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State Struggles To Find Partner For Push To Lower Prescription Drug Costs

A stock photo of prescription medicine bottles.
Vermont's Medicaid program spends about $200 million annually on prescription drugs, according to Nancy Hogue with the Department of Vermont Health Access. The state's looking to reduce those costs by purchasing medications directly from drug wholesalers.

State officials are looking to reduce prescription drug costs in Vermont’s Medicaid program by sidestepping the pharmacy “middlemen,” but they’re struggling so far to find a drug wholesaler that’s willing to sell directly to the state.

Legislation passed earlier this year directed the Agency of Human Services to explore new ways to reduce the cost of prescription drugs. That directive has given birth to the “Vermont Medicaid Drug Wholesaler Savings Initiative" — which, according to one preliminary estimate, could reduce drug costs by as much as $11 million annually.

“Because of course wholesalers sell to pharmacies at one price, and then we pay the pharmacies another price, so there are markups all along the way in the system,” said Nancy Hogue, director of pharmacy services at the Department of Vermont Health Access.

To avoid those markups, Hogue and other state officials are trying to see if there’s a way for the Medicaid program to enter into a “direct contract” with the wholesalers that supply the pharmacies from which the state purchases its drugs now.

But while cutting out the middleman may be an age-old strategy for cutting business costs, Hogue said it isn’t clear yet whether it’ll work for Vermont in this situation.

"Unfortunately we're not really able to say at this point if it's a viable concept or not, because we simply don't have enough information to make that determination." — Nancy Hogue, Department of Vermont Health Access

Earlier this year, the state issued what’s known as a “request for information” from the drug wholesalers that might be interested in forging a more direct business relationship with the state of Vermont.

No companies responded to the request, however, and Hogue said until state officials have prospective wholesaler partners to talk with, there isn’t much it can do to move forward.

“Unfortunately we’re not really able to say at this point if it’s a viable concept or not, because we simply don’t have enough information to make that determination,” Hogue said.

Hogue said there are other unresolved issues as well — pharmacies, for example, have raised concerns about how the proposed drug-buying program would affect their business models.

And Hogue said the Vermont Medicaid program would need to add new staff to run the prescription drug-buying program and to purchase new software to track inventory and sales — costs that would eat in to whatever savings the state would be able to realize through any new drug-buying arrangement.

According to Hogue, Vermont’s Medicaid program currently spends about $200 million annually on prescription drugs.

“Are we going to be saving enough money to justify all of the additional management that will have to occur to make sure the program works properly?” she said.

Well, Hogue said the answer to that question may still be 'yes,' despite all the uncertainties. And she said the state has begun reaching out to wholesalers, to see why they didn’t respond to the initial request for information.

The prescription drug legislation passed earlier this year also directed the Scott adminsitration to explore the possibility of importing drugs from Canada, where prices for medications are often substantially less than in the United States. State officials say they're still in the process of examining that option. 

The Vermont Statehouse is often called the people’s house. I am your eyes and ears there. I keep a close eye on how legislation could affect your life; I also regularly speak to the people who write that legislation.
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