (See Appendix Figure            some indication that physicians
28.)      Minorities without drug             themselves may consider insurance
coverage use fewer prescriptions than         coverage         in      recommending
non-minorities, but for those with            appropriate treatment and may
coverage, the trend is reversed. 124          prescribe different medications to
Consumers with indemnity coverage             patients with and without drug
may also be sensitive to the number           coverage.128
and types of drugs they obtain,
because they must pay for their drugs               There is virtually no research
out of pocket and then be                     on the nexus between insurance
reimbursed. 125                               coverage   and     appropriate    or
                                         25

inappropriate drug use.           The                Increased      utilization    of
presumption is that lack of drug              prescription drugs by individuals with
coverage is a barrier to appropriate          drug coverage may also result from
drug therapy and impacts access to            self-selection, meaning that Medicare
medications.     According to one             beneficiaries who anticipate large
survey, one in ten Medicare                   drug expenditures may be more likely
beneficiaries without drug coverage           to purchase a policy with drug
reported that not getting needed              coverage than a beneficiary who does
prescription medicine in the last 12          not anticipate those expenditures. It
months, because of the cost,                  is also possible that lack of coverage
compared to only 2% of those with             reduces exposure to inappropriate
drug coverage.129          Systematic         drug use and thereby reduces the
underutilization    of      prescribed        incidence of adverse drug events or
medications potentially increases             addiction,       because        covered
other costs to the health care system         individuals may be more likely to
in terms of emergency room and                request drug therapies and, as a
hospital admissions, physician visits,        result, be prescribed medicine
and nursing home stays.                       inappropriately.
                                          27

       IV. NEXUS BETWEEN TOBACCO-RELATED ILLNESS AND
               PRESCRIPTION DRUG EXPENDITURES

An estimated 48 million adults in the                  Smoking-related disease in the
United States smoke cigarettes, even           United States has an enormous
though this behavior will result in            economic impact, costing more than
death or disability for half of all            $50 billion in medical expenditures
regular users.130 At 27.6%, Ohio has           every year.137 HCFA projects that
the third highest adult smoking                Medicare will spend $800 billion
prevalence in the United States,               treating smoking-related illnesses
although cigarette smoking declined            between 1995 and 2015.138 Smoking
by 7.4% between 1984 and 1999.131              is responsible for approximately 7%
(See Appendix Figure 30.) Nearly               of total health care costs, and federal
12% of Ohio's seniors were smokers             and state funds pay more than 43% of
in 1999.132 Nationally, daily cigarette        all smoking-attributable medical
smokers      constitute    15.1%     of        expenses (89 cents per pack sold). In
Medicare managed care enrollees                1993, the most recent year for which
between the ages of 65-74, 9.1% of             statistics are available, prescription
those age 75-84, and 4.5% of those             drugs accounted for 4% of all
85 or older.133 The prevalence of              smoking-related medical costs for a
smoking in the Medicare population             total of two billion dollars.139 In
is declining, but the actual number of         Ohio,      smoking-related     medical
smokers is expected to increase as the         expenses totaled nearly two and a
baby boomers age.                              half billion dollars. Of that amount,
                                               nearly $600 million were Medicaid
       Smoking-related disease is the          expenditures, and nearly $130
most preventable cause of death and            million were prescription drug
disability in the United States.               expenditures.140
Nationally, tobacco use is responsible
for more than 430,000 deaths each                      Smoking cessation, even late
year, or one in every five deaths.134          in life, reduces mortality and can
In Ohio, the average annual number             result in improved quality of life. A
of deaths related to smoking is                report on women and smoking
19,527.135    Smoking is a major               released by the Surgeon General in
preventable risk factor for cancer,            March 2001 found that women who
heart disease, stroke, and respiratory         stopped     smoking       substantially
disease. In 1998 alone, cigarette              reduced their risk of heart
smoking in Ohio was attributable to            disease, no matter at what age they
an estimated 31% of cancer deaths,             stopped. Similarly, the risk for stroke
20% of cardiovascular disease deaths,          began to reverse and, after ten to
and 47% of respiratory disease                 fifteen years, approached that of a
deaths.136                                     woman who never smoked.141
                                           28

       Seventy per cent of smokers              medications (bupropion SR, nicotine
would like to quit. Of smokers who              gum, nicotine inhaler, nicotine nasal
try, those who have the support of              spray, and nicotine patch) and two
their health care provider are the most         second-line medications (clonidine
successful.142     But only half of             and nortriptyline) for treating tobacco
smokers who see a doctor are                    use. The first-line medications have
urged to quit. African Americans,               been found to be safe and effective
Hispanics,     and    Asian      Pacific        for treating tobacco dependence and
islanders are less likely to receive            have been approved by the FDA.
advice to quit, as are smokers age 75           The second-line drugs have shown
and older, and those with an annual             evidence of efficacy for treating
income of less than $10,000.143 Only            tobacco dependence, but they are not
15% of smokers who saw a physician              FDA approved and have potential
in the past year were offered                   side effects.         The guideline
assistance with quitting, and only 3%           specifically found that smoking
were given a follow-up appointment              interventions that are effective in
to address the problem.144 This is              general population are effective for
unfortunate, because a physician's              older smokers as well.147
assistance can produce cessation rates
of 5-10% per year. More intensive                      HCFA announced in July 2000
interventions, such as combining                that it is beginning a new
behavioral counseling and drug                  demonstration project to help
therapy can produce cessation rates             Medicare       beneficiaries      stop
of 20-25% per year.145                          smoking. 148 As part of Medicare's
                                                Healthy     Aging     Project,     the
       A guideline issued by the                demonstration will last three years
United States Public Health Service             and test specific cessation strategies
in June 2000 concludes that tobacco             in various states, including Ohio.
dependence treatments are both                  Smoking cessation therapy is not
clinically effective and cost effective.        currently a Medicare benefit, but
It urges insurers to include                    HCFA has indicated that it could be
counseling and effective drug                   if the demonstration project proves
treatments as a covered benefit, and            successful in identifying the most
to pay clinicians for providing                 effective ways to help beneficiaries
tobacco dependence treatment.146                stop                      smoking. 149
The guideline identified five first-line
                                         29

