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Appeals Court Derails Vermont's Affordable Drug Program

  • June 12th, 2001

A federal appeals court has at least temporarily derailed Vermont's efforts to make prescription drugs more affordable for its seniors. The ruling will likely have broader implications because a number of other states are using, or were hoping to use, a similar strategy to reduce their residents' prescription prices.

Vermont had gained approval from the U.S. Department of Health and Human Services to use the drug-maker discounts available through the Medicaid program to subsidize the prescriptions purchased by seniors who do not qualify for Medicaid coverage. The state estimated that 70,000 people would qualify for discounts ranging from 18 percent to 30 percent, depending on the type of drug. Vermonters had begun signing up for the program January 1. See News Article, Vermont Acts to Control Drug Prices for Seniors.

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But the pharmaceutical industry's primary trade association sued the Department of Health and Human Services to block Vermont from using the Medicaid program to control drug prices. A trial judge ruled in the state's favor, but on June 8 a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia overturned that ruling, holding that Vermont and the federal government had improperly applied federal Medicaid law.

The appeals judges said that neither the state nor the federal government can allow non-Medicaid recipients to benefit from the same prescription rebates and discounts that are intended for Medicaid recipients.

"The Medicaid statute requires pharmaceutical manufacturers to rebate a portion of the price of their drugs as a condition for participating in Medicaid," the appeals court wrote. "Because Congress imposed the rebate requirement in order to reduce the cost of the Medicaid program, and because no Medicaid funds are expended under the Vermont demonstration project and thus no Medicaid savings produced by the required rebates, we conclude that the [Health and Human Services] Department lacked authority to approve the project."

"It's a big win for the pharmacy companies and a big loss for Vermont's seniors who need medication," said Vermont Governor Howard Dean.

The ruling could affect Maine, which has just launched a program using a similar waiver from the Department of Health and Human Services. See News Article, Legal Victory for Maine's Affordable Drug Plan.

New Hampshire, too, had been seeking federal approval to start a program like Vermont's that would have benefited 72,000 low- and moderate-income elderly residents.

"It's really a pity that the pharmaceutical industry is spending all this time and energy and money fighting efforts to make prescription drugs affordable," said Pamela Walsh, a spokeswoman for New Hampshire Governor Jeanne Shaheen. "It really underscores the need for federal action to address the problem."

Vermont, New Hampshire and Maine have agreed to reduce drug costs for their residents through the formation of a regional buying pool, but this program is not due to be launched until November 1.

Until Congress acts to control prescription drug prices, state legislatures will continue looking for ways to help their low-income elderly and disabled residents buy prescription drugs. According to the National Conference of State Legislatures, at least 26 states have set up some type of program to help mainly low-income elderly or persons with disabilities who do not qualify for Medicaid pay for prescriptions.

Last Modified: 06/12/2001

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