[Pharm-policy] Ed Silverman: Maine's radical Rx

[James Love]

      Date: 2000/10/08 Sunday Page: 001 Section: BUSINESS Edition: FINAL
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CORRECTION: MAINE'S RADICAL RX

Maine's radical Rx

Rural state finds itself front and center in a national debate

By ED SILVERMAN
Star-Ledger Staff - AUGUSTA, Maine

In the escalating war over the skyrocketing price of prescription drugs,
Maine has a new weapon. Spurred by a grass-roots movement among seniors,
legislators passed a law that requires drug makers to bargain with the
state as if it were a wholesale customer. The drug companies, worried
other states will follow suit, are riled.

When he retired earlier this year, Wesley Coates thought everything was
in order. He found a nice apartment in a senior-citizen complex and
expected to live on a modest Social Security check.

There was one problem he didn't foresee: He couldn't afford his
medications because he lacked insurance for prescription drugs."I made
too much money and didn't qualify for any programs," said Coates, 63,
who had been a maintenance supervisor in a home for the elderly. "I need
four drugs for my stomach and my breathing. But they cost more than $200
a month and my check is only $786. So I just go without them. I told my
doctor, but he just sent me a bill for the visit."

Such hardship isn't unusual in Maine, a sparsely populated rural state
where 325,000 people, about 20 percent of all residents, lack
prescription-drug insurance. In desperation, some seniors travel to
Canada to buy drugs at lower prices. But the problem isn't confined to
Maine. Up to 65 million Americans lack coverage, including about
one-third of the nearly 40 million seniors and disabled on Medicare,
which doesn't cover prescription drugs. That explains why drug costs
have become a hot-button topic this election year.

Officials in Maine, though, took a bold approach to the problem.

Urged on by a handful of angry seniors, an ambitious state legislator
teamed up with an iconoclastic bureaucrat to help create MaineRx. The
program, which became law in August, requires drug makers to negotiate
lower prices with the state by 2003, or face price controls.

The unparalleled effort thrust Maine into the national limelight. Not
only was this the first state to take action in the absence of a federal
solution, but Maine's willingness to adopt a get-tough posture struck a
nerve. Suddenly, a state best known for lobsters and L.L. Bean had
provoked a controversy that would reverberate across the country. In the
process, Maine also frightened and frustrated the pharmaceutical
industry.

"This is the bullet heard round the world," said Nancy Chockley,
executive director of the National Institute for Health Care Management,
a Washington, D.C., nonprofit group that studies prescription-drug
issues. "There are enormous ramifications. It's tough legislation with
real teeth. It's certainly gotten the pharmaceutical industry's
attention."

Drug makers, many of which are based in New Jersey, are furious. They
argue that price controls are Draconian, limiting revenue and capping
profits needed to fund research and development. Fearing other states
will follow Maine's lead, the industry's major trade group filed a
lawsuit, charging that MaineRx is unconstitutional because it restricts
interstate trade. Meanwhile, several drug makers, including SmithKline
Beecham Plc and Bristol-Myers Squibb Co., shifted distribution out of
state in hopes of skirting a key provision in the law.

"We think what Maine did is the wrong answer," said Marjorie Powell,
assistant general counsel at the Pharmaceutical Research and
Manufacturers of America, the trade group, which earlier this year ran a
series of ads in Maine newspapers depicting an elderly woman over the
headline, "She'll Just Have to Wait" for new medicines. "Price controls
aren't the answer. We think they will ultimately hurt patients."

Some experts also believe Maine's program is Quixotic - strong on
grandstanding, but weak on real solutions.

"It's certainly a strong symbolic gesture, because it sends a tough
message," said Gail Wilensky, a health-policy adviser to Republican
presidential hopeful George W. Bush and a senior fellow at the Project
Hope Center for Health Affairs, a nonprofit research group. "But it's
also an extreme course of action and unlikely to be implemented."

Still, the drug industry has garnered little sympathy these days. Since
1991, the average price of a prescription has jumped 58 percent, to
$37.38. As of early last year, drug prices rose at an annual rate of 6.1
percent, more than twice the rate of inflation. And prescription-drug
spending consumed 8.4 percent of the country's overall health budget, up
from 7.2 percent in 1997.

Meanwhile, the drug industry is the most powerful in business - earnings
as a percent of revenue last year were an unmatched 18.6 percent (banks
were second, at 15.8 percent), according to a recent survey by Fortune
magazine. And more of those profits were spent on promotions, such as
television ads, climbing 51 percent since 1996 to an unprecedented $13.9
billion, according to market researcher IMS Health. Drug makers also
spend tens of millions of dollars each year to lobby federal and state
governments for favorable legislation, such as laws that would extend
patent protection on big-selling products.

Another factor resonating widely in states bordering Canada: Drug prices
are 58 percent lower because the government imposes national price
limits. This summer, Maine seniors traveled to Canada and bought a
three-month supply of Bristol-Myers' Glucophage diabetes pills for
$90.26; locally, the drug costs $373.86. Similarly, a three-month supply
of Pfizer Inc.'s Lipitor cholesterol treatment cost $168, vs. $327.