    V. OTHER STATES' SENIOR PHARMACEUTICAL ASSISTANCE
                         PROGRAMS


       Ohio does not have a                   Tracking Service reported that there
pharmacy assistance program for               were over 290 individual bills
seniors. Am. Sub. S.B. 192 of the             pending to create, expand, or alter
123rd General Assembly appropriated           senior pharmaceutical assistance
tobacco settlement funds to help              programs, including legislation to
certain seniors with pharmacy costs.          establish programs in at least 14
Under the act, five per cent of Ohio's        states. But existing overruns in many
Health Priorities Trust Fund is               states' Medicaid programs and current
earmarked for a non-entitlement               economic conditions may derail
program that provides emergency               many of these efforts. A description
assistance in the form of medication          of the programs offered by ten states
or oxygen to seniors whose annual             follows.
household income does not exceed
the federal poverty guidelines and            Florida
whose health has been adversely
affected by tobacco use. The act also                 The Pharmaceutical Expense
provides that if federal funding              Assistance Program (PEAP) was
becomes available to establish a              created      in      June      2000.150
prescription coverage program for             Florida's    Agency      for    Health
seniors, and the proposed federal             Care       Administration     received
program requires a co-payment, the            appropriations from the state general
General Assembly may use the five             revenue fund of $15 million to
per cent allocation to cover the co-          develop the program, plus an
payments.                                     additional $250,000 per year to
                                              administer it. PEAP was scheduled
       According to the National              to have started January 1, 2001, but
Conference of State Legislatures, as          has     been     delayed.         Once
of February 2001, 26 states have              implemented, the program will
authorized some type of senior                automatically enroll eligible Florida
pharmaceutical assistance program,            residents. Those who prefer not to
22 by legislative enactment and four          participate may opt-out.        To be
by executive branch action. Twenty            eligible, enrollees must be at least 65
of the state programs provide a direct        years of age, eligible for both
subsidy using state funds, one                Medicaid and Medicare, not enrolled
provides a year-end tax credit, and           in a Medicare HMO, and have an
five have created discount programs.          annual household income between
Twenty-four of the programs are               90% and 120% of the federal poverty
currently in operation. As of March           guidelines. PEAP will cover up to
25, 2001, NCSL's Health Policy                $80 of prescription drug expenses per
                                            30

participant, per month. Enrollees are            payments. Those who earn more
to be charged coinsurance of 10% for             than 100% of the guidelines must pay
each prescription purchased through              an annual $25 premium and a $3 co-
the program.        Any medication               payment per prescription received
prescribed by a physician or other               through the program.      Once any
licensed practitioner authorized to              participant, regardless of income
prescribe medications and lawfully               level, has received $2,000 of
dispensed will be covered by the                 coverage, the participant must pay
program.                                         20% in coinsurance per prescription.
                                                 Those who earn more than 100% of
Illinois                                         the guidelines also continue to pay
                                                 the $3 co-payment per prescription.
        The            Pharmaceutical
Assistance Program (PAP) was                     Indiana
created in 1985 to give low-income
seniors     access      to     essential                In March 2000, the Indiana
prescription medications and is                  General Assembly earmarked $20
administered      by     the     Illinois        million from the state's Tobacco
Department of Revenue. PAP is                    Settlement Fund to establish the
funded by appropriations from the                Indiana Prescription Drug Fund,
state's general revenue fund and from            known as Hoosier Rx. 152 Hoosier Rx,
the Tobacco Settlement Fund. 151                 administered by the State Budget
Each      participant     receives      a        Agency and promoted by the Agency
Pharmaceutical Assistance card that              on Aging, the Office of Family and
validates participation in the program           Children, and the Office of Social
and shows the effective dates of                 Security,    compensates        eligible
coverage. To participate in PAP,                 seniors on a quarterly basis for up to
applicants must be at least 65, or, if           $1,000 per year in prescription drug
widowed, 63. Singles must have an                expenses. The first quarter covered
annual income of no more than                    was October to December 2000.
$21,218, and couples, no more than               Most FDA-approved medications,
$28,480. PAP will cover up to                    including insulin, are covered.
$2,000 annually for prescription
medications used to treat heart                         To      participate,     Indiana
disease,       diabetes,       arthritis,        residents 65 or older, or 55 or older if
Alzheimer's disease, Parkinson's                 they receive Social Security disability
disease, lung disease, glaucoma, and             payments, whose annual income is
smoking-related illnesses.                       less than 135% of the federal poverty
                                                 guidelines must apply annually by
       Participants who earn less than           mail to the State Budget Agency.
100% of the federal poverty                      Coverage through other prescription
guidelines must pay an annual $5                 or discount programs does not affect
premium, but are not charged co-                 an individual's eligibility.      If an
                                           31

individual is eligible, the Agency will         administered by the Bureau of
mail that fiscal year's quarterly refund        Revenue Services. The Department
certificates to the participant. At the         of Human Services is required to
end of each quarter, the participant is         oversee promotional and outreach
responsible for obtaining a pharmacy            services for the program through the
printout detailing all the prescription         local offices of the Bureau of Elder
drugs the participant has purchased             and Adult Services and the Agency
during that quarter and sending it              on Aging. 154
with the corresponding refund
certificate back to the State Budget                   Any Maine resident who is
Agency. Certificates and printouts              age 62 or older, who is not receiving
must be sent no later than the last day         state supplemental income or
of the following quarter. The State             Medicaid pharmacy benefits, and
Budget Agency processes the claims              whose annual household income is
and awards refunds on a sliding                 either (1) less than 185% of the
income scale.                                   federal poverty guidelines or (2) less
                                                than 210% of the guidelines if the
       Participants whose incomes               household spends 40% or more of its
fall between 120% and 135% of the               annual income on prescription drugs,
federal poverty guidelines are                  may apply to the Bureau of Revenue
reimbursed for 50% of their                     Services for assistance from the
prescription drug expenses for up to            program.       Medications covered
$500 annually. Participants whose               include those used to treat diabetes,
incomes fall between 100% and                   heart disease, hypertension, chronic
120% of the guidelines are                      lung     disease,    arthritis,    high
reimbursed for 50% of their                     cholesterol, incontinence, thyroid
prescription drug expenses for up to            disease, osteoporosis, Parkinson's
$750 annually.      Participants with           disease, glaucoma, multiple sclerosis,
incomes of 100% of the guidelines or            and Lou Gehrig's disease, as well as
less are reimbursed for 50% of their            anticoagulants, insulin, syringes, and
prescription drug expenses for up to            needles.    Generic drugs must be
$1,000 annually.                                purchased when available, unless the
                                                prescribing    physician      otherwise
Maine                                           directs.
       Established in 1975, the Low                    Under the program, the state
Cost Drugs for the Elderly Program              pays up to $1,000 annually of a
provides low-income seniors and                 participant's   prescription    drug
disabled persons with financial relief          expenses. Drug cards issued to each
from     high      prescription   drug          participant are linked to the state's
          153
expenses.      The program is financed          computer system and electronically
by appropriations from the state's              monitor the amount that the
general       revenue      fund    and          individual spends on prescription
                                            32

