Summary

Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies May 2005 2004-033 rotiduA etatS ainrofilaC S T I D U A E T A T S F O U A E R U B The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the Bureau of State Audits at the following address: California State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, California 95814 (916) 445-0255 or TTY (916) 445-0033 OR This report is also available on the World Wide Web http://www.bsa.ca.gov/bsa/ The California State Auditor is pleased to announce the availability of an on-line subscription service. For information on how to subscribe, please contact the Information Technology Unit at (916) 445-0255, ext. 456, or visit our Web site at www.bsa.ca.gov/bsa Alternate format reports available upon request. Permission is granted to reproduce reports. � � � ��������� ���� ������ ������������� ������������������� ������������ ����������������������� May 26, 2005 2004-033 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As required by Chapter 938, Statutes of 2004, the Bureau of State Audits presents its audit report concerning the State’s procurement and reimbursement practices as they relate to the purchase of drugs for or by state departments. This report concludes that the Department of General Services (General Services) generally got the best prices for the drug ingredient cost because of its up-front discounts through contract negotiations with manufacturers of high-cost brand name drugs and through competitively bidding for high-volume generic drugs. More important, putting rebates, dispensing fees, and co-payments into other cost calculations, we found that the Department of Health Services’ (Health Services) prices are far lower than General Services’ or the California Public Employees’ Retirement System’s because it receives substantial federal Medicaid program (Medi-Cal) and state supplemental rebates. Moreover, our comparison of 57 prescription drugs across the Canadian, U.S., and California governments found that Canada’s governmental entities got the lowest prices about 58 percent of the time, while the U.S. governmental entities got the lowest prices 32 percent of the time. California got the lowest prices for 10 percent of the sample drugs because of Health Services’ rebates. However, federal law strictly limits the importation of prescription drugs through the federal Food, Drug, and Cosmetic Act, whose stringent requirements for approving, labeling, and dispensing drugs generally exclude any drugs made for foreign markets. Furthermore, state departments generally do not have access to federal procurement methods. Respectfully submitted, STEVEN M. HENDRICKSON Chief Deputy State Auditor ������������������� �������������������������������������������������� ���������������������������������������� ������������������ CONTENTS Summary 1 Introduction 7 Audit Results Although General Services’ Up-Front Discounts Yield Lower Costs for the Drugs Themselves, Health Services’ Rebates Yield Lower Net Drug Ingredient Costs and Lower Costs to the State 29 General Services Can Reduce Its Prescription Drug Costs Further 38 Health Services Needs to Improve the Accuracy of Its Pharmacy Reimbursement Claim Data 48 Canada Generally Obtains Lower Prices on Prescription Drugs in Our Sample Than the United States and California 49 Recommendations 57 Appendix A Methodology Used by the Bureau of State Audits to Calculate Prescription Drug Costs 61 Appendix B The Department of Health Services Has Not Fully Implemented Certain Prior Audit Recommendations Aimed at Reducing Drug Costs 99 Responses to the Audit State and Consumer Services Agency, Department of General Services 105 Health and Human Services Agency, Department of Health Services 111 California State Auditor’s Comments on the Response From the Health and Human Services Agency 117 State and Consumer Services Agency, California Public Employees’ Retirement System 119 California State Auditor’s Comments on the Response From the State and Consumer Services Agency 123 California State Auditor Report 2004-033 11 SUMMARY RESULTS IN BRIEF Chapter 938, Statutes of 2004, requires the Bureau of State Audits (bureau) to report on the State’s procurement and reimbursement practices as they relate to the purchase Audit Highlights of drugs for or by state departments. This report examines the purchasing strategies of the three primary departments that contract Our review of the State’s for prescription drugs— the Department of General Services (General procurement and Services), the Department of Health Services (Health Services), and reimbursement practices as they the California Public Employees’ Retirement System (CalPERS). These relate to the purchase of drugs departments procured more than $5 billion in prescription drugs for or by state departments revealed the following: during fiscal year 2003–04. These costs would be higher without the savings they obtain through manufacturers’ discounts, federal and þ Although the Department state supplemental rebates, co-payments, and third-party payments. of General Services (General Services) generally got the We compared these three departments’ relative performance on cost best prices for the drug savings for the following three types of prescription drug costs in ingredient cost because fiscal year 2003–04: drug ingredient cost, the cost of the drug itself; of up-front discounts, net drug ingredient cost, the drug ingredient cost minus any rebates it had the highest state cost after considering or additional discounts, if applicable; and state cost, the net drug rebates, dispensing fees, ingredient cost plus dispensing fees and minus any co-payments or co-payments, and third- third-party payments, if applicable. party payments. þ The Department of Health However, our analysis does not address the clinical management Services’ (Health Services) or formulary decisions made by the departments and entities they net drug ingredient cost contract with to provide drug coverage nor does it reflect their and state cost are lower than General Services’ decisions related to product mix such as encouraging the use of and the California Public generic over brand name drugs or shifting from older to newer drugs. Employees’ Retirement Therefore, the data that the bureau presents may not represent the System’s (CalPERS) because it receives substantial federal best value for each drug. In addition, as described more fully in the Medicaid program and state Introduction, one CalPERS entity selected for review did not work supplemental rebates. cooperatively with the bureau to allow access to its proprietary and þ Although CalPERS receives confidential drug pricing information and strategies. This entity rebates through entities it represents roughly one third of CalPERS’ membership, and thus, contracts with to provide the exclusion of its data could materially skew CalPERS’ results in pharmacy services to its this report. Further, under General Services’ bulk drug purchasing members, it cannot directly verify it is receiving all program, agencies can purchase some of their drugs at the prime of the rebates to which it vendor’s wholesale acquisition costs rather than the reimbursement is entitled. prices Health Services’ and CalPERS’ entities pay to retail pharmacies. continued on next page . . . Also, unlike CalPERS and Health Services the pricing information used for General Services in this analysis does not include any of the state agencies’ costs associated with dispensing the prescription drugs, nor any co-payments these agencies may collect. California State Auditor Report 2004-033 11 þ In our comparison of In this comparison, General Services generally got the best prices for 57 prescription drug the drug ingredient cost because of its up-front discounts through costs across the three contract negotiations with manufacturers of high-cost brand state departments and name drugs and through competitively bidding contracts for high- select U.S. and Canadian governmental entities, volume generic drugs. More important, putting rebates, dispensing the Canadian entities got fees, and co-payments into other cost calculations, we found that the lowest prices about Health Services’ prices are far lower than either of the other two 58 percent of the time. However, federal law strictly departments for the net drug ingredient cost and state cost for limits the importation 95 percent and 72 percent, respectively, of the drugs common to all of prescription drugs three departments because it receives substantial federal Medicaid through the Food, Drug, program (Medi-Cal) and state supplemental rebates. and Cosmetic Act, whose stringent requirements generally exclude any drugs In contrast, General Services’ net drug ingredient cost and state cost made for foreign markets. are high compared with those Health Services obtains. Although rebates are the key to Health Services’ lower net drug ingredient cost and state cost, General Services receives a rebate for only one prescription drug product class. General Services says it prefers to focus on obtaining the up-front discounts from drug manufacturers rather than seeking rebates, which require state departments to tie up funds needed for other drug purchases. General Services’ net ingredient cost and state cost remained the same because under its bulk drug purchasing program agencies’ costs of dispensing drugs and any co-payments they receive are not reflected in the prime vendor’s invoice data. Still, General Services has the highest state cost of the three departments we studied. CalPERS receives rebates, but only through entities it contracts with to provide pharmacy services to its members. In some instances CalPERS receives rebates under a pass-through method. In the pass- through method, the entity negotiates rebates and contracts with pharmaceutical manufacturers so that rebate payments between the manufacturer and the entity are based on historical and prospective pharmacy utilization data for all of the members of the health care plan that the entity administers. The entity then collects and passes through to plan sponsors, such as CalPERS, either a percentage or the entire amount of the rebates earned by the sponsors based on their member utilization. Typically, these entities prohibit CalPERS from having access to any information that would cause them to breach the terms of any contract with the pharmaceutical manufacturers to which they are a party. Because CalPERS does not have access to the entities’ rebate contracts with the manufacturers, CalPERS cannot directly verify that it is receiving all of the rebates to which it is entitled. According to CalPERS, this rebate practice between the entity and the manufacturer is an industry practice and is not unique to it. CalPERS intends to continue to pursue greater disclosure requirements in future contracts with its contracting entities. 22 California State Auditor Report 2004-033 California State Auditor Report 2004-033 33 CalPERS achieves additional cost savings from co-payments members pay for their prescription drugs, deducting those co-payments from its costs when its contracting entities reimburse the participating pharmacies. Such co-payments could reduce Health Services’ state cost, but most of the stakeholders of the governor’s Medi-Cal Redesign efforts, which are aimed at containing Medi-Cal costs, largely dismissed deducting co-payments from its pharmacy reimbursement rate because they believed that many beneficiaries would not be able to afford them. In contrast to the other two departments, General Services’ cost savings strategies are more varied and have more potential for improving the bottom line. General Services has broad authority to explore strategies for reducing prescription drug costs for the departments participating in its program. For example, General Services is in the early stages of direct negotiations with manufacturers to achieve reduced drug costs. In a 2002 audit report, we recommended that General Services thoroughly analyze how it could improve its procurement strategies, working to place more individual prescription drugs under contract with manufacturers and considering the advantages of joining a larger, multistate pharmacy alliance or contracting directly with a group-purchasing organization. Although General Services has made some progress, it realizes it can do more to reduce the State’s prescription drug costs and has hired a contractor to identify those opportunities. General Services is working with the contractor to award a new prime vendor contract, to award a pharmacy benefits manager contract to provide pharmaceuticals to those parolees who continue to receive mental health treatment as a condition of their parole, and to negotiate new and renegotiate existing contracts with certain manufacturers. General Services stated that, as resources become available, it intends to solicit bids to contract directly with a group-purchasing organization to determine if additional savings can be realized beyond the savings generated under its current contract with an alliance. Chapter 938, Statutes of 2004, also requires the bureau, to the extent possible, to compare the State’s cost to those of other appropriate entities such as the federal government and Canadian government, and private payers. We compared 57 prescription drugs, excluding any generics, across the Canadian, U.S., and California governments and found that Canada’s governmental entities got the lowest prices about 58 percent of the time. Canada’s Patented Medicine Prices Review Board (Review Board) partly accounts for these savings. Canada’s Patent Act and the Review 22 California State Auditor Report 2004-033 California State Auditor Report 2004-033 33 Board’s regulations limit the prices of patented drugs in Canada. In the United States, federal laws ensure that drug manufacturers extend favorable prices to federal agencies and certain public sector purchasers of prescription drugs. These discounted prices account for the U. S. government getting the lowest prices for 32 percent of our comparison sample. California got the lowest prices for only 10 percent, or six of the 57 prescription drugs in our sample, because of Health Services’ federal and state supplemental rebates. California and other states have tried to reduce prescription drug costs by considering or implementing importation programs. In 2004, the California Legislature passed a bill allowing General Services to purchase prescription drugs from authorized Canadian pharmacies and sources. The governor vetoed that bill. The federal Food and Drug Administration (FDA) maintains that federal law would preempt any state law legalizing the importation of prescription drugs in contravention of the federal Food, Drug, and Cosmetic Act (Drug Act). Federal law strictly limits the importation of prescription drugs through the Drug Act, whose stringent requirements for approving, labeling, and dispensing drugs generally exclude any drugs made for foreign markets. The Drug Act also prohibits anyone other than the original domestic manufacturer from reimporting prescription drugs. In addition, state departments generally do not have access to federal procurement methods. RECOMMENDATIONS The Legislature should consider enacting legislation that would allow CalPERS to obtain relevant documentation to ensure that it is receiving all rebates to which it is entitled to lower the prescription drug cost of health benefits program established by the Public Employees’ Medical and Hospital Care Act. CalPERS should continue to explore various contract negotiation methods that would yield more rebates for the drugs it purchases and that would allow it to achieve greater disclosure requirements to verify that it is receiving all of the rebates to which it is entitled. To ensure that state departments purchasing drugs through General Services’ contracts are obtaining the lowest possible drug prices, General Services should: • Seek more opportunities for departments to receive rebates by securing more rebate contracts with manufacturers. 44 California State Auditor Report 2004-033 California State Auditor Report 2004-033 55 • Continue its efforts to obtain more drug prices on contract, by working with its contractor to negotiate new and renegotiate existing contracts with certain manufacturers. • Follow through on its plan to solicit bids to contract directly with a group-purchasing organization to determine if additional savings can be realized. However, in doing so it should thoroughly analyze its ability to secure broader coverage of the drugs state departments purchase by joining the Minnesota Multistate Contracting Alliance for Pharmacy. The analysis should include the availability of current noncontract drugs from each organization being considered and the savings that could result from spending less administrative time trying to secure additional contracts directly with drug manufacturers. AGENCY COMMENTS General Services agrees with our recommendations and intends to take appropriate action to address them. Health Services agrees with most of our recommendations, but disagrees with two that were designed to address problems associated with the accuracy of its pharmacy reimbursement claim data. CalPERS asserts that the cost comparisons contained in our report do not yield reliable results because of differences in the methods the three departments use to procure drugs for state beneficiaries. Our comments follow Health Services’ and CalPERS’ responses. n 44 California State Auditor Report 2004-033 California State Auditor Report 2004-033 55 Blank page inserted for reproduction purposes only. 66 California State Auditor Report 2004-033 California State Auditor Report 2004-033 77 INTRODUCTION BACKGROUND In California, several departments purchase prescription drugs for various beneficiaries, including state employees, recipients of federal Medicaid (known as California’s Medical Assistance Program or Medi-Cal), inmates, and individuals receiving services at the State’s developmental centers and hospitals. Although state law establishes the Department of General Services (General Services) as the State’s purchaser of drugs, certain departments such as Department of Health Services (Health Services) and the California Public Employees’ Retirement System (CalPERS) also can contract to purchase drugs. As Figure 1 on the following page shows, in fiscal year 2003–04, drug purchases made by or through these departments were $5 billion. Health Services’ drug purchases for its Medi-Cal fee-for-service and managed care systems make up almost 79 percent, or nearly $4 billion of this amount. These expenditures are net of rebates and represent roughly 14 percent of Health Services’ final Medi-Cal budget for fiscal year 2003–04. General Services Has a Prescription Drug Bulk Purchasing Program State law authorizes General Services to establish a bulk purchasing program for prescription drugs, and requires the following four departments to participate in that program: the Department of Developmental Services (Developmental Services), the Department of Corrections (Corrections), the Department of the Youth Authority (Youth Authority), and the Department of Mental Health (Mental Health). Although state law requires state departments purchasing goods, including prescription drugs, in excess of $100 to be made by or under the supervision of General Services, state law exempts such acquisition by the Trustees of the California State University, the Board of Governors of the California Community Colleges and the University of California from General Services’ approval. However, these entities may choose to purchase drugs through General Services’ program. 66 California State Auditor Report 2004-033 California State Auditor Report 2004-033 77 FIGURE 1 Fiscal Year 2003–04 Prescription Drug Expenditures for Departments Reviewed† ������������������������������������ ���������������������������� ���������������������������� �������������������������������������� �� ������������������������������ �������������������������� ���������������� ��������������� Sources: Health Services’ fee-for-service system expenditures were calculated by the Bureau of State Audits (bureau) using Health Services’ claim and rebate data. Prescription drug expenditures for its managed care system were estimated by the bureau using the pharmacy component of the capitated rate upper payment limits and projected enrollment data provided by Health Services’ Medi-Cal Managed Care Division. Prescription drug expenditures for the AIDS Drug Assistance Program (ADAP) are based on unaudited data provided by Health Services and do not include more than $64 million in rebates because the rebates it received were deposited into a revolving account instead of a separate account for the ADAP. Recent legislation allows the ADAP to deposit rebates it receives into a separate interest-bearing account. General Services’ expenditures were calculated by the bureau using invoice data provided by its prime vendor and rebate terms in General Services’ contract with one manufacturer. Lastly, prescription drug expenditures for CalPERS are based on information it compiled, which has not been audited by the bureau and may not include rebates. *Fee-for-service system—$2,522,347,563; Managed care system—$1,452,745,698; ADAP—$220,101,759. † Unless we state otherwise in the source, prescription drug expenditures are net of rebates and any additional discounts. ††These expenditures were incurred by the following state agencies: Corrections— $125,975,857; Youth Authority—$1,770,413; Mental Health—$27,302,209; Developmental Services—$14,370,877; Other—$2,293,371. State law gives General Services broad authority to explore strategies for reducing prescription drug costs for departments participating in its program. General Services employs these strategies: • It establishes contracts with drug manufacturers so state departments can purchase drugs. 88 California State Auditor Report 2004-033 California State Auditor Report 2004-033 99 • Since October 2001, General Services has contracted with the Massachusetts Alliance for State Pharmaceutical Buying (alliance). Currently, the states of Massachusetts and California are the only members of the alliance, which contracts with a group-purchasing organization, Managed Healthcare Associates Inc. (MHA). Through its agreement with the alliance, the State has access to MHA contract prices and drug manufacturers’ rebates. • General Services enters into a contract with a wholesaler (prime vendor) to distribute drugs purchased through its program. The prime vendor provides warehouse and distribution services and maintains a computer network with the contract drug prices, allowing state departments to purchase these drugs electronically. If a drug is not available at General Services’ or MHA’s prices, departments can purchase it at the prime vendor’s wholesale acquisition cost (WAC), the standard price a wholesaler pays a manufacturer for drug products that may not include special deals, such as rebates or discounts. • Since November 2002, departments are eligible to receive rebates from one manufacturer that contracts with General Services for a particular drug. Health Services Purchases Prescription Drugs for Medicaid Beneficiaries Health Services administers Medi-Cal, which generally covers low- income individuals and families who receive public assistance or lack health coverage. Federal law requires Medi-Cal to provide a set of basic services, including doctor visits, laboratory tests, and hospital inpatient and outpatient care. Federal matching funds, based on the State’s per capita income, supplement state Medi-Cal funds. Such funds are also available for several optional services, including prescription drugs. Medi-Cal beneficiaries receive services through a fee-for-service or managed care system. Under the fee-for-service system, a Medi-Cal beneficiary can obtain prescription drugs from any pharmacy enrolled as a provider in the Medi-Cal program. The pharmacy in turn submits a reimbursement claim to Medi-Cal for the drug costs. Generally, when a beneficiary goes to a pharmacy with a physician’s prescription and presents a Medi-Cal card, the pharmacist enters the prescription into the Medi-Cal on-line claims adjudication system, maintained by Health Services’ fiscal intermediary, Electronic Data Systems Federal Corporation (EDS). The on-line system runs the claim through a series of edits and audits to determine its validity 88 California State Auditor Report 2004-033 California State Auditor Report 2004-033 99 and propriety. The system fi rst verifi es the customer’s status as a Medi-Cal benefi ciary and then begins to check for criteria set by Health Services, such as the Health Services’ Three Predetermined inclusion of the drug on the drug list, a list of preferred Reimbursement Rates drugs that a pharmacy can seek reimbursement for Estimated Acquisition Cost (EAC)—Health Services’ without fi rst obtaining approval from Health Services. best estimate of the price generally and currently If a claim passes each of the edits and audits or is paid by pharmacies for a drug product sold by a particular manufacturer or principal labeler in a approved through its treatment authorization request standard package. In fi scal year 2003–04, the EAC process, Health Services reimburses pharmacies for was equal to the lower of the following: each drug’s ingredient cost at the lowest of one of • Average sales price, which is the price reported to it as required by agreements between the three predetermined reimbursement rates (see text State of California and the manufacturer. box) or, if lower, at the usual and customary rate the • Average wholesale price (AWP) minus pharmacies charge the general public. 10 percent.* AWP is the price of a drug product listed for standard package in Health Services’ primary price reference source First DataBank Besides reimbursement for the drug itself, the Inc., or Redbook or the principal labeler’s catalog. pharmacy receives a dispensing fee and is assessed a Federal Upper Limit (FUL)—the maximum per unit charge for each prescription. In fi scal year 2003–04, reimbursement established by the federal Centers for state law required Health Services to pay pharmacies a Medicare and Medicaid Services for multiple-source or generic drugs. Payments for other medically dispensing fee of $4.05 for each prescription fi lled for necessary drugs prescribed by a physician must not exceed in the aggregate the lower of the following: a Medi-Cal benefi ciary.1 Also during this period, state law required Health Services to deduct an additional • Estimated acquisition cost plus reasonable dispensing fees. 50 cents per prescription from all pharmacy reimbursement claims except for claims submitted • Provider’s usual and customary charges to the general public. by pharmacies for benefi ciaries residing in a nursing facility, which were subject to a deduction of only Maximum Allowable Ingredient Cost (MAIC)— the price established by Health Services for a generic 10 cents per prescription.2 drug type. State law requires Health Services to base the MAIC on the mean of the wholesale selling prices of drugs generically equivalent to the brand drug that State supplemental and federal rebates substantially are available in California from selected wholesale distributors. The wholesale selling price is the price reduce Medi-Cal fee-for-service system prescription paid by a pharmacy to a wholesale drug distributor drug costs. State law directs Health Services to for a drug, including discounts and rebates.