For this reason, the states are closely watching a current push in
Congress to allow drugs shipped to Canada and elsewhere to be
re-imported here. Anything that lowers prices would be welcomed, but
critics say the proposal is flawed - it could take two years before a
mechanism is in place, and it's not clear if any savings actually will
be passed on to consumers. And the pharmaceutical industry, which
opposes the measure, is expected to blunt its effects by altering
overseas pricing and manufacturing.

"Prescription drugs are simply unaffordable to many Americans," said
Alan Sager of Boston University's School of Public Health, who has
studied New England spending patterns and argues reimportation will do
little to lower prices. "But the industry's core message is, "Touch our
prices and profits, and you'll die.' It's actually the most outrageous,
cruel and insidious message in American public affairs today. It's
emotional blackmail."

SENIOR CHARGE

About two years ago, several senior citizens in Maine concluded the same
thing. That they managed to translate their anger and frustration into
ground-breaking legislation was a matter of luck as much as
old-fashioned grassroots activism. They were helped by the independent
streak flowing through Maine's political veins, symbolized by a governor
who is neither Republican nor Democrat and, oddly enough, a big-business
backer.

The campaign's prime instigator, as he sometimes refers to himself, was
a tall, energetic and plain-spoken man named John Marvin. Now 71, he had
spent most of his life steeped in union lore, representing a variety of
workers on all sorts of matters, from job actions to contract
negotiations. For the past several years, though, Marvin has devoted
himself to working on behalf of Maine's senior citizens.

Two years ago, Marvin was a member of a state-sponsored citizens'
advisory commission charged with researching the rising cost of
prescription drugs and its effect on seniors. So he listened with
enthusiasm to a told by his friend, Hilton Power, who represents the
AARP in Maine. Power had just returned from an out-of-state meeting
where he heard how a bus trip had been organized in Minnesota to take
seniors to Canada to buy medicines at lower prices.

"It was a darned good idea," said Marvin, who wasted little time in
organizing a similar trip in October 1998. Turnout was low, though,
because federal regulators began questioning whether drugs purchased
across the border were counterfeit or packaged properly. Even so, the
effort sparked publicity that was seen in Washington.

By then, anger was rising throughout New England, largely because of its
proximity to Canada and its lower prices. In Vermont, legislators were
attracting national attention with a plan to force drug makers to lower
their prices. For a while, it seemed Vermont would be the nation's first
state to take such action. But an explosive controversy over a new state
law allowing gay marriages shoved drug reform aside.

Enter Chellie Pingree, a plucky Maine legislator who once ran a sweater
manufacturing business and now harbored gubernatorial aspirations. She
was the same state senator who appointed Marvin to the citizens'
advisory commission. And as far as she was concerned, lowering drug
prices was the only way to help Maine's uninsured. Armed with anecdotal
evidence and a raft of statistics, she was busy crafting her own bill.

"Look, I'm not anti-business. I once owned a business," said Pingree,
45, a Democrat and the state senate majority leader, who is about to
complete her fourth and, because of Maine's term limits, final two-year
stint. "I understand one person could be sitting with a lot of stock and
worried about the industry's future. But right next door may be a senior
without the resources to afford her medications. These are
life-and-death products. We need a drug benefit for Medicare. It would
benefit the entire population. But where is it?"

Initially, Pingree faced resistance among many of her colleagues in the
majestic capitol building here along the Kennebec River. Apart from
ideological chasms between Republicans and Democrats, there was concern
her original bill wouldn't withstand the almost certain court challenges
expected from the drug industry. It was this argument, in particular,
cited by the state's enigmatic governor, Angus King.

HARD TO PIN DOWN

King, himself, was viewed a wild card. Like Minnesota's Jesse Ventura,
he's an independent - the only two such governors in the nation - and
unpredictable. He rides a motorcycle, won't live in the governor's
mansion and was once a poverty lawyer. As a former TV commentator, King
is also media-savvy - his office, which is being renovated, will include
lighting to enhance his profile during press briefings, already a daily
habit.

But King's willingness to align himself with big business aroused
concern. A former small-business owner, King had been working
assiduously to convince large corporations to locate facilities in the
state, where the unemployment rate was 3.8 percent last year and the
poverty rate exceeded 10 percent in all but three of its 17 counties.
Word came filtering down from his office that price controls weren't
palatable.

"He can be hard to pin down," said William Coogan, a political science
professor at the University of Southern Maine in Portland, who tracks
Maine politics.

To their delight, Pingree and Marvin found an unexpected ally in a King
confidant named Kevin Concannon. A low-key man with a mischievous smile
and quick intellect, Concannon, 58, is an ambitious bureaucrat, who
spent most of his career in Maine government before leaving for Oregon
in 1987, where he eventually ran the state department overseeing health
services. Five years ago, King lured him back to Maine to do the same
thing.