medications.       For prescriptions             to a sliding income scale. Premiums
purchased beyond the $1,000                      are also determined by a sliding
coverage limit, participants must pay            income scale, ranging from $15 to
the greater of 20% coinsurance or a              $82 for single persons, and from $12
$2 co-payment. Participants must                 to $66 for married persons.
reapply to the program annually.                 Prescription Advantage subsidizes all
                                                 participants'            out-of-pocket
Massachusetts                                    prescription expenses that exceed the
                                                 lesser of $2,000 or 10% of the
       Massachusetts       Prescription          participant's annual income.
Advantage was created by House Bill
5300 in July 2000 and is funded by a                     All Prescription Advantage
$30 million allocation from the state's          participants pay co-payments. Those
tobacco       settlement      funds.155          whose annual incomes fall below
Developed and administered by the                200% of the federal poverty
Executive Office of Elder Affairs,               guidelines pay a $5 co-payment for a
Prescription Advantage replaces                  month's supply of a generic drug and
Massachusetts' existing prescription             $12 for a month's supply of a brand-
drug       benefits      programs: the           name drug that has no generic
Pharmacy Program and the Pharmacy                equivalent.     Those whose annual
Plus     Program.          Prescription          incomes are above 200% of the
Advantage was implemented on April               guidelines pay a $10 co-payment for
1, 2001. The Executive Office of                 a generic drug and $25 for brand-
Elder Affairs established a formulary            name      drugs     without   generic
that includes most prescription drugs,           equivalents. A participant who fills a
insulin, and disposable syringes.                prescription for a brand-name drug
                                                 that is not on the formulary must pay
       All Massachusetts residents               the greater of $25 or 50% of the
aged 65 or older who are not eligible            drug's cost.
for or receiving Medicaid benefits
may       enroll     in     Prescription                 Prescription Advantage also
Advantage. The program is unique,                includes a co-payment schedule for
in that it is available to seniors of all        participants who purchase mail-order
incomes, although premiums, co-                  prescriptions. Those with an annual
payments, and deductibles vary                   income of less than 200% of the
according to income. The program                 federal poverty guidelines pay $10
does not charge a premium or                     for a three-month supply of a generic
deductible to those whose annual                 medication and $25 for a three-month
income is less than 188% of the                  supply of a brand-name drug without
federal poverty guidelines. For those            a generic equivalent. Those whose
who earn more than 188% of the                   annual incomes exceed 200% of the
guidelines, deductibles ranging from             guidelines pay $20 for a three-month
$100 to $500 are charged according               supply of a generic medication and
                                         33

$50 for a three-month supply of a             no more than twice annually. To
brand-name drug with no generic               qualify for assistance, a senior must
equivalent. A participant, regardless         be at least 65, have an annual income
of annual income, who requests a              of less than 150% of the federal
brand-name medication in place of             poverty guidelines, and have had
one that appears on the formulary             documented prescription drug costs
must pay the greater of $50 or 50% of         that represented at least 10% of a
the medication's cost.                        single or widowed person's monthly
                                              income, or at least 8% of a married
Michigan                                      person's       household      income.
                                              Participants are not charged a
       Michigan currently provides            premium or deductible, and a co-
seniors with financial assistance in          payment of 25¢ per prescription is
buying prescription medications               voluntary.
through two programs, the Michigan
Emergency Pharmaceutical Program                     The SMP, also established in
for Seniors (MEPPS) and the State             1988 and financed by general
Medical Program (SMP). MEPPS is               revenue fund appropriations, provides
a voucher program, established in             pharmacy drug cost relief in the form
1988 and funded by appropriations             of tax credits. Seniors citizens whose
from the state's general revenue fund.        income is less than 150% of the
Administered by the Office of                 federal poverty guidelines, and whose
Services to the Aging and local               prescription drug costs exceed 5% of
offices of the Agency on Aging,               their annual household income may
MEPPS issues vouchers to eligible             apply for tax credits of up to $600 per
seniors as short-term financial               year.
assistance in purchasing necessary
prescription medications.         The                 Legislation enacted in June
vouchers cover a three-month supply           2000 creates the Elder Prescription
of any medication also covered by             Insurance Coverage (EPIC) program
Medicaid, but generic equivalents             to replace the MEPPS and SMP
must be dispensed unless specifically         programs. EPIC, established by a
directed otherwise by the prescribing         $33 million appropriation from the
physician. While the vouchers have            state's Tobacco Settlement Fund, will
no fixed dollar value, medications            be funded by general revenue
that cost more than $300 for a 30-day         appropriations     freed   by    the
supply require special authorization          elimination of the MEPPS and SMP
from the Office. There is no limit to         programs. The activation date for
the     number       of     individual        EPIC was rescheduled from January
prescriptions that may be purchased,          1, 2001 to October 1, 2001, pending
but recipients are limited to three-          the implementation of an automated
months' worth of each prescription            pharmacy claims, adjudication, and
and may receive MEPPS assistance              prospective drug utilization review
                                         34