† Health Services must publish the list of MAICs for generic contract with drug manufacturers to obtain discount drugs in its provider bulletins. prices at least comparable to those the manufacturers offer to other high-volume purchasers of drugs. On * Effective August 16, 2004, Health Services drugs prescribed for Medi-Cal benefi ciaries, this reimburses pharmacies at the EAC, plus a dispensing fee. State law defi nes the EAC as the lowest of the discount takes the form of manufacturer rebates, following: AWP minus 17 percent, the selling price, called supplemental rebates. In addition to these the FUL, or the MAIC. The law requires Health Services to base the selling price on the average supplemental rebates, negotiated when adding sales price reported by manufacturers. However, drugs to the drug list, Health Services receives federal because state law also requires Health Services to notify pharmacies of reductions in drug cost rebates from drug manufacturers. In January 1991, reimbursement 30 days in advance, it did not implement these changes until September 1, 2004. 1 Effective August 16, 2004, state law increased the dispensing fee † Effective August 16, 2004, state law defi nes the to $7.25 per prescription except if the benefi ciaries reside in a wholesale selling price used to establish the MAIC skilled nursing facility or intermediate care facility, in which case the as the weighted (by unit volume) mean price paid dispensing fee is $8 per prescription. However, because state law also by a pharmacy to a wholesale drug distributor, including discounts and rebates. requires Health Services to notify pharmacies of reductions in drug cost reimbursement 30 days in advance, it did not implement these changes until September 1, 2004. 2 The law no longer requires Health Services to deduct these additional amounts as of September 1, 2004. 1100 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1111 the federal government implemented a nationwide mandatory drug rebate program under which a drug manufacturer must submit quarterly rebates directly to 49 states and the District of Columbia for each drug reimbursed through the federal Medicaid program, as described in the agreement between the manufacturer and the federal Centers for Medicare and Medicaid Services (center).3 Thus, all drugs on the Medi-Cal drug list are covered under a federal rebate agreement, and some also are covered under the state supplemental rebate program. Because the federal government and the State jointly fund Medi-Cal, Health Services must return to the federal government, in the form of an offset to its Medi-Cal expenditures, a portion of the federal and state supplemental rebates it collects, using its current federal reimbursement rates, which cannot be lower than 50 percent nor greater than 83 percent. In contrast to its fee-for-service system, the Medi-Cal managed care system delivers prescription drug benefits through various managed care plans that Health Services pays a fixed monthly per member rate (capitated rate) for eligible members. Medi-Cal managed care plans, excluding those under the County Organized Health System (COHS) model, can negotiate contracts for rebates or discounts with manufacturers. According to Health Services, an adjustment is made to their capitation rates, discussed later, using an estimate of the amount of rebates the plan will receive. However, managed care plans under the COHS model submit utilization data allowing Health Services to submit claims and collect rebates from manufacturers for their drugs. State law allows Health Services to contract on a bid or non-bid basis with any qualified individual, organization, or entity to provide services to arrange for or case-manage the care of Medi-Cal beneficiaries in a manner consistent with managed care principles, techniques, and practices. Specifically, state law defines managed care plans as any person or entity contracting with Health Services to provide, or arrange for, health care services to Medi-Cal beneficiaries covered under its contract, as an alternative to the Medi-Cal fee-for-service system. According to Health Services, it uses three primary managed care delivery models—the Two-Plan Model Managed Care program (two-plan model), the Geographic Managed Care program (GMC model), and the COHS model. Twelve counties participate in the two-plan model, which has only two prepaid health plans providing health care services to Medi-Cal beneficiaries. State law and regulations define a 3 Arizona has a waiver for which special rules apply. That state provides medical services to its indigent population in a managed care system rather than in a fee-for-service system. 1100 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1111 prepaid health plan as a health care service plan licensed by the Department of Managed Health Care, which has entered into a contract with Health Services at a capitated rate to arrange for health services to Medi-Cal beneficiaries. Health Services awards one contract through a competitive bid process and one contract to a prepaid health plan organized or designated by the county or by stakeholders of a region designated by the director of Health Services. State regulations require that each plan under the two-plan model provide prescription drugs to beneficiaries using licensed pharmacies. Operating in two counties, the GMC model uses prepaid health plans and primary care case management plans to provide health care services to Medi-Cal beneficiaries. According to Health Services, it contracts with multiple plans within each county. Health Services requires plans to submit an application containing such information as a description of the existing or proposed delivery system. Primary care case management plans also must submit a more detailed proposal if Health Services approves their application. State regulations also require plans to provide prescription drugs to beneficiaries using licensed pharmacies. Eight counties participate in five COHS systems. Under the COHS model, the California Medical Assistance Commission (CMAC) negotiates exclusive contracts with any county that seeks to provide or arrange for health care services to Medi-Cal beneficiaries. State law created CMAC to negotiate contracts for Medi-Cal beneficiaries’ health services. Counties may provide services directly, or arrange for any or all of the services to be performed by subcontractors. Generally, Health Services pays each plan a capitated rate. State law requires Health Services to determine capitation payment rates annually by actuarial methods considering such factors as historical cost and utilization data, age, and gender. However, the rates cannot exceed the actuarially equivalent costs paid under the fee-for-service system. According to Health Services, the CMAC uses these data to negotiate capitation rates for all plans under the GMC model and the COHS model, excluding Santa Barbara County. Finally, Health Services contracts with a pharmaceutical benefits manager (benefits manager) for prescription drugs under its AIDS Drug Assistance Program (ADAP), a program established to provide drugs to HIV-infected individuals age 18 or older who could not otherwise afford them. Through contracts 1122 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1133 with participating pharmacies, the benefits manager obtains and dispenses prescription drugs to beneficiaries according to ADAP’s drug list. The benefits manager also provides services, such as claims processing, reimbursement coordination, and data reporting. California’s ADAP qualifies for the federal 340B pricing discussed on pages 17 and 18. For drugs the pharmacies purchase at 340B pricing, Health Services’ reimbursement to the benefits manager is the actual cost charged by the manufacturer or wholesaler plus 2 percent and a dispensing fee per prescription of $4.05. For drugs the pharmacies purchase at other than 340B pricing, Health Services reimburses the benefits manager at AWP minus a specified percentage plus a dispensing fee per prescription of $4.05.4 In 1998, the center published a federal register notice that provided ADAPs in all states with an option to receive the same federal rebates as the Medicaid program. State law requires manufacturers of the drugs on ADAP’s drug list to pay rebates equal to Medi-Cal rebates plus additional rebates that Health Services negotiates with the manufacturers. The ADAP works with other state ADAPs to obtain additional rebates for drugs on its drug list. CalPERS Provides Health Benefits to Certain Public Employees In 1932, the State established CalPERS, whose participants include members, retirees, and their survivors and beneficiaries, collectively referred to here as members. The 1962 Public Employees’ Medical and Hospital Care Act (act), authorized CalPERS to establish a health benefits program (program) for state employees, and subsequent amendments to the act expanded the program to include employees of public agencies and schools.5 The program offers CalPERS members health care coverage through four health maintenance organizations (HMOs) and four preferred provider organizations (PPOs) (see text box on the following page). As of March 31, 2005, CalPERS reports that its program was providing health coverage to 1.2 million members, with nearly 70 percent being covered by the HMOs. 4 For fiscal year 2003–04, ADAP’s reimbursement rate for brand name drugs was AWP minus 10.5 percent and for generic drugs was AWP minus 20 percent. 5 CalPERS’ definition of schools includes school districts, charter schools, county offices of education, and community colleges. 1122 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1133 According to CalPERS, its data shows that during fi scal year 2003–04, it incurred $361 million in CalPERS’ Health Care Plans pharmacy costs for its HMO plans and $321 million Health Maintenance Organizations for its PPO plans. An HMO is a health care system that assumes or shares both the fi nancial and • Blue Shield of California* delivery risks of providing comprehensive medical • Kaiser Health Plan Foundation, Inc. services to a voluntarily enrolled population in a • Western Health Advantage particular geographic area, usually in return for a capitated rate. Among the several HMO models, • Health Net–California Correctional Peace Offi cers Association† the HMOs that CalPERS contracts with are either a staff or a network model. In a staff or closed-panel Preferred Provider Organizations HMO, the enrollees receive services through HMO • PERS Care employees such as physicians and pharmacists in • PERS Choice the HMO’s own facilities. However, in a network HMO, the HMO contracts with multiple physician • California Association of Highway Patrolmen† groups, hospitals, and retail pharmacists to provide • Peace Offi cers Research Association services to enrollees. of California† PPOs are similar to the network model HMO in Sources: Department of Managed Health Care, CalPERS Web site, and evidence of coverage with the PPOs. that they provide services to enrollees through a * The Blue Shield health care plan available to network of selected health care providers such as CalPERS members consists of an HMO. It also hospitals and physicians. However, PPO enrollees has an exclusive provider organization, which is available in six counties. may choose to go outside the network and pay † Participation in the plan is limited to members in a greater percentage of their health care costs. these associations. CalPERS sponsors and operates two self-funded plans and pays fees to an administrator to provide claims and administrative services and use of its PPO network. Members’ premiums are deposited into a designated fund and claims for the services they receive and any fees or other expenses are paid out of the fund. CalPERS’ payments to providers for members’ services are based on discounted fee-for-service rates. The act allows CalPERS to enter into contracts to provide health benefi ts for its members without competitive bidding. Instead, CalPERS uses a rate renewal process to evaluate an HMO’s costs for services. The HMOs submit rate renewal proposals to CalPERS almost a year in advance of the effective date of the rate changes, or January 1 of each year. CalPERS explains that it uses analyses of historical and actuarial projections of utilization and costs prepared by its staff and an actuarial consultant to negotiate the HMOs’ premiums. The HMOs build the expected cost of prescription drugs into their premiums. HMOs CalPERS contracts with that use the network model, contract with retail and mail pharmacies to dispense prescription drugs to CalPERS members. The HMO’s contracts 1144 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1155 may specify various methods of reimbursing the pharmacies, such as specifying that the price for a drug is the AWP minus a specified percentage or a maximum allowable cost for certain generic drugs. In addition, contracts may define the price of some drugs as WAC plus a defined percentage. The pharmacies also receive dispensing fees. The network model HMOs receive drug rebates from drug manufacturers that they typically pass on to the plan sponsor, such as CalPERS, as a reduction to the total pharmacy costs that are used to establish premiums. A staff model HMO, on the other hand, uses its own facilities to dispense prescription drugs. The HMO generally enters into contracts with manufacturers and wholesalers to purchase drugs. The negotiated contract prices for the drugs include any rebates or discounts offered by the manufacturer or wholesaler. Although the staff model HMO generally does not pass on rebates to the plan sponsor such as CalPERS, it may pass on significant savings resulting from its ability to negotiate directly with manufacturers and wholesalers and to avoid additional expenses associated with using a retail pharmacy network. For its two PPO plans, CalPERS competitively bids a multiyear contract to obtain an administrator to perform the services previously described.6 This contract does not include pharmacy services. Instead, CalPERS competitively bids a multiyear contract to obtain a benefits manager to provide clinically appropriate, cost effective drugs for its PPO members. The benefits manager contracts with retail pharmacies and operates a mail order pharmacy so CalPERS’ members can obtain prescription drugs. It reimburses its contracted retail pharmacies for drugs at AWP minus a specified percentage or a maximum allowable cost for certain drugs plus a dispensing fee. A similar pricing method is used for prescriptions dispensed through the mail order pharmacy. For each prescription dispensed to CalPERS members, the benefits manager pays CalPERS an agreed-upon guaranteed drug rebate amount that it remits within 90 days of the end of the calendar year in which the rebates are earned. 6 For the other two PPOs, the associations that represent the highway patrolmen and peace officers enter into contracts with CalPERS and the applicable health care plans to provide services to their members. According to CalPERS, during fiscal year 2003–04, its role was limited to the approval of plan rates and the ability to perform audits. 1144 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1155 FEDERAL REGULATION OF PRESCRIPTION DRUGS In the United States, the Food and Drug Administration’s (FDA) Center for Drug Evaluation and Research (CDER) reviews all new drugs for safety, effectiveness, and quality before they enter the market. CDER reviews the drug sponsor’s preclinical research, clinical studies, and new drug application.7 Manufacturers can begin marketing a drug in the United States on the day the FDA approves it for use. The FDA assigns a National Drug Code (NDC), a specifi c number that identifi es the labeler, product, and trade package size. The FDA assigns the labeler code. A labeler is any fi rm that manufactures, repacks, or distributes a drug product. The fi rm assigns the product Federal Defi nitions of the Brand Name code of the NDC, which identifi es a specifi c and Generic Drug Classifi cations strength, dosage form, and formulation and the trade package size code. CDER monitors the use The federal Food and Drug Administration (FDA) has two application processes for the of marketed drugs for unexpected health risks and approval of prescription drugs. manufacturer changes to ensure that they will not Brand Name Drugs adversely affect the medicine’s safety or effi cacy. The FDA uses its New Drug Application (NDA) process as a vehicle through which drug sponsors can formally propose their new THE FEDERAL GOVERNMENT’S pharmaceuticals for sale and marketing in the PROCUREMENT OF PRESCRIPTION DRUGS United States. The FDA refers to prescription drugs approved under its NDA process as innovator, pioneer, or brand name drugs. The federal government does not set or regulate the price pharmaceutical manufacturers can Generic Drugs charge for prescription drugs. However, federal The FDA uses its Abbreviated New Drug laws ensure that manufacturers extend favorable Application process to expedite the availability prices to federal agencies and certain public sector of less costly generic drugs. The sponsor of a generic drug generally does not have to purchasers of those drugs. establish the safety and effectiveness of the drug. Instead, the sponsor must demonstrate that its drug is comparable to a brand Federal law governing the payment of covered name drug in dosage form, strength, route outpatient prescription drugs under the Medicaid of administration, quality, performance program in California requires manufacturers to characteristics, and intended use. provide rebates to states participating in Medicaid for their covered prescription drugs dispensed by the states during each calendar quarter. Federal law generally prohibits Medicaid reimbursement of any manufacturer refusing to execute such an agreement. The Medicaid rebate amounts for brand name single source or multiple source drugs equals the total number of units of each dosage form and strength times either 15.1 percent of the average manufacturer price (AMP) 7 The FDA defi nes drug sponsor as the person or entity assuming responsibility for the marketing of a new drug, including the responsibility for compliance with applicable provisions of the federal Food, Drug, and Cosmetic Act and related regulations. The sponsor is usually an individual, partnership, corporation, government agency, manufacturer, or scientifi c institution. 1166 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1177 or times the difference between the AMP and the best price for the brand name drug.8 However, the rebate amounts for generic drugs equals 11 percent of AMP times the total number of units dispensed during the quarterly rebate period. Federal law also authorizes the federal Centers for Medicare and Medicaid Services to establish an upper limit for services available under the Medicaid program. The center establishes a federal upper limit (FUL) for generic drugs if at least three formulations of the drug approved by the FDA have been evaluated as therapeutically and pharmaceutically equivalent and at least three suppliers list the drug with commercial organizations such as First DataBank Inc. The FUL for these generic drugs must not exceed, in the aggregate, payment levels determined by applying to each drug a reasonable dispensing fee established by the state, plus an amount equal to 150 percent of the lowest price listed in any published compendia of drug cost information such as First DataBank Inc. The FUL for other drugs such as brand name drugs certified as medically necessary by a physician or a drug other than a generic drug must not exceed, in the aggregate, the lower of the estimated acquisition costs, plus a reasonable dispensing fee established by the state, or the provider’s usual and customary charges to the general public. Section 602 of the Veterans Healthcare Act of 1992 (Veterans Act) limits the prices of drugs purchased by certain entities, such as federally qualified health centers, and commonly is referred to as the 340B Program. The 340B Program requires the secretary of the federal Department of Health and Human Services to enter into agreements with manufacturers of covered drugs whereby the amounts paid to them by covered entities do not exceed an amount equal to Medicaid’s average manufacturer price for the drug in the preceding calendar quarter reduced by a calculated rebate percentage.9 Thus, the Veterans Act establishes a ceiling price for the 340B program. The Veterans Act does not prevent covered entities such as federally qualified health centers, state-operated AIDS drug purchasing assistance programs, and certain hospitals, 8 The average manufacturer price is the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail pharmacies after deducting customary prompt payment discounts. The best price is the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, HMO, nonprofit entity, or federal government entity. However, the best price calculation excludes certain federal entities such as the Department of Veterans Affairs, the Department of Defense, and the Public Health Service; federal supply schedule prices; state pharmaceutical assistance program prices; depot and single award contract prices. 9 The rebate percentage is equal to Medicaid’s average total rebate for the drug during the preceding calendar quarter divided by the average manufacturer price for the drug during that quarter. 1166 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1177 from negotiating even greater discounts with manufacturers. However, the Veterans Act does preclude those entities eligible for 340B Program pricing from receiving duplicate discounts or rebates. Specifically, the law prohibits covered entities from requesting payment under Medicaid for a drug covered under the 340B Program if the drug is subject to the payment of a federal Medicaid rebate. Section 201 of the Federal Property and Administrative Act of 1949, as amended, authorizes the administrator of the General Services Administration to procure and supply personal property and nonpersonal services to numerous federal entities, the District of Columbia, U.S. territories, international organizations, and qualified nonprofit agencies. The administrator is responsible primarily for the Federal Supply Schedule program (supply schedule), which is aimed at simplifying the process of acquiring commercial supplies and services in varying quantities while obtaining volume discounts. However, under the Veterans Act, each manufacturer of covered drugs must enter into an agreement with the secretary of the federal Department of Veterans Affairs (Veterans Affairs) to make their covered drugs available for procurement on the supply schedule of the General Services Administration. During its negotiations, Veterans Affairs attempts to obtain prescription drug prices that are equal to or better than the best prices given by manufacturers to their “most-favored” commercial customers under comparable terms and conditions. The Veterans Act also places limitations or a ceiling on the prices of drugs procured by Veterans Affairs, the Department of Defense, the Public Health Service, and the Coast Guard, commonly referred to as the “Big 4.” Specifically, Big 4 purchases of the manufacturers’ covered drugs that are listed on the supply schedule cannot exceed 76 percent of the non-federal average manufacturer price10 less the amount of an additional discount.11 This stipulation is part of the agreement that Veterans Affairs enters into with the manufacturers. The Veterans Act contains several requirements that allow Veterans Affairs to ensure that manufacturers comply with the agreement. For example, if manufacturers do not make their covered drugs available for 10The Veterans Act defines the non-federal average manufacturer price as the weighted average price of each single form and dosage unit of a drug that is paid to a manufacturer by wholesalers, taking into account any cash discounts or similar price reductions, but excluding prices that are nominal in amount or paid by the federal government. 11The Veterans Act establishes the methodology for calculating the additional discount as the change in which the non-federal price exceeds the non-federal average manufacturer price of a drug for a federally defined period, multiplied by the percentage increase in the Consumer Price Index for all urban consumers (United States city average) for the same federally defined period. 1188 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1199 procurement on the supply schedule they may not receive payment for drugs purchased under the Medicaid program or by the Big 4 and any entity that receives funds under the Public Health Services Act. Also, manufacturers must provide Veterans Affairs certain drug pricing information, and Veterans Affairs may determine the accuracy of the manufacturers’ drug prices by auditing the relevant records of the manufacturers or of any wholesaler that distributes the drug. Finally, Veterans Affairs negotiates national contracts with manufacturers for select drugs, seeking competitive bids from manufacturers for products it considers therapeutically equivalent within specific drug classes. Veterans Affairs then contracts favorable prices with those manufacturers in exchange for including the drugs on its national formulary. VARIOUS CANADIAN ENTITIES PROCURE PRESCRIPTION DRUGS Canada has a publicly funded health care system, known as Medicare, that provides universal comprehensive coverage for medically necessary hospital and physician services; however, Medicare does not provide coverage for outpatient prescription drugs. Despite this lack of coverage, six federal government organizations and the 13 provinces and territories offer some type of prescription drug coverage to segments of the population, such as those receiving social assistance, inmates, veterans, and people 65 years of age and older. The Office of the Auditor General of Canada, in a November 2004 report, stated that the federal government was the fourth-largest payer of drug benefits in Canada, after the provinces of Ontario, Quebec, and British Columbia. Similar to the FDA, Health Canada regulates Canada’s Food and Drugs Act and Regulations, and Health Canada’s Therapeutic Products Directorate (directorate) evaluates and approves drugs for sale in Canada. After a drug’s approval, the directorate issues a drug identification number that permits the manufacturer to market the drug. For drugs where there is minimal market history in Canada, Health Canada also issues a notice of compliance indicating that the manufacturer has complied with certain sections of the Food and Drug Regulations. Health Canada monitors the use of the drug while it is on the Canadian market for safety and effectiveness and ensures that manufacturers comply with the regulations. 