February 20, 2003

Michigan Governor Jennifer Granholm (D) and Vermont Governor Jim Douglas (R) today announced they would implement the nation’s first multi-state purchasing arrangement for pharmaceuticals paid for under their respective Medicaid programs.  The joint venture utilizes the existing structure of the Michigan Pharmaceutical Best Practices Initiative that has successfully provided high-quality pharmaceuticals to beneficiaries in Michigan, while saving the state approximately $850,000 a week over the past year.

“We are eager to move forward with the state of Vermont on this important and innovative partnership because we know by increasing our purchasing power we can immediately save taxpayer dollars,” said Governor Granholm.  “I have had serious discussions with many governors, such as Governor Vilsack, of Iowa, who is leading a group of Midwest governors looking into finding savings on prescription drugs.  These governors are very interested in Michigan’s approach to reigning in the high costs of prescription drugs and I am confident we will see more states join this groundbreaking partnership in the near future.”  

Michigan currently spends over $1 billion a year on pharmaceutical costs for its 1.4 million Medicaid and other low-income program participants.  Without the approximately $45 million yearly savings from the Michigan Pharmaceutical Best Practices Initiative, millions of dollars in health care programs would have to be cut due to the current economic climate.

“By pooling our state Medicaid program with the state of Michigan’s, we expect to generate greater savings than would otherwise be the case,” said Governor Douglas.  “This innovative approach to reducing the cost of prescription drugs will help us to preserve essential pharmaceutical coverage for our most vulnerable citizens.”

Under the plan, the two states have authorized their pharmacy benefits administrator, First Health Services Corp., to administer the program by negotiating with pharmaceutical manufacturers on behalf of the multi-state arrangement in an effort to obtain greater discounts, known as “supplemental rebates,” from pharmaceutical manufacturers. 

“Many states have been considering the concept of a multi-state pooling arrangement, but these states are the first to actually implement it for their Medicaid programs,” said Teresa DiMarco, President of First Health Services. “We are excited about implementing this new Pooling System for Preferred Drug Management for Michigan and Vermont--and potentially other states--to bring more value to them than the individual states could achieve on their own.” 

While preferred drug lists (PDLs) are commonly used in private sector or commercial drug programs and Medicaid managed care plans, they have only recently been implemented in Medicaid fee-for-service programs.   Michigan and Vermont are two of the first state Medicaid programs to implement a preferred drug list and supplemental rebate program to help contain the costs of pharmaceutical drugs in a clinically appropriate way.
 
A PDL is a list of preferred prescriptions developed by a state’s Pharmacy and Therapeutics Committee for prescribers’ consideration for use in meeting the drug therapy needs of their patients.  Medications are preferred if they meet clinical and therapeutic criteria established by the Pharmacy and Therapeutics Committee or if the manufacturer offered supplemental rebates making their product cost-effective.  Medications that are not included on the PDL can be prescribed and reimbursed by Medicaid based on a clinical review of appropriateness for a particular patient situation.  The preferred drug management systems implemented in Michigan and Vermont have been effective tools to help them manage pharmacy costs and maintain access to pharmacy benefits for these vulnerable, low-income populations. 

Under the pooling program, the combined purchasing power of multiple states will be pooled for the purposes of negotiating supplemental rebates with pharmaceutical manufacturers, in connection with the Preferred Drug Management System.  Supplemental rebates are in addition to the baseline “standard CMS rebates” that all pharmaceutical manufacturers must pay states to participate in the Medicaid program.

“Under this pooling approach, flexibility and choice will remain with the state and its own Pharmacy and Therapeutics Committee to determine which classes to include on the PDL and which drugs to select as preferred,” said Teresa DiMarco, President of First Health Services. “Individual states will still tailor their final preferred drug list to meet their needs.”

Under the Pharmacy Benefits Administrator model, 100% of all rebate revenues are returned to the states.  Also, the state Pharmacy and Therapeutics Committee approve most policies including the development of the final preferred drug list and prior authorization review protocols.  As the Pharmacy Benefits Administrator for Michigan and Vermont, First Health Services Corp. is implementing its new Pooling System for Preferred Drug Management for these two states, as their agent. 

First Health Services is one of the nation’s leading Pharmacy Benefits Administrators with pharmacy management contracts covering approximately 7 million Medicaid and senior lives in 18 states.  First Health Services provides healthcare management and administration to public sector clients and is a wholly owned subsidiary of First Health Group Corp. (NASDAQ: FHCC).