system.    The MEPPS and SMP                  needles. EPIC limits dispensation of
programs will remain operational              medications to 30-day or 100-pill
until EPIC is activated, and EPIC will        increments. Any New York resident
include a component similar to                age 65 or older who is not enrolled in
MEPPS vouchers to aid seniors with            Medicaid or another pharmacy
short-term needs.                             benefits plan and whose annual
                                              household income is $35,000 or less
       EPIC is not an entitlement             if single, or $50,000 or less if
program; benefits are limited to              married, may enroll in EPIC. EPIC
levels supported by the funding               participants are grouped according to
explicitly   appropriated    to    the        their annual household income into
program. A drug coverage formulary            one of two plans: the fee plan or
has not yet been finalized but will be        deductible plan. Prescription cards
similar to that of the Medicaid               issued to each participant are linked
program and include insulin and               to a state computer system that
syringes.    Any Michigan resident            electronically      monitors      the
who is at least 65 years old, has an          participant's fee or deductible
annual income at or below 200% of             payments.
the federal poverty guidelines, and is
not covered by or eligible for                        Single residents who earn less
Medicaid, may apply for EPIC.                 than $20,000 annually and married
Premiums are based on annual                  residents who earn less than $26,000
household income.         Singles or          annually are eligible for the fee plan.
couples whose incomes fall at or              To receive benefits, fee plan
below 100% of the federal poverty             participants must pay an annual
guidelines pay no premium. For                enrollment fee, which may be divided
others, the premium increases as              into quarterly payments.           Fee
household income increases, up to,            amounts are determined by a sliding
but not exceeding, 5% of household            income scale, ranging from $8 to
income.                                       $230 for single persons and from $8
                                              to $300 for married persons. Fee
New York                                      plan participants pay a co-payment to
                                              purchase medications.
       New       York's      Elderly
Pharmaceutical Insurance Coverage                    Single persons who earn
(EPIC) program, created by executive          between $20,001 and $35,000
order in 1987, is a cost-sharing              annually and married persons who
program funded by allocations from            earn between $26,001 and $50,000
the state's Tobacco Settlement Fund           annually may enroll in the deductible
and general revenue fund. 156 EPIC            program. These participants pay full
covers most prescription medications,         price for their prescriptions until they
both brand-name and generic,                  meet an annual deductible, which is
including insulin, syringes, and              based on a sliding income scale. The
                                           35

deductible amounts range from $530              day supply or 100 units per
to $1,230 for single persons and from           prescription. For medications that
$650 to $1,715 for married persons.             treat acute conditions, participants
After meeting the deductible,                   may receive up to a 15-day supply.
participants pay only a co-payment              The program requires that generic
for medications.                                equivalents of medications be
                                                dispensed whenever possible. Any
       The       co-payment        for          participant who insists on receiving a
medications that cost less than $15 is          brand-name medication when a
$3. For medications that cost $15.01            generic equivalent is available must
to $35, the co-payment is $7. For               pay 70% of the average wholesale
medications that cost $35.01 to $55,            price of the drug in addition to the co-
the co-payment is $15. The co-                  payment.      PACE had an annual
payment for medications costing over            budget of $296.1 million in 1999,
$55 is $20.                                     with an additional $8.8 million in
                                                administrative costs.
Pennsylvania
                                                       In 1996, the PACE program
       Pennsylvania established the             was expanded to provide financial
Pharmaceutical Assistance Contract              relief   to     additional    seniors.
for the Elderly (PACE) in 1984.157              PACENET,        the    Pharmaceutical
PACE is funded entirely by state                Assistance Contract for the Elderly
lottery revenues and is administered            Needs Enhancement Tier, extends
by the Department of Aging.                     PACE benefits to seniors whose
Pennsylvania residents age 65 or                annual household income falls
older whose annual household                    between 150% and 170% of the
income falls below 150% of the                  federal      poverty       guidelines.
federal poverty guidelines may enroll           PACENET participants first pay a
in PACE. Enrollees must pay a $6                $500 deductible, and then pay co-
co-payment per prescription, but are            payments of $8 for generic
charged no deductible or premium.               medications and $15 for brand-name
Once enrolled, participants receive a           medications.     PACENET had an
prescription card linked electronically         annual budget of $12.9 million in
to the state's prescription claims              1999, with an additional $0.8 million
processing system.                              in administrative costs.
       While PACE covers most                   Vermont
prescription drugs, including insulin,
syringes, and needles, it does not                     VScript, Vermont's pharmacy
cover experimental drugs, over-the-             assistance program for low-income
counter medications, or medications             seniors without drug coverage, is
used to treat baldness or wrinkles.             administered under the Vermont
For     maintenance        medications,         Health Access Program and funded
participants receive the lesser of a 30-
                                        36

by allocations from the state general        been approved by HCFA, and the
revenue fund and by a Medicaid               new program was implemented
waiver under section 1115 of the             January 1, 2001, despite a pending
Social Security Act.158 Any Vermont          legal challenge. Under the Pharmacy
resident age 65 and older whose              Discount Program, seniors with
annual household income is less than         incomes between 150% and 225% of
225% of the federal poverty                  the federal poverty guidelines can
guidelines may enroll in VScript.            now receive acute medications for a
The program provides three tiers of          reduced rate, in addition to the
benefits according to participants'          maintenance medications they are
annual household incomes.                    eligible for under VScript and
                                             VScript Expanded. For a $3 per
       Those who earn less than              prescription fee, up to $24 per
150% of the federal poverty                  calendar year, Vermont seniors can
guidelines receive coverage for all          purchase acute care drugs at the
medications covered by Medicaid.             Medicaid rate reduced in anticipation
The co-payment for prescriptions             of rebates from drug manufacturers
costing less than $30 is $1, for             (estimated to be a discount of 30%).
prescriptions costing over $30, $2.          Vermont seniors without drug
VScript charges no deductible.               coverage whose incomes exceed
Those who earn between 150% and              225% of the guidelines also receive
225% of the federal poverty                  all Medicaid covered drugs at the
guidelines receive coverage under            same reduced rate for the $3 fee.159
VScript and VScript Expanded for
maintenance medications, meaning             Washington
medications that are used to regulate
a chronic condition, such as                        A Washington Alliance to
hypertension or diabetes. The co-            Reduce Prescription-Drug Spending,
payment for participants who earn            or AWARDS, was created by
between 150% and 175% of the                 executive order in August 2000, and,
federal poverty guidelines is $1 for         despite a pending lawsuit, was
prescriptions costing less than $30,         implemented in March 2001.160
and $2 for prescriptions costing more        AWARDS, popularly termed a
than $30 with no deductible. For             "buyer's club," is a state-sponsored
those earning between 175% and               cost-sharing cooperative. AWARDS
225% of the federal poverty                  allows participants to purchase
guidelines, VScript pays 50% of the          prescription medications for 12% to
prescription cost.                           30% less than retail prices by
                                             merging their individual prescriptions
       An amendment to Vermont's             with the state's buying power through
existing waiver that significantly           its Uniform Health Plan. The state
expands that state's pharmacy                compiles         these      individual
assistance programs for seniors has          prescriptions, then purchases the
                                        37

medications in bulk.      AWARDS             income restrictions. Any Washington
covers all prescription medications,         resident 55 or older may enroll.
but to receive the discounted rates,         Participants    pay    an     annual
participants must purchase their             enrollment fee of $15 for single
prescriptions   from    participating        persons and $25 for families.
pharmacies.     AWARDS has no
                                         38

