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M E M O R A N D U M

TO: Ohioans Against the Deceptive Rx Ballot Issue


FROM: Maureen M. Corcoran, President, Vorys Health Care Advisors
Barbara Coulter Edwards, Managing Principal, Health Management Associates
John McCarthy, CEO, Upshur Street Consulting LLC
Greg Browning, President, Capital Partners
DATE: September 7, 2017
RE: Questions raised by What are the likely economic benefits to the state of Ohio
from the Ohio Drug Price Relief Act? analysis by Patrick Murray, MD, MS

The analysis titled What are the likely economic benefits to the state of Ohio from the Ohio Drug
Price Relief Act? by Patrick Murray, MD, MS recently came to our attention. Dr. Murrays work
purports to analyze the likely benefits to the State of Ohio government and the Ohio Pension Plans
for the public employees if the Ohio Drug Price Relief Actwas passed and its basic program,
reducing the prices paid by the state to the same level as paid by the Veterans Hospital
Administration (sic)was implemented in its most straightforward manner.i In our review, Dr.
Murrays analysis is extremely flawed and makes greatly misleading conclusions about the potential
savings Ohio could produce from implementing the Ohio Drug Price Relief Act (Issue 2).

Dr. Murrays Flawed Financial Analysis of Issue 2


In analyzing the potential impact of Issue 2, Dr. Murray first assumes that full and successful
implementation of the proposed statute is possible. As the analysis conducted by Vorys Health Care
Advisors & Health Management Associates (VHCA & HMA)ii details, there are many important
reasons why Issue 2 is highly unlikely to be implementable, including:
the lack of publicly available, drug-specific information on the U.S. Department of Veterans
Affairs (VA) actual lowest price paid for a drug;
the fact that the VAs lowest price paid does not include reasonable costs of distribution of
drugs through pharmacies (the way in which the vast majority of state pharmacy programs
operate, including Medicaid); and
the fact that Issue 2 does not compel manufacturers and/or pharmacies to buy or sell at the
prices that would be required of state programs.

After erroneously assuming Issue 2 could be implemented, Dr. Murray inaccurately attempts to
calculate potential savings from the proposed statute by: overly simplifying drug spending across
multiple state programs, and inappropriately applying a mixed bag of estimated and incomplete
average savings percentages to an average national retail prescription drug cost. Dr. Murrays
analysis also exaggerates potential Medicaid savings, in so far as he incorrectly and without
evidence presumes that Ohios Medicaid program is less successful in its negotiation of pharmacy
discounts than other state Medicaid programs. Based on this faulty framework, he concludes his
analysis by saying Issue 2 would most likely save the state of Ohio an estimated $350 million per
year, which is lower than Issue 2 proponents original estimate of $400 million per year.

In attempting to compare the state of Ohios drug purchases with those of the VA, Dr. Murray took
a simplistic approach to determining the prices the VA paysan approach we assume he took
because he could not obtain data on the actual prices paid by the agency. Without this information,

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Dr. Murray chose to compare national averages (that may or may not reflect the cost of
pharmaceuticals and their use in programs operated by, or insurance purchased by, the state of
Ohio) with imprecise and speculative VA data. In addition, his attempted analysis is fatally flawed
by his incorrect use of percentage discounts for the VA, Medicaid and other programs that have
been calculated from different data sources that are not comparable.

Finally, Dr. Murrays analysis does not include the financial, societal and human costs of
implementing Issue 2. His work presumes savings can be achieved for state programs that already
achieve discounts equal to, or in some cases greater than, those obtained by the VA, and he counts
savings from potential covered lives that may have no utilization at all. Moreover, he does not
take into account the potential impact of Issue 2 on actual Ohioansthe individuals who need the
medications.

Overall, even if Issue 2 could be implemented, any savings would need to be weighed against the
significant costs real people would incur as a result of Issue 2, such as the expense of some
programs being terminated; reduced access to local pharmacies; cost shifting to pharmacies; loss of
coverage for certain drugs; higher co-pays for state employees, retirees and veterans; and cost-
shifting to privately insured Ohioans.

Dr. Murrays analysis is fundamentally flawed. We stand by our earlier analyses:iii Issue 2 is not
implementable, and efforts to implement it would raise costs for many consumers and reduce access
to prescription drugs for Ohioans.

Unanswered Questions
Dr. Murrays analysis does not show most of its calculations and raises many additional questions
for us, including the following:
1. Why does Dr. Murray presume Issue 2 could be implemented? As described extensively in the
VHCA & HMA analysis, the information required to implement Issue 2 is not knowable by the
state of Ohio. Indeed, one of the sources cited by Dr. Murray in his own study clearly states that
the exact amount of discounts and rebates obtained by VHA is not known because VHA
normally does not disclose publicly the prices it pays.iv Further, from the Centers for Medicare
& Medicaid Services (CMS) website, please note the following: CMS is prohibited from
publicly disclosing drug-specific information on manufacturer rebates, thus the data used to
select Medicaid prescription drugs do not reflect any manufacturers rebates or other price
concessions.v This affirms the VHCA & HMA findings.
2. Why are commercial and Medicare Part D discounts included, and how (and why) are they
used in the calculations? Since Medicare and commercially-insured populations are not
included in Issue 2, any savings Dr. Murray attributes to these populations should be subtracted
from the total savings he projects. Savings attributed to the AIDS Drug Assistance Program
(ADAP)/Ryan White program should be similarly subtracted because, as the VHCA & HMA
analysis indicates, several of Ohios drug purchasing programsincluding ADAP/Ryan
Whitealready appear to be purchasing drugs at prices lower than those paid by the VA.
3. Why does the analysis use savings estimates from different expenditure and pricing baselines
as though they can be compared? For example, Dr. Murrays calculations appear to apply
estimated rates of discount for Medicaid and the VA that represent percentages calculated from
widely different baselines (e.g., the assumed Medicaid percentage is a rebate discount off the
actual retail expenditures reported by states, and the VA percentage appears to have been