1188 California State Auditor Report 2004-033 California State Auditor Report 2004-033 1199 Also, in accordance with Canada’s Patent Act, the Patented Medicine Prices Review Board (Review Board) is responsible for ensuring that manufacturers’ prices of patented, or brand name, drugs sold in Canada to wholesalers, hospitals, or pharmacies are not excessive. The Patent Act and the Review Board’s regulations require manufacturers to provide pricing information of patented drugs sold in Canada and corresponding pricing information in seven other countries, such as the United States and Sweden. The Review Board considers at a minimum the following factors: the prices of the drug in the relevant Canadian market, the prices of other drugs in the same therapeutic class in the relevant Canadian market, the prices of the drug and other drugs in the same therapeutic class in countries other than Canada, and changes in the Consumer Price Index (CPI).12 The Review Board limits drug prices in Canada to the median of the prices for the same drugs charged in the seven countries. It ensures that existing patented drug prices do not increase by more than the CPI and that Canadian drug prices will never be the highest prices in the world. The Review Board has no authority to regulate the prices of non-patented drugs, including generic drugs. However, Canada’s federal government, provinces, and territories use a variety of methods to procure prescription drugs (some methods are discussed more fully later). STATE LEGISLATION ADDRESSING RISING PRESCRIPTION DRUG COSTS Many states, including California, have proposed legislation to address concerns over the rising cost of prescription drugs in the United States. According to the National Conference of State Legislatures, state legislatures filed more than 320 bills and resolutions related to pharmaceuticals in 2004 sessions. Many of these measures address discount or subsidy programs, as well as other access, disclosure, and cost-containment strategies. Also, 27 states addressed the importation of prescription drugs. In recent years, California has proposed and passed a number of bills focused on reducing prescription drug costs and obtaining additional information on its state drug purchases. For instance, Chapter 383, Statutes of 2004, requires that Corrections—in coordination with General Services’ prescription drug bulk purchasing program—adopt policies, procedures, and criteria to identify selected medication categories to develop uses based on best practices and the use of generic and therapeutic 12The CPI is an index of prices used to measure the change in the cost of basic goods and services in comparison with a fixed base period. 2200 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2211 substitutes, as appropriate. Also, in January 2005 the governor announced the “California Rx” program, later introduced in legislation as the California State Pharmacy Assistance Program (Cal Rx), which would provide prescription drug discounts to certain California residents with a family income not exceeding 300 percent of the federal poverty level. Generally, the program would achieve these discounts by authorizing Health Services to negotiate voluntary drug rebate agreements with manufacturers. Cal Rx also would allow any licensed pharmacy or drug manufacturer to provide services under the program. According to the National Conference of State Legislatures, other states also have proposed legislation to reduce the cost of prescription drugs. In spring 2000, the Maine Legislature enacted a law to create the “Maine Rx Program,” allowing the state of Maine to negotiate with manufacturers Medicaid-like rebates that would benefit any resident enrolled in the program. The legislation also allows Maine to release the names of manufacturers not willing to enter such rebate agreements and to impose certain prior authorization requirements on them. Although a drug manufacturer association challenged this legislation on grounds that it was preempted by federal law and impermissibly restricted interstate commerce, the U.S. Supreme Court issued a decision in spring 2003 that permitted Maine to continue with the program. Maine reconfigured the program to meet federal concerns and implemented the program in January 2004 as “Maine Rx Plus.” Unlike the original legislation, the revised legislation limits discounts to Maine residents meeting certain income requirements, but still provides the state with the authority to release the names of manufacturers not entering into rebate agreements and to impose certain prior authorization requirements on them. More specifically, the legislation allows Maine to require prior authorization on nonparticipating manufacturers’ drugs before they are covered under the Medicaid program. Prior authorization requires a physician to obtain special permission from state Medicaid officials before prescribing a drug to a Medicaid recipient. In a letter dated September 18, 2002, to the state Medicaid directors, the director of the federal Centers for Medicare and Medicaid Services addressed, among other things, the issue of states obtaining non-Medicaid supplemental rebates by using prior authorizations for the Medicaid program. The letter reads as follows: 2200 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2211 A number of states secure prescription drug benefits, rebates, or discounts for non-Medicaid populations by linking such benefits to a Medicaid prior authorization program. The Act does not preclude states from negotiating prices, including manufacturer discounts and rebates for non-Medicaid drug purchases. However, the establishment of a prior authorization program for Medicaid covered drugs to secure drug benefits, rebates, or discounts for non-Medicaid populations is a significant component of a State plan and we would therefore expect that a State would submit such a program for CMS review under the State plan process. Similarly, the use of any pre-existing prior authorization program to secure drug benefits, rebates, or discounts for non-Medicaid populations would constitute a ‘[m]aterial change[] in State law, . . . policy, or in the State’s operation of the Medicaid program’ and we would therefore expect that a State would submit a plan amendment to CMS for review. (See section 430.12( c)(1)(ii) of the regulations.) In submitting such a State plan amendment, the State should be prepared to demonstrate through appropriate evidence that the prior authorization program will further the goals and objectives of the Medicaid program. Thus, it is the opinion of CMS that states seeking to obtain non- Medicaid supplemental rebates by using prior authorizations for the Medicaid program first must seek its approval. SCOPE AND METHODOLOGY Chapter 938, Statutes of 2004, requires the Bureau of State Audits (bureau) to report to the Legislature on the State’s procurement and reimbursement practices as they relate to the purchase of drugs for or by state departments, including, but not limited to, Mental Health, Corrections, the Youth Authority, Developmental Services, CalPERS, and Health Services. Specifically, the statutes require the bureau to: • Review a representative sample of the State’s procurement and reimbursement of drugs to determine whether it is receiving the best value for the drugs it purchases. 2222 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2233 • To the extent possible, compare the State’s cost to those of other appropriate entities such as the federal government, Canadian government, and private payers. • Determine whether the State’s procurement and reimbursement practices result in savings from strategies such as negotiated discounts, rebates, and contracts with multistate purchasing organizations, and whether the State’s strategies result in the lowest possible costs. Our analysis does not address clinical management or formulary decisions made by the departments and the entities they contract with to provide drug coverage nor does it reflect their decisions related to product mix such as encouraging the use of generic over brand name drugs or shifting from older to newer drugs. Therefore, the data in this report may not represent the best value for each drug. Further, under General Services’ bulk drug purchasing program, state agencies can purchase some of their drugs at the prime vendor’s wholesale acquisition cost rather than the reimbursement prices Health Services’ and CalPERS’ entities pay to retail pharmacies. Also, unlike CalPERS and Health Services the pricing information used for General Services in this analysis does not include any of the state agencies’ costs associated with dispensing the prescription drugs, nor any co-payments these agencies may collect. To identify the prices at which the State purchases prescription drugs, we reviewed prescription drug costs, procurement methods, and pharmacy reimbursement methods for General Services, CalPERS, and Health Services for fiscal year 2003–04. Our report presents high-level analyses of the prescription drug costs of the various entities. Federal law prohibits the bureau from disclosing data in a form that reveals the manufacturer or prices charged by the manufacturer. Also, the state auditor operates under statutes that allow it to receive and review confidential information, but prohibit it from disclosing that information if some law prohibits disclosure or allows that information to be withheld from public disclosure. Based on that authority, the various private parties contracting with CalPERS worked cooperatively with the bureau to allow access to their highly confidential drug pricing information and strategies, with the clear understanding that it would not be disclosed, either publicly or to any other party who did not have the legal authority to obtain this information. Consequently, some of the information that the bureau reviewed and analyzed during this audit cannot be shared with any other party or made public. 2222 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2233 However, one CalPERS entity selected for review did not work cooperatively with the bureau. Specifically, the entity indicated to us that the information we were requesting was proprietary and confidential and that certain information was subject to contractual restrictions on disclosure. The bureau offered the entity assurance that the statutes governing the bureau would allow the state auditor to review and analyze this confidential information and to present the results of that analysis in a way that would not publicly disclose any information that it was legally obligated to keep confidential. Despite these assurances, the entity was of the opinion that it was legally prohibited from providing this information to the bureau and did not provide the requested information. Generally accepted government auditing standards require that we disclose significant constraints imposed on the audit approach by scope impairments, including demands of access to certain records or individuals. This entity represents roughly one third of CalPERS’ membership, and thus, the exclusion of its data could materially skew CalPERS’ results in this report. To understand General Services’ role in procuring prescription drugs for state departments, we interviewed its staff and reviewed all relevant laws and regulations pertaining to its bulk drug purchasing program and to identify the departments required or exempt from purchasing drugs through the program. We also reviewed recommendations to General Services in the bureau’s January 2002 audit report titled State of California: Its Containment of Drug Costs and Management of Medications for Adult Inmates Continue to Require Significant Improvements and followed up with General Services to learn how it has implemented the recommendations related to drug procurement and drug costs. To understand Health Services’ role in procuring prescription drugs, we reviewed the Medi-Cal fee-for-service and managed care systems, as well as the ADAP. We reviewed each program’s expenditures, relevant policies and procedures; and relevant federal and state laws, rules, and regulations pertaining to procuring prescription drugs through these programs. We found that Medi-Cal managed care and ADAP use procurement methods similar to those used by entities contracting with CalPERS, such as paying a capitated rate to health plans and contracting with a benefits manager to procure and provide pharmacy services to program recipients or enrollees. We also found that Medi-Cal managed care and ADAP prescription drug expenditures for fiscal year 2003–04 totaled approximately 2244 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2255 $1.7 billion, compared with the Medi-Cal fee-for-service system expenditures of more than $4 billion. We excluded Medi-Cal managed care and ADAP from our review because the Medi-Cal managed care system and the ADAP’s procurement methods are similar to those used by CalPERS, and the costs of these two programs were significantly smaller than the Medi-Cal fee-for- service system. In addition, we reviewed the recommendations made to Health Services in the bureau’s April 2003 audit report titled Department of Health Services: Its Efforts to Further Reduce Prescription Drug Costs Have Been Hindered by Its Inability to Hire More Pharmacists and Its Lack of Aggressiveness in Pursuing Available Cost-Saving Measures and followed up with Health Services to determine the implementation status of those recommendations related to drug procurement and drug costs. We present this information in Appendix B. To understand CalPERS’ role in procuring prescription drugs, we reviewed information for the entities providing pharmaceutical services to CalPERS in fiscal year 2003–04. To determine whether its processes are adequate to ensure that it pays the lowest possible prescription drug costs, we reviewed CalPERS’ process for selecting HMOs and an administrator and benefits manager for its self-funded PPOs. Our review included interviewing CalPERS staff and reviewing documents relating to CalPERS’ rate renewal and competitive bid process. To determine the costs of prescription drug products purchased by the three state departments in fiscal year 2003–04, we obtained claim and rebate data, including discounts, co-payments, dispensing fees, and third-party payments, if applicable. We received this information directly from Health Services, General Services’ prime vendor, and certain entities providing pharmaceutical services to CalPERS. Based on expenditure data from General Services’ prime vendor, we sent surveys to departments that purchased drugs in fiscal year 2003–04, requesting each of them to provide the following: the fiscal year’s total drug purchases, the total purchased from the State’s prime vendor, and the total purchased from other sources. We also asked them to identify any drugs purchased from other sources, the purchasing methods used, and, if applicable, to provide the legal authority under which the purchases were made. 2244 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2255 To determine whether the procurement and reimbursement practices for our selected entities result in savings from strategies such as negotiated discounts and rebates, we used the provided data to calculate the following three types of cost: • Drug ingredient cost: the cost of the drug itself as stated on the prescription drug claim or invoice, which is based on pricing methods such as the average wholesale price minus a specified percentage, a maximum allowable ingredient cost, or the pharmacy’s usual and customary rate. • Net drug ingredient cost: the drug ingredient cost minus any rebates or additional discounts, if applicable. • State cost: the net drug ingredient cost plus any dispensing fees and minus any co-payments or third-party payments, if applicable. For each of these three cost types, we then identified the top 500 drugs, using the FDA’s NDC, for each department. We ranked each NDC in these lists by the total costs during fiscal year 2003–04. Appendix A gives more information on our methodology for developing the top 500 lists and assessing the reliability of the data used in our analysis. To compare state departments’ prescription drug costs with those of the federal government, we requested information from the Big 4. Specifically, we requested the lowest, highest, and weighted-average net drug ingredient cost for 100 comparable drugs identified in our analysis of state departments. We also requested a description of the purchase methods underlying these costs. To compare state department prescription drug costs with the Canadian government’s costs, we contacted Canada’s Federal Healthcare Partnership to help us understand Canada’s public drug benefit programs and to assist us in identifying federal organizations and provinces with superior and/or innovative procurement strategies. From each of our identified entities, we requested the lowest, highest, and weighted-average net drug ingredient cost for the same 100 drugs requested from the Big 4 and requested a description of the purchase methods underlying these costs. 2266 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2277 Using the information provided by the Big 4 and the Canadian entities, we compared the net drug ingredient cost information with the same information calculated for each state department. To ensure an appropriate comparison, we used an average of the Bank of Canada’s daily nominal noon exchange rates for our audit period to convert Canadian prices into U.S. prices. The Bank of Canada is Canada’s central bank. n 2266 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2277 Blank page inserted for reproduction purposes only. 2288 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2299 AUDIT RESULTS ALTHOUGH GENERAL SERVICES’ UP-FRONT DISCOUNTS YIELD LOWER COSTS FOR THE DRUGS THEMSELVES, HEALTH SERVICES’ REBATES YIELD LOWER NET DRUG INGREDIENT COSTS AND LOWER COSTS TO THE STATE To analyze the relative cost of California’s prescription drug purchases, we examined the drug costs for the Department of General Services (General Services), the Department of Health Services (Health Services), and the California Public Employees’ Retirement System (CalPERS). Of the three departments, Health Services has been most successful in reducing the cost of its drug purchases, thus costing the State fewer dollars relative to the other two departments. Health Services has reduced its drug costs signifi cantly through substantial rebates, totaling roughly $1.6 billion in fi scal year 2003–04. Although paying less than Health Services for the drug ingredient cost, General Services has higher net drug ingredient costs because it receives minimal amounts in rebates from the manufacturers it Three Defi nitions of Drug Costs contracts with. Although CalPERS’ rebates do not as Used in This Report reduce its net drug ingredient costs substantially, it Drug Ingredient Cost—The cost of the drug comes in second among the three departments in itself as stated on the prescription drug claim costs to the State (state cost) because it can reduce or invoice, which is based on pricing methods its pharmacy reimbursements by the amount of such as the average wholesale price minus a specifi ed percentage, a maximum allowable co-payments its members make to the pharmacies ingredient cost, or the pharmacy’s usual and that fi ll their prescriptions. The text box defi nes customary rate. these cost categories. Net Drug Ingredient Cost—The drug ingredient cost minus any rebates or additional discounts, if applicable. After compiling the top 500 drugs purchased by the three departments during fi scal year 2003–04, State Cost—The net drug ingredient cost plus we identifi ed: 141 common drugs based on any dispensing fees and minus any co-payments or third-party payments, if applicable. the drug ingredient cost; 133 common drugs based on the net drug ingredient cost; and 131 common drugs based on state cost. The majority of the comparable drugs are brand name drugs and many were found in the general therapeutic classes of psychotherapeutic, anti-infectives, cardiovascular, and central nervous system drugs. Figure 2 on the following page compares the drug ingredient cost, net drug ingredient cost, and state cost for each of the departments in our analysis. As the fi gure shows, using 2288 California State Auditor Report 2004-033 California State Auditor Report 2004-033 2299 weighted-average prices, General Services had the lowest drug ingredient costs, while Health Services had the lowest net drug ingredient costs and state costs. FIGURE 2 The Percentage of Comparable Drugs for Which a State Department Achieved the Minimum Weighted-Average Price �������������������������� �������������������������� ���������������� ��������������������������� ���� �� �� �� �� �� �� �� �� �� � � � � � ������������������ ������� ��������� �������������� Sources: Claim and rebate data from Health Services, invoice data from General Services’ prime vendor and rebate terms in General Services’ contract with one drug manufacturer, and claim and rebate data from certain CalPERS’ entities providing pharmaceutical services in fiscal year 2003–04. Notes: 1. Our analysis does not address clinical management or formulary decisions made by the departments and the entities they contract with to provide drug coverage nor does it reflect their decisions related to product mix such as encouraging the use of generic over brand name drugs or shifting from older to newer drugs. Therefore, the data in Figure 2 may not represent the best value for each drug. 2. As described in the Introduction, one CalPERS entity selected for review did not work cooperatively with the bureau to allow access to its proprietary and confidential drug pricing information and strategies. This entity represents roughly one-third of CalPERS’ membership, and thus, the exclusion of its data could materially skew the results shown in Figure 2 for CalPERS. 3. In contrast to the other two departments in our analysis, General Services’ net drug ingredient cost and state cost remained the same because, under its bulk drug purchasing program, the prime vendor’s invoice data does not include any of the state agencies’ costs associated with dispensing the prescription drugs, nor any co-payments these agencies may collect. 3300 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3311 Because of Up-Front Discounts, General Services Typically Pays a Lower Drug Ingredient Cost Than Health Services or CalPERS Comparing the three departments’ purchases of prescription drugs at the ingredient cost level, we found that General Services got the lowest weighted-average price for 117, or 83 percent of the 141 comparable drugs. General Services’ lower prices are attributable partly to one of its procurement strategies, which is to reduce costs by obtaining up-front discounts. General Services explains that this strategy involves gaining these up-front discounts through contract negotiations with manufacturers of high-cost brand name drugs and through competitively bidding contracts for high-volume generic drugs. General Services also stated that it supplements its contracts discounts by using its agreement with the Massachusetts Alliance for State Pharmaceutical Buying (alliance). The alliance contracts with a group-purchasing organization that negotiates contracts with manufacturers for its pool of customers. The group-purchasing organization says its largest benefit for For the 117 drugs customers comes in up-front discounts off the drug’s list price. that General Services obtained the lowest For the 117 drugs that General Services obtained the lowest weighted-average price, weighted-average price, its prices were on average 13 percent less its prices were on average than Health Services’ and 5 percent less than CalPERS’ prices. 13 percent less than However, the price differences among some drugs were greater Health Services’ prices than among other drugs. For example, General Services’ price and 5 percent less than for one drug was 45 percent less than Health Services’ price and CalPERS’ prices. 40 percent less than CalPERS’ price. Conversely, for another drug, the price differential from General Services to Health Services and to CalPERS was less than 3 percent and 2 percent, respectively. Health Services’ and CalPERS’ drug ingredient costs were generally higher because for almost all the comparable drugs their prices were based on average wholesale price (AWP) minus a specified percentage. However, CalPERS achieved lower prices than Health Services because its entities were able to negotiate greater discounts off the AWP. Health Services’ Rebates Yield Lower Net Drug Ingredient Costs Than CalPERS’ or General Services’ Costs At the net drug ingredient cost level, our comparison of the three departments’ purchases of prescription drugs found that General Services no longer achieved the lowest weighted-average prices for the majority of the comparable prescription drugs. Instead, as Figure 2 shows, Health Services obtained the lowest weighted-average prices because of the rebates it receives. General Services’ net drug ingredient costs are higher than those 3300 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3311 of Health Services, primarily because it is in the early stages of its direct negotiations with manufacturers. Though it does receive rebates from the entities it contracts with for pharmacy services to its members, CalPERS’ net drug ingredient costs are the highest of the three departments. Health Services’ Rebates Significantly Reduce Its Net Drug Ingredient Costs Because Health Services receives both federal and state supplemental rebates for the federal Medicaid program (known as California’s Medical Assistance Program or Medi-Cal), its net ingredient cost for prescription drugs was significantly lower than such costs for CalPERS or General Services. As of January 19, 2005, Health Services had received a total of roughly $1.6 billion in federal and supplemental rebates for fiscal year 2003–04, with about one-third of these rebates resulting from Health Services’ state supplemental rebate negotiations. Although Health Services’ procurement methods resulted in Although Health the lowest drug ingredient cost for only five drugs, it had the Services’ procurement lowest net drug ingredient cost for 95 percent, or 127 of the methods resulted in the 133 drugs in our comparison. For example, Health Services’ drug lowest drug ingredient ingredient cost for one drug was 20 percent more than General cost for only five drugs, Services’ price for the same drug. However, because of its rebates, it had the lowest net Health Services’ net drug ingredient cost for this same drug drug ingredient cost for dropped by 73 percent, and was at least 63 percent less than 95 percent, or 127 of the price for CalPERS and General Services. On average, Health the 133 drugs in Services’ costs for the 127 drugs were 33 percent lower than our comparison. CalPERS’ costs and 34 percent lower than General Services’ costs for the same drugs. CalPERS’ Rebates Did Not Always Provide Significant Reductions in the Cost of the Prescription Drugs in Our Analysis Negotiating drug rebates is one tool available to reduce drug expenditures. Drug manufacturers typically offer rebates based on the extent to which health care plans influence their products’ market share. Although CalPERS does not directly contract with drug manufacturers, it receives rebates from some entities it contracts with for pharmaceutical services. We would expect the amount of rebates CalPERS receives to be substantially lower than the amount Health Services receives because it does not have access to federal rebates. However, CalPERS entities’ rebate methods resulted in the lowest net drug ingredient cost of the three analyzed departments for less than 1 percent, or only one out of 133 drugs. 