                                 ADDENDUM


        On May 8, 2001, the National                 The industry is beginning to
Institute for Health Care Management          respond to anticipated upcoming
Research and Educational Foundation           patent expirations. For example, the
(NIHCM) released a new publication,           leading antidepressant, Prozac, is
"Prescription Drug Expenditures in            scheduled to go off patent in August
2000: The Upward Trend Continues."            2001. Its manufacturer was recently
That publication confirms that the            granted FDA approval to market a
trends described in this report               once-weekly version of the drug,
persisted in 2000. Prescription drug          which has its own patent because the
spending increased 18.8% last year,           drug is coated differently.        The
reaching nearly $132 billion. The             manufacturer also separately markets
majority of that increase was due to          Prozac as Serafem to treat mood
higher     expenditures     among    a        imbalances         associated      with
relatively small number of drugs. The         premenstrual syndrome and for the
ten     drugs     contributing    most        next six years has the sole right to
significantly to the 1999-2000                market it for that use. Prilosec's
increase were Vioxx, Lipitor,                 manufacturer       is    promoting    a
Prevacid, Celebrex, Avandia, Actos,           new antiulcerant, Nexium, and
Oxycontin, Glucophage, Prilosec, and          Glucophage's manufacturer is heavily
Zocor. The top ten drugs in terms of          promoting       a     successor   drug,
year 2000 retail sales were Prilosec,         Glocovance. The patents for both
Lipitor, Prevacid, Prozac, Zocor,             Prilosec and Glucophage are due to
Celebrex, Zoloft, Paxil, Claritin, and        expire later this year.
Glucophage.
                                                     The NIHCM report concludes
       Retail pharmacies dispensed            by describing increased competition
7.5% more prescriptions in 2000 than          among brand-name drugs. At this
in 1999. Additionally, the average            point, competition occurs primarily at
price per prescription rose 10.5% to          the marketing level, with each
$45.27. Among the top 50 best-                company claiming that its drugs are
selling medicines, the average                better than other drugs, rather than
prescription price was $67.15, while          competing by price.
the average price for all other drugs
in 2000 was $36.01.
                                         39




                                   GLOSSARY

       Average manufacturer's price (AMP) – Developed by the drafters of the
Omnibus Reconciliation Act of 1990 and used to describe the average price
received by a manufacturer after discounts for products sold to the retail class of
trade. AMP is used for computing the rebates paid to state Medicaid programs.

        Average wholesale price (AWP) – Neither an average price nor a price
charged by wholesalers, AWP is the price that manufacturers suggest that
wholesalers charge retail pharmacies. Few if any wholesalers even consider AWP
today when pricing their prescription products. AWP is commonly used by
retailers and others who dispense medications as the basis for many pricing
decisions, and it is used as a surrogate for actual prices when studying prescription
drug trends.

       Brand-name drug – A drug generally covered by a patent and therefore
sold by only one firm.

       Cash prescription – A prescription purchased in a retail pharmacy where
the consumer pays the pharmacy's usual and customary charge entirely out of
pocket when the prescription is dispensed. This includes customers with no
insurance coverage and those with indemnity coverage that requires consumers to
pay the full charge and, after meeting a deductible, reimburses them for some
portion of the expenditures.

       Chronic condition – A health condition diagnosed by a doctor or other
health professional that has lasted or is expected to last 12 or more months, such as
high blood pressure; other heart disease and circulatory problems, arthritis,
conditions of the nervous, endocrine, metabolic, blood and blood forming systems,
diabetes, and back problems.

       Coinsurance – A cost-sharing requirement under a health insurance policy
that requires the patient to pay a percentage of costs for covered prescriptions.

       Co-payment – A cost-sharing requirement under a health insurance policy
that requires the patient to pay a specified dollar amount for each prescription.

        Detailing – Personal selling activities by a pharmaceutical manufacturer
sales representative that inform prescribers, pharmacists, and others about the
details of the product.
                                        40

       Direct to consumer promotion – Advertising by manufacturers that is
directly targeted at consumers.

       Direct pay insured prescription – A prescription covered under an
insurance plan that provides direct payment to the pharmacy for the prescription.
Consumers pay only a co-payment or coinsurance at the point of service.

      Federal poverty guidelines or federal poverty level – Guidelines issued
by the United States Department of Health and Human Services and updated
annually to reflect an increase in the previous year's Consumer Price Index. For
FY 2001, the federal poverty guideline is $8,590 for one person and $11,610 for
two persons in the same family unit.

       Fee-for-service payments – Fee for service, as opposed to pre-payment or
capitation, means that payment is made for services as they are rendered.

       Formulary – A listing of drug products that may be dispensed (positive) or
that may not be dispensed (negative) or reimbursed. Formularies may be open,
closed, or tiered.

      Generic drug – A drug that is not covered by patent protection and may be
produced and distributed by many firms.

       Indemnity prescription coverage – An insurance plan where the insured
pays for the covered prescription and, after a deductible is met, is reimbursed by
the plan for a percentage of the expense.

      Patent/patent life – A patent provides exclusivity in marketing a product.
The duration of a patent for a drug is 20 years, which is longer than for many other
products. Effective patent life may be shorter than 20 years depending on the time
between discovery and market launch that is needed for testing and FDA approval.

       Pharmacy benefits manager – An organization that provides
administrative services in processing and analyzing prescription claims for
pharmacy benefit and coverage programs. Services provided can include
contracting with a network of pharmacies; establishing payment levels for
provider pharmacies; negotiating rebate arrangements; developing and managing
formularies, preferred drug lists, and prior authorization programs; maintaining
patient compliance programs; and operating disease management programs.

       Preferred drug – A drug that a manufacturer agrees to make available to
an insurer, health plan, or public program at a reduced price compared to other
drugs that are considered therapeutic alternatives. Enrollees in an insurance plan
may pay lower cost-sharing for preferred drugs, and pharmacists may be
encouraged to dispense them through higher dispensing fees.
                                                     41

       Rebate – An amount a manufacturer pays an insurer or health plan for each
unit of a drug dispensed. Rebates are referred to as "after market" because they do
not affect the drug's price but reduce the payer's expenditures or program costs.

