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ON THE HORIZON

Over the last ten years, state spending on prescription drugs for Medicaid has increased more than twice as much as the average annual rate of grown in Medicaid spending. Costly new drugs, an increase in direct-to-consumer (DTC) advertising and increased prescription drug utilization are just a few factors that have contributed to the increase in state prescription drug expenditures.

The question that state legislators must now consider is will prescription drug spending continue to increase at such a rate? And, if so, what can be done to reign in such expenditure and provide prescription drug coverage for those in need, while facing a present and future fiscal crises. The answer to the first question is an unequivocal YES. According to a Kaiser Foundation study, Medicaid prescription drug spending alone is estimated to increase 300 percent in the next ten years. Several trends account for the astonishing rise in prescriptions drug prices and spending.

• Research and development. Drug companies are trying to increase market share by producing brand new, costlier drugs. It is "where the money is." According to the National Institute for Health Care Management, the average price per new prescription drug was more than twice the average price for "old" drugs already on the market. Companies are investing billions of dollars in the process.
• Pharmacogenetics. This is the science of developing drugs that target specific sequences of genetic codes in order to prevent or suppress genetic disorders. Advances in genetic research, including the imminent completion of the Human Genome Project will increasingly identify these genetic targets. Scientists will be able to tailor drugs to match an individual's profile or needs. In this area, states will likely consider the ethical and financial implications of these new, individual-specific drugs.
• Computer technology. New computer software allows rapid experimentation and formulation of new drugs. Today, emerging drugs do not need to be chemically synthesized in a laboratory. Rather, chemical models may be designed on a computer much faster at lower cost.
• Continued trends in heavy advertising. Controversial direct to consumer advertising is predicted to account for and increasing percentage of pharmaceutical's advertising budgets. Particularly, television advertising; which has grown from $220 million in 1998, to $1.6 billion in 2000, will continue rapid growth. (See Abstract)
• Continuing demographic trends. As the baby boomers age, the populations risk for long-term chronic diseases such as cardiovascular disease, hypertension and diabetes. Pharmaceutical advances insure that these individuals live longer-at a cost of daily medication.

States are likely to seek new opportunities for coordination across states and across payers. By combining intra- or inter-state agencies, states can increase the volume of prescription drugs purchased. Increased purchasing power will allow states to negotiate with drug manufacturers for bigger discounts on popular drugs. Massachusetts, Texas and Georgia have consolidated prescription drug purchases for agencies such as the senior pharmacy assistance, Medicare, Medicaid, state workers and teachers, prison systems, and other agencies. Massachusetts estimates total savings could reach $200 million.

States will face a struggle between the necessity of pharmacy cost containment strategies and assuring individuals have access to drugs that work the best for them. Programs such as preferred drug formularies and prior-authorization requirements for non-generic drugs might save states millions of dollars. However, they also may restrict a physician's clinical autonomy by dictating when and how certain prescription drugs may be prescribed. Supreme Courts in Florida and Maine have upheld the states in lawsuits challenging the constitutionality of these programs. States may be assured of continued legal battles.

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