3322 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3333 Those entities with which CalPERS contracts to provide pharmaceutical services that are included in our analysis receive rebates from contracting directly with drug manufacturers based on their entire book of business and performance relative to the market. However, the portion of the rebates CalPERS realizes can vary depending on the method it chooses. CalPERS receives rebates using two types of methods—guaranteed and pass- through. Using a guaranteed rebate method, CalPERS receives guaranteed rebate amounts for each dispensed prescription regardless of the amount the drug manufacturer rebates to the entity providing pharmacy services for CalPERS. Under this method the entity negotiates and contracts with manufacturers on its own behalf, thus assuming the risk that the rebates it receives will, in aggregate, allow it to meet the prices it offers plan sponsors. Thus, CalPERS is relieved from negotiating directly with manufacturers and assuming the risks associated with market volatility, rebate discontinuation, and rebate non- payment. CalPERS’ contract with entities using the guaranteed method specifically precludes it from having access to rebate, discount, data, and services agreements with pharmaceutical manufacturers or distributors. However, CalPERS is able to verify the amount it receives in rebates by multiplying the guaranteed rebate amounts by its drug utilization data. In the pass-through method, the entity negotiates rebates and contracts with pharmaceutical manufacturers so that rebate payments between the manufacturer and the entity are based on historical and prospective pharmacy utilization data for all members of the health care plan that the entity administers. The entity then collects and passes through to plan sponsors, such as CalPERS, either a percentage or the entire amount of the rebates earned by the sponsors based on their member utilization. However, CalPERS lacks access to the entities’ rebate contracts Because CalPERS lacks under this method. Typically, these entities prohibit CalPERS access to the entities’ from having access to any information that would cause them rebate contracts under to breach the terms of any contract with pharmaceutical the pass-through method, manufacturers to which they are a party. Consequently, CalPERS its health benefits branch health benefits branch staff cannot directly verify the accuracy staff cannot directly of the pharmaceutical manufacturers’ rebates to which CalPERS verify the accuracy of is entitled. CalPERS health benefits staff intend to pursue greater the pharmaceutical pharmacy rebate disclosure and accountability requirements in manufacturers’ rebates to future contracts. For example, CalPERS plans to seek the greater which it is entitled. of 100 percent of all drug rebates or a predetermined minimum amount in its next pharmacy benefits manager contract. CalPERS also plans to include greater disclosure requirements 3322 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3333 in all contracts with entities that will enable it to verify that it is receiving all of the rebates to which it is entitled. However, if CalPERS fails to negotiate these disclosure requirements, it will continue to be unable to ensure that the State receives all of the rebates to which it is entitled so that it can reduce its net drug ingredient costs further. General Services Is in the Early Stages of Its Direct Negotiations With Manufacturers and Aims to Increase Its Ability to Reduce the Net Ingredient Cost of Prescription Drugs Although rebates typically decreased the cost of prescription drugs for Health Services and CalPERS, General Services’ net ingredient costs for the drugs in our sample are about the same as its costs for the drugs before any discounts or rebates. For example, at the drug ingredient cost level, General Services’ weighted-average price for one drug was at least 11 percent less than the price that the other two departments paid for the same drug. However, that price became at least 3 percent higher after applying rebates and discounts. In fact, General Services purchased only 3.8 percent of the drugs in our net drug ingredient cost sample at the lowest net cost, despite having the lowest drug ingredient cost for 83 percent of our drug cost sample. General Services says this is because it is still in the early stages of its direct negotiations with manufacturers to achieve reduced drug costs. Currently, departments purchasing drugs through General Services can obtain rebates only for one drug product class, a rebate General During fiscal year 2003–04, Services obtained through contract negotiation efforts. For that state agencies purchased one drug product class, state agencies received at least $1.5 million $28 million in drugs, but in rebates for their purchases in fiscal year 2003–04. Some of according to the alliance’s the drugs that state agencies purchased through the alliance’s group-purchasing group-purchasing organization also qualified for rebates. During organization’s unaudited fiscal year 2003–04, state agencies purchased $28 million in drugs, data, only $2.1 million but according to the alliance’s group-purchasing organization’s of these purchases unaudited data, only $2.1 million of these purchases qualified for qualified for rebates of only rebates of only $133,000, or 6 percent. Clearly, if state agencies $133,000, or 6 percent. had more opportunities to receive rebates through the alliance as well as through General Services’ pursuit of rebate contracts with more drug manufacturers, General Services could reduce its net drug ingredient costs further. General Services explains that, although its primary objective is the best overall price, rebates are a less desirable strategy than up-front discounts. General Services believes state agencies benefit most from the best up-front discount prices, 3344 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3355 which do not require them to wait for manufacturers to remit rebates before making funds available for other drug purchases. General Services also states that rebates require oversight and management to ensure they are accounted for properly and credited to the correct accounts. For example, as mentioned earlier, state agencies received at least $1.5 million in rebates for one drug product class from one manufacturer’s contract with General Services, but between August 2003 and June 2004 some state agencies missed out on rebates totaling $248,876. The manufacturer’s contract terms require state and local agencies to sign and turn in a certification form before they can receive payment for the rebates. According to the manufacturer’s unaudited data, between August 2003 and October 2003, 27 of the 49 state entities qualifying for rebates, such as state prisons, did not receive payment for rebates totaling $217,676. Although entities improved their submission of the forms after Between August 2003 and October 2003, the manufacturer’s unaudited data shows that by October 2003, 27 of the the end of fiscal year 2003–04, two of the 27 entities still had 49 state entities qualifying not received rebate payments. According to General Services, its for rebates from one procurement staff made various efforts to remind departments manufacturer, did not to submit the rebate certification form, including making direct receive rebates totaling phone calls to pharmacy managers and negotiating an extension $217,676 because they of the form deadline with the drug manufacturer, and elevating did not turn in required the issue to the Pharmacy Advisory Board. However, General certification forms. Services explains that it does not have the authority to control the actions of other departments or make submission of the form mandatory. As of the contract year beginning July 1, 2004, all eligible state departments that purchase the drug product have signed and turned in the certification form to receive rebates from the manufacturer. According to the alliance’s group-purchasing organization, state agencies have earned $133,000 in rebates for drug purchases made during fiscal year 2003–04 and a total of $164,000 in rebates since October 2002. However, at the request of General Services it did not immediately remit these rebates to the State. According to General Services, in the past, when the group-purchasing organization issued a check to General Services, the funds were deposited into the State’s General Fund and the individual state agencies making the purchases did not receive the rebate credit. Being unable to arrange with the prime vendor a system that would allow each state department purchasing drugs to benefit from the rebates they earned, General Services requested the rebates be withheld until this issue was resolved. General Services did not resolve this issue until April 25, 2005 because the alliance’s group-purchasing organization was still waiting 3344 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3355 on the prime vendor to send account routing information that is needed to transfer the rebates to each agency electronically. To prevent this from occurring in the future, General Services plans to include in its next contract a requirement that the prime vendor collect all rebate payments owed to the State and submit an electronic remittance or order credit to each agency account for its earned rebates. Lower Dispensing Fees and Co-payments Reduce CalPERS’ Prescription Drug Costs for the State, While Health Services’ Higher Average Dispensing Fees Increase the State’s Costs Our analysis of the three departments’ comparable drugs at the level of the state cost, which takes into consideration dispensing fees, co-payments, and other third-party payments, found that CalPERS’ prescription drug costs were generally lower than its net drug ingredient costs while Health Services’ and General Despite the decrease Services’ costs increased or remained roughly the same. Lower in CalPERS’ state cost average dispensing fees than Health Services and co-payments due to lower average received from CalPERS members are the reason for this decline in dispensing fees and CalPERS’ state cost for prescription drugs. CalPERS members co-payments from pay their co-payments directly to the retail or mail pharmacy members, Health Services dispensing the prescription, and the CalPERS entity providing still achieved lower pharmaceutical services reimburses the retail and mail pharmacies prescription drug costs for the drug cost minus the applicable co-payment plus a for a majority of the dispensing fee, if applicable. Despite the decrease in CalPERS’ comparable drugs. cost to the State, Health Services still achieved lower prescription drug costs for a majority of the comparable drugs. On average, Health Services’ cost to the State for 94 out of 131 drugs was 30 percent lower than CalPERS’ cost for the same drugs. General Services’ net drug ingredient cost and state cost were the same because under its bulk drug purchasing program agencies’ cost of dispensing drugs and any co-payments they receive are not reflected in the prime vendor’s invoice data. However, although Health Services is able to reduce its prescription drug costs by reimbursements from third parties such as Medicare, private insurance carriers, and beneficiaries, its higher dispensing fees and lack of co-payments contributed to an almost 2 percent increase in cost, or roughly $17 million. Co-payments do not affect Health Services’ state cost for several reasons. State law allows each Medi-Cal participating pharmacy to retain the $1 co-payment it collects from each Medi-Cal beneficiary for each drug prescription or refill, so the beneficiary remains liable to the pharmacy for any unpaid co-payments. Also, state law does not allow Health Services to reduce its pharmacy reimbursements by the co-payment 3366 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3377 amount. Further, although federal law allows states to establish nominal co-payments, it does not allow states to charge for certain services, such as emergency services and services provided to any beneficiary under age 18, nor to deny services to beneficiaries based on their inability to pay the co-payment. In the Bureau of State Audits’ (bureau) April 2003 report titled Department of Health Services: Its Efforts to Further Reduce Prescription Drug Costs Have Been Hindered by Its Inability to Hire More Pharmacists Health Services has yet to and Its Lack of Aggressiveness in Pursuing Available Cost-Saving fully implement six out of Measures, we made numerous recommendations aimed at helping the 16 recommendations Health Services reduce its prescription drug costs. Health Services that the Bureau of has yet to fully implement six of the 16 recommendations that can State Audits made in its be found in Appendix B. One of the 16 recommendations was that April 2003 report. Health Services should evaluate the pros and cons of deducting co-payments from its pharmacy reimbursement rate and having pharmacies collect these payments from beneficiaries. We reported that at least one state, Montana, had taken a more aggressive approach toward collecting co-payments from beneficiaries, instituting co-payments to reduce the State’s cost and allow beneficiaries to share in the cost of their medical care. Montana deducted the co-payments from the pharmacies’ reimbursements, placing the responsibility of collecting co-payments on the providers. However, as of April 2005, Health Services had not implemented the deduction of co-payments from its pharmacy reimbursement rate. In July 2004, Health Services informed the bureau that it was evaluating various beneficiary cost sharing proposals as part of the Medi-Cal Redesign effort proposed by the governor in his budget for fiscal year 2004–05. The goal of the Medi-Cal Redesign effort is to restructure Medi-Cal to maintain health care coverage for eligible Californians, while containing costs and maximizing operational efficiencies. Workgroup meetings were held with Medi-Cal stakeholders during March and April 2004 to discuss topics such as benefit design and cost-sharing, program eligibility and simplification, organized service delivery, and other financing and savings options. On April 14, 2004, Health Services presented to stakeholders a conceptual framework for a tiered approach to benefits cost sharing that included a $5 co-payment for nonemergency services, a $1 co-payment for outpatient and dental services, and a $1 co-payment for each prescription and refill. Health Services framework also would require pharmacies to be responsible for the collection of co-payments. Further, Health Services would deduct the 3366 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3377 co-payments for nonemergency services from the provider reimbursement rate for these services and allow the provider to refuse the services if the beneficiary did not pay the co-payment. However, the Medi-Cal Redesign Proposal issued by the Health and Human Services Agency and Health Services in January 2005 does not include co-payments, but instead focuses on the establishment of monthly premiums that range between $21 and $27 for individuals with incomes above the federal poverty level and above the monthly Supplemental Security Income/State Supplemental Payment level for seniors and persons with disabilities. According to Health Services, co-payments were largely dismissed by most of the stakeholders because many beneficiaries would not be able to afford them. In addition, Health Services stated that the State would have to obtain a waiver from the federal Centers for Medicare and Medicaid Services to allow providers to refuse service if the beneficiary could not pay the co-payment. Furthermore, it stated that deducting the co-payment from the provider reimbursement without obtaining the waiver has the effect of Health Services imposing no cost-sharing responsibility on the beneficiaries. estimates that the net Finally, Health Services believes that the large reduction in effect of changes in its pharmacy reimbursement rates from AWP minus 10 percent to reimbursement rates and AWP minus 17 percent, which Health Services implemented dispensing fees will result on September 1, 2004, provides a much larger cost reduction in savings of $121 million than the enforcement of a $1 co-payment. However, also in fiscal year 2004–05. implemented on September 1, 2004, was an increase in pharmacy dispensing fees from $4.05 to at least $7.25. According to Health Services, it estimates that the net effect of these two changes will result in $121 million in fiscal year 2004–05, which is more than double its estimate of the potential savings of a $1 co-payment. GENERAL SERVICES CAN REDUCE ITS PRESCRIPTION DRUG COSTS FURTHER Besides obtaining rebates from more drug manufacturers, General Services has other opportunities to achieve the lowest possible costs for prescription drugs. To be able to expand its prescription drugs bulk-purchasing program to include drugs that best serve the needs of departments, General Services should ask those departments that are otherwise required to participate in this program to notify it of the volume, type, and price of prescription drugs they purchase from other sources. In this manner, General Services may reduce such instances as the Department of Developmental Services (Developmental Services) purchasing more than $6 million of prescription drugs from other vendors in fiscal year 2003–04. 3388 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3399 Because 48 percent of state departments’ drug purchases through General Services did not use the contracts General Services has with drug manufacturers nor the alliance through which General Services obtains group pricing, General Services’ procurement methods leave room for improvement. We addressed this issue in our January 2002 report, State of California: Its Containment of Drug Costs and Management of Medications for Adult Inmates Continue to Require Significant Improvements, recommending among other things that General Services increase its efforts to solicit bids from drug manufacturers and fully analyze its procurement of prescription drugs through the alliance. If General Services fully implemented our recommendations, it might have more individual drugs under contract and more covered through participation in a larger group- purchasing organization than the alliance. General Services Does Not Have Information Concerning Non-Prime Vendor Drug Purchases Made by Departments Required to Participate In Its Bulk Purchasing Program Although state law requires specific state departments to purchase drugs through General Services, our survey of various departments indicates they are not always doing so. Specifically, California Government Code requires the departments of Corrections (Corrections), Developmental Services, Youth Authority (Youth Authority), and Mental Health (Mental Health) to participate in General Services’ bulk purchasing program. In addition, California Public Contract Code requires that all state departments purchasing drugs totaling more than $100 must purchase them through General Services. California State University, the University of California, and some entities within the California Department of Veterans’ Affairs are exempt from this requirement. Although we Nine state entities found that departments generally purchase most drugs through purchased prescription General Services’ contract with its prime vendor, they also purchase drugs using General drugs through other vendors. Services’ prime vendor, but each of these entities As Table 1 on the following page shows, nine state entities also purchased drugs from purchased prescription drugs using General Services’ prime vendor, non-prime vendor sources but each of these entities also purchased drugs from non-prime during fiscal year 2003–04. vendor sources during fiscal year 2003–04. For example, although the Youth Authority purchased drugs from the prime vendor costing roughly $1.8 million, it also purchased drugs costing almost $451,000 through other vendors. Moreover, Developmental Services purchased more than $6 million of its drugs through non-prime vendor sources. Seven of the nine entities we surveyed purchased 20 percent to 100 percent of their drugs through non-prime vendor sources. 3388 California State Auditor Report 2004-033 California State Auditor Report 2004-033 3399 TABLE 1 Drugs Purchased During Fiscal Year 2003–04 by State Entities Purchases Using Purchases Using Source Other Than Total Drugs State Entity Prime Vendor* Prime Vendor† Purchased California Department of Corrections $126,824,969 $ 863,799 $127,688,768 Department of the Youth Authority 1,777,052 450,988 2,228,040 Department of Developmental Services 14,503,362 6,376,408 20,879,770 Department of Mental Health 27,942,810 165,962 28,108,772 California Highway Patrol 251 5,101 5,352 California Department of Veterans Affairs—Barstow 39 305,630 305,669 Emergency Medical Services Authority 97,757 339,022 436,779 California State University 1,824,946 761,316 2,586,262 University of California—Riverside 370,380 120,960 491,340 Totals $173,341,566 $9,389,186 $182,730,752 Sources: Invoice data from General Services’ prime vendor for fiscal year 2003–04 and survey responses from state entities. * This information is based on the invoice data at the drug ingredient cost level for fiscal year 2003–04 provided by General Services’ prime vendor and includes only prescription drug purchases. † This information is based on actual expenditures attributable to fiscal year 2003–04 purchases as provided by the respective state agency. In compiling their data, a few state agencies erroneously included non-prescription drugs and pharmaceutical supplies, but believe the amount of these items is nominal. Entities cited various reasons for purchasing drugs through non-prime vendor sources. The two most common reasons they used other sources were that the drug was not in stock when the order was placed or the prime vendor did not offer the drug. State entities also stated that they purchased drugs through other sources for reasons such as the prime vendor would not allow one of its facilities to purchase drugs due to the lack of pharmacy and Drug Enforcement Administration licenses, or it could obtain much lower prices using the Federal Supply Schedule program. General Services stated that it did not have insight into the amounts and kinds of drugs that entities were purchasing through other sources and therefore has not analyzed these purchases. Under the General Services’ contract, the prime vendor must stock those drugs under contract. If the prime vendor causes a distribution facility to be out of stock, the facility must determine the availability from other distribution facilities with available stock and deliver the product within 24 hours of the order at no 4400 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4411 additional cost. The contract also states that if the manufacturer cannot supply the product, ordering pharmacies may ask the prime vendor to locate available stock and ship the product within 24 or 48 hours at the contract price plus a shipping fee. Without knowing the amounts and reasons entities purchase Without knowing the drugs through other sources, General Services is unable to ensure amounts and reasons that the prime vendor is complying with the contract terms. entities purchase drugs through other sources, Most entities that were required to purchase drugs through General Services is unable General Services’ bulk purchasing program noted that they also to ensure that the prime can purchase drugs that are not available through this program vendor is complying with from other sources by using the delegated authority General the contract terms. Services grants them. State law requires General Services to establish a program for delegating the authority to acquire goods to state departments that meet specific requirements, including establishing written policies and procedures for ensuring competitive purchasing, establishing written policies and procedures for training personnel in purchasing, and designating an agency officer as responsible and accountable for the agency’s purchasing program. General Services has granted most state departments a delegated authority to purchase $25,000 in goods per transaction and says that because drugs are considered goods, they can be purchased through the delegated authority if they are not available through General Services’ bulk purchasing program. Because Corrections, the Youth Authority, Developmental Services, and Mental Health are able, under this delegated authority, to purchase prescription drugs that are not available through the bulk purchasing program, General Services does not have information concerning the volume, type, and cost of prescription drugs that these agencies purchase outside the bulk purchasing program. For example, although Developmental Services did not provide detailed supporting documentation for the more than $6 million of its drug purchases from non-prime vendor sources, our review of the documents that it did provide shows that some drugs were purchased by its centers using agreements that they enter into with manufacturers in the event drugs are not available through General Services’ contracts. Additionally, the developmental centers also appear to purchase drugs through General Services’ Leveraged Procurement Agreements program, which is designed to streamline state purchases by removing repetitive, resource intensive, costly and time consuming bid processes by departments. However, Developmental Services’ data is not sufficient to determine how much of its more than $6 million drug purchases were made using these or other methods. 