       Retail prescription price – The price charged by a pharmacy for
prescriptions and related services provided. For consumers who pay in cash, it is
also referred to as the usual and customary charge and is determined by the
pharmacy's pricing policies. For insured consumers, it is the third-party payment
or reimbursement amount determined by the insurance plan's payment formula and
agreed to in a contract with the pharmacy.

       Therapeutic alternative/equivalent – Drugs that differ from one another
but are of the same therapeutic class and can be expected to have a similar
therapeutic effect when administered in therapeutically equivalent dosages.

1
 Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription            Drug Trends: A
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2
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3
 State Health Facts, The Henry J. Kaiser Family Foundation, Kaiser Commission on Medicaid and the
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4
 State Health Facts, The Henry J. Kaiser Family Foundation, Kaiser Commission on Medicaid and the
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5
 Rowland, Diane, Executive Vice President of the Henry J. Kaiser Family Foundation, “Prescription Drug
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6
 “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
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7
 The News Hour with Jim Lehrer/ The Henry J. Kaiser Family Foundation/ The Harvard School of Public
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8
 Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
9
  Stuart, Bruce, Dennis Shea, and Becky Briesacher, “Dynamics in Drug Coverage of Medicare
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10
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:          A
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11
   Stuart, Bruce, Dennis Shea, and Becky Briesacher, “Dynamics in Drug Coverage of Medicare
Beneficiaries: Finders, Losers, Switchers,” Health Affairs, March/April 2001.
                                                   42


12
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:              A
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13
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14
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15
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16
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
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17
  Rowland, Diane, Executive Vice President of The Henry J. Kaiser Family Foundation, “Prescription
Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
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Drug Coverage for Seniors, February 15, 2001.

18
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
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19
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.

20
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.

21
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February 2001.
22
  Bruen, Brian K., “Medicaid and Prescription Drugs: An Overview,” The Kaiser Commission on
Medicaid and the Uninsured, The Henry J. Kaiser Family Foundation, October 2000.
23
  Bruen, Brian K., “Medicaid and Prescription Drugs: An Overview,” The Kaiser Commission on
Medicaid and the Uninsured, The Henry J. Kaiser Family Foundation, October 2000.

24
  Rowland, Diane, Executive Vice President of The Henry J. Kaiser Family Foundation, “Prescription
Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
on Energy and Commerce, United States House of Representatives, Hearing on Providing Prescription
Drug Coverage for Seniors, February 15, 2001.
25
  “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
26
   Insurers in Minnesota, Massachusetts, and Wisconsin may offer different state-regulated Medigap
policies, and a number of policies still exist that were offered before Medigap policies were standardized.
                                                  43


27
  “Medicare and Prescription Drugs,” The Henry J. Kaiser Family Foundation, The Medicare Program,
February 2001.
28
    "Medigap      Consumers   Face      Erratic    Price     Increases,"      Weiss     Ratings,    Inc.,
www.weissratings.com/NewsReleases/latest/index, April 17, 2001.

29
  Rowland, Diane, Executive Vice President of The Henry J. Kaiser Family Foundation, “Prescription
Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
on Energy and Commerce, United States House of Representatives, Hearing on Providing Prescription
Drug Coverage for Seniors, February 15, 2001.
30
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
31
    "Prescription Drug Costs Boost Medigap Premiums Dramatically," Weiss Ratings, Inc.,
www.weissratings.com/NewsReleases/latest/index, March 26, 2001; Appleby, Julie, “Three Studies
Forecast Soaring Drug Costs,” USA Today, March 26, 2001.
32
  “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
33
  “Medicare and Prescription Drugs,” The Henry J. Kaiser Family Foundation, The Medicare Program,
February 2001.

34
  State Health Facts, The Henry J. Kaiser Family Foundation, Kaiser Commission on Medicaid and the
Uninsured, www.kff.org/docs/state/states/oh.
35
  “Ohio Insurance Department Tells Medicare HMO Consumers to Gather Information Before Changing
Their Plans,” Ohio Department of Insurance Press Release, July 10, 2000.
36
  “Medicare and Prescription Drugs,” The Henry J. Kaiser Family Foundation, The Medicare Program,
February 2001.

37
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by Families USA,” Publication No. 00-107, July 2000.
38
  State Health Facts, The Henry J. Kaiser Family Foundation, Kaiser Commission on Medicaid and the
Uninsured, www.kff.org/docs/state/states/oh.
39
  Rowland, Diane, Executive Vice President of The Henry J. Kaiser Family Foundation, “Prescription
Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
on Energy and Commerce, United States House of Representatives, Hearing on Providing Prescription
Drug Coverage for Seniors, February 15, 2001.
40
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The Henry J. Kaiser Family Foundation, Testimony for the Hearing on Prescription Drugs and Medicare
Financing, Committee on Finance, United States Senate, March 22, 2001.
41
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
                                                  44


42
  McCloskey, Amanda, “Cost Overdose: Growth in Drug Spending for the Elderly 1992-2010 / A Report
by Families USA,” Publication No. 00-107, July 2000.
43
  Walker, David M., Comptroller General, United States General Accounting Office, “Prescription Drugs:
Increasing Medicare Beneficiary Access and Related Implications,” Statement before the Subcommittee on
Health, Committee on Ways and Means, United States House of Representatives, February 15, 2000.
44
  “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
45
   National Health Expenditures, United States Department of Health and Human Services, Health Care
Financing Administration, Office of the Actuary.

46
   Barents Group LLC, “Factors Affecting the Growth of Prescription Drug Expenditures,” National
Institute for Health Care Management Research and Educational Foundation, July 1999.
47
  Heffler, Stephen, Katharine Levit, Sheila Smith, Cynthia Smith, Cathy Cowan, Helen Lazenby, and Mark
Freeland, “Health Spending Growth Up in 1999; Faster Growth Expected in the Future,” Health Affairs,
March/April 2001.
48
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February 2001.
49
  "Medicaid and Prescription Drugs: An Overview," The Henry J. Kaiser Family Foundation, The Kaiser
Commission on Medicaid and the Uninsured, October 2000.

