Fact Sheet



I. Highlights

In recent years, the rising cost of prescription drugs has been a key issue in most state legislatures. The cost of prescription drugs affects public programs, consumers, health care plans and insurers, and private businesses or employers. Hit hardest are individuals who lack drug benefits: the uninsured or the underinsured--most likely to be the working poor, the unemployed, the disabled, and the elderly. These individuals incur significant out of pocket expenses for their prescriptions, often paying two or three times the amount paid by a covered person buying the same prescription drug. In Hawaii, approximately 11% of the population, 123,500 individuals, have no health insurance. An additional number are underinsured and lack drug coverage benefits.

As of January 7, 2001, thirty-one states have established or authorized some type of state pharmaceutical assistance program. Most state pharmaceutical assistance programs use state revenues to provide prescription drugs at a nominal cost to a needy population, generally low-income seniors, and sometimes disabled individuals. To minimize state funding, programs created in the last two years often require somewhat higher cost sharing by participants. Discount prescription drug programs, voluntary buyers clubs, and other options such as bulk purchasing within and across states are being explored as less costly alternatives for states.

A number of states are watching two innovative programs: Maine Rx, a discount program designed to be funded by required rebates from drug manufacturers and pharmacy discounts, and Vermontís Pharmacy Discount Program, established as a section 1115 Medicaid waiver demonstration project that offers discount priced drugs to certain residents not eligible for traditional Medicaid. Both programs have been halted by pending federal litigation.

As an alternative to or in addition to state pharmaceutical assistance programs, several states are establishing programs to educate consumers and prescribers about using cost effective drugs without compromising quality of care. Some programs facilitate participation in public and private patient assistance programs. Other states have established consumer protections for discount drug cards and buyerís clubs or cooperatives. Because each stateís experience is different, there is no one-size-fits-all solution. A lack of reliable data on the potential target population in Hawaii, the sometimes conflicting interests of stakeholders, problems facing established and new prescription drug programs in other states, pending litigation, and the sagging economy, both State and national, make designing a state pharmacy assistance program a formidable task for policymakers at this time.


II. Frequently Asked Questions

A. What is a state pharmaceutical assistance program?

Until very recently, the term referred to a state created program that used state revenues to provide prescription drugs at a nominal cost to a target population, primarily low-income seniors and sometimes disabled individuals. Of the 31 states that have created a state pharmaceutical assistance program, 26 use state revenues to subsidize the program.

Although all state-funded programs require cost sharing by participants, approaches vary. Established programs generally require a co-payment that may be as small as $5 for each prescription; some have two or three tier co-payment structures. State-funded programs created in the last two years have required participants to bear a higher burden of the cost, using higher co-payments or co-insurance, deductibles, and benefit caps to minimize state expenses. These programs are often referred to as "state-funded direct benefit programs."

Lately, the term "state pharmaceutical assistance program" has been used to refer to other programs: discount drug programs that use little or no state funds. Discount programs lower drug prices by establishing a ceiling price for drugs, requiring pharmacies to provide Medicaid prices for Medicare beneficiaries, using a Medicaid waiver to establish a demonstration program to provide drugs at discount prices funded by Medicaid rebates. A few states have created voluntary discount drug card programs; others are considering lowering costs by aggregating buying pools in hopes of getting lower prices through increased volume. These programs may be called "state pharmaceutical assistance programs," but they are significantly different from the traditional state-funded direct benefit model. Stateís costs are low; participantís costs are significantly higher. Some programs are in litigation or not yet operational. Their success or value has not yet been established.


B. What state revenues fund traditional direct benefit programs?

Approximately two-thirds of the direct benefit programs receive some or all of their funding from state general revenues; lottery and casino revenues fund Pennsylvania and New Jersey programs. Eleven states appropriated tobacco settlement funds toward state Senior Pharmaceutical Assistance programs in 1999-2000.


C. What is Maine Rx?

Signed into law in May 2001, Maine Rx is a discount drug program for any resident of Maine who lacks prescription drug coverage benefits, regardless of age or income. Designed to be self-sufficient, Maine Rx provides access to prescription drugs at discounted prices based on mandatory manufacturer rebates and discounts from participating pharmacies. The two-stage target rebate amounts were initially equal to or better than the Medicaid rebate, and ultimately, equal to or greater than the Federal Supply Schedule price. Drugs from manufacturers who do not enter a Maine Rx rebate agreement were subject to prior authorization in Maineís Medicaid program; names of nonparticipants are public information to be released regularly.