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calculated against assumptions regarding Average Manufacturer Price). Other savings
percentages used by Dr. Murray are calculated against Wholesale Acquisition Cost. Further,
some of the percentages appear to include distribution costs, and others do not. Percentages
across these different baselines are not comparable and cannot be accurately used to project
savings from yet another baseline (national average pharmacy costs per person).
4. Why does the analysis use national average retail drug spending ($1,054 per person per year)
when the populations affected by Issue 2 have very different types of utilization from the
national average? Why does the analysis then adjust the national average based on age,
rather than on the populations or medical conditions covered? For example, some of the state
programs pay for a single type of drug, such as birth control, or only pay inpatient hospital
services, or only pay vaccines at almost no cost to the state. Other entire groups in the analysis
are eligible, but may not actually use, the state insurance program; these individuals are called
potential covered lives in the VHCA & HMA analysis. Overall, the type and cost of drug
utilization for the state programs included in Issue 2 varies dramatically from normal retail drug
spending.
Dr. Murrays age adjustments also do not make sense for the populations affected by Issue 2.
Many of the groups of individuals covered by Ohios programs have unusual health care needs
that would make them the exception from normalized spending by age. For example, Dr.
Murray assumes that children who have extraordinary health care needs covered through Ohios
Bureau of Children with Medical Handicaps program have a lower than average cost of drugs
for their young age: 62 percent of the national average. Other groups noted above are likely to
have costs that vary significantlyand are possibly lower thanDr. Murrays figures.

5. Why does the analysis presume Ohio would be able to pay its contracted Medicaid Managed
Care Plans (MCPs) less for drugs, without regard to the actual cost of the drugs to the
MCPs? This assumption is simply not accurate. Federal law requires all Medicaid programs to
pay actuarially sound capitation rates to the MCPs, so the state would not be able to pay the
MCPs on the basis of a presumed level of negotiated pricing discounts and rebates that are less
than actuarially reasonable. Since Issue 2 requires neither manufacturers nor pharmacists to
offer VA-level discounts to MCPs (or, for that matter, to the state of Ohio), Ohio cannot simply
presume MCPs achieve that net cost for their members. Since almost 90 percent of Ohios
Medicaid drug spending is through MCPs,vi any additional Medicaid savings would depend
upon actual plan experience, not presumed targets from Issue 2.
6. How much of Dr. Murrays alleged savings are attributable to his erroneous claim that Ohio
has a weaker bargaining position than the average state Medicaid program given its lack of a
tightly controlled formulary? According to the Social Security Act, all states Medicaid
programs must make virtually all FDA approved drugs that are subject to discounts available to
everyone enrolled in the Medicaid program. The federal government allows the use of a
Preferred Drug List (PDL), and drugs on the PDL are subject to greater discounts for the state.
Therefore, the PDL is a de facto negotiated formulary. Ohio has the seventh largest Medicaid
population in the country, and the state uses its substantial purchasing power to negotiate
pricing, rebates and the preferred drug list. Why are these factors not considered in the analysis?
7. Does Dr. Murrays analysis consider that Medicaid is financed jointly by states and the
federal government? Currently, the state of Ohio pays for about 33 percent of reimbursable
services provided to Medicaid recipients, and the federal government pays for the rest. With this

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in mind, only one-third of Dr. Murrays calculated Medicaid cost reductions can be considered
savings for Ohio.

i
Murray, P. What are the likely economic benefits to the state of Ohio from the Ohio Drug Price Relief Act? Date unknown.
ii
Maureen M. Corcoran, Barbara Coulter Edwards, Robyn Colby, James Downie, Marisa Weisel, Analysis of Proposed Ohio Initiated Statute to
Regulate State Prescription Drug Purchasing. Vorys Health Care Advisors and Health Management Associates. Accessed at
http://www.voryshcadvisors.com/files/2016/09/2016-9-27-Report-OH-Drug-Price-Initiated-Statute.pdf
iii
Id McCarthy, J. Negative Consequences of the Ohio Prescription Drug (or Rx) Ballot Issue. 2017. Available at
http://www.deceptiverxissue.org/news/clkn/https/s3.amazonaws.com/ohioinitiative/McCarthy+4.11.17.pdf. Browning, G. Greg Brownings Analysis
of Ohio Drug Price Relief Act Backers Cost Savings Estimate. 2017. Available at
http://www.deceptiverxissue.org/news/clkn/https/s3.amazonaws.com/ohioinitiative/Browning+4.26.17.pdf.
iv
Gagnon M., Wolfe S. Mirror, Mirror on the Wall: Medicare Part D pays needlessly high brand name prices compared with other OECD countries
and with US government programs. 2015. Available at https://www.citizen.org/sites/default/files/2269a.pdf.
v
Centers for Medicare and Medicaid Services. 2015 Medicaid Drug Spending Dashboard. 2016. Available at https://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/2015Medicaid.html.
vi
Data for SFY 17 as of July 3, 2017. Obtained from the Ohio Department of Medicaid