50
  McCloskey, Amanda, “Cost Overdose: Growth in Drug Spending for the Elderly 1992-2010 A Report
by Families USA,” Publication No. 00-107, July 2000.
51
  Crippen, Dan L., Director, Congressional Budget Office, “Prescription Drugs and Medicare Financing,”
Statement before the Committee on Finance, United States Senate, March 22, 2001.
52
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.

53
   National Health Expenditures, United States Department of Health and Human Services, Health Care
Financing Administration, Office of the Actuary.
54
  “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
55
  McCloskey, Amanda, “Cost Overdose: Growth in Drug Spending for the Elderly 1992-2010 A Report
by Families USA,” Publication No. 00-107, July 2000.
56
  McCloskey, Amanda, “Cost Overdose: Growth in Drug Spending for the Elderly 1992-2010 / A Report
by Families USA,” Publication No. 00-107, July 2000.

57
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
58
  Rowland, Diane, Executive Vice President of The Henry J. Kaiser Family Foundation, “Prescription
Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
                                                       45


on Energy and Commerce, United States House of Representatives, Hearing on Providing Prescription
Drug Coverage for Seniors, February 15, 2001.
59
  “Medicare and Prescription Drugs,” The Henry J. Kaiser Family Foundation, The Medicare Program,
February 2001.

60
   Barents Group LLC, “Factors Affecting the Growth of Prescription Drug Expenditures,” National
Institute for Health Care Management Research and Educational Foundation, July 1999.
61
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
62
  McCloskey, Amanda, “Cost Overdose: Growth in Drug Spending for the Elderly 1992-2010 / A Report
by Families USA,” Publication No. 00-107, July 2000.

63
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
64
   “Prescription Drug Pricing in the United States: Drug Companies Profit at the Expense of Older
Americans,” Minority Staff Special Investigations Division, Committee on Government Reform, United
States House of Representatives, November 8, 1999.
65
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
66
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.

67
   Barents Group LLC, “Factors Affecting the Growth of Prescription Drug Expenditures,” National
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68
  McCloskey, Amanda, “Still Rising: Drug Price Increases for Seniors 1999-2000,” Families USA
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69
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70
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71
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72
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73
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74
     “Pharmaceutical Marketplace Dynamics,” Issue Brief, National Health Policy Forum, May 31, 2000.

75
  Heffler, Stephen, Katharine Levit, Sheila Smith, Cynthia Smith, Cathy Cowan, Helen Lazenby, and Mark
Freeland, “Health Spending Growth Up in 1999; Faster Growth Expected in the Future,” Health Affairs,
March/April 2001.
                                                   46


76
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77
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78
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79
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80
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81
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82
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83
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
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84
     "2000 Community Pharmacy Projections," National Association of Chain Drug Stores (www.nacds.org).

85
  Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends:           A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
86
  McCloskey, Amanda, “Cost Overdose: Growth in Drug Spending for the Elderly 1992-2010 / A Report
by Families USA,” Publication No. 00-107, July 2000.
87
   Health Care Financing Administration, Office of Strategic Planning, Medicare Current Beneficiary
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88
  "NIDA Research Report - Prescription Drugs Abuse and Addiction," NIH Publication No. 01-4881
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89
  "Profile of Older Americans: 1997," Program Resources Department, AARP and the Administration on
Aging, United States Department of Health and Human Services.
90
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91
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92
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93
  "The Health Status and Risk Behavior of Ohio Adults and Children, 1998," 1998 Family Health Survey,
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                                                   47


94
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Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
on Energy and Commerce, United States House of Representatives, Hearing on Providing Prescription
Drug Coverage for Seniors, February 15, 2001.

95
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Containment?” Health Affairs, March/April 2001.
96
  “How Increased Competition from Generic Drugs has Affected Prices and Returns in the Pharmaceutical
Industry,” Congressional Budget Office, July 1998.
97
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Medicare Drug Benefit,” The Henry J. Kaiser Family Foundation, January 2000.

98
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
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99
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100
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101
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Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
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102
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Pharmaceutical Industry,” Congressional Budget Office, July 1998.
103
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104
    Adams, Chris, “FDA Plans to Review Policy Allowing Direct-to-Consumer Drug Ads for TV,” Wall
Street Journal, March 28, 2001.

105
    Heffler, Stephen, Katharine Levit, Sheila Smith, Cynthia Smith, Cathy Cowan, Helen Lazenby, and
Mark Freeland, “Health Spending Growth Up in 1999; Faster Growth Expected in the Future,” Health
Affairs, March/April 2001.

106
    Relman, Arnold, "Separating Continuing Medical Education from Pharmaceutical Marketing," Journal
of the American Medical Association, Vol. 285, No. 15, April 18, 2001; "Buying Drug Endorsements,"
CBS Evening News, April 5, 2001.

107
    Heffler, Stephen, Katharine Levit, Sheila Smith, Cynthia Smith, Cathy Cowan, Helen Lazenby, and
Mark Freeland, “Health Spending Growth Up in 1999; Faster Growth Expected in the Future,” Health
Affairs, March/April 2001.

108
   Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends: A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
                                                   48


109
  Findlay, Steven, “Prescription Drugs and Mass Media Advertising,” National Institute of Health Care
Management Research and Educational Foundation, September 2000.
110
  Findlay, Steven, “Prescription Drugs and Mass Media Advertising,” National Institute of Health Care
Management Research and Educational Foundation, September 2000.

111
   Heymann, Joseph M., “Report of the Council on Medical Service: Pharmaceutical Spending in the
U.S.,” CMS Report 3-I-00, American Medical Association.
112
   The News Hour with Jim Lehrer/ The Henry J. Kaiser Family Foundation/ The Harvard School of
Public Health, “National Survey on Prescription Drugs,” September 2000 (conducted July-September
2000).
113
      Cys, Jane, "AMA Takes on Prescription Drug Cost Growth," www.amednews.com, December 25, 2000.

114
    Adams, Chris, “FDA Plans to Review Policy Allowing Direct-to-Consumer Drug Ads for TV,” Wall
Street Journal, March 28, 2001.
115
   Stuart, Bruce, Dennis Shea, and Becky Briesacher, “Dynamics in Drug Coverage of Medicare
Beneficiaries: Finders, Losers, Switchers,” Health Affairs, March/April 2001.
116
   “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.
117
   “How Much are Medicare Beneficiaries Paying Out of Pocket for Prescription Drugs?” Executive
Summary, AARP Public Policy Institute, September 1999.