Soon, Concannon noticed a disturbing pattern. The amount of money the
state was spending on prescription drugs in such programs as Medicaid
was rising fast. In 1997, the outlay jumped 13 percent. The next year,
the state spent 11 percent more. By last year, the increase alarmed him
- Maine spent $135.5 million, a 24 percent jump from 1998, and the
expenditure for each prescription rose 14 percent.

"All I want is a better deal for the 325,000 people who are outside the
tent and can't afford their medicine," said Concannon, who expects the
state's outlay to rise another 18 percent this year. "I really come from
the belief system that states can do these innovations before the
lumbering federal government can and that, in fact, we have an
obligation to solve some of these problems."

So in the fall of 1999, just as Marvin was organizing bus trips and
Pingree was shaping legislation, Concannon went to King with a simple
message: Something has to be done about drug prices.

Suddenly, the pieces were in place. Where at first it seemed Pingree's
effort might be ignored or resisted, her bill instead gained momentum.

Like most legislation, though, Pingree's bill went through changes.
Predictably, the biggest obstacle was price controls, which initially
were to begin in 2001 and upset many Republican legislators. They were
worried about violating federal law governing interstate trade.

Over the next several months, the bill took shape and received the
backing it needed, helped by Washington's failure to fix Medicare. Urged
on by Concannon, King signaled his support. Last May, Maine's
legislature overwhelmingly approved the measure - the senate vote was
30-0, and state representatives passed it 120-11.

The MaineRx program allows the state to negotiate on behalf of all state
residents who lack insurance coverage for prescription drugs. Drug
makers have until 2003 to reach an agreement or face price controls. So
far, about 26 smaller drug makers, mostly generic manufacturers, have
agreed to participate, but none of the big, brand-name drug makers

"There are still some concerns about price controls," said Thomas
Shields, a physician and a Republican legislator who initially opposed
the bill, but voted in favor. "But I think the moral issue is at play
here. There's a recognition that some people have a genuine need and
it's hard to vote against such a thing. And I think the fact that it
still has two years before it kicks in gives us some time to see how
things play out."

LATE TO THE DEBATE

For their part, drug makers were late in trying to influence the debate.
In the weeks leading to the pivotal May vote, a local attorney was hired
as a lobbyist, and various drug makers flew in their own representatives
to convince lawmakers to oppose the bill. A Pfizer lobbyist, meanwhile,
sent a promised check to a Democratic political action committee, but
wrote that "he can no longer be a supporter." Pingree estimates the
legislation has cost the Democratic party about $10,000 in contributions
this year.

But the industry's biggest effort - a series of aggressive ads in
newspapers statewide - backfired. One ad, in particular, riled many. The
ad displayed a picture of an elderly woman above the headline "She'll
Just Have to Wait," and said that if price controls were imposed, drug
makers "could be forced to make deep cuts in funding for drug research.
... We don't need another big bureaucracy standing between patients and
better health care."

"Look, I'm a free enterprise guy, but I couldn't figure out how to
justify any of this," King said. "We're being chumps. Are we supposed to
pay the freight for some guy in another country to be able to afford his
medicine? I'm supposed to take that to my constituents? Sorry, that
doesn't fly. I don't scapegoat them. I'm not an industry basher. I just
say their pricing structure is wrong.

"I spent a lot of time, effort and money to run for this job, to be
governor, not to be a potted plant. The HMOs buy in bulk, so why can't
we? We're only doing what they do - engaging in free enterprise," he
said. "The federal government is unlikely to take this on. So you'll see
this in all the states. That's why this is such a disaster for (the drug
makers). If our law withstands the legal challenges, in one or two years
from now, we'll have prices that are 30 to 40 percent lower. That
difference is not a remote inequity. It's an in-your-face inequity."

NOTES: Ed Silverman covers the drug industry. He can be reached at (973)
877-1542 or esilverman@starledger.com.

PHOTO CAPTION: Retiree Wesley Coates, 63, faces a bill for prescription
drugs that comes to more than one-quarter of his monthly income.
Instead, he goes without them. It was the plight of Coates and Maine
residents like him that persuaded the state to pass a tough law to bring
down the price of medicines. CREDIT: PHOTO BY JOEL PAGE GRAPHIC 1. When
a pharmacy sells a prescription, on average. . . 74 cents of the dollar
goes to the manufacturer 23 cents to the store 3 cents to the wholesaler

1
2. CHART: Healthy industry
The average American uses 10 prescriptions a year, and prices are rising.
Here is a look at
the prescription drug market.
Please refer to microfilm, p. 1.

CREDIT: Kaiser Family Foundation
Etc. BOX: 1. The number of prescriptions rose 37 percent between 1992 and
1998, while the
population went up 6 percent.
2. Americans pay 28 percent of drug costs out of their own pockets, down
from about 50 percent
since 1990.
3. Drug companies spent $21 billion on research and development in 1998, or
17 percent of
their sales.
4. About one-third of Medicare beneficiaries have no drug coverage.