4400 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4411 Given that the legislative intent of this program was to achieve cost savings by having General Services act as a centralized purchasing agent, it would be beneficial if General Services were to ask those departments that otherwise must participate in the bulk purchasing program to notify it of the volume, type, and price of prescription drugs they purchase outside of the bulk purchasing program. By having this information, General Services would be able to make more informed decisions concerning the operation of the bulk purchasing program and would be able to expand the program to include those prescription drugs that best serve the needs of these departments. The provisions of the bulk purchasing program that authorize General Services, in consultation with those departments that must participate in the program, to “investigate and implement other options and strategies to achieve the greatest savings on prescription drugs with prescription drug manufacturers and wholesalers” could reasonably be interpreted to allow General Services to request this information from those departments. General Services Has Only Partly Implemented Prior Audit Recommendations Aimed at Reducing Drug Costs In a January 2002 report, State of California: Its Containment of Drug Costs and Management of Medications for Adult Inmates Continue to Require Significant Improvements, the bureau concluded that General Services could do more to reduce prescription drug costs. General Services has not fully implemented any of the bureau’s three recommendations. First, opportunities still exist for it to place more drugs on contract with drug manufacturers. Second, it is unable to demonstrate that it has completed an analysis to broaden the coverage of drugs it can provide by joining other alliances or directly contracting with a group purchasing organization. Third, it has not fully considered how to identify and mitigate barriers to enforcing a statewide formulary to create competition among drug manufacturers. If General Services had implemented the last two audit recommendations that would increase the number of drugs on contract, it might have been able to reduce the amount spent on prescription drugs purchased at the prime vendor’s price even further. Although General Services Has Made Progress, it Still Needs to Negotiate More Contracts With Drug Manufacturers In our January 2002 report, the bureau recommended that General Services increase its efforts to solicit bids from drug manufacturers to obtain more drug prices on contract. At that time, General Services had about 850 drugs on contract, but during most of fiscal 4422 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4433 year 2003–04 had only 665 drugs on contract. General Services states that because of limited resources, it is focusing on negotiating contracts with manufacturers of high-cost drugs. It also points out that it has access to more than 3,000 drugs under its contract with the alliance, yet as shown in Figure 3, 48 percent of state agencies’ drug purchases, or almost $83 million, were at the prime vendor’s prices rather than General Services’ contract prices. FIGURE 3 State Agencies’ Drug Purchases Using General Services’ Contracts, Alliance, or Prime Vendor’s Prices for Fiscal Year 2003–04 ��������������������������� ��������������������������� ����������� ���������������� ����� ������������ ���������������� ����������� ����� ������������������������ ������������������������� Source: General Services’ prime vendor invoice data at the drug ingredient cost level for fiscal year 2003–04. This is an improvement from our prior audit findings, which indicated that over five fiscal years, on average, 60 percent of drug purchases were at the prime vendor’s wholesale acquisition cost. However, opportunities still exist for General Services to increase the amount of purchases made under contract with drug companies. General Services Was Not Able to Demonstrate That It Fully Analyzed How to Improve Its Procurement Process General Services was unable to provide documentation demonstrating that it addressed another recommendation: that it fully analyze measures to improve its procurement process, such as joining the Minnesota Multistate Contracting Alliance for Pharmacy (MMCAP) or contracting directly with a group-purchasing organization. General Services does contract with the alliance, but that contract covers only 16 percent of the drug purchases state 4422 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4433 departments made. With state departments purchasing almost half their prescription drugs at the prime vendor’s price, General Services stands to reap benefits for the State by figuring out additional ways to procure prescription drugs. With many drugs left uncovered by either a contract or the alliance, we also recommended the analysis include from each organization being considered the availability of drugs General Services lacked contracts for and the possible savings from spending less administrative time trying to secure additional contracts directly with drug manufacturers. A July 2000 state law had suggested that Corrections, in cooperation with General Services, should consider membership in MMCAP or other cooperative purchasing arrangements with other governmental entities. However, it was not until January 2001 that state law reaffirmed General Services’ legal authority to consolidate the needs of multiple state agencies for goods such as drugs and gave it new authority to maximize its buying power by establishing contracts, master agreements, and cooperative agreements, including agreements with entities outside the State. Our 2002 report pointed out that General Services did not perform a thorough analysis of its options before contracting Our 2002 report pointed with the alliance. Rather, its analysis of the alliance’s group- out that General Services purchasing organization’s prices did not focus on the primary did not perform a purpose for using a group-purchasing organization: to obtain thorough analysis of its better prices for its drugs not on contract. In its January 2003 options before contracting follow-up response to our audit, General Services stated it was with the alliance. performing a detailed effectiveness review of its pilot project with the alliance, which entailed an analysis of MMCAP’s procurement information and a market survey to provide insight on the advantages the State could derive from relationships with different group purchasing organizations. However, General Services could not provide us with the results of its effectiveness review of the pilot project because a former pharmaceutical consultant performed the review and the data and survey historical information were not available. Instead, General Services provided us with an informal analysis that calculated savings by computing the difference between the contract price and the prime vendor’s wholesale acquisition cost for drugs purchased between December 2004 and February 2005. Based on its analysis, General Services concluded that projected savings from its contracts with manufacturers and the alliance over the course of 12 months would total almost $25 million. Our review of General Services’ analysis found its projection includes almost $1.2 million in savings attributable to non-prescription drug purchases. 4444 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4455 General Services recognizes that it can do more to ensure that its strategies result in the lowest possible cost to the State. It views its contract with the alliance as a supplemental alternative to its other contracting efforts, to be used if it cannot secure more favorable prices through its direct manufacturer negotiations or the prime vendor. In September 2004, General Services hired a contractor to analyze state spending and identify opportunities to generate savings. General Services’ resources are directed toward working with the contractor to award a new prime vendor contract, to award a pharmacy benefits manager contract to provide pharmaceuticals to those parolees who continue to receive mental health treatment as a condition of their parole, and to negotiate new and renegotiate existing contracts with certain manufacturers. General Services stated that, as resources become available, it intends to solicit bids to contract directly with a group-purchasing organization to determine if additional savings can be realized beyond the savings generated by the alliance. General Services Has Not Fully Considered How to Identify and Mitigate Obstacles to Enforcing Its Statewide Formulary In its prior audit, the bureau also recommended that General Services fully consider and try to mitigate all obstacles that could prevent the successful development of a statewide formulary, such as departments not strictly enforcing such a formulary at their institutions. However, although it has developed a General Services does statewide formulary, General Services has not identified the not believe its role is to obstacles to enforcing it. General Services has not required enforce the formulary, but departments to adopt a policy requiring strict adherence to the goals of a statewide the statewide formulary and does not monitor departments’ formulary in reducing drug adherence to the formulary. General Services does not believe costs cannot be realized its role is to enforce the formulary, but the goals of a statewide without such enforcement. formulary in reducing drug costs cannot be realized without such enforcement. A drug formulary is a list of drugs and other information representing the clinical judgment of physicians, pharmacists, and other experts in the diagnosis and treatment of specific conditions. A main purpose of a formulary is to create competition among manufacturers of similar drugs when the clinical uses are roughly equal. However, the success of a statewide formulary and the State’s ability to create enough competition to negotiate lower drug prices for certain products depends on how well state departments adhere to the formulary when they prescribe drugs. 4444 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4455 During our prior audit, General Services was in the early stages of developing a statewide formulary. In October 2001, the Common Drug Formulary Committee (Formulary Committee) composed of medical and pharmacy representatives from Corrections, Developmental Services, Mental Health, and Youth Authority, as well as the state university system, held its first meeting to discuss the development of a statewide formulary. The Formulary Committee agreed to work with the existing Pharmacy and Therapeutic committees, which are responsible for developing, managing, updating, and administering their drug formulary systems at the individual departments. According to General Services, the Formulary Committee began meeting regularly in October 2001, with General Services serving as the facilitator. General Services states that the role of committee members is to decide what drugs will be included in the formulary, provide data from their respective departments to support General Services’ contracting process, and serve as a conduit between General Services and their departments’ pharmacy staffs. To help establish inter-department requirements, General Services created the Pharmacy Advisory Board (Board), which held its first meeting in September 2002. Appointed by department directors, the Board is composed of representatives of state departments that maintain pharmacy programs. According to General Services, one of the Board’s roles is to facilitate the implementation and administration of guidelines, procedures, policies, and contracts developed in agreement between the Board and General Services. The Formulary Committee is now a subcommittee of the Board. Issues of significance relative to a specific department are elevated to the department representative on the Board. Furthermore, General Services believes that any obstacles to preventing the success of the statewide formulary have been addressed through its collaborative and cooperative process with members of the Formulary Committee and Board. Despite these efforts, a complete statewide formulary did not exist until January 2005. General Services cited a variety of reasons for why it took so long to complete the formulary. For example, it stated that there were various challenges inherent in bringing five different departments together with competing goals and populations to serve, such as some departments wanting the formulary to only cover a few therapeutic classes and each department to retain their own individual formularies, while other departments wanted the formulary to be the main formulary for all state departments and only items unique to each department to be excluded. According to General Services, 4466 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4477 because of these kinds of debates, it often takes months for the members of the Formulary Committee to come to agreement. In addition, General Services stated that the selection of drugs from a therapeutic category is a long and difficult process, requiring data collection from each department, analysis of the data by the Formulary Committee and each department, and then the Formulary Committee’s discussion and selection of drugs to include. For example, General Services stated it took approximately six months to develop a protocol for selection of the first therapeutic class and get approval from the Formulary Committee, evaluate the efficiency of the drugs, and negotiate contracts for this first therapeutic class of drugs, atypical antipsychotics, to be included in the formulary. In addition, neither General Services, nor the Board, nor the Formulary Committee has adopted policies and procedures Neither General Services to require adherence to the statewide formulary. According nor the Board, nor the to General Services, it does not view its role as requiring Formulary Committee state agencies to adhere to the formulary by acting as an has adopted policies enforcement entity. Instead, General Services views its role as and procedures to being limited to securing drugs through contract negotiations require adherence to the and competitive procurements and facilitating the development statewide formulary. and maintenance of the statewide formulary. Although General Services sends each pharmacy a copy of drug contracts and indicates that purchasing contracted items is mandatory, it states that departments are responsible for managing their own day-to-day operations, including adherence to the formulary. Yet, despite agreement in the Formulary Committee’s May 2004 meeting that departments are to formalize a plan to maintain compliance with their formulary commitment, as of May 2005, only one department, Development Services, had submitted a preliminary plan for implementing the formulary and only one department, Mental Health, had developed official guidelines, policies, or procedures for formulary adherence. Corrections stated that it is in the process of developing a plan, but is awaiting the final determination of some critical issues. The Youth Authority stated that it is in the process of developing policies and expects to have them in place by September 2005. Further, although one of the Formulary Committee’s primary goals is to develop guidelines, procedures, and policies for the administration of the drug formulary, according to General Services, neither the Formulary Committee nor the Board has established any policies and procedures. General Services stated that it has been focusing on formulary development and providing data to support contracting activities. General Services also stated that policies and procedures will be addressed at a 4466 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4477 future point when resources can be directed to administrative duties. Without guidelines, policies, and procedures to require the departments’ adherence to the statewide formulary, it is unclear whether the State can create enough competition to negotiate lower drug prices for certain products or how well state departments adhere to the formulary when they prescribe drugs. HEALTH SERVICES NEEDS TO IMPROVE THE ACCURACY OF ITS PHARMACY REIMBURSEMENT CLAIM DATA Our review found that Health Services sometimes uses incorrect information when paying pharmacies. In several instances Health Services’ payments to pharmacies were based on outdated or incorrect information. Although Health Services began corrective action after we brought the issues to its attention, its analyses to quantify the full extent and dollar impact of these errors was not complete as of April 2005. Health Services-processed pharmacy claims in fiscal year 2003–04 contained outdated drug prices. Health Services receives updates from a pricing clearinghouse and changes its prices monthly. One factor that Health Services uses to determine the appropriate drug price for a claim is the date of service. Specifically, Health Services uses this date to query its pricing file and identify the price in effect during the date of service on the claim. However, Health Services holds the price updates it receives from its primary reference source until the subsequent month because its budgetary authority only allows for monthly updates. Additionally, Health Services did not update its prices to reflect the elimination of the direct pricing method, which was the price listed by Health Services’ primary or secondary reference source or the principal labeler’s catalog for 11 specified pharmaceutical companies. Despite state law eliminating this method as of December 1, 2002, Health Services continued to use it during fiscal year 2003–04 to reimburse Health Services did pharmacies. Health Services stated that the system change error not update its fiscal related to the direct pricing method occurred prior to the July 2003 year 2003–04 prices to implementation of its fiscal intermediary’s Integrated Testing Unit, reflect the elimination which is responsible for performing comprehensive tests of system of the direct pricing changes to prevent program errors. method, despite state law eliminating this method Health Services also incorrectly calculated drug prices. Specifically, as of December 1, 2002. during fiscal year 2003–04, state law required Health Services to reimburse pharmacies for each drug’s ingredient cost at the lowest of three predetermined rates or, if lower, the usual and customary rate the pharmacies charge the general public. One of the three predetermined rates was the AWP minus 10 percent. Our 4488 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4499 recalculation of the 173,440 drug prices in Health Services’ pricing files identified almost 16,000 with discounts off the AWP that were not 10 percent. Additionally, we found that for roughly 2,100 of these drug prices the prices were even higher than the AWP. When we brought this issue to Health Services’ attention, it was unaware of the error and could not explain why it occurred. However, Health Services believes that the Integrated Testing Unit will be able to detect these type of errors in the future. Health Services had not determined the full extent of these problems as of April 2005. Specifically, Health Services communicated the problems to its fiscal intermediary to correct those claims affected by these errors, but the corrections had not been made as of April 2005. Therefore, Health Services is unable to fully quantify the extent and dollar impact of these errors. Health Services’ fiscal intermediary estimated that less than 40,000 claims are affected by these errors, of which only 2 percent could have resulted in inaccurate payments. Our analyses of Health Services’ fiscal year 2003–04 prescription drug claims included more than 47 million claims, so we would not expect these erroneous claims to have a significant overall impact on our analyses. CANADA GENERALLY OBTAINS LOWER PRICES ON PRESCRIPTION DRUGS IN OUR SAMPLE THAN THE UNITED STATES AND CALIFORNIA As discussed in the Introduction, the Canadian government, the United States government, and California state departments use various methods for procuring prescription drugs. To compare our state departments’ prescription drug costs with those of the United States government and Canadian government, we identified a list of comparable drugs from our analysis of our state departments For the 33 drugs in and requested the net drug ingredient cost of these drugs from which a Canadian select United States and Canadian entities. Our comparison of entity obtained the 57 prescription drugs shown in Table 2 on the following page lowest price, the prices indicates that Canadian government entities obtained the lowest ranged from 4.5 percent prices for 33 drugs, or 57.9 percent, while the United States to 255 percent lower government and California state departments obtained the lowest than the lowest United prices 31.6 percent and 10.5 percent, respectively.13 For the 33 drugs States and California in which a Canadian entity obtained the lowest price, the prices government prices. ranged from 4.5 percent to 255 percent lower than the lowest United States and California government prices. 13The FDA identifies each drug as a unique drug with its own National Drug Code (NDC) that is specific to manufacturer and product and includes the drug’s specific strength, dosage form, formulation, and trade package size. Although we requested that the United States and Canadian government entities provide cost for 100 drugs for net drug ingredient cost, we were unable to compare some drugs due to incomplete or inconsistent information. 4488 California State Auditor Report 2004-033 California State Auditor Report 2004-033 4499 TABLE 2 Which Government—California, the United States, or Canada—Obtained the Lowest Price for 57 Prescription Drugs State of United States Canadian Entity or Method Receiving Label Name and Dosage California Government Government the Lowest Price 1 ZYPREXA 2.5 MG TABLET X Province of Quebec 2 ZYPREXA 5 MG TABLET X Province of Quebec 3 ZYPREXA 10 MG TABLET X Province of Quebec 4 PRAVACHOL 20 MG TABLET X Restricted Federal Supply Schedule† 5 VIOXX 25 MG TABLET X Province of British Columbia 6 SINGULAIR 10 MG TABLET X Federal Supply Schedule; Restricted Federal Supply Schedule† 7 EFFEXOR XR 75 MG CAPSULE SA X Province of Quebec 8 EFFEXOR XR 150 MG CAPSULE SA X Province of Quebec 9 PROTONIX 40 MG TABLET EC X Department of Health Services* 10 CELEBREX 200 MG CAPSULE X Province of Quebec 11 CELEBREX 200 MG CAPSULE X Province of Quebec 12 CIPRO 500 MG TABLET X Province of Manitoba 13 AVANDIA 4 MG TABLET X Federal Ceiling Price; Restricted Federal Supply Schedule† 14 PAXIL 10 MG TABLET X Province of Manitoba 15 PAXIL 20 MG TABLET X Province of Manitoba 16 TOPAMAX 25 MG TABLET X Department of Health Services* 17 TOPAMAX 100 MG TABLET X Department of Health Services* 18 LEVAQUIN 500 MG TABLET X Department of Health Services* 19 ZOLOFT 50 MG TABLET X Province of British Columbia 20 ZOLOFT 100 MG TABLET X Province of British Columbia 21 SUSTIVA 600 MG TABLET X Federal Supply Schedule 22 NORVASC 5 MG TABLET X Federal Supply Schedule 23 NORVASC 10 MG TABLET X Federal Supply Schedule 24 LIPITOR 10 MG TABLET X Unable to determine‡ 25 LIPITOR 20 MG TABLET X Province of Quebec 26 LIPITOR 40 MG TABLET X Province of Quebec 27 NEURONTIN 600 MG TABLET X Federal Supply Schedule 28 NEURONTIN 800 MG TABLET X Federal Supply Schedule 29 NEURONTIN 600 MG TABLET X Province of British Columbia 30 NEURONTIN 100 MG CAPSULE X Province of Manitoba 31 NEURONTIN 300 MG CAPSULE X Provinces of Ontario and Manitoba 32 NEURONTIN 400 MG CAPSULE X Province of Manitoba 33 LAMISIL 250 MG TABLET X Province of British Columbia 34 TRILEPTAL 300 MG TABLET X Federal Ceiling Price 35 WELLBUTRIN SR 150 MG TAB SA X Department of Health Services* 36 EPIVIR 150 MG TABLET X Federal Ceiling Price 37 COMBIVIR TABLET X Federal Ceiling Price 38 LAMICTAL 100 MG TABLET X Province of Manitoba 39 ZIAGEN 300 MG TABLET X Federal Ceiling Price 40 TRIZIVIR TABLET X Unable to determine‡ 5500 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5511 State of United States Canadian Entity or Method Receiving Label Name and Dosage California Government Government the Lowest Price 41 PREVACID 30 MG CAPSULE DR X Blanket Purchase Agreement§ 42 SEROQUEL 100 MG TABLET X Province of British Columbia 43 SEROQUEL 200 MG TABLET X Province of British Columbia 44 SEROQUEL 300 MG TABLET X Province of Quebec 45 SEROQUEL 25 MG TABLET X Province of Quebec 46 CELEXA 20 MG TABLET X Province of Manitoba 47 CELEXA 40 MG TABLET X Province of Manitoba 48 VIRAMUNE 200 MG TABLET X Unable to determine‡ 49 FLOMAX 0.4 MG CAPSULE SA X Province of British Columbia 50 RISPERDAL 1 MG TABLET X Province of Ontario 51 RISPERDAL 0.5 MG TABLET X Province of Ontario 52 RISPERDAL 2 MG TABLET X Province of Ontario 53 RISPERDAL 3 MG TABLET X Province of Ontario 54 KEPPRA 500 MG TABLET X Department of Health Services* 55 RENAGEL 800 MG TABLET X Federal Supply Schedule 56 VIREAD 300 MG TABLET X Federal Supply Schedule 57 PLAVIX 75 MG TABLET X Province of Quebec Total number of times receiving the lowest price 6 18 33 Percentage of the time receiving the lowest price 10.5% 31.6% 57.9% Sources: State of California—weighted-average prices calculated by the Bureau of State Audits (bureau) for the period of July 2003 through June 2004. United States Government—pricing data for the period of July 2003 through June 2004 provided by the entities. The bureau did not audit the entities’ pricing data. Canadian Government—pricing data for the period of July 2003 through June 2004 provided by the entities, including their wholesalers’ markup. The bureau did not audit the entities’ pricing data. *California’s Department of Health Services was able to obtain the lowest prices for six drugs because of its rebates. For one drug, its weighted-average price was 283 percent lower than the lowest United States government price and 200 percent lower than the lowest Canadian government price. † Restricted federal supply prices are only available to certain entities and are typically lower than the Federal Supply Schedule program prices. ‡ One federal entity stated that its pricing data reflected the lowest price available through four pricing schemes. We were unable to determine the pricing scheme that resulted in the lowest price for the specific drugs in our sample. § Federal regulations allow entities to establish contracts to fill recurring needs for supplies and services. Canada’s lower prices result partly from efforts of its Patented Medicine Prices Review Board (Review Board). As discussed in the Introduction, Canada’s Patent Act and the Review Board’s regulations limit the prices of drugs patented in Canada. For example, the Review Board limits prices in Canada to the median of the prices for the same drugs charged in seven countries, including the United States and Sweden. However, the Review Board has no authority to regulate the prices of 5500 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5511 non-patented drugs, including generic drugs. Although our sample does not include generic drugs, according to a United States Food and Drug Administration white paper issued in November 2003, Canada’s prices for these drugs are typically higher than the United State’s prices. Canadian government entities use various strategies to lower their prescription drug costs. For instance, the Province of Quebec (Quebec) maintains a List of Medications (list) drawn up by its Minister of Health and Social Services. It includes all drugs whose cost is covered by Quebec’s basic prescription drug insurance plan. Quebec establishes prices on the list according to a guaranteed selling price whereby the manufacturer submits a guaranteed price, per package size, for each drug. The guaranteed selling price is the price for sales to pharmacists and serves, where applicable, in establishing the lowest price. The guaranteed selling price must not be higher than any selling price the manufacturer grants for the same drug under other provincial drug insurance programs and must remain in effect during the period for which the list is valid. Quebec pays the pharmacies the price shown on the list at the time they fill the prescription. If the manufacturer’s name does not appear on the list, the price Quebec pays is the pharmacist’s cost. For generic drugs that have been on its list 15 years or more, Quebec reimburses pharmacies at the lowest guaranteed selling price submitted by manufacturers. The Minister of Health and Social Services may also establish a maximum allowable cost for each drug. Quebec’s procurement strategies appear to be effective because as previously shown in Table 2, in 12 instances it was able to obtain the lowest price among all other entities. Due to Quebec’s policy that a manufacturer’s guaranteed selling price may not be higher than the selling price under other provincial drug insurance programs, we would expect The provinces of Ontario, its price to be the lowest among the provincial entities in British Columbia, and our comparison. However, this did not always occur due to Manitoba have policies procurement strategies used by the other provinces, such as the and programs in place reimbursement of lower-priced alternative drugs. Specifically, that limit their cost of the provinces of Ontario, British Columbia, and Manitoba have some prescription drugs policies and programs in place that limit their cost of some to the cost of similar prescription drugs to the cost of similar lower priced drugs. For lower priced drugs. instance, the Province of British Columbia’s (British Columbia) Low Cost Alternative Program limits the cost of prescription drugs to the price of the lowest priced drug among those drugs that have identical active ingredients. Its Reference Drug Program applies to drugs that are not identical but are part of 5522 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5533 the same therapeutic category and are used to treat the same conditions. Under this program, the drug insurance program obtains independent, expert advice on which prescription drugs within a group of similar medications are equally safe and beneficial, and the most cost-effective. The cost for the preferred drug will then be the price of the “reference drug” for the level of coverage that the insurance program will establish for any medication in that class, used to treat that condition. Finally, British Columbia has a maximum pricing policy whereby payments to pharmacies are based on the actual acquisition cost up to a maximum price of 7 percent above the manufacturer’s price for wholesale drugs. All pharmacies are subject to audits by British Columbia’s Ministry of Health Services, including audits of the actual acquisition cost of drugs. Those three strategies resulted in British Columbia receiving the lowest price for eight of 57 prescription drugs, in which the prices ranged from 15 percent to 157 percent lower than the lowest United States and California government prices. Federal Law Strictly Limits