118
   “FYI: The Cost of Prescription Drugs: Who Needs Help?” AARP Public Policy Institute, October
2000.
119
   Poisal, John A. and Lauren Murray, “Growing Differences Between Medicare Beneficiaries With And
Without Drug Coverage,” Health Affairs, March/April 2001.
120
   Poisal, John A. and Lauren Murray, “Growing Differences Between Medicare Beneficiaries With And
Without Drug Coverage,” Health Affairs, March/April 2001.

121
  Frank, Richard G., “Prescription Drug Prices: Why do some pay more than others do?” Health Affairs,
March/April 2001.
122
  Frank, Richard G., “Prescription Drug Prices: Why do some pay more than others do?” Health Affairs,
March/April 2001.
123
   Rowland, Diane, Executive Vice President of The Henry J. Kaiser Family Foundation, “Prescription
Drug Coverage for the Medicare Population,” Testimony before the Subcommittee on Health, Committee
on Energy and Commerce, United States House of Representatives, Hearing on Providing Prescription
Drug Coverage for Seniors, February 15, 2001, p. 5.
124
   Poisal, John A. and Lauren Murray, “Growing Differences Between Medicare Beneficiaries With And
Without Drug Coverage,” Health Affairs, March/April 2001.
125
   Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends: A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.
                                                    49


126
   Poisal, John A. and Lauren Murray, “Growing Differences Between Medicare Beneficiaries With And
Without Drug Coverage,” Health Affairs, March/April 2001.
127
   Kreling, David H., David A. Mott, Janet Lundy, and Larry Levitt, Prescription Drug Trends: A
Chartbook , The Henry J. Kaiser Family Foundation, July 2000.

128
   “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.

129
   “Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President,” Office of the
Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services,
April 2000.

130
   “Targeting Tobacco Use: The Nation's Leading Cause of Death,” Centers for Disease Control and
Prevention, National Center for Chronic Disease Prevention and Health Promotion, Tobacco Information
and Prevention Source.

131
      Ohio Behavioral Risk Factor Surveillance System, Ohio Department of Health.
132
   Behavioral Risk Factor Surveillance System, Centers for Disease Control and Prevention, National
Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health.

133
   "Receipt of Advice to Quit Smoking in Medicare Managed Care – United States 1998,” Centers for
Disease Control and Prevention, Morbidity and Mortality Weekly Report, September 2000.
134
   “Targeting Tobacco Use: The Nation's Leading Cause of Death,” Centers for Disease Control and
Prevention, National Center for Chronic Disease Prevention and Health Promotion, Tobacco Information
and Prevention Source.
135
   “Investment in Tobacco Control – State Highlights 2001,” Centers for Disease Control and Prevention,
National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, pp.
94-95.
136
   “Smoking Attributable Mortality by Cause of Death and Gender, State of Ohio, 1998," Ohio Department
of Health, 2000.
137
   “Targeting Tobacco Use: The Nation's Leading Cause of Death,” Centers for Disease Control and
Prevention, National Center for Chronic Disease Prevention and Health Promotion, Tobacco Information
and Prevention Source.
138
   “Preventing Disease and Death from Tobacco Use,” HHS Fact Sheet, United States Department of
Health and Human Services, January 8, 2001.

139
   “Medical-Care Expenditures Attributable to Cigarette Smoking – United States, 1993,” Centers for
Disease Control and Prevention Morbidity and Mortality Weekly Report, July 8, 1994, pp. 469-472.
140
   “Smoking Attributable Expenditures Ohio 1993,” Centers for Disease Control and Prevention, State
Tobacco Activities Tracking and Evaluation System.
141
   "Women and Smoking: A Report of the Surgeon General – 2001," Centers for Disease Control and
Prevention, Office on Smoking and Health, March 2001.
                                                       50


142
    "New guidelines challenge all clinicians to help smokers quit," Centers for Disease Control and
Prevention, National Center for Chronic Disease Prevention and Health Promotion, Tobacco Information
and Prevention Source, June 27, 2000.
143
   "Receipt of Advice to Quit Smoking in Medicare Managed Care – United States 1998,” Centers for
Disease Control and Prevention, Morbidity and Mortality Weekly Report, September 2000.
144
   “Reducing Tobacco Use: A Report of the Surgeon General,” U.S. Department of Health and Human
Services, Centers for Disease Control and Prevention, 2000.

145
   “Reducing Tobacco Use: A Report of the Surgeon General,” U.S. Department of Health and Human
Services, Centers for Disease Control and Prevention, 2000.
146
   “Treating Tobacco Use and Dependence:             A Public Health Service Sponsored Clinical Practice
Guideline,” June 2000.
147
   “Treating Tobacco Use and Dependence:             A Public Health Service Sponsored Clinical Practice
Guideline,” June 2000.

148
   "Medicare Pilot Will Help Seniors Stop Smoking,” Medicare News, United States Department of Health
and Human Services, Health Care Financing Administration, July 12, 2000.
149
   “Preventing Disease and Death from Tobacco Use,” HHS Fact Sheet, United States Department of
Health and Human Services, January 8, 2001.
150
      Florida Senate Bill 940, signed by the Governor on 6-8-00.
151
    Illinois House Bill 3872 (2000) and House Bill 4437 (2000) expand this program to include more
seniors, beginning January 2001. House Bill 3872 raised the annual income eligibility requirements,
expanded the medications covered, eliminated the deductible system, and lowered premiums and co-
payments. House Bill 4437 appropriated $35 million of the Tobacco Settlement Fund to finance these
expansions. This report explains the program as expanded.
152
      Indiana Senate Bill 108, §6, signed by the Governor 3/13/00, effective 9/1/00.
153
      36 Maine Rev. Stat. Ann. § 6161-6166.

154
      22 Maine Rev. Stat. Ann. §254-A.
155
      Mass. H.B. 5300, §46, 7-28-00.
156
      New York Executive Order 19-K §547, 1987.

157
      72 Pa. Cons. Stat. Ann. 3761-506 to 709.
158
      Vt. Stat. Ann. Tit. 33, §§ 1991-1994, as expanded by 1999 Vt. Acts and Resolves 62, §§ 122-123.
159
      Vermont H.B. 842, § 117(d).

160
      Washington Exec. Order 00-04 WAC 246-30, 8-29-00.

				
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