In addition to requiring the Commissioner of Human Services to negotiate the rebates and set the pharmacy discount amounts, Maine Rx also essentially established price controls by authorizing the Commissioner to set "maximum retail prices" for prescription drugs under certain conditions. It also creates the civil offense of illegal profiteering in prescription drugs. Drug manufacturers strongly opposed Maine Rx, filing suit in federal court in August 2000, to halt its implementation.


D. What is the status of the Maine Rx litigation?

The trial court granted a temporary injunction to halt implementation; citing Constitutional violations. Maine appealed. The U.S. Court of Appeals for the First Circuit called it a close case, ruling in Maineís favor. The court found no violation of the Supremacy Clause or the Commerce Clause.

  • Maine Rx did not conflict with federal law because the Medicaid law allows prior authorization restrictions, and

  • Medicaid prior authorization requirements imposed on manufacturers not participating in Maine Rx would not prevent Medicaid recipientsí access to medically necessary drugs.

  • Maine Rx regulates only in-state activities, and the benefits appear to outweigh any incidental burden on interstate commerce.

The drug manufacturers have appealed to the U.S. Supreme Court. Undecided whether to hear the case, the Supreme Court has requested a brief on the issues from the Solicitor General to aid their decision.

Litigation is pending and Maine Rx is not operational at the time of this writing.


E. What is the Vermont Pharmacy Discount Program?

On November 3, 2000, the HCFA approved Vermontís request to amend its earlier section 1115 Medicaid waiver to expand the existing VHAP Pharmacy Program demonstration project by establishing the Pharmacy Discount Program (PDP). PDP provides access to Medicaid drugs at discounted prices to Medicare beneficiaries with incomes 151% of the FPL or more, or any other person with incomes of 300% of FPL or less. Participants pay "Medicaid pricing.., net of the [Medicaid] rebate amount," or approximately 30% less than the cash retail price, claims Vermont.

As a Medicaid demonstration project, Vermont requires drug manufacturers to pay rebates on drugs sold to PDP participants. PDP beneficiaries qualify for prescription drug benefits only under the expanded eligibility of PDPís granted by Medicaid waviers. Since Medicaid demonstration projects established pursuant to a section 1115 waiver are required by federal law to be "budget neutral", requiring no additional state or federal funds, PDPís expanded eligibility requirements allows a greater number of residents access to prescription drugs at discount prices with no new state funds.

Drug manufacturers also opposed PDP, claiming the U.S. Department of Human Services did not have authority to grant the waiver requiring them to pay rebates, and filed suit in federal court. PDPís operation was halted by court order on June 8, 2001, pending resolution of the lawsuit.


F. What is the status of the lawsuit filed by drug manufacturers to stop the Maine Rx program and Vermontís Pharmacy Discount Program?

The trial court denied the manufacturersí request for an injunction; they appealed to the U.S. Court of Appeals for the District of Columbia. The appellate court ruled in favor of the drug companies, agreeing that DHHS had exceeded its authority by allowing Vermont to require rebates sold under the PDP. Medicaid law provides that manufacturers owe rebates on drugs "for which payment was made under the State plan." The court concluded that the rebates did not produce savings for Medicaid and the PDP payments to participating pharmacies were reimbursed by rebates, meaning Vermont made no "payment" under Medicaid law.



    1. Establish a state-funded direct benefit pharmaceutical assistance program to provide prescription drugs to low-income Medicare beneficiaries who do not qualify for Medicaid and have no drug coverage. These programs have an established record of success and support, and provide the most benefit to the neediest population;
    2. To minimize state subsidy, require higher cost sharing by participants and use cost control tools such as benefits caps and deductibles;
    3. Alternatively, establish a prescription drug discount card program to provide increased access to prescription drugs at discounted prices;

    5. Establish a clearinghouse/education program for consumers and providers to facilitate awareness of and participation in public and private prescription drug assistance programs; and
    6. Expand use of federally qualified health centers and safety net providers eligible to purchase prescription drugs through the federal section 340B discount drug program to increase access to prescription drugs for low-income residents.