the Importation of Prescription Drugs As mentioned in the Introduction, some states have addressed the importation of prescription drugs in recent legislation. However, because current federal law strictly limits the importation of prescription drugs through the federal Food, Drug, and Cosmetic Act (Drug Act), the federal Food and Drug Administration (FDA) contends that nearly all prescription drugs imported into the United States are illegal. Still, some states have considered or implemented importation programs. For example, in the 2004 session, the California Legislature passed a bill that would have allowed General Services to purchase prescription drugs from authorized Canadian pharmacies and sources. Although the governor later vetoed that bill, the FDA maintains that federal law would preempt any state law legalizing the importation of prescription drugs in contravention of the Drug Act. Among other things, the Drug Act makes the FDA responsible for ensuring the safety and effectiveness of prescription medications. Containing a number of provisions relating to new drug approvals, labeling, and dispensing, the Drug Act strictly limits the ability of prescription drugs made for a foreign market to comply with existing statutory requirements. For instance, the Drug Act requires that all words, statements, and other information required on the label of the product appear in English. In a review of 68 drugs ordered from domestic 5522 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5533 and foreign-based Internet pharmacies, the Government Accountability Office (GAO) found numerous instances in which imported drugs did not meet all the Drug Act’s approval, labeling, and dispensing requirements. The GAO found that not all drugs were approved for the U.S. market, labeling did not always provide warning information or instructions for use, and some drugs did not contain a chemical composition comparable to the product the GAO ordered. Also, in three instances the GAO received drugs requiring temperature-controlled environments The Drug Act explicitly in envelopes without insulation. prohibits anyone other than the original The Drug Act also addresses prescription drug importation, U.S. manufacturer from explicitly prohibiting anyone other than the original reimporting prescription U.S. manufacturer from reimporting prescription drugs. Thus, drugs back into the even when the drug originally is manufactured in the United United States. States, is sent abroad, and meets the Drug Act’s requirements, only the original manufacturer may import the drug back into the United States. Under the Drug Act, violators of this provision may be subject to fines or imprisonment or both. According to the FDA, Congress enacted the Drug Act’s provisions to create a relatively “closed” drug system, which helps ensure a safe and effective drug supply in the United States. In a letter to California’s Office of the Attorney General in August 2003, the FDA stated that it is extremely unlikely that any program in California could meet all the Drug Act’s legal requirements for importing prescription drugs. The FDA also stated that the Drug Act preempts the state of California (and any city or county within the State) from passing legislation legalizing the importation of certain drugs from Canada that do not meet the Drug Act’s requirements. The FDA further advised that California entities importing drugs in violation of the Drug Act’s requirements would be subject to liability under the statute, regardless of whether the State sanctioned the importation. In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Congress authorized the FDA to allow individuals to import prescription drugs from Canada for personal use under certain circumstances, provided the Secretary of Health and Human Services (Secretary) certifies that importation is safe and cost effective. Although the Secretary has not yet made this certification, the FDA has an existing enforcement policy that allows for individuals to import limited amounts of prescription drugs for personal use. The policy applies to products that do not present an unreasonable health risk and that are intended to treat a serious condition for 5544 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5555 which effective treatment may not be available domestically. However, the FDA states that this policy is not a license for individuals to import violative items, such as unapproved (and therefore illegal) drugs. The policy only describes the agency’s enforcement priorities and is not intended to change the existing law. Current Federal Law Also Prevents California State Agencies from Accessing Certain Federal Pricing Arrangements As shown in Table 2 on pages 50 and 51, the results of our analysis found that the federal entities in our review achieved Federal law generally more instances of the lowest price than California state departments. restricts access to the However, similar to the way federal law limits California’s ability Federal Supply Schedule to import Canadian prescription drugs, federal law also limits program of the General its access to certain federal pricing arrangements. For instance, Services Administration federal law generally restricts access to the Federal Supply Schedule to numerous federal program (supply schedule) of the General Services Administration to entities, the District numerous federal entities, the District of Columbia, U.S. territories, of Columbia, U.S. international organizations, and qualified nonprofit agencies.14 territories, international Additionally, the Veterans Healthcare Act of 1992 (Veterans Act) organizations, and establishes maximum prices for drugs procured by the federal qualified nonprofit Department of Veterans Affairs, Department of Defense, the agencies. Public Health Services, and the Coast Guard, the “Big 4”. The Veterans Act also establishes the 340B program for covered entities such as federally qualified health centers, state-operated AIDS drug purchasing assistance programs, and certain hospitals. Although current federal law generally does not allow states and local governments to purchase prescription drugs from the supply schedule, the issue of making the supply schedule available to states and local governments has been considered for at least a decade. In 1994 the 103rd Congress enacted the Federal Acquisition Streamlining Act of 1994 (Acquisition Act) that authorized the administrator of the General Services Administration (administrator) to provide for use of the supply schedule by state, local, and Indian tribal governments and the Commonwealth of Puerto Rico to purchase pharmaceuticals and other goods and services from the supply schedules. The General Services Administration proposed a plan for implementing this law in the Federal Register on April 7, 1995. However, the 14Section 211 of the E-Government Act of 2002 amends federal law to authorize the administrator of the General Services Administration to provide states or local governments limited access to certain federal supply schedules. Specifically, states and local governments can only procure from the information technology federal supply schedules contracts and Consolidated Products and Services Schedule contracts containing information technology special item numbers. 5544 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5555 administrator made a determination that it would not be in the best interest of the federal government to make the schedule for drugs and pharmaceutical products, as well as one of the schedules for medical equipment and supplies, available to non-federal users. The administrator indicated that certain unique statutory requirements established in the Veterans Act, when combined with the cooperative purchasing provisions in the Acquisition Act, would have the unintended effect of increasing costs to the federal users of the schedules. The 104th Congress enacted a law to delay expanding access to the supply schedules and to direct the Comptroller General to The GAO stated that submit a report to the administrator and Congress assessing the the effects of opening effects that the legislation may have on the industry, such as the supply schedule for small businesses, and the entities using the supply schedules. pharmaceuticals on In the GAO’s June 1997 report in response to this request, the schedule prices would GAO stated that the effects of opening the supply schedule ultimately depend on the for pharmaceuticals on schedule prices would ultimately outcome of negotiations depend on the outcome of negotiations between the federal between the federal Department of Veterans Affairs and drug manufacturers. Further, government and the GAO stated that because of the uncertainties related to drug manufacturers. these negotiations, it is not possible to predict how the supply schedule drug prices would change or what the ultimate impact on federal, state, and local purchasers would be. However, the GAO stated that if drug manufacturers succeeded in raising their schedule prices in response to the expanded access, the impact on different government purchasers would vary. For instance, although Big 4 entities would have some protection against price increases because the Veterans Act sets maximum prices for these entities for certain drugs on the supply schedule, other federal purchasers would not have that protection. Meanwhile, state and local purchasers would benefit to the extent that supply schedule prices were lower than the prices they or their representatives could negotiate with drug manufacturers. Ultimately, the 105th Congress repealed the section of the Acquisitions Act that made supply schedules available to state, local, and Indian tribal governments and the Commonwealth of Puerto Rico. Although federal law limits access to certain pricing arrangements, California state entities still benefit from federal procurement methods. Specifically, under federal law, California’s Medi-Cal fee- for-service system can receive rebates negotiated by the federal Centers for Medicare and Medicaid Services in negotiations with manufacturers. As of January 2005, Health Services received approximately $1.1 billion in federal rebates for fiscal year 2003–04. 5566 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5577 Additionally, California’s AIDS Drug Assistance Program is eligible to receive 340B pricing because it provides drugs to HIV-infected individuals age 18 or older who could not otherwise afford them. RECOMMENDATIONS The Legislature should consider enacting legislation that would allow CalPERS to obtain relevant documentation to ensure that it is receiving all rebates to which it is entitled to lower the prescription drug cost of the health benefits program established by the Public Employees’ Medical and Hospital Care Act. CalPERS should continue to explore various contract negotiation methods that would yield more rebates for the drugs it purchases and that would allow it to achieve greater disclosure requirements to verify that it is receiving all of the rebates to which it is entitled. To ensure that state departments purchasing drugs through General Services’ contracts are obtaining the lowest possible drug prices, General Services should: • Seek more opportunities for departments to receive rebates by securing more rebate contracts with manufacturers. • Continue its efforts to obtain more drug prices on contract by working with its contractor to negotiate new and renegotiate existing contracts with certain manufacturers. • Follow through on its plan to solicit bids to contract directly with a group-purchasing organization to determine if additional savings can be realized. However, in doing so it should thoroughly analyze its ability to secure broader coverage of the drugs state departments purchase by joining MMCAP. The analysis should include the availability of current noncontract drugs from each organization being considered and the savings that could result from spending less administrative time trying to secure additional contracts directly with drug manufacturers. • General Services should facilitate the Formulary Committee and Board’s development of guidelines, policies, and procedures relating to the departments’ adherence to the statewide formulary and ensure that departments formalize their plans for compliance. 5566 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5577 In order to make more informed decisions concerning the operation of its prescription drugs bulk-purchasing program and to be able to expand the program to include those prescription drugs that best serve the needs of state departments, General Services should ask those departments that are otherwise required to participate in the bulk purchasing program to notify General Services of the volume, type, and price of prescription drugs they purchase outside of the bulk purchasing program. To improve its procurement of prescription drugs, Health Services should continue to work toward fully implementing the recommendations listed in Appendix B. To ensure that it reimburses pharmacies the appropriate amounts for prescription drug claims, Health Services should: • Analyze the cost-effectiveness of increasing the frequency of its pricing updates. If this analysis shows that it would be cost effective to conduct more frequent updates, Health Services should seek budgetary authority to do so. • Identify prescription drug claims paid using the direct pricing method, determine the appropriate price for these claims, and make the necessary corrections. • Ensure that the fiscal intermediary’s Integrated Testing Unit removes future outdated pricing methods promptly. • Make the necessary corrections to the claim data to adjust for the incorrect data in the estimated acquisition cost and AWP percent field. • Ensure that its fiscal intermediary’s Integrated Testing Unit verifies that, in the future, drug prices in the pricing file are calculated correctly before authorizing their use for processing claims. 5588 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5599 We conducted this review under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. We limited our review to those areas specified in the audit scope section of this report. Respectfully submitted, STEVEN M. HENDRICKSON Chief Deputy State Auditor Date: May 26, 2005 Staff: Joanne Quarles, CPA, Audit Principal Mike Tilden, CPA Robert C. Cabral, CPA, CIA, CISA Nicholas Almeida Jenner Holden Jonnathon Kline Alysha Loumakis-Calderon Kris Patel Loretta T. Wright, CISA 5588 California State Auditor Report 2004-033 California State Auditor Report 2004-033 5599 Blank page inserted for reproduction purposes only. 6600 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6611 APPENDIX A Methodology Used by the Bureau of State Audits to Calculate Prescription Drug Costs To determine and compare the prices paid for prescription drugs by the Department of Health Services (Health Services), the California Public Employees’ Retirement System (CalPERS), and the Department of General Services (General Services), we obtained and analyzed their fiscal year 2003–04 pharmaceutical claim or invoice data. The claim or invoice data includes dispensing fees, co-payments, and third-party payments, if applicable. The departments or their contracting entities provided the claim data as well as information necessary for us to calculate or estimate discounts and rebates on a per claim basis. We interviewed the department’s and contracting entities’ staff and reviewed data processing system information to determine how to calculate each of the three costs we used in our analysis—drug ingredient cost (ingredient cost), net drug ingredient cost (net ingredient cost), and net cost to the State (state cost)—for their drug purchases. In the subsequent sections we describe specific steps taken to compute the three costs for each department. We also performed general procedures for all the departments as follows: • Assessed the reliability of data we received, using criteria from the Government Accountability Office’s Assessing the Reliability of Computer-Processed Data or “Gray Book.” Specifically, we interviewed IT and pharmacy staff, performed electronic testing on relevant data fields, and reviewed corroborating evidence such as control totals and source documents. We determined that the claim and rebate data were sufficiently reliable for the purposes of this audit. • Assessed the reliability of the First DataBank Inc. data used in our analysis. First DataBank Inc., a health care database, provides Health Services’ fiscal intermediary with identifying drug information, such as label name, dosage, therapeutic class, and brand versus generic classifications. We traced a sample of drugs listed in First DataBank Inc. data, and their corresponding descriptions, to the federal Food and Drug Administration’s 6600 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6611 (FDA) National Drug Code Directory. The FDA identifies each drug as a unique drug with its own National Drug Code (NDC) that is specific to manufacturer and product and includes the drug’s specific strength, dosage form, formulation, and trade package size. The First DataBank Inc. data was used to determine comparable prices among departments, when necessary. Specifically, we derived a per package price by calculating the price per unit, then multiplying the per unit price by the package size listed for the NDC in the First DataBank Inc. directory. For example, if an NDC is listed as a package size of 30 tablets and the claim is for 10 tablets, we calculated the per tablet price and multiplied it by 30 to compare per package prices for the common NDC among departments. We used this method to calculate and compare the weighted average prices per package for the common NDCs by each of the three costs. For each of these common NDC lists, we calculated the weighted average prices—weighted on the quantities of drugs purchased at each of the various prices— paid by each department for each of the three costs and compared the prices paid among the departments for each common NDC. • We excluded certain claim data for drugs. For example, we compared the NDCs for each claim to the First DataBank Inc. directory of NDCs and included only those claims where the NDC matched the directory. We excluded claims associated with compounded prescriptions because they are a combination of two or more drugs and do not have unique NDC numbers, thus, making the comparison of these drugs infeasible. We also excluded those drugs the First DataBank Inc. directory defined as not requiring a prescription because prescription drugs are the focus of our audit. We then identified the top 500 drugs for each department by NDC and ranked the list by total dollars paid for each of our calculated costs—ingredient cost, net ingredient cost, and state cost. Health Services expressed concerns with presenting its top 500 drugs using net ingredient costs because federal law prohibits it from disclosing data in a form that reveals the manufacturer or prices charged by the manufacturer. Therefore, Table A.1 beginning on page 66 presents Health Services’ top 500 drugs based on ingredient costs. However, because Health Services’ federal and state supplemental rebates can reduce its prescription drug costs substantially, Table A.1 also presents, on an aggregate basis, the total net ingredient costs for these top 500 drugs. Unlike Health Services, General Services’ and CalPERS’ entities did not express concerns with presenting their 6622 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6633 top 500 drugs using net ingredient costs. Therefore, Tables A.2 and A.3 beginning on pages 77 and 88, respectively, present the top 500 drugs for CalPERS and General Services, based on net ingredient cost, which represents a more accurate depiction of the department’s expenditures. We compared the top 500 lists for each department to identify the common NDCs that Health Services, CalPERS entities, and General Services spent the most on during fiscal year 2003–04. We performed this comparison separately for each of the three costs and present the results on pages 29 through 38. Calculation of Prescription Drug Costs for Health Services Health Services provided us with drug claim data that we used to identify those claims that were specific to its Medi-Cal fee- for-service system. The drug claims included the ingredient cost, dispensing fees, and payments from other parties. The claim data were for drugs dispensed and billed by pharmacies during our audit period. We also obtained summary level rebate data to determine per unit rebate amounts for each drug. We obtained the ingredient cost directly from the claim data, which is based on Health Services’ various reimbursement methods that we discuss in the Introduction. We then calculated the net ingredient cost by subtracting rebates from the ingredient cost. Health Services obtains two types of rebates that are applicable to the claims in our analysis—federal Medicaid and state supplemental rebates it negotiates. Using Health Services’ data on rebates billed and received, we matched the unit rebate amounts billed for specific drugs in each quarter of our audit period to the claim data and calculated the total rebate amount for each claim. We calculated the state cost by adding dispensing fees and subtracting rate reductions, patient liability amounts, and third-party insurance liability amounts. Specifically, we subtracted from the net ingredient cost Health Services’ 50-cent-per-claim reduction, which decreases to 10 cents if the prescription is provided at a long-term care facility. In addition, we subtracted any applicable patient or other insurance liability amounts. Lastly, we added a dispensing fee of $4.05 to each claim. As we discuss on pages 36 to 38, Health Services does not deduct co-payments from its pharmacy reimbursement rate. 6622 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6633 Calculation of Prescription Drug Costs for CalPERS For CalPERS, we obtained either directly from certain entities it contracts with to provide pharmacy services to its members or from the State Controller’s Office, claim data including the ingredient cost, dispensing fees, and co-payment amounts. We limited our analysis to state employee claims, unless the claims data did not allow us to distinguish between state employees, local government employees, or other CalPERS members. To provide drugs to CalPERS members, these entities contract with retail pharmacies and reimburse them based on negotiated rates. These entities also make available to CalPERS’ members the use of mail service pharmacies, which they reimburse using similar payment methods. The ingredient cost is the price found in the entities’ contracts with the pharmacies, such as average wholesale price or wholesale acquisition cost plus or minus a specified percentage or a maximum allowable cost for generic drugs. Each entity provided us with the information necessary to calculate the amount of manufacturer rebates for each drug. We subtracted these calculated rebates from the ingredient cost to determine net ingredient cost. For state cost, we added dispensing fees to and subtracted co-payments from the net ingredient cost. Because these entities do not collect third-party payments for drug claims, this was not a factor in our calculation of state cost. Calculation of Prescription Drug Costs for General Services For General Services we used two data sets to calculate its ingredient costs. We obtained transaction level invoice data for drug purchases from the prime vendor and summary level invoice data from General Services. We removed transactions for non-drug items, over-the-counter drugs, and vendor fees. We used the vendor’s invoice prices before applicable discounts to calculate ingredient cost. To calculate net ingredient cost, we deducted applicable contract discounts and rebates from the ingredient cost for each transaction. General Services contracts with four manufacturers for discounts relating to certain drugs. We used these state pharmaceutical contracts to calculate the drug claim discount amounts. General Services also contracts for drug rebates with one pharmaceutical manufacturer. Although neither General Services nor the manufacturer provided us with transaction level data for these rebates, General Services provided summary level rebate data that we used to calculate rebates according to 6644 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6655 terms of the contract. We subtracted these discounts and rebates from ingredient costs when calculating net ingredient cost. We did not, however, subtract a small cash discount that state agencies can receive from the prime vendor for timely payment because we were unable to identify the invoices that were affected by the discount. Further, although General Services also receives rebates through a group-purchasing organization, neither General Services nor the group-purchasing organization could provide us with sufficient information to enable us to apply these rebates to the transaction level data. Nevertheless, we determined that because the amount of rebates received by General Services through the group-purchasing organization was nominal, the absence of these rebates would not significantly impact the overall net ingredient cost calculations for General Services. For these reasons, we did not include rebates from the group-purchasing organization in the calculations of net ingredient cost. General Services’ net ingredient cost and state cost remained the same because unlike CalPERS and Health Services, the pricing information used for General Services in this analysis does not include any of the state agencies’ costs associated with dispensing the prescription drugs nor any co-payments these agencies may collect. 