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Stephen Lance Dennee for The New York Times
Dr. Robert Hughes, chairman of Kentucky's Medicaid pharmacy committee, said a plan requiring initial use of cheaper drugs evoked anger.

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Defending a Drug
Graphic: Defending a Drug
Page One: Thursday, Dec. 18, 2003
Video: Page One: Thursday, Dec. 18, 2003
. Video: Gardiner Harris, Business Reporter



Drugs (Pharmaceuticals)


Eli Lilly and Company

Pharmaceutical Research and Manufacturers of America

States Try to Limit Drugs in Medicaid, but Makers Resist


Published: December 18, 2003

Kentucky's Medicaid program was $230 million in the red last year, and drastic cuts were on the table. A state panel proposed excluding Zyprexa, an antipsychotic medication that is the state's single biggest drug expense, from the Medicaid list of preferred medications.

That was when the National Alliance for the Mentally Ill and the Kentucky Consumer Advocate Network swung into action.

The two groups, which are nonprofit, bused scores of protesters to a hearing in Frankfort, the state capital; placed full-page ads in Kentucky newspapers attacking the proposal; and sent angry faxes to state officials. What the advocacy groups did not say at the time was that the buses, ads and faxes were paid for by Eli Lilly & Company, Zyprexa's manufacturer.

Zyprexa produced $3.69 billion in revenue last year, making it Lilly's top seller and the sixth-largest-selling drug in the world. In the United States, 70 percent of Zyprexa sales are to government agencies, mostly to Medicaid. If just a handful of large states were to limit Zyprexa sales, Lilly's profit and share price would be likely to suffer significantly, analysts say.

So Lilly and other drug makers whose influence in Washington was most recently on display in the debate over a Medicare drug benefit are flexing their muscles in state capitals. In state after state, the companies are fighting proposals to create or toughen government programs that use preferred-drug lists to try to cut costs.

Drug makers argue that the lists are unfair to the poor, depriving them of medicine available to others. And the lists, the companies say, tie the hands of doctors who should be making decisions about appropriate care especially when it comes to finding the right medication for someone with mental illness. State officials respond that limiting access to some high-price drugs is one way, in tight times, to continue providing care to as many of the poor as possible particularly in cases where there is little evidence that the costlier drugs are more effective.

Lilly lost the battle in Kentucky. The state decided to take Zyprexa off its list of preferred drugs, which means that patients must try and fail on a similar, cheaper drug before it will pay for Zyprexa. But it was a rare defeat.

After intense lobbying by patient groups and drug makers, the New York State Legislature in May overrode a veto by Gov. George E. Pataki and enacted a law preventing state Medicaid officials from establishing a preferred-drug list. New York's $4-billion-a-year bill for Medicaid drugs is the biggest in the nation; in just the first 10 months of this year, the state spent $205 million on Zyprexa, more by far than for any other drug.

Oregon's Legislature dropped thousands of patients from its Medicaid program in August rather than restrict choices for the others by tightly policing the state's preferred-drug list. The drug makers see little room to compromise. They are reluctant to negotiate prices, for example, because under federal Medicaid law, a discount to one state must be offered to all. And preferred-drug lists for Medicaid can influence doctors' prescribing practices for patients they see outside the Medicaid program, blunting the effect of the drug companies' expensive marketing efforts.

Because of their close ties to the National Alliance for the Mentally Ill and other advocacy groups, drug makers have been particularly successful in arguing that states should exempt antipsychotic medications like Zyprexa from preferred lists. Twenty-eight states specifically exempt drugs for treating emotional disorders from cost controls, a Lilly spokeswoman, Anne Griffin, said.

"Antipsychotics are the third rail of Medicaid politics," said David Parella, director of Connecticut's Medicaid program. "If you try to confront this issue, you get hit with these strange bedfellows of the Trotskyite lawyers for patient advocacy groups being allied with the plutocratic lawyers for drug companies."

Dr. Paul Jeffrey, director of the Massachusetts Medicaid program, said that he had not proposed limits on antipsychotic medications for fear that the fight could lead state legislators to support wider limits on the preferred-drug list. "The battle would have been too bloody," he said.

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