6644 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6655 TABLE A.1 Health Services’ Top 500 Prescription Drugs by NDC Represented Nearly 80 Percent of Its Total Net Drug Ingredient Cost for the Period July 1, 2003, Through June 30, 2004 Rank Label Name Dosage Drug Ingredient Cost 1 PREVACID 30MG CAPSULE $98,547,971 2 ZYPREXA 10MG TABLET 98,355,909 3 CELEBREX 200MG CAPSULE 79,977,729 4 SEROQUEL 200MG TABLET 57,522,543 5 LIPITOR 20MG TABLET 51,117,350 6 LIPITOR 10MG TABLET 48,286,145 7 PROTONIX 40MG TABLET 45,929,946 8 PRILOSEC 20MG CAPSULE 41,300,077 9 ZYPREXA 5MG TABLET 41,209,998 10 NEXIUM 40MG CAPSULE 40,970,250 11 ZYPREXA 20MG TABLET 40,019,049 12 NEURONTIN 300MG CAPSULE 36,782,432 13 VIOXX 25MG TABLET 35,286,135 14 RISPERDAL 3MG TABLET 33,286,381 15 RISPERDAL 2MG TABLET 31,176,721 16 FOSAMAX 70MG TABLET 29,930,305 17 ZYPREXA 15MG TABLET 28,767,966 18 PRAVACHOL 40MG TABLET 27,623,473 19 OXYCONTIN 80MG TABLET 27,202,068 20 SEROQUEL 100MG TABLET 26,937,657 21 PLAVIX 75MG TABLET 24,425,748 22 VIREAD 300MG TABLET 23,890,252 23 NORVASC 10MG TABLET 23,787,069 24 RISPERDAL 4MG TABLET 23,712,696 25 AMBIEN 10MG TABLET 23,607,570 26 KALETRA 33.3-133.3 CAPSULE 23,104,004 27 RENAGEL 800MG TABLET 22,742,825 28 ACIPHEX 20MG TABLET 22,222,958 29 RISPERDAL 1MG TABLET 21,900,519 30 ZYPREXA 2.5MG TABLET 20,961,901 31 PAXIL 20MG TABLET 19,490,809 32 PROCRIT 40000 U/ML VIAL 19,464,365 33 SEROQUEL 300MG TABLET 19,332,546 34 DEPAKOTE 500MG TABLET 19,198,083 35 LEVAQUIN 500MG TABLET 18,839,026 36 COMBIVIR 150-300MG TABLET 18,610,565 37 ADVAIR 250-50MCG DISK 18,423,240 38 NORVASC 5MG TABLET 18,198,428 39 TRIZIVIR 150-300MG TABLET 18,097,962 40 BEXTRA 10MG TABLET 17,978,471 41 LIPITOR 40MG TABLET 17,717,610 42 SINGULAIR 10MG TABLET 17,711,574 43 ACTOS 45MG TABLET 17,492,040 44 ACTOS 30MG TABLET 17,145,361 6666 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6677 Rank Label Name Dosage Drug Ingredient Cost 45 EFFEXOR 75MG CAPSULE 16,619,585 46 PRAVACHOL 20MG TABLET 16,517,957 47 GLUCOPHAGE 500MG TABLET 16,145,684 48 ZYRTEC 10MG TABLET 15,619,621 49 SEROQUEL 25MG TABLET 15,279,077 50 ZOLOFT 50MG TABLET 15,223,355 51 CELEBREX 200MG CAPSULE 15,188,503 52 ENBREL 25MG KIT 15,181,136 53 PLAVIX 75MG TABLET 14,805,006 54 FLOMAX 0.4MG CAPSULE 14,581,703 55 ZOLOFT 100MG TABLET 14,328,619 56 WELLBUTRIN 150MG TABLET 14,129,104 57 TOPAMAX 100MG TABLET 13,815,075 58 ZOCOR 20MG TABLET 13,733,402 59 GLUCOPHAGE 1000MG TABLET 13,571,943 60 EPIVIR 150MG TABLET 13,111,834 61 AVANDIA 8MG TABLET 12,631,421 62 OXYCONTIN 40MG TABLET 12,482,113 63 CLOZARIL 100MG TABLET 12,461,016 64 ZYPREXA 7.5MG TABLET 12,133,687 65 PREVACID 15MG CAPSULE 12,129,160 66 AVANDIA 4MG TABLET 12,080,575 67 PATANOL 0.1% DROPS 11,736,238 68 EFFEXOR 150MG CAPSULE 11,638,653 69 RISPERDAL 0.5MG TABLET 11,615,038 70 DURAGESIC 100MCG/HR PATCH 11,539,046 71 GEODON 80MG CAPSULE 11,517,763 72 LAMISIL 250MG TABLET 11,464,057 73 NEURONTIN 600MG TABLET 11,399,240 74 DEPAKOTE 500MG TABLET 11,019,968 75 DEPAKOTE 500MG TABLET 11,017,645 76 NORVASC 5MG TABLET 11,005,547 77 NASONEX 50MCG SPRAY 10,958,971 78 CLOZAPINE 100MG TABLET 10,598,332 79 CLARINEX 5MG TABLET 10,342,788 80 LOTREL 5-20MG CAPSULE 10,315,358 81 ZOCOR 40MG TABLET 10,299,411 82 COMBIVENT 103-18MCG AEROSOL 10,110,134 83 ADVAIR 500-50MCG DISK 10,043,436 84 SUSTIVA 600MG TABLET 9,673,588 85 CIPRO 500MG TABLET 9,652,806 86 ZOCOR 20MG TABLET 9,603,166 87 VIRACEPT 250MG TABLET 9,524,640 88 XALATAN 0.005% DROPS 9,451,604 89 ABILIFY 15MG TABLET 9,402,172 90 CELEXA 20MG TABLET 9,382,600 91 ALLEGRA 180MG TABLET 9,373,101 92 NORVIR 100MG CAPSULE 9,349,195 continued on the next page 6666 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6677 Rank Label Name Dosage Drug Ingredient Cost 93 LEXAPRO 10MG TABLET 9,345,506 94 AMBIEN 5MG TABLET 9,297,298 95 ACTONEL 35MG TABLET 9,246,408 96 ZIAGEN 300MG TABLET 9,168,754 97 RISPERDAL 3MG TABLET 9,150,436 98 ALLEGRA 60MG TABLET 9,123,443 99 ZOCOR 20MG TABLET 8,979,221 100 EVISTA 60MG TABLET 8,900,024 101 VIRAMUNE 200MG TABLET 8,839,181 102 GLUCOVANCE 5-500MG TABLET 8,802,870 103 ADVAIR 100-50MCG DISK 8,708,446 104 ZYPREXA 10MG TABLET 8,619,936 105 CELEBREX 100MG CAPSULE 8,607,132 106 DEPAKOTE 250MG TABLET 8,594,345 107 PREVACID 30MG CAPSULE 8,590,211 108 SYNAGIS 100MG VIAL 8,552,831 109 DIOVAN 80MG TABLET 8,474,552 110 NEURONTIN 400MG CAPSULE 8,458,351 111 ARICEPT 10MG TABLET 8,388,265 112 SINGULAIR 10MG TABLET 8,366,811 113 DIOVAN 160MG TABLET 8,364,922 114 ARICEPT 5MG TABLET 8,350,550 115 PROCRIT 10000 U/ML VIAL 8,346,587 116 LAMICTAL 100MG TABLET 8,229,011 117 DIFLUCAN 200MG TABLET 8,210,313 118 RISPERDAL 2MG TABLET 8,209,568 119 TOPAMAX 25MG TABLET 8,031,786 120 ALBUTEROL 90MCG AEROSOL 7,895,793 121 ZOCOR 40MG TABLET 7,827,252 122 DIOVAN 160-12.5MG TABLET 7,589,529 123 REYATAZ 150MG CAPSULE 7,586,305 124 GLUCOPHAGE 850MG TABLET 7,492,973 125 FLONASE 50MCG AEROSOL 7,468,112 126 ZYPREXA 10MG TABLET 7,452,686 127 RISPERDAL 1MG TABLET 7,412,895 128 PROCRIT 20000 U/ML VIAL 7,342,763 129 AZMACORT 100MCG AEROSOL 7,331,640 130 SEROSTIM 6MG VIAL 7,298,253 131 ZITHROMAX 250MG TABLET 7,220,955 132 DETROL 4MG CAPSULE 7,207,729 133 ACTIQ 1600MCG LOLLIPOP 7,152,724 134 ALTACE 10MG CAPSULE 7,144,532 135 ACTOS 15MG TABLET 7,076,014 136 LOTENSIN 20MG TABLET 7,068,648 137 MEGESTROL 40MG/ML SUSPENSION 6,968,910 138 TRICOR 160MG TABLET 6,959,869 139 KEPPRA 500MG TABLET 6,898,913 140 LAMICTAL 25MG TABLET 6,833,419 6688 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6699 Rank Label Name Dosage Drug Ingredient Cost 141 GEODON 40MG CAPSULE 6,811,448 142 PAXIL 10MG TABLET 6,744,405 143 ATROVENT 18MCG AEROSOL 6,602,678 144 ZERIT 40MG CAPSULE 6,482,295 145 PAXIL 40MG TABLET 6,384,456 146 PAXIL 25MG TABLET 6,375,534 147 AVANDIA 8MG TABLET 6,337,769 148 REBETOL 200MG CAPSULE 6,336,615 149 COZAAR 50MG TABLET 6,318,221 150 ZOCOR 40MG TABLET 6,227,097 151 LOTREL 5-10MG CAPSULE 5,861,489 152 OXYCONTIN 20MG TABLET 5,677,866 153 COREG 6.25MG TABLET 5,526,833 154 LOTENSIN 10MG TABLET 5,474,472 155 MARINOL 5MG CAPSULE 5,401,728 156 RISPERDAL 1MG/ML SOLUTION 5,352,352 157 TRILEPTAL 300MG TABLET 5,346,423 158 EPOGEN 10000 U/ML VIAL 5,340,337 159 WELLBUTRIN 100MG TABLET 5,327,475 160 COPAXONE 20MG KIT 5,293,750 161 PAXIL 30MG TABLET 5,272,197 162 AMARYL 4MG TABLET 5,254,801 163 PROGRAF 1MG CAPSULE 5,250,292 164 CLOZAPINE 100MG TABLET 5,240,826 165 HUMIRA 40MG/0.8ML KIT 5,159,744 166 ZETIA 10MG TABLET 5,130,202 167 REMERON 15MG TABLET 5,113,812 168 HUMALOG 100 U/ML VIAL 5,086,783 169 MARINOL 10MG CAPSULE 5,075,264 170 MOBIC 7.5MG TABLET 5,033,575 171 GEODON 20MG CAPSULE 4,865,407 172 DURAGESIC 75MCG/HR PATCH 4,863,037 173 RISPERDAL 0.25MG TABLET 4,854,565 174 AVANDIA 4MG TABLET 4,847,663 175 REMERON 30MG TABLET 4,840,457 176 VALCYTE 450MG TABLET 4,749,281 177 NEURONTIN 800MG TABLET 4,739,295 178 NEURONTIN 100MG CAPSULE 4,737,813 179 GEODON 60MG CAPSULE 4,707,248 180 DURAGESIC 50MCG/HR PATCH 4,687,025 181 PEG-INTRON 120MCG/0.5 KIT 4,682,755 182 PEGASYS 180MCG/ML KIT 4,578,739 183 PLETAL 100MG TABLET 4,573,007 184 DITROPAN 10MG TABLET 4,551,443 185 DEPAKOTE 250MG TABLET 4,494,232 186 VIOXX 12.5MG TABLET 4,443,220 187 CASODEX 50MG TABLET 4,429,324 188 ORTHO 20-150/24H PATCH 4,405,869 continued on the next page 6688 California State Auditor Report 2004-033 California State Auditor Report 2004-033 6699 Rank Label Name Dosage Drug Ingredient Cost 189 ALTACE 5MG CAPSULE 4,303,186 190 NEURONTIN 600MG TABLET 4,279,040 191 PRILOSEC 20MG CAPSULE 4,218,135 192 LOTENSIN 40MG TABLET 4,213,529 193 ACTOS 30MG TABLET 4,212,943 194 CATAPRES-TTS 0.3MG/24HR PATCH 4,207,454 195 ZYPREXA 20MG TABLET 4,134,595 196 COREG 3.125MG TABLET 4,117,102 197 ABILIFY 30MG TABLET 4,090,152 198 LANTUS 100 U/ML VIAL 4,085,054 199 PEG-INTRON 150MCG/0.5 KIT 4,054,726 200 SEREVENT 50MCG DISK 4,045,447 201 AVONEX 30MCG/.5ML KIT 4,008,913 202 NEUPOGEN 300MCG/ML VIAL 4,007,481 203 GLUCOPHAGE 500MG TABLET 3,987,000 204 RISPERDAL 0.5MG TABLET 3,935,908 205 FUZEON 90MG KIT 3,928,765 206 TRACLEER 125MG TABLET 3,901,917 207 CLARITIN 10MG TABLET 3,867,972 208 ISOSORBIDE 60MG TABLET 3,828,390 209 ACTOS 45MG TABLET 3,817,946 210 ORTHO 7 DAYS X 3 TABLET 3,815,405 211 NASACORT 55MCG AEROSOL 3,806,878 212 DIOVAN 80-12.5MG TABLET 3,803,295 213 EFFEXOR 37.5MG CAPSULE 3,797,356 214 PRILOSEC 40MG CAPSULE 3,768,705 215 COZAAR 50MG TABLET 3,761,266 216 GLYBURIDE 5MG TABLET 3,752,842 217 BIAXIN 500MG TABLET 3,708,834 218 VIOXX 25MG TABLET 3,703,471 219 LOTREL 10-20MG CAPSULE 3,662,234 220 COREG 12.5MG TABLET 3,649,696 221 GLUCOPHAGE 500MG TABLET 3,647,686 222 CELEXA 40MG TABLET 3,637,958 223 XELODA 500MG TABLET 3,634,561 224 NORVASC 2.5MG TABLET 3,628,136 225 DITROPAN 5MG TABLET 3,600,851 226 GLYBURIDE 5MG TABLET 3,552,248 227 PREMARIN 0.625MG TABLET 3,531,433 228 DDAVP 0.2MG TABLET 3,522,967 229 REBETOL 200MG CAPSULE 3,513,815 230 TOPAMAX 200MG TABLET 3,459,867 231 REYATAZ 200MG CAPSULE 3,454,230 232 HYZAAR 50-12.5MG TABLET 3,445,755 233 ARICEPT 10MG TABLET 3,437,122 234 GLUCOVANCE 2.5-500MG TABLET 3,429,473 235 COREG 25MG TABLET 3,395,101 236 ACIPHEX 20MG TABLET 3,394,586 7700 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7711 Rank Label Name Dosage Drug Ingredient Cost 237 ZOLOFT 25MG TABLET 3,392,196 238 ZONEGRAN 100MG CAPSULE 3,384,225 239 ABILIFY 10MG TABLET 3,324,329 240 DIFLUCAN 100MG TABLET 3,281,694 241 EPIVIR 300MG TABLET 3,240,401 242 ARAVA 20MG TABLET 3,220,638 243 IRESSA 250MG TABLET 3,172,108 244 GLEEVEC 100MG CAPSULE 3,135,604 245 CEREZYME 400 UNIT VIAL 3,113,980 246 MACROBID 100MG CAPSULE 3,106,546 247 LEXAPRO 20MG TABLET 3,100,766 248 STARLIX 120MG TABLET 3,052,625 249 MIACALCIN 200 U/DOSE AEROSOL 3,043,278 250 COSOPT 0.5-2% DROPS 3,005,630 251 NIFEDIPINE 60MG TABLET 2,989,808 252 ARIMIDEX 1MG TABLET 2,981,388 253 LEVAQUIN 250MG TABLET 2,975,929 254 EPOGEN 40000 U/ML VIAL 2,969,810 255 ZELNORM 6MG TABLET 2,955,792 256 PULMOZYME 1MG/ML SOLUTION 2,935,500 257 NEXIUM 20MG CAPSULE 2,909,276 258 PROMETHAZINE/CODEINE 10-6.25/5 SYRUP 2,864,575 259 PAXIL 20MG TABLET 2,829,853 260 CELLCEPT 500MG TABLET 2,805,713 261 COPEGUS 200MG TABLET 2,774,721 262 VIDEX 400MG CAPSULE 2,749,579 263 CATAPRES-TTS 0.2MG/24HR PATCH 2,742,444 264 DURAGESIC 25MCG/HR PATCH 2,739,298 265 ZYPREXA 5MG TABLET 2,737,580 266 ZYPREXA 15MG TABLET 2,736,928 267 ALPHAGAN 0.15% DROPS 2,733,157 268 PULMICORT 0.5MG/2ML AMPUL 2,725,373 269 SUSTIVA 200MG CAPSULE 2,718,459 270 ZOLOFT 100MG TABLET 2,710,297 271 NUTROPIN 10MG/2ML VIAL 2,709,571 272 MORPHINE 100MG TABLET 2,708,130 273 EVISTA 60MG TABLET 2,701,595 274 PAXIL 12.5MG TABLET 2,685,965 275 MORPHINE 60MG TABLET 2,669,653 276 PEGASYS 180MCG/ML VIAL 2,666,143 277 BETASERON 0.3MG VIAL 2,652,915 278 CELLCEPT 250MG CAPSULE 2,648,813 279 DEPAKOTE 125MG CAPSULE 2,646,392 280 FOSAMAX 10MG TABLET 2,639,441 281 ACTONEL 5MG TABLET 2,637,710 282 CONCERTA 36MG TABLET 2,637,280 283 ZOFRAN 8MG TABLET 2,624,939 284 FOSAMAX 10MG TABLET 2,620,026 continued on the next page 7700 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7711 Rank Label Name Dosage Drug Ingredient Cost 285 LUMIGAN 0.03% DROPS 2,596,693 286 TRILEPTAL 600MG TABLET 2,595,468 287 DETROL 2MG TABLET 2,584,742 288 PULMICORT 0.25MG/2ML AMPUL 2,570,375 289 ALPHAGAN 0.15% DROPS 2,567,334 290 COZAAR 100MG TABLET 2,563,947 291 PULMICORT 200MCG AEROSOL 2,562,252 292 NIFEDIPINE 90MG TABLET 2,558,468 293 FAMOTIDINE 20MG TABLET 2,557,945 294 HYZAAR 100-25MG TABLET 2,542,238 295 CARBIDOPA/LEVO 50-200MG TABLET 2,501,719 296 ZOLOFT 50MG TABLET 2,498,326 297 NEXIUM 40MG CAPSULE 2,491,845 298 COZAAR 50MG TABLET 2,444,877 299 ZYPREXA 15MG TABLET 2,420,059 300 LIPITOR 80MG TABLET 2,407,289 301 GLEEVEC 100MG TABLET 2,402,731 302 TOBI 300MG/5ML AMPUL 2,393,970 303 WELCHOL 625MG TABLET 2,381,463 304 IMITREX 50MG TABLET 2,379,618 305 WELLBUTRIN 200MG TABLET 2,372,269 306 AVANDIA 4MG TABLET 2,365,478 307 PROSCAR 5MG TABLET 2,361,895 308 PRAVACHOL 10MG TABLET 2,350,503 309 ARICEPT 5MG TABLET 2,340,619 310 PROCRIT 10000 U/ML VIAL 2,312,443 311 REBETOL 200MG CAPSULE 2,280,864 312 ACCOLATE 20MG TABLET 2,270,583 313 GAMMAR-P 5G VIAL 2,248,582 314 ZYPREXA 5MG TABLET 2,237,022 315 ABILIFY 20MG TABLET 2,234,640 316 SONATA 10MG CAPSULE 2,233,347 317 TRIAMTERENE/HCTZ 50MG-25MG CAPSULE 2,211,183 318 GLYBURIDE 5MG TABLET 2,194,283 319 SINGULAIR 5MG TABLET 2,192,812 320 REMINYL 4MG TABLET 2,178,850 321 HYZAAR 50-12.5MG TABLET 2,173,231 322 BACLOFEN 10MG TABLET 2,171,143 323 AVONEX 30MCG KIT 2,157,942 324 BETAPACE 80MG TABLET 2,153,156 325 DILANTIN 100MG CAPSULE 2,141,360 326 SPORANOX 100MG CAPSULE 2,137,666 327 FLUOXETINE 40MG CAPSULE 2,135,716 328 ZYVOX 600MG TABLET 2,129,427 329 INVIRASE 200MG CAPSULE 2,121,853 330 MEGESTROL 40MG/ML SUSPENSION 2,070,748 331 PRANDIN 2MG TABLET 2,053,743 332 CONCERTA 54MG TABLET 2,052,791 7722 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7733 Rank Label Name Dosage Drug Ingredient Cost 333 TERAZOSIN 2MG CAPSULE 2,041,476 334 PREMARIN 0.625MG/G CREAM 2,040,685 335 LAMICTAL 200MG TABLET 2,037,774 336 OXANDRIN 2.5MG TABLET 2,037,444 337 VIDEX 250MG CAPSULE 2,034,703 338 XOPENEX 0.63MG/3ML SOLUTION 2,018,724 339 ZITHROMAX 600MG TABLET 2,013,922 340 LAMISIL 250MG TABLET 2,011,366 341 TRAVATAN 0.004% DROPS 2,009,894 342 SYNAGIS 50MG VIAL 2,008,654 343 TOPROL 50MG TABLET 1,996,369 344 MOBIC 15MG TABLET 1,995,351 345 ACTOS 15MG TABLET 1,986,979 346 CRIXIVAN 400MG CAPSULE 1,985,862 347 EPOGEN 20000 U/ML VIAL 1,982,086 348 ALBUTEROL 90MCG AEROSOL 1,956,839 349 AMBIEN 10MG TABLET 1,948,630 350 VIOXX 25MG TABLET 1,940,477 351 HYZAAR 100-25MG TABLET 1,897,992 352 ALTACE 2.5MG CAPSULE 1,890,825 353 ZADITOR 0.025% DROPS 1,886,055 354 AUGMENTIN 875-125MG TABLET 1,864,091 355 NEUPOGEN 480MCG/1.6 VIAL 1,855,591 356 ZITHROMAX 250MG TABLET 1,850,180 357 ZOCOR 80MG TABLET 1,849,668 358 PREMARIN 0.625MG TABLET 1,841,361 359 PHENYTOIN 100MG CAPSULE 1,839,621 360 PHENYTOIN 100MG CAPSULE 1,828,112 361 ALLEGRA 60MG TABLET 1,816,767 362 BACLOFEN 20MG TABLET 1,792,425 363 EXELON 3MG CAPSULE 1,780,128 364 ZOCOR 10MG TABLET 1,772,389 365 TERAZOSIN 5MG CAPSULE 1,770,333 366 LEXIVA 700MG TABLET 1,767,960 367 LIPRAM-CR20 66.4-20-75 CAPSULE 1,762,883 368 MS 100MG TABLET 1,738,536 369 EXELON 1.5MG CAPSULE 1,737,282 370 REMINYL 8MG TABLET 1,730,134 371 ACETAMINOPHEN/COD 30-300MG TABLET 1,722,112 372 PEG-INTRON 80MCG/0.5 KIT 1,719,611 373 AVANDIA 2MG TABLET 1,717,939 374 THALOMID 50MG CAPSULE 1,706,677 375 TOBRADEX 0.3-0.1% SUSPENSION 1,703,983 376 ZOCOR 10MG TABLET 1,702,098 377 MORPHINE 30MG TABLET 1,702,080 378 IPRATROPIUM 0.2MG/ML SOLUTION 1,701,249 379 FAMVIR 500MG TABLET 1,700,240 380 ADAGEN 250U/ML VIAL 1,686,960 continued on the next page 7722 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7733 Rank Label Name Dosage Drug Ingredient Cost 381 CIPRO 250MG TABLET 1,680,172 382 PREMPRO 0.625-2.5 TABLET 1,680,042 383 NIFEDIPINE 30MG TABLET 1,679,563 384 ARTHROTEC 75-0.2MG TABLET 1,670,025 385 MIACALCIN 200 U/DOSE AEROSOL 1,665,457 386 COZAAR 25MG TABLET 1,661,744 387 LESCOL 40MG CAPSULE 1,659,341 388 ACTIQ 800MCG LOLLIPOP 1,658,562 389 HALOPERIDOL 10MG TABLET 1,657,831 390 DIOVAN 160-25MG TABLET 1,653,010 391 AGENERASE 150MG CAPSULE 1,652,231 392 ORTHO 0.35MG TABLET 1,636,979 393 ZERIT 30MG CAPSULE 1,636,347 394 ANDROGEL 1%(50MG) GEL 1,629,890 395 ZOCOR 20MG TABLET 1,628,620 396 LESCOL 20MG CAPSULE 1,625,201 397 PROVIGIL 200MG TABLET 1,620,737 398 REMERON 45MG TABLET 1,619,259 399 DETROL 4MG CAPSULE 1,615,443 400 LOVENOX 60MG/0.6ML DISPOSABLE 1,612,983 401 ENALAPRIL 20MG TABLET 1,611,363 402 LOVENOX 100MG/ML DISPOSABLE 1,610,458 403 FOLIC 1MG TABLET 1,602,239 404 ACETAMINOPHEN/COD 30-300MG TABLET 1,600,868 405 PREMARIN 1.25MG TABLET 1,599,665 406 COMTAN 200MG TABLET 1,593,607 407 NEORAL 100MG CAPSULE 1,570,296 408 CEPHALEXIN 500MG CAPSULE 1,568,551 409 COZAAR 100MG TABLET 1,560,070 410 ADDERALL 20MG CAPSULE 1,548,697 411 ACTIQ 1200MCG LOLLIPOP 1,548,384 412 XOPENEX 1.25MG/3ML SOLUTION 1,543,951 413 PROZAC 90MG CAPSULE 1,538,629 414 CONCERTA 18MG TABLET 1,523,218 415 PROGRAF 5MG CAPSULE 1,506,661 416 GEMFIBROZIL 600MG TABLET 1,504,732 417 STRATTERA 40MG CAPSULE 1,499,766 418 NIFEDIAC 60MG TABLET 1,495,561 419 MARINOL 2.5MG CAPSULE 1,495,352 420 MEPRON 750MG/5ML SUSPENSION 1,494,041 421 ACCUPRIL 20MG TABLET 1,487,854 422 PLAVIX 75MG TABLET 1,478,104 423 VALTREX 500MG TABLET 1,477,017 424 NEURONTIN 800MG TABLET 1,476,866 425 HYDROXYZINE 25MG TABLET 1,475,761 426 PRAVACHOL 80MG TABLET 1,448,416 427 NIASPAN 500MG TABLET 1,445,558 428 LOVENOX 80MG/0.8ML DISPOSABLE 1,434,235 7744 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7755 Rank Label Name Dosage Drug Ingredient Cost 429 REMERON 30MG TABLET 1,431,935 430 CREON 66.4-20-75 CAPSULE 1,431,130 431 ROCEPHIN 1G VIAL 1,412,544 432 ACULAR 0.5% DROPS 1,400,331 433 BUSPIRONE 30MG TABLET 1,398,699 434 PACERONE 200MG TABLET 1,397,983 435 FORTOVASE 200MG CAPSULE 1,392,945 436 PROCRIT 4000 U/ML VIAL 1,373,000 437 OXYCONTIN 10MG TABLET 1,365,336 438 FLOLAN 1.5MG VIAL 1,362,848 439 CIPRO 0.2-1% SUSPENSION 1,353,112 440 AMIODARONE 200MG TABLET 1,348,042 441 PROCRIT 10000 U/ML VIAL 1,347,054 442 BIAXIN 500MG TABLET 1,341,216 443 HYDROCODONE/APAP 5-500MG TABLET 1,339,930 444 TOPROL 100MG TABLET 1,332,927 445 VALTREX 1000MG TABLET 1,318,782 446 METROGEL-VAGINAL 0.75% GEL 1,304,096 447 RISPERDAL 0.25MG TABLET 1,295,165 448 ACTIQ 1600MCG LOLLIPOP 1,286,335 449 LOTENSIN 5MG TABLET 1,285,867 450 ALDARA 5% PACKET 1,281,548 451 EMTRIVA 200MG CAPSULE 1,275,076 452 VFEND 200MG TABLET 1,270,298 453 ZOCOR 10MG TABLET 1,269,788 454 FOSAMAX 70MG TABLET 1,268,139 455 AGGRENOX 25-200MG CAPSULE 1,267,391 456 AVELOX 400MG TABLET 1,256,824 457 TOPROL 25MG TABLET 1,250,453 458 BACLOFEN 10MG TABLET 1,246,911 459 AMARYL 2MG TABLET 1,242,115 460 QVAR 80MCG AEROSOL 1,241,741 461 FEMARA 2.5MG TABLET 1,238,870 462 FORTEO 750MCG/3ML 1,236,473 DISPOSABLE 463 ACULAR 0.5% DROPS 1,231,450 464 GENOTROPIN 36 UNIT CARTRIDGE 1,230,780 465 FLUOXETINE 40MG CAPSULE 1,227,309 466 REBIF 44MCG/.5ML DISPOSABLE 1,221,849 467 ZOCOR 80MG TABLET 1,210,673 468 RAPAMUNE 1MG TABLET 1,209,730 469 COZAAR 25MG TABLET 1,209,286 470 LOPROX 0.77% LOTION 1,208,822 471 REMERON 15MG TABLET 1,206,649 472 HYDROXYZINE 25MG TABLET 1,204,597 473 SINGULAIR 4MG TABLET 1,201,792 474 ACTIMMUNE 2MMIU/.5ML VIAL 1,199,386 continued on the next page 7744 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7755 Rank Label Name Dosage Drug Ingredient Cost 475 NIFEDIAC 30MG TABLET 1,196,464 476 ASACOL 400MG TABLET 1,193,362 477 HYDROCODONE/APAP 5-500MG TABLET 1,187,925 478 OXYCODONE 80MG TABLET 1,182,834 479 DETROL 2MG CAPSULE 1,182,611 480 AEROBID 250MCG AEROSOL 1,181,284 481 ACCUPRIL 40MG TABLET 1,178,913 482 IMITREX 100MG TABLET 1,177,393 483 SERZONE 100MG TABLET 1,175,356 484 URECHOLINE 25MG TABLET 1,172,399 485 LESCOL 80MG TABLET 1,170,070 486 CELLCEPT 250MG CAPSULE 1,161,224 487 ULTRASE 65-20-65 CAPSULE 1,159,165 488 DILTIAZEM 240MG CAPSULE 1,158,789 489 CLOTRIMAZOLE 1% CREAM 1,156,530 490 GLYBURIDE 5MG TABLET 1,149,895 491 DIOVAN 160MG TABLET 1,148,761 492 AGRYLIN 0.5MG CAPSULE 1,147,378 493 DITROPAN 15MG TABLET 1,145,681 494 CILOXAN 0.3% DROPS 1,145,664 495 QUININE 325MG CAPSULE 1,141,010 496 ATACAND 32MG TABLET 1,140,492 497 AFEDITAB 30MG TABLET 1,139,273 498 PREVACID 15MG CAPSULE 1,129,897 499 BETASERON 0.3MG VIAL 1,124,968 500 LORAZEPAM 1MG TABLET 1,124,536 Top 500 Prescription Drugs by Drug Ingredient Cost $3,321,907,560 Same Top 500 Prescription Drugs by Net Drug Ingredient Cost* $1,956,749,469 All Prescription Drugs by Net Drug Ingredient Cost $2,522,347,563 Same Top 500 as a Percentage of all Prescription Drugs 77.58% Brand Name Drugs at the Net Drug Ingredient Cost as a Percentage of All Prescription Drugs 82.76% Generic Drugs at the Net Drug Ingredient Cost as a Percentage of All Prescription Drugs 17.24% * This amount is net of the billed rebates in Health Services’ rebate accounting information system as of January 19, 2005. Because Health Services continually obtains rebate information for billing purposes, this amount will decrease accordingly as it updates its system with more current per-unit rebate information. 7766 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7777 TABLE A.2 CalPERS’ Top 500 Prescription Drugs by NDC Represented Nearly 75 Percent of Its Total Net Drug Ingredient Cost for the Period July 1, 2003, Through June 30, 2004 Rank Label Name Dosage Net Drug Ingredient Cost 1 LIPITOR 20MG TABLET $9,223,128 2 LIPITOR 10MG TABLET 8,028,124 3 PROTONIX 40MG TABLET 6,540,818 4 ACIPHEX 20MG TABLET 5,380,726 5 FOSAMAX 70MG TABLET 5,304,501 6 PRAVACHOL 40MG TABLET 4,571,988 7 ENBREL 25MG KIT 4,297,199 8 LIPITOR 40MG TABLET 3,762,829 9 NEURONTIN 300MG CAPSULE 3,482,653 10 PREVACID 30MG CAPSULE DELAYED 3,444,325 11 PLAVIX 75MG TABLET 3,416,228 12 ADVAIR DISKUS 250-50MCG DISK 3,394,128 13 EFFEXOR XR 75MG CAPSULE 3,260,824 14 AMBIEN 10MG TABLET 3,081,828 15 PREVACID 30MG CAPSULE DELAYED 3,044,582 16 FLONASE 50MCG AEROSOL 2,973,285 17 PRAVACHOL 20MG TABLET 2,806,350 18 CELEBREX 200MG CAPSULE 2,796,990 19 OMEPRAZOLE 20MG CAPSULE DELAYED 2,523,494 20 EFFEXOR XR 150MG CAPSULE 2,517,340 21 WELLBUTRIN SR 150MG TABLET 2,355,380 22 NEXIUM 40MG CAPSULE DELAYED 2,339,345 23 ZITHROMAX 250MG TABLET 2,295,684 24 ADVAIR DISKUS 100-50MCG DISK 2,211,795 25 LEXAPRO 10MG TABLET 2,168,481 26 CELEBREX 200MG CAPSULE 2,153,462 27 VIOXX 25MG TABLET 2,151,248 28 CELEXA 20MG TABLET 2,125,825 29 ZOLOFT 50MG TABLET 2,049,879 30 CIPRO 500MG TABLET 2,013,688 31 ZYRTEC 10MG TABLET 1,998,578 32 ZOLOFT 100MG TABLET 1,971,218 33 ZOCOR 20MG TABLET 1,860,803 34 NASONEX 50MCG SPRAY 1,804,107 35 LIPITOR 10MG TABLET 1,798,656 36 FLOMAX 0.4MG CAPSULE 1,794,635 37 SINGULAIR 10MG TABLET 1,768,784 38 NORVASC 10MG TABLET 1,714,658 39 NORVASC 5MG TABLET 1,687,212 40 COPAXONE 20MG KIT 1,668,561 41 TRICOR 160MG TABLET 1,653,648 42 NEXIUM 40MG CAPSULE DELAYED 1,644,946 43 DURAGESIC 100MCG/HR PATCH 1,633,377 44 SINGULAIR 10MG TABLET 1,575,736 continued on the next page 7766 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7777 Rank Label Name Dosage Net Drug Ingredient Cost 45 OXYCONTIN 80MG TABLET 1,571,618 46 LEVAQUIN 500MG TABLET 1,543,176 47 OXYCONTIN 40MG TABLET 1,515,239 48 AVANDIA 8MG TABLET 1,483,333 49 ADVAIR DISKUS 500-50MCG DISK 1,474,249 50 PLAVIX 75MG TABLET 1,470,895 51 AVONEX 30MCG/.5ML KIT 1,445,819 52 EVISTA 60MG TABLET 1,363,201 53 ZOCOR 40MG TABLET 1,326,720 54 VIOXX 25MG TABLET 1,284,144 55 ACTONEL 35MG TABLET 1,265,727 56 HUMALOG 100 U/ML VIAL 1,227,304 57 DETROL LA 4MG CAPSULE 1,220,392 58 ASACOL 400MG TABLET 1,210,791 59 TOPAMAX 100MG TABLET 1,183,608 60 ACTOS 45MG TABLET 1,117,302 61 ALLEGRA 60MG TABLET 1,113,008 62 PAXIL CR 25MG TABLET 1,106,340 63 LANTUS 100 U/ML VIAL 1,085,355 64 PROCRIT 40000 U/ML VIAL 1,080,053 65 IMITREX 50MG TABLET 1,068,714 66 VIAGRA 100MG TABLET 1,065,086 67 ARIMIDEX 1MG TABLET 1,028,766 68 CELEXA 40MG TABLET 1,025,198 69 ALLEGRA 180MG TABLET 1,021,844 70 CLARINEX 5MG TABLET 1,021,431 71 CLARINEX 5MG TABLET 1,020,193 72 ZETIA 10MG TABLET 1,016,505 73 NEURONTIN 600MG TABLET 1,004,107 74 ZOCOR 20MG TABLET 997,553 75 ACTOS 45MG TABLET 993,384 76 HUMIRA 40MG/0.8ML KIT 989,310 77 ANDROGEL 1%(50MG) GEL 987,989 78 ACTOS 30MG TABLET 978,671 79 SEREVENT DISKUS 50MCG DISK 969,655 80 LAMISIL 250MG TABLET 964,287 81 LEXAPRO 20MG TABLET 958,446 82 TOPAMAX 25MG TABLET 942,784 83 PREMARIN 0.625MG TABLET 920,321 84 ZOCOR 40MG TABLET 900,774 85 PROVIGIL 200MG TABLET 900,664 86 OXYCONTIN 20MG TABLET 887,187 87 AVANDIA 4MG TABLET 861,078 88 PATANOL 0.1% DROPS 849,931 89 VALTREX 500MG TABLET 840,041 90 ACIPHEX 20MG TABLET 831,327 91 ACTOS 30MG TABLET 827,562 92 PAXIL 20MG TABLET 815,920 7788 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7799 Rank Label Name Dosage Net Drug Ingredient Cost 93 PAROXETINE HCL 20MG TABLET 807,549 94 DURAGESIC 75MCG/HR PATCH 798,594 95 NASACORT AQ 55MCG AEROSOL 789,165 96 DIOVAN 160MG TABLET 767,909 97 PROGRAF 1MG CAPSULE 748,986 98 COZAAR 50MG TABLET 748,600 99 LIPITOR 80MG TABLET 746,794 100 AMBIEN 5MG TABLET 741,013 101 REBIF 44MCG/.5ML DISPOSABLE 736,366 102 LOTREL 5-20MG CAPSULE 726,589 103 LAMICTAL 100MG TABLET 726,009 104 ZYPREXA 5MG TABLET 724,987 105 DIOVAN 80MG TABLET 719,945 106 COMBIVIR 150-300MG TABLET 719,486 107 PREMARIN 0.625MG TABLET 707,026 108 COMBIVENT 103-18MCG AEROSOL 706,410 109 ARICEPT 10MG TABLET 705,279 110 TOPROL XL 50MG TABLET 701,590 111 ZYPREXA 10MG TABLET 699,896 112 ZYPREXA 2.5MG TABLET 690,682 113 WELLBUTRIN SR 200MG TABLET 688,016 114 ORTHO TRI-CYCLEN 7 DAYS X 3 TABLET 681,231 115 WELLBUTRIN XL 300MG TABLET 680,535 116 PEGASYS 180MCG/ML KIT 677,976 117 VALTREX 1000MG TABLET 663,579 118 NIASPAN 500MG TABLET 651,724 119 CASODEX 50MG TABLET 650,920 120 XALATAN 0.005% DROPS 649,444 121 IMITREX 100MG TABLET 648,812 122 AMBIEN 10MG TABLET 637,380 123 FLOVENT 110MCG AEROSOL 635,462 124 AVANDIA 8MG TABLET 633,269 125 DURAGESIC 50MCG/HR PATCH 629,459 126 NEURONTIN 400MG CAPSULE 609,448 127 TOPROL XL 100MG TABLET 608,043 128 PRAVACHOL 80MG TABLET 604,357 129 LESCOL XL 80MG TABLET 602,036 130 ARAVA 20MG TABLET 598,275 131 COPEGUS 200MG TABLET 595,253 132 PLENDIL 10MG TABLET 593,798 133 EFFEXOR XR 37.5MG CAPSULE 593,757 134 VIREAD 300MG TABLET 591,503 135 DEPAKOTE 500MG TABLET 582,948 136 RHINOCORT AQUA 32MCG SPRAY 579,457 137 ZOFRAN 8MG TABLET 579,358 138 TRIZIVIR 150-300MG TABLET 569,945 139 PRILOSEC 20MG CAPSULE DELAYED 567,643 140 IRESSA 250MG TABLET 565,274 continued on the next page 7788 California State Auditor Report 2004-033 California State Auditor Report 2004-033 7799 Rank Label Name Dosage Net Drug Ingredient Cost 141 BEXTRA 20MG TABLET 556,775 142 NEURONTIN 600MG TABLET 550,550 143 COREG 25MG TABLET 544,114 144 BETASERON 0.3MG VIAL 537,138 145 ACCUPRIL 20MG TABLET 534,603 146 ATROVENT 18MCG AEROSOL 534,366 147 XELODA 500MG TABLET 529,371 148 AMOX TR-POTASSIUM CLAVULANATE 875-125MG TABLET 529,169 149 TRACLEER 125MG TABLET 528,896 150 DITROPAN XL 10MG TABLET 528,393 151 CELLCEPT 500MG TABLET 522,634 152 PAXIL CR 12.5MG TABLET 522,042 153 KALETRA 33.3-133.3 CAPSULE 519,382 154 OMEPRAZOLE 20MG CAPSULE DELAYED 517,156 155 SEROQUEL 100MG TABLET 516,703 156 SEROQUEL 200MG TABLET 516,568 157 RISPERDAL 1MG TABLET 509,835 158 DIFLUCAN 200MG TABLET 506,332 159 BIAXIN 500MG TABLET 504,855 160 FLOVENT 220MCG AEROSOL 504,376 161 RENAGEL 800MG TABLET 502,735 162 ACCUPRIL 40MG TABLET 502,022 163 AMNESTEEM 40MG CAPSULE 500,372 164 METFORMIN HCL 500MG TABLET 496,648 165 CELLCEPT 250MG CAPSULE 494,115 166 REBETOL 200MG CAPSULE 494,029 167 STRATTERA 40MG CAPSULE 493,604 168 ALBUTEROL 90MCG AEROSOL 483,445 169 ZOLOFT 50MG TABLET 481,866 170 PROSCAR 5MG TABLET 480,359 171 IMITREX 50MG TABLET 477,550 172 ARICEPT 10MG TABLET 476,669 173 YASMIN 28 0.03-3MG TABLET 475,108 174 BIAXIN XL 500MG TABLET 473,730 175 COREG 6.25MG TABLET 472,565 176 GLEEVEC 100MG TABLET 472,050 177 FORTEO 750MCG/3ML DISPOSABLE 470,852 178 AVAPRO 150MG TABLET 469,962 179 PLENDIL 5MG TABLET 466,842 180 ZOLOFT 100MG TABLET 466,750 181 SEROQUEL 25MG TABLET 463,154 182 ACTIMMUNE 2MMIU/.5ML VIAL 462,604 183 WELLBUTRIN SR 100MG TABLET 458,686 184 OMEPRAZOLE 20MG CAPSULE DELAYED 457,909 185 PROSCAR 5MG TABLET 457,849 186 NEURONTIN 800MG TABLET 450,629 187 PREMPRO 0.625-2.5 TABLET 448,152 188 PREVACID 15MG CAPSULE DELAYED 446,308 8800 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8811 Rank Label Name Dosage Net Drug Ingredient Cost 189 BEXTRA 10MG TABLET 443,445 190 GLUCOVANCE 5-500MG TABLET 441,389 191 GLUCOPHAGE XR 500MG TABLET 440,903 192 LOTENSIN 20MG TABLET 439,464 193 FOSAMAX 35MG TABLET 439,305 194 IMITREX 6MG/0.5ML KIT REFILL 438,212 195 DEPAKOTE ER 500MG TABLET 436,658 196 LAMISIL 250MG TABLET 433,196 197 LAMICTAL 25MG TABLET 431,887 198 WELLBUTRIN XL 150MG TABLET 431,088 199 THALOMID 50MG CAPSULE 430,179 200 DIOVAN HCT 160-12.5MG TABLET 429,549 201 VIAGRA 50MG TABLET 427,124 202 AVIANE 0.1-0.02 TABLET 426,336 203 FEMARA 2.5MG TABLET 424,276 204 RISPERDAL 0.5MG TABLET 420,754 205 AZMACORT 100MCG AEROSOL 418,791 206 TRILEPTAL 300MG TABLET 418,295 207 KEPPRA 500MG TABLET 417,178 208 ALLEGRA 60MG TABLET 409,063 209 DEPAKOTE 250MG TABLET 408,733 210 NEURONTIN 100MG CAPSULE 407,178 211 ULTRACET 37.5-325MG TABLET 405,619 212 ALTACE 10MG CAPSULE 403,891 213 WELCHOL 625MG TABLET 401,312 214 PEGASYS 180MCG/ML VIAL 400,923 215 ARICEPT 5MG TABLET 399,758 216 COZAAR 50MG TABLET 393,271 217 COREG 12.5MG TABLET 392,086 218 ORTHO EVRA 20-150/24H PATCH 390,824 219 PREMARIN 1.25MG TABLET 389,719 220 TRIVORA-28 6-5-10 TABLET 388,493 221 IMITREX 100MG TABLET 383,294 222 LIDODERM 5% ADHESIVE 383,038 223 ABILIFY 15MG TABLET 379,264 224 PULMICORT 200MCG AEROSOL 379,190 225 TRAVATAN 0.004% DROPS 379,168 226 BETASERON 0.3MG VIAL 378,737 227 PEG-INTRON 150MCG/0.5 KIT 377,481 228 MOBIC 7.5MG TABLET 376,299 229 DURAGESIC 25MCG/HR PATCH 373,739 230 PAROXETINE HCL 20MG TABLET 373,260 231 SINGULAIR 5MG TABLET 372,461 232 SUSTIVA 600MG TABLET 369,554 233 AGGRENOX 25-200MG CAPSULE 368,562 234 EPIVIR 150MG TABLET 364,796 235 ACCUTANE 40MG CAPSULE 362,194 236 NIASPAN 1000MG TABLET 362,190 continued on the next page 8800 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8811 Rank Label Name Dosage Net Drug Ingredient Cost 237 ASTELIN 137MCG AEROSOL 362,068 238 AMOX TR-POTASSIUM CLAVULANATE 875-125MG TABLET 361,555 239 PEG-INTRON 120MCG/0.5 KIT 360,106 240 AMOX TR-POTASSIUM CLAVULANATE 875-125MG TABLET 359,195 241 CEREZYME 400 UNIT VIAL 358,139 242 ACTOS 15MG TABLET 357,064 243 HYZAAR 100-25MG TABLET 356,242 244 AVONEX ADMINISTRATION PACK 30MCG KIT 352,473 245 LOTREL 5-10MG CAPSULE 351,062 246 GLEEVEC 100MG CAPSULE 349,903 247 CIPRO 250MG TABLET 347,267 248 AVANDIA 4MG TABLET 345,649 249 PREMARIN 0.625MG/G CREAM 343,794 250 MACROBID 100MG CAPSULE 339,642 251 PRAVACHOL 10MG TABLET 339,487 252 PROCRIT 20000 U/ML VIAL 337,884 253 LOTENSIN 10MG TABLET 337,356 254 PREVACID 15MG CAPSULE DELAYED 337,080 255 PAROXETINE HCL 40MG TABLET 337,027 256 CRESTOR 10MG TABLET 336,755 257 MINOCYCLINE HCL 100MG CAPSULE 335,894 258 FLUOXETINE HCL 20MG CAPSULE 333,710 259 ALLEGRA 180MG TABLET 333,254 260 DITROPAN XL 5MG TABLET 332,991 261 ZOCOR 10MG TABLET 330,031 262 AVELOX 400MG TABLET 329,947 263 AMARYL 4MG TABLET 325,554 264 CONCERTA 36MG TABLET 325,310 265 LOTENSIN 40MG TABLET 323,979 266 PULMICORT 0.5MG/2ML AMPUL 322,729 267 IMITREX 25MG TABLET 321,797 268 CARBIDOPA/LEVODOPA 50-200MG TABLET 320,917 269 PRILOSEC 40MG CAPSULE DELAYED 319,143 270 ALLEGRA-D 120-60MG TABLET 314,680 271 AVAPRO 300MG TABLET 309,571 272 DETROL 2MG TABLET 309,482 273 PULMOZYME 1MG/ML SOLUTION 309,200 274 LOTREL 10-20MG CAPSULE 308,710 275 GEMFIBROZIL 600MG TABLET 308,038 276 NECON 1-0.035MG TABLET 307,062 277 BEXTRA 20MG TABLET 306,829 278 ELMIRON 100MG CAPSULE 305,010 279 ALTACE 10MG CAPSULE 304,335 280 RISPERDAL 2MG TABLET 303,958 281 MIACALCIN 200 U/DOSE AEROSOL 302,712 282 LOVENOX 100MG/ML DISPOSABLE 301,821 283 ERYTHROMYCIN-BENZOYL PEROXIDE 3-5% GEL 301,282 284 VIOXX 25MG TABLET 300,022 8822 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8833 Rank Label Name Dosage Net Drug Ingredient Cost 285 ACCUPRIL 10MG TABLET 299,677 286 DDAVP 0.2MG TABLET 299,573 287 PROZAC 20MG CAPSULE 299,111 288 ZOLOFT 25MG TABLET 298,260 289 MAXALT 10MG TABLET 296,818 290 ESTRACE 0.01% CREAM 293,442 291 COSOPT 0.5-2% DROPS 286,801 292 METFORMIN HCL 1000MG TABLET 286,622 293 ATENOLOL 50MG TABLET 286,491 294 PREMARIN 0.9MG TABLET 286,439 295 ALPHAGAN P 0.15% DROPS 286,411 296 ALDARA 5% PACKET 285,278 297 ADDERALL XR 20MG CAPSULE 284,921 298 AGRYLIN 0.5MG CAPSULE 281,930 299 ZIAGEN 300MG TABLET 281,190 300 TOBI 300MG/5ML AMPUL 279,775 301 BENZACLIN 1-5% GEL 278,932 302 METROGEL 0.75% GEL 278,767 303 PAXIL 40MG TABLET 278,241 304 FLUOXETINE HCL 40MG CAPSULE 277,238 305 COREG 3.125MG TABLET 276,481 306 TOPROL XL 25MG TABLET 273,838 307 PENLAC 8% SOLUTION 273,150 308 PROMETRIUM 100MG CAPSULE 271,197 309 LESCOL 40MG CAPSULE 270,672 310 GLUCOVANCE 2.5-500MG TABLET 267,623 311 LOW-OGESTREL 0.3-0.03MG TABLET 267,458 312 PAROXETINE HCL 10MG TABLET 266,219 313 ACCOLATE 20MG TABLET 263,966 314 ALTACE 5MG CAPSULE 261,885 315 FAMVIR 500MG TABLET 261,836 316 METHOTREXATE 2.5MG TABLET 261,456 317 OXYCONTIN 10MG TABLET 260,650 318 ZELNORM 6MG TABLET 259,912 319 ZOCOR 20MG TABLET 259,418 320 NEUPOGEN 480MCG/0.8 DISPOSABLE 258,085 321 BEXTRA 10MG TABLET 257,612 322 PREMARIN 0.3MG TABLET 256,281 323 DIFLUCAN 150MG TABLET 255,083 324 ZOMIG 5MG TABLET 254,588 325 VIOXX 50MG TABLET 254,471 326 VIRAMUNE 200MG TABLET 253,717 327 IMITREX 20MG SPRAY 253,692 328 ACTIQ 1600MCG LOLLIPOP 252,405 329 ZYPREXA 15MG TABLET 251,532 330 FOSAMAX 10MG TABLET 250,044 331 MOBIC 15MG TABLET 249,752 332 MAXALT MLT 10MG TABLET 248,924 continued on the next page 8822 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8833 Rank Label Name Dosage Net Drug Ingredient Cost 333 TEMODAR 100MG CAPSULE 248,088 334 ZETIA 10MG TABLET 246,730 335 ACTOS 15MG TABLET 246,433 336 EFFEXOR 75MG TABLET 245,647 337 PULMICORT 0.25MG/2ML AMPUL 244,014 338 EVISTA 60MG TABLET 242,942 339 TEMODAR 100MG CAPSULE 242,549 340 HYDROCODONE/ACETAMINOPHEN 10-325MG TABLET 242,510 341 PLETAL 100MG TABLET 241,740 342 ZOLOFT 100MG TABLET 241,331 343 LOVASTATIN 40MG TABLET 240,948 344 ZONEGRAN 100MG CAPSULE 240,754 345 ZITHROMAX 250MG TABLET 239,570 346 NEORAL 100MG CAPSULE 239,253 347 PAROXETINE HCL 20MG TABLET 237,690 348 FLOVENT 44MCG AEROSOL 235,460 349 ZOCOR 80MG TABLET 235,134 350 ANDRODERM 5MG/24HR PATCH 235,000 351 MORPHINE SULFATE 60MG TABLET 234,432 352 ESTRATEST H.S. 1.25-0.625 TABLET 234,428 353 PAXIL 10MG TABLET 233,637 354 HYDROCODONE/ACETAMINOPHEN 10-325MG TABLET 232,410 355 ZYPREXA 20MG TABLET 231,586 356 COZAAR 100MG TABLET 231,432 357 NORVASC 5MG TABLET 231,112 358 LUMIGAN 0.03% DROPS 230,957 359 NORVASC 2.5MG TABLET 230,821 360 ALPHAGAN P 0.15% DROPS 226,851 361 PLAVIX 75MG TABLET 226,790 362 ALBUTEROL 90MCG AEROSOL 226,279 363 HYZAAR 50-12.5MG TABLET 225,456 364 PROCRIT 10000 U/ML VIAL 222,938 365 SPORANOX 100MG CAPSULE 222,735 366 CONCERTA 54MG TABLET 222,577 367 ARICEPT 5MG TABLET 222,382 368 NEULASTA 6MG/0.6ML DISPOSABLE 221,562 369 VIOXX 12.5MG TABLET 220,389 370 LOVENOX 80MG/0.8ML DISPOSABLE 220,268 371 PRANDIN 2MG TABLET 219,861 372 CONCERTA 18MG TABLET 219,609 373 TOPAMAX 200MG TABLET 218,848 374 ZOCOR 40MG TABLET 217,512 375 ZOCOR 80MG TABLET 217,177 376 AMNESTEEM 20MG CAPSULE 215,604 377 ABILIFY 10MG TABLET 215,061 378 RISPERDAL 0.25MG TABLET 214,751 379 DIOVAN 320MG TABLET 214,634 380 AUGMENTIN XR 1000-62.5 TABLET 214,324 8844 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8855 Rank Label Name Dosage Net Drug Ingredient Cost 381 SONATA 10MG CAPSULE 214,043 382 ESTRATEST 2.5-1.25MG TABLET 213,412 383 MARINOL 5MG CAPSULE 213,044 384 CATAPRES-TTS 3 0.3MG/24HR PATCH 212,343 385 ZOLOFT 50MG TABLET 212,250 386 PREMARIN 1.25MG TABLET 210,323 387 SYNTHROID 100MCG TABLET 209,604 388 VERAPAMIL HCL 240MG TABLET 209,492 389 NORVIR 100MG CAPSULE 209,153 390 ZYRTEC-D 120-5MG TABLET 208,516 391 CASODEX 50MG TABLET 207,840 392 IMITREX 6MG/0.5ML KIT 207,668 393 LISINOPRIL 20MG TABLET 207,617 394 CELEBREX 100MG CAPSULE 207,282 395 PRILOSEC 20MG CAPSULE DELAYED 206,716 396 MICROGESTIN FE 1-0.02MG TABLET 205,914 397 ACTIQ 800MCG LOLLIPOP 205,320 398 LUMIGAN 0.03% DROPS 205,227 399 TOBRADEX 0.3-0.1% SUSPENSION 204,879 400 DETROL LA 4MG CAPSULE 203,436 401 RISPERDAL 3MG TABLET 203,198 402 SEROQUEL 300MG TABLET 203,036 403 NEURONTIN 800MG TABLET 202,040 404 TRINESSA 7 DAYS X 3 TABLET 201,476 405 ADDERALL XR 30MG CAPSULE 200,777 406 MINOCYCLINE HCL 100MG CAPSULE 200,381 407 PAXIL CR 37.5MG TABLET 200,254 408 INDERAL LA 80MG CAPSULE 200,240 409 VFEND 200MG TABLET 199,763 410 XOPENEX 0.63MG/3ML SOLUTION 199,633 411 DIOVAN HCT 80-12.5MG TABLET 198,503 412 LISINOPRIL 40MG TABLET 197,841 413 FLUOXETINE HCL 40MG CAPSULE 196,787 414 PENTASA 250MG CAPSULE 196,544 415 ZITHROMAX 200MG/5ML SUSPENSION 196,471 416 COMTAN 200MG TABLET 196,223 417 ROWASA 4G/60ML ENEMA 195,857 418 AVANDIA 4MG TABLET 194,540 419 TEQUIN 400MG TABLET 193,688 420 SORIATANE 25MG CAPSULE 193,669 421 HUMALOG 300 U/3ML DISPOSABLE 193,414 422 PAROXETINE HCL 30MG TABLET 193,262 423 AMERGE 2.5MG TABLET 193,012 424 LEVOXYL 100MCG TABLET 192,805 425 COUMADIN 5MG TABLET 192,701 426 NEXIUM 20MG CAPSULE DELAYED 192,422 427 ATENOLOL 25MG TABLET 192,230 428 RAPAMUNE 1MG TABLET 192,161 continued on the next page 8844 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8855 Rank Label Name Dosage Net Drug Ingredient Cost 429 LEVAQUIN 250MG TABLET 191,106 430 REBETOL 200MG CAPSULE 189,553 431 EVISTA 60MG TABLET 189,421 432 XALATAN 0.005% DROPS 189,241 433 MONOPRIL 20MG TABLET 188,738 434 LOVENOX 60MG/0.6ML DISPOSABLE 188,551 435 REMINYL 8MG TABLET 187,580 436 SINGULAIR 4MG TABLET 187,048 437 LESCOL 20MG CAPSULE 186,767 438 CARTIA XT 240MG CAPSULE 186,027 439 COZAAR 100MG TABLET 185,628 440 GLEEVEC 400MG TABLET 185,255 441 MORPHINE SULFATE 100MG TABLET 184,091 442 ACTONEL 5MG TABLET 184,064 443 MORPHINE SULFATE 30MG TABLET 183,838 444 PAXIL 30MG TABLET 183,566 445 NUTROPIN AQ 10MG/2ML CARTRIDGE 182,692 446 COZAAR 100MG TABLET 182,508 447 DOVONEX 0.005% OINTMENT(GM) 181,415 448 NOVOLOG 100 U/ML VIAL 181,376 449 AUGMENTIN ES-600 600-42.9/5 SUSPENSION 181,176 450 BIAXIN XL 500MG TABLET 180,691 451 PREMPRO 0.625-2.5 TABLET 180,293 452 REYATAZ 150MG CAPSULE 179,950 453 LISINOPRIL 10MG TABLET 179,875 454 METFORMIN HCL 500MG TABLET 179,548 455 RILUTEK 50MG TABLET 179,301 456 HUMALOG MIX 75/25 75-25 U/ML VIAL 179,193 457 AFEDITAB CR 60MG TABLET 178,770 458 PREVPAC 30-500-500 COMBINATION 178,145 459 HYDROCODONE W/ 5-500MG TABLET 177,996 ACETAMINOPHEN 460 LAMICTAL 200MG TABLET 177,516 461 TUSSIONEX 10-8MG/5ML SUSPENSION 177,514 462 MIACALCIN 200 U/DOSE AEROSOL 176,816 463 PROZAC WEEKLY 90MG CAPSULE DELAYED 175,432 464 LEVOXYL 75MCG TABLET 175,078 465 NUTROPIN AQ 10MG/2ML VIAL 174,480 466 CATAPRES-TTS 2 0.2MG/24HR PATCH 174,226 467 LEVOXYL 125MCG TABLET 173,372 468 VIRACEPT 250MG TABLET 173,196 469 MIRCETTE 21-5 TABLET 172,944 470 STRATTERA 25MG CAPSULE 172,842 471 SKELAXIN 800MG TABLET 172,615 472 METFORMIN HCL 850MG TABLET 172,026 473 HUMALOG MIX 75/25 75-25 U/ML DISPOSABLE 171,446 474 ZOCOR 10MG TABLET 170,704 8866 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8877 Rank Label Name Dosage Net Drug Ingredient Cost 475 STARLIX 120MG TABLET 167,800 476 XOLAIR 150MG VIAL 165,583 477 DOSTINEX 0.5MG TABLET 165,379 478 ARTHROTEC 75 75-0.2MG TABLET 163,913 479 AMIODARONE HCL 200MG TABLET 163,868 480 NABUMETONE 500MG TABLET 163,528 481 AMOX TR-POTASSIUM CLAVULANATE 500-125MG TABLET 163,454 482 VALCYTE 450MG TABLET 163,415 483 LEVOXYL 50MCG TABLET 163,137 484 PAXIL 20MG TABLET 162,014 485 HYTRIN 5MG CAPSULE 161,463 486 EFUDEX 5% CREAM 160,976 487 CELLCEPT 250MG CAPSULE 159,466 488 AVALIDE 150-12.5MG TABLET 158,295 489 SKELAXIN 400MG TABLET 157,851 490 ALTACE 5MG CAPSULE 157,601 491 CIPROFLOXACIN HCL 500MG TABLET 157,300 492 AVALIDE 300-12.5MG TABLET 157,040 493 TAMOXIFEN CITRATE 20MG TABLET 156,612 494 MEGESTROL ACETATE 40MG/ML SUSPENSION 156,217 495 MONOPRIL 10MG TABLET 155,946 496 VALTREX 500MG TABLET 155,850 497 SOTRET 40MG CAPSULE 155,674 498 CIPRO HC 0.2-1% SUSPENSION 155,656 499 HEPSERA 10MG TABLET 154,815 500 GEODON 40MG CAPSULE 154,774 Top 500 Prescription Drugs by Net Drug Ingredient Cost $320,387,808 All Prescription Drugs by Net Drug Ingredient Cost $428,054,626 Top 500 as a Percentage of all Prescription Drugs 74.85% Brand Name Drugs as a Percentage of All Prescription Drugs 84.58% Generic Drugs as a Percentage of All Prescription Drugs 15.42% 8866 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8877 TABLE A.3 General Services’ Top 500 Prescription Drugs by NDC Represented Nearly 90 Percent of Its Total Net Drug Ingredient Costs for the Period July 1, 2003, Through June 30, 2004 Rank Label Name Dosage Net Drug Ingredient Cost 1 SEROQUEL 200MG TABLET $ 6,204,407 2 SEROQUEL 300MG TABLET 3,842,088 3 ZYPREXA 20MG TABLET 3,223,877 4 PEGASYS 180MCG/ML VIAL 3,007,543 5 COPEGUS 200MG TABLET 2,877,736 6 SEROQUEL 200MG TABLET 2,846,497 7 ZYPREXA 10MG TABLET 2,798,001 8 ZYPREXA 15MG TABLET 2,691,887 9 ZYPREXA 10MG TABLET 2,279,594 10 ZYPREXA 10MG TABLET 2,150,199 11 DEPAKOTE 500MG TABLET 2,031,938 12 RISPERDAL 3MG TABLET 1,977,696 13 KALETRA 33.3-133.3 CAPSULE 1,925,966 14 RISPERDAL 4MG TABLET 1,906,528 15 TRIZIVIR 150-300MG TABLET 1,796,872 16 NEURONTIN 600MG TABLET 1,795,279 17 PROTONIX 40MG TABLET 1,687,962 18 VIREAD 300MG TABLET 1,634,671 19 AZMACORT 100MCG AEROSOL 1,571,900 20 RISPERDAL 2MG TABLET 1,482,733 21 REBETOL 200MG CAPSULE 1,480,437 22 ZYPREXA ZYDIS 10MG TABLET 1,471,710 23 PEGASYS 180MCG/ML KIT 1,411,411 24 NEURONTIN 300MG CAPSULE 1,371,896 25 SEROQUEL 300MG TABLET 1,348,420 26 ZYPREXA 20MG TABLET 1,290,826 27 DEPAKOTE 500MG TABLET 1,263,469 28 ZYPREXA ZYDIS 15MG TABLET 1,216,392 29 COMBIVIR 150-300MG TABLET 1,205,289 30 SEROQUEL 100MG TABLET 1,173,155 31 VIRACEPT 250MG TABLET 1,173,052 32 ZYPREXA ZYDIS 20MG TABLET 1,140,640 33 RISPERDAL 2MG TABLET 1,116,282 34 GEODON 80MG CAPSULE 1,089,552 35 RISPERDAL 3MG TABLET 1,086,357 36 RISPERDAL 2MG TABLET 1,063,434 37 PROTONIX 40MG TABLET 1,043,043 38 SUSTIVA 600MG TABLET 1,036,169 39 ZYPREXA 15MG TABLET 1,018,753 40 WELLBUTRIN SR 150MG TABLET 996,360 41 EPIVIR 150MG TABLET 975,725 42 TOPAMAX 100MG TABLET 955,275 43 ZYPREXA 20MG TABLET 927,252 44 NASONEX 50MCG SPRAY 919,229 8888 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8899 Rank Label Name Dosage Net Drug Ingredient Cost 45 ZYPREXA 15MG TABLET 915,539 46 COMBIVIR 150-300MG TABLET 909,701 47 LIPITOR 20MG TABLET 894,265 48 ZOLOFT 100MG TABLET 827,617 49 DIFLUCAN 200MG TABLET 810,229 50 ZERIT 40MG CAPSULE 806,743 51 RISPERDAL 3MG TABLET 753,502 52 NEURONTIN 400MG CAPSULE 746,896 53 VIRAMUNE 200MG TABLET 745,229 54 RISPERDAL 1MG TABLET 724,815 55 ZYPREXA 5MG TABLET 705,693 56 ABILIFY 15MG TABLET 678,974 57 DEPAKOTE ER 500MG TABLET 657,770 58 NEURONTIN 600MG TABLET 657,186 59 PEG-INTRON 120MCG/0.5 KIT 648,281 60 LAMICTAL 100MG TABLET 634,654 61 RISPERDAL 4MG TABLET 629,842 62 OMEPRAZOLE 20MG CAPSULE 628,005 63 ZYPREXA 5MG TABLET 626,366 64 LAMICTAL 25MG TABLET 625,939 65 PEG-INTRON 150MCG/0.5 KIT 623,591 66 GEODON 40MG CAPSULE 611,584 67 LIPITOR 20MG TABLET 609,964 68 ZOLOFT 50MG TABLET 599,180 69 LIPITOR 10MG TABLET 591,617 70 ZOLOFT 100MG TABLET 591,358 71 NEURONTIN 800MG TABLET 588,008 72 KEPPRA 500MG TABLET 580,587 73 CELEBREX 200MG CAPSULE 579,080 74 LIPITOR 10MG TABLET 562,145 75 ZYPREXA 7.5MG TABLET 542,310 76 RISPERDAL 1MG/ML SOLUTION 527,046 77 ROCEPHIN 1G VIAL 513,059 78 SEROQUEL 100MG TABLET 496,302 79 ZOLOFT 100MG TABLET 484,920 80 NORVIR 100MG CAPSULE 467,153 81 GEODON 60MG CAPSULE 464,999 82 EPOGEN 10000 U/ML VIAL 457,334 83 NEUPOGEN 300MCG/ML VIAL 451,241 84 EFFEXOR XR 75MG CAPSULE 443,523 85 RISPERDAL 2MG TABLET 441,172 86 GEODON 20MG CAPSULE 440,394 87 ZOLOFT 50MG TABLET 438,748 88 PEGASYS 180MCG/0.5 KIT 436,712 89 TOPAMAX 25MG TABLET 429,178 90 GEODON 80MG CAPSULE 421,079 91 TRILEPTAL 300MG TABLET 413,497 92 SUSTIVA 200MG CAPSULE 413,141 continued on the next page 8888 California State Auditor Report 2004-033 California State Auditor Report 2004-033 8899 Rank Label Name Dosage Net Drug Ingredient Cost 93 ZIAGEN 300MG TABLET 410,066 94 CELEXA 20MG TABLET 406,832 95 PREVACID 30MG CAPSULE 404,499 96 ZYPREXA 5MG TABLET 402,223 97 CIPRO 500MG TABLET 401,134 98 DEPAKOTE ER 500MG TABLET 396,436 99 SEROQUEL 25MG TABLET 393,754 100 DEPAKOTE 250MG TABLET 388,421 101 PROCRIT 40000 U/ML VIAL 381,266 102 ATROVENT 18MCG AEROSOL 375,167 103 ABILIFY 15MG TABLET 373,435 104 FLONASE 50MCG AEROSOL 371,283 105 ENGERIX-B 20MCG/ML VIAL 368,728 106 DIFLUCAN 200MG TABLET 360,463 107 DEPAKOTE 500MG TABLET 356,670 108 RISPERDAL 1MG TABLET 356,333 109 PAXIL 20MG TABLET 355,377 110 RISPERDAL 1MG TABLET 354,751 111 EPIVIR 300MG TABLET 353,399 112 NEURONTIN 300MG CAPSULE 341,743 113 ABILIFY 10MG TABLET 333,447 114 EPOGEN 40000 U/ML VIAL 322,274 115 NEUPOGEN 480MCG/0.8 DISPOSABLE 321,030 116 PEG-INTRON 80MCG/0.5 KIT 318,857 117 ZYPREXA ZYDIS 5MG TABLET 313,840 118 ABILIFY 30MG TABLET 311,833 119 ALBUTEROL 90MCG AEROSOL 310,404 120 RISPERDAL CONSTA 25MG/2ML DISPOSABLE 307,899 121 WELLBUTRIN SR 100MG TABLET 301,596 122 OMEPRAZOLE 20MG CAPSULE 299,193 123 RENAGEL 800MG TABLET 292,570 124 TOPAMAX 200MG TABLET 291,502 125 CLOZAPINE 100MG TABLET 287,641 126 ZOLOFT 50MG TABLET 285,209 127 LIPITOR 10MG TABLET 281,497 128 EFFEXOR XR 150MG CAPSULE 279,311 129 ZITHROMAX 600MG TABLET 277,869 130 OMEPRAZOLE 20MG CAPSULE 269,850 131 GRIFULVIN V 500MG TABLET 268,230 132 VIDEX EC 400MG CAPSULE 267,960 133 WELLBUTRIN SR 200MG TABLET 265,577 134 DEPAKOTE ER 500MG TABLET 261,707 135 XALATAN 0.005% DROPS 256,238 136 NEURONTIN 800MG TABLET 252,466 137 OMEPRAZOLE 20MG CAPSULE 250,548 138 NASACORT AQ 55MCG AEROSOL 248,612 139 NORVASC 10MG TABLET 245,156 140 ZYPREXA 7.5MG TABLET 236,743 9900 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9911 Rank Label Name Dosage Net Drug Ingredient Cost 141 BENEFIX 500 (+/-)U KIT 236,250 142 PAROXETINE HCL 20MG TABLET 235,843 143 IMITREX 25MG TABLET 235,421 144 SINGULAIR 10MG TABLET 231,692 145 DEPAKOTE 250MG TABLET 231,544 146 CELEBREX 100MG CAPSULE 230,493 147 NEUPOGEN 480MCG/1.6 VIAL 230,254 148 SINGULAIR 10MG TABLET 229,614 149 VALPROIC ACID 250MG CAPSULE 223,292 150 PAXIL 20MG TABLET 222,870 151 EFFEXOR XR 75MG CAPSULE 220,423 152 PLAVIX 75MG TABLET 219,580 153 CIPROFLOXACIN HCL 500MG TABLET 219,394 154 APLISOL 5T U/0.1ML VIAL 219,350 155 TUBERSOL 5T U/0.1ML VIAL 216,124 156 IMITREX 25MG TABLET 215,145 157 NEURONTIN 400MG CAPSULE 206,303 158 FORTEO 750MCG/3ML DISPOSABLE 197,654 159 LAMISIL 250MG TABLET 197,257 160 DEPAKOTE SPRINKLE 125MG CAPSULE 195,542 161 RECOMBINATE 1000(+/-)U VIAL 193,019 162 WELLBUTRIN XL 300MG TABLET 190,610 163 RISPERDAL 0.5MG TABLET 190,007 164 STRATTERA 40MG CAPSULE 189,209 165 NEULASTA 6MG/0.6ML DISPOSABLE 185,024 166 PAROXETINE HCL 30MG TABLET 184,681 167 PHENYTOIN SODIUM 100MG CAPSULE 184,276 168 SPORANOX 100MG CAPSULE 184,170 169 SEROQUEL 25MG TABLET 182,386 170 GEODON 40MG CAPSULE 179,594 171 LEVAQUIN 500MG TABLET 179,406 172 INVIRASE 200MG CAPSULE 179,143 173 BECONASE AQ 42MCG AEROSOL 178,650 174 EFFEXOR 75MG TABLET 177,510 175 CELEXA 20MG TABLET 177,036 176 QVAR 40MCG AEROSOL 176,859 177 NORVASC 5MG TABLET 176,207 178 TRILEPTAL 600MG TABLET 175,478 179 PAXIL 30MG TABLET 172,326 180 ZYPREXA 2.5MG TABLET 171,854 181 ENBREL 25MG KIT 171,461 182 VIDEX EC 250MG CAPSULE 171,304 183 LUPRON DEPOT 7.5MG DISPOSABLE 169,618 184 PREVACID 30MG CAPSULE 169,138 185 MONARC-M 675 (+/-)U VIAL 167,524 186 LAMICTAL 150MG TABLET 167,250 187 FLOVENT 110MCG AEROSOL 166,262 188 ZANTAC 15MG/ML SYRUP 166,185 continued on the next page 9900 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9911 Rank Label Name Dosage Net Drug Ingredient Cost 189 DILANTIN 100MG CAPSULE 166,089 190 CIPRO 500MG TABLET 162,959 191 ZONEGRAN 100MG CAPSULE 162,124 192 IMITREX 50MG TABLET 162,033 193 CRIXIVAN 400MG CAPSULE 160,908 194 ZIAGEN 300MG TABLET 160,300 195 RISPERDAL CONSTA 50MG/2ML DISPOSABLE 156,989 196 ZITHROMAX 250MG TABLET 153,793 197 LOVASTATIN 20MG TABLET 152,087 198 WELLBUTRIN XL 150MG TABLET 151,809 199 FORTOVASE 200MG CAPSULE 151,344 200 ZOFRAN 8MG TABLET 150,763 201 RISPERDAL 1MG TABLET 148,534 202 AVONEX 30MCG/.5ML KIT 148,476 203 LEXAPRO 10MG TABLET 147,994 204 ABILIFY 10MG TABLET 145,685 205 GEODON 20MG CAPSULE 144,680 206 RECOMBIVAX HB 10MCG/ML VIAL 143,746 207 ADVAIR DISKUS 500-50MCG DISK 141,424 208 ABILIFY 30MG TABLET 141,274 209 SEREVENT DISKUS 50MCG DISK 139,037 210 TEGRETOL 100MG/5ML SUSPENSION 138,820 211 IMITREX 50MG TABLET 138,152 212 VIOXX 25MG TABLET 136,662 213 CELEBREX 200MG CAPSULE 135,741 214 DOVONEX 0.005% OINTMENT(GM) 134,659 215 FAMVIR 500MG TABLET 133,194 216 KEPPRA 750MG TABLET 131,764 217 NORVASC 5MG TABLET 131,051 218 VALCYTE 450MG TABLET 130,568 219 LIPITOR 40MG TABLET 129,217 220 PAROXETINE HCL 40MG TABLET 128,799 221 PAROXETINE HCL 20MG TABLET 127,762 222 GEODON 20MG VIAL 126,616 223 BIAXIN 500MG TABLET 126,074 224 TRILEPTAL 300MG TABLET 124,620 225 GLEEVEC 100MG TABLET 123,799 226 ADVAIR DISKUS 100-50MCG DISK 123,772 227 ABILIFY 20MG TABLET 122,512 228 ZOLOFT 25MG TABLET 121,543 229 NORVASC 10MG TABLET 121,077 230 AVANDIA 4MG TABLET 121,076 231 CELEXA 40MG TABLET 120,845 232 PAXIL 40MG TABLET 120,783 233 LIPITOR 20MG TABLET 119,132 234 PREVACID 15MG CAPSULE 117,607 235 HALOPERIDOL 10MG TABLET 116,147 236 REYATAZ 150MG CAPSULE 115,710 9922 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9933 Rank Label Name Dosage Net Drug Ingredient Cost 237 ADVAIR DISKUS 250-50MCG DISK 113,846 238 FLUOXETINE HCL 40MG CAPSULE 113,415 239 NIFEDIPINE ER 90MG TABLET 113,134 240 PLAVIX 75MG TABLET 112,352 241 PULMICORT 0.5MG/2ML AMPUL 107,948 242 EFFEXOR XR 150MG CAPSULE 107,773 243 ASACOL 400MG TABLET 106,748 244 NIFEDIPINE ER 60MG TABLET 106,592 245 REYATAZ 200MG CAPSULE 106,299 246 DEPO-PROVERA 150MG/ML VIAL 105,729 247 METFORMIN HCL 500MG TABLET 105,031 248 CELEBREX 100MG CAPSULE 104,369 249 DDAVP 0.2MG TABLET 103,472 250 PENICILLIN V POTASSIUM 500MG TABLET 99,518 251 ZEMPLAR 5MCG/ML VIAL 99,425 252 ACTOS 15MG TABLET 99,380 253 BUPROPION HCL 75MG TABLET 98,828 254 PAXIL 10MG TABLET 98,688 255 RIFAMPIN 300MG CAPSULE 98,523 256 BOTOX 100 UNIT VIAL 98,289 257 AUGMENTIN 500-125MG TABLET 98,080 258 MIRTAZAPINE 30MG TABLET 97,568 259 ALLEGRA 60MG TABLET 94,788 260 DILANTIN 100MG CAPSULE 94,313 261 PRILOSEC 20MG CAPSULE 94,111 262 PROZAC WEEKLY 90MG CAPSULE 94,033 263 DURAGESIC 100MCG/HR PATCH 92,700 264 MIRTAZAPINE 45MG TABLET 92,458 265 FLOMAX 0.4MG CAPSULE 92,449 266 DIFLUCAN 150MG TABLET 92,339 267 NIFEDIPINE ER 30MG TABLET 91,873 268 GLYBURIDE 5MG TABLET 91,681 269 NAPROXEN 500MG TABLET 91,255 270 RISPERDAL 0.5MG TABLET 90,330 271 NIFEDIAC CC 60MG TABLET 90,296 272 LOVENOX 100MG/ML DISPOSABLE 90,168 273 FLOVENT 220MCG AEROSOL 90,147 274 METHADONE HCL 10MG TABLET 89,597 275 AGENERASE 150MG CAPSULE 88,543 276 NIFEDIPINE ER 90MG TABLET 88,446 277 EPOGEN 4000 U/ML VIAL 88,306 278 LUPRON DEPOT 22.5MG DISPOSABLE 87,611 279 FLUNISOLIDE 0.025% AEROSOL 86,700 280 PAROXETINE HCL 20MG TABLET 86,667 281 INTRON A 6MMU/ML VIAL 86,547 282 SORIATANE 25MG CAPSULE 86,249 283 GEODON 60MG CAPSULE 85,271 284 DEPAKOTE ER 250MG TABLET 83,960 continued on the next page 9922 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9933 Rank Label Name Dosage Net Drug Ingredient Cost 285 DEPAKOTE 250MG TABLET 82,750 286 PAROXETINE HCL 20MG TABLET 82,417 287 HYDROXYZINE HCL 50MG TABLET 82,219 288 MIRTAZAPINE 30MG TABLET 82,108 289 RISPERDAL CONSTA 37.5MG/2ML DISPOSABLE 81,559 290 LEVAQUIN 500MG TABLET 80,528 291 NIFEDIPINE ER 60MG TABLET 80,467 292 ZITHROMAX 250MG TABLET 79,891 293 ZOVIRAX 5% OINTMENT(GM) 79,164 294 PREMARIN 1.25MG TABLET 78,925 295 QVAR 80MCG AEROSOL 77,005 296 ZYRTEC 10MG TABLET 76,886 297 PAROXETINE HCL 10MG TABLET 76,857 298 CHLORAMPHENICOL SOD 1G VIAL 76,500 SUCCINATE 299 ROCEPHIN 2G VIAL 76,377 300 KEPPRA 250MG TABLET 76,220 301 LAMICTAL 200MG TABLET 75,750 302 DIFLUCAN 100MG TABLET 75,223 303 MIRTAZAPINE 15MG TABLET 74,809 304 ABILIFY 20MG TABLET 74,025 305 EFFEXOR XR 37.5MG CAPSULE 73,600 306 HYDROXYZINE HCL 50MG TABLET 73,405 307 ZERIT 30MG CAPSULE 73,236 308 PRAVACHOL 20MG TABLET 73,183 309 ACIPHEX 20MG TABLET 72,735 310 PRILOSEC 20MG CAPSULE 70,848 311 ENGERIX-B 20MCG/ML VIAL 70,543 312 ORTHO TRI-CYCLEN 7 DAYS X 3 TABLET 70,417 313 LUPRON DEPOT 11.25MG KIT 69,195 314 CIPRO 250MG TABLET 69,108 315 PROCRIT 10000 U/ML VIAL 68,552 316 TEGRETOL 200MG TABLET 68,233 317 ZITHROMAX 250MG TABLET 67,791 318 ENALAPRIL MALEATE 10MG TABLET 67,505 319 AMOX TR-POTASSIUM CLAVULANATE 500-125MG TABLET 66,358 320 RANITIDINE HCL 150MG TABLET 66,287 321 LAMISIL 250MG TABLET 65,633 322 CLOZAPINE 100MG TABLET 65,615 323 PREVACID 30MG CAPSULE 64,716 324 LEXAPRO 20MG TABLET 64,556 325 TRILEPTAL 600MG TABLET 64,546 326 NEURONTIN 100MG CAPSULE 64,450 327 ZYPREXA 2.5MG TABLET 64,249 328 GRIS-PEG 250MG TABLET 63,776 329 LANTUS 100 U/ML VIAL 63,722 330 MIRTAZAPINE 15MG TABLET 63,224 9944 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9955 Rank Label Name Dosage Net Drug Ingredient Cost 331 REMICADE 100MG VIAL 63,146 332 LOVASTATIN 20MG TABLET 62,979 333 TOBI 300MG/5ML AMPUL 62,920 334 DILANTIN 100MG CAPSULE 62,734 335 XENICAL 120MG CAPSULE 62,521 336 TWINRIX 20MCG-720U DISPOSABLE 62,463 337 VALPROIC ACID 250MG/5ML SYRUP 62,191 338 CELEBREX 200MG CAPSULE 62,127 339 NIFEDIAC CC 30MG TABLET 61,995 340 INTRON A 10MMU/ML KIT 61,701 341 PREMARIN 1.25MG TABLET 61,699 342 CELEBREX 100MG CAPSULE 61,024 343 REMERON 30MG TABLET 60,670 344 TWINRIX 20MCG-720U VIAL 60,001 345 BICILLIN L-A 2.4MMU/4ML DISPOSABLE 59,479 346 BUPROPION HCL 100MG TABLET 59,328 347 METFORMIN HCL 500MG TABLET 59,152 348 RECOMBIVAX HB 10MCG/ML VIAL 59,032 349 ALLEGRA 60MG TABLET 58,961 350 PHENYTOIN SODIUM 100MG CAPSULE 58,774 351 BIAXIN 500MG TABLET 58,755 352 CATAPRES-TTS 3 0.3MG/24HR PATCH 58,545 353 CELEXA 10MG TABLET 58,448 354 COZAAR 50MG TABLET 58,031 355 COSOPT 0.5-2% DROPS 57,983 356 PULMOZYME 1MG/ML SOLUTION 57,792 357 TRIAMTERENE W/HCTZ 37.5-25MG CAPSULE 57,153 358 EFFEXOR XR 37.5MG CAPSULE 57,136 359 LEVAQUIN 500MG/0.1L INTRAVENOUS 56,035 360 HAVRIX 1440 U/ML VIAL 55,588 361 VIRACEPT 625MG TABLET 55,448 362 DIFLUCAN 100MG TABLET 55,345 363 VIOXX 25MG TABLET 54,462 364 SPORANOX 100MG CAPSULE 54,335 365 COREG 3.125MG TABLET 54,283 366 ABILIFY 5MG TABLET 54,084 367 RISPERDAL 1MG TABLET 53,872 368 PROTONIX 20MG TABLET 53,859 369 CEPHALEXIN 500MG CAPSULE 53,777 370 REMERON 45MG TABLET 53,453 371 HYDROXYZINE HCL 50MG TABLET 52,649 372 DOVONEX 0.005% CREAM 52,645 373 LOVASTATIN 20MG TABLET 52,500 374 TEMODAR 100MG CAPSULE 52,023 375 ADALAT CC 30MG TABLET 51,960 376 IBUPROFEN 600MG TABLET 51,816 377 BACTROBAN 2% OINTMENT(GM) 51,626 378 LOTENSIN 10MG TABLET 51,114 continued on the next page 9944 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9955 Rank Label Name Dosage Net Drug Ingredient Cost 379 ALPHAGAN P 0.15% DROPS 50,901 380 PROCRIT 20000 U/ML VIAL 50,691 381 ALBUTEROL 90MCG AEROSOL 50,603 382 CLINDAMYCIN HCL 150MG CAPSULE 50,464 383 PATANOL 0.1% DROPS 50,315 384 CELLCEPT 500MG TABLET 50,179 385 EFFEXOR 100MG TABLET 50,086 386 ACTOS 30MG TABLET 50,077 387 PHENYTOIN 100MG/4ML SUSPENSION 50,057 388 NORVASC 5MG TABLET 49,761 389 OMEPRAZOLE 20MG CAPSULE 49,722 390 CLINDAMYCIN HCL 300MG CAPSULE 49,427 391 ALUPENT 650MCG AEROSOL 49,225 392 ESKALITH CR 450MG TABLET 49,103 393 AUGMENTIN 875-125MG TABLET 48,967 394 HEPSERA 10MG TABLET 47,797 395 HALOPERIDOL 10MG TABLET 47,570 396 AVANDIA 2MG TABLET 47,420 397 CAFERGOT 1-100MG TABLET 47,373 398 ACCUPRIL 10MG TABLET 47,360 399 PRAVACHOL 20MG TABLET 47,350 400 ATENOLOL 50MG TABLET 47,293 401 ALDARA 5% PACKET 47,251 402 CARBAMAZEPINE 200MG TABLET 47,142 403 CELEXA 40MG TABLET 46,503 404 CRIXIVAN 400MG CAPSULE 46,340 405 LOVENOX 60MG/0.6ML DISPOSABLE 46,229 406 MEGESTROL ACETATE 40MG/ML SUSPENSION 46,169 407 DICLOXACILLIN SODIUM 500MG CAPSULE 45,782 408 PREVACID 30MG SUSPENSION 45,686 409 REMERON 15MG TABLET 45,657 410 ZYPREXA 2.5MG TABLET 45,618 411 GLUCAGON EMERGENCY KIT 1MG KIT 45,163 412 KETOCONAZOLE 2% CREAM 45,138 413 LOXAPINE SUCCINATE 50MG CAPSULE 45,030 414 SEROQUEL 25MG TABLET 45,028 415 PREMARIN 1.25MG TABLET 45,012 416 GLYBURIDE 5MG TABLET 45,003 417 VIOXX 25MG TABLET 44,874 418 YASMIN 28 0.03-3MG TABLET 44,828 419 CEPHALEXIN 500MG CAPSULE 44,683 420 ZOCOR 20MG TABLET 44,551 421 LOVENOX 40MG/0.4ML DISPOSABLE 44,385 422 METFORMIN HCL 850MG TABLET 44,220 423 AMOX TR-POTASSIUM CLAVULANATE 875-125MG TABLET 43,655 424 DEPAKOTE SPRINKLE 125MG CAPSULE 43,607 425 EPOGEN 3000 U/ML VIAL 43,399 426 BACLOFEN 10MG TABLET 43,340 9966 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9977 Rank Label Name Dosage Net Drug Ingredient Cost 427 CASODEX 50MG TABLET 43,228 428 PREMARIN 0.625MG TABLET 42,955 429 SOTRET 40MG CAPSULE 42,875 430 RIBASPHERE 200MG CAPSULE 42,810 431 CIPRO 750MG TABLET 42,550 432 RANITIDINE HCL 150MG TABLET 41,781 433 PAXIL 10MG/5ML SUSPENSION 41,723 434 VALTREX 500MG TABLET 41,157 435 VAQTA 50 UNIT/ML VIAL 40,994 436 TEGRETOL XR 400MG TABLET 40,781 437 KOATE-DVI 1000(+/-)U KIT 40,656 438 AMBIEN 10MG TABLET 40,078 439 DURAGESIC 50MCG/HR PATCH 40,042 440 INDERAL LA 80MG CAPSULE 39,902 441 REMERON 15MG TABLET 39,785 442 EPOGEN 20000 U/ML VIAL 39,777 443 LOXAPINE SUCCINATE 25MG CAPSULE 39,726 444 NALTREXONE HYDROCHLORIDE 50MG TABLET 39,674 445 PAXIL 20MG TABLET 39,431 446 REBETRON 1200 1200-3/0.5 KIT 39,431 447 DEPO-PROVERA 150MG/ML DISPOSABLE 39,247 448 ZOMIG 2.5MG TABLET 39,197 449 LEXIVA 700MG TABLET 39,161 450 LITHIUM CARBONATE 600MG CAPSULE 39,116 451 ABELCET 5MG/ML VIAL 39,109 452 PROGRAF 1MG CAPSULE 39,023 453 PNEUMOVAX 23 25MCG/.5ML VIAL 39,011 454 AVONEX ADMINISTRATION PACK 30MCG KIT 38,829 455 ACCUTANE 40MG CAPSULE 38,788 456 LEXAPRO 10MG TABLET 38,715 457 REGRANEX 0.01% GEL 38,638 458 HALDOL DECANOATE 100 100MG/ML AMPUL 38,590 459 PAROXETINE HCL 10MG TABLET 38,490 460 EFFEXOR 37.5MG TABLET 38,397 461 DURAGESIC 75MCG/HR PATCH 38,076 462 RISPERDAL 0.25MG TABLET 37,681 463 SELENIUM SULFIDE 2.5% SHAMPOO 37,592 464 METROGEL 0.75% GEL 37,589 465 COREG 6.25MG TABLET 37,533 466 ARICEPT 5MG TABLET 37,519 467 GEMFIBROZIL 600MG TABLET 37,404 468 GEMFIBROZIL 600MG TABLET 37,351 469 LUPRON DEPOT 3.75MG KIT 37,347 470 PODOFILOX 0.5% SOLUTION 37,321 471 ACTICIN 5% CREAM 37,285 472 REMERON 30MG TABLET 37,280 473 BACLOFEN 10MG TABLET 37,182 474 LOVENOX 30MG/0.3ML DISPOSABLE 37,162 continued on the next page 9966 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9977 Rank Label Name Dosage Net Drug Ingredient Cost 475 NEOMYCIN/POLYMYXIN/HC 3.5-10K-1 SUSPENSION 37,044 476 COPAXONE 20MG KIT 36,928 477 LITHIUM CARBONATE 300MG CAPSULE 36,900 478 BUPROPION HCL 75MG TABLET 36,881 479 BETASERON 0.3MG VIAL 36,696 480 ROMAZICON 0.1MG/ML VIAL 36,635 481 EPIVIR HBV 100MG TABLET 36,589 482 BUPROPION HCL 100MG TABLET 36,572 483 RETROVIR 300MG TABLET 36,426 484 PROSCAR 5MG TABLET 36,398 485 PEG-INTRON 50MCG/0.5 KIT 36,279 486 ADALAT CC 60MG TABLET 35,940 487 METFORMIN HCL 500MG TABLET 35,845 488 LORAZEPAM 2MG TABLET 35,843 489 GABITRIL 4MG TABLET 35,770 490 STRATTERA 10MG CAPSULE 35,696 491 LEVAQUIN 250MG TABLET 35,234 492 NIZORAL 2% SHAMPOO 34,996 493 PREVACID 15MG CAPSULE 34,876 494 CLOZAPINE 25MG TABLET 34,725 495 MACROBID 100MG CAPSULE 34,554 496 COMBIVENT 103-18MCG AEROSOL 34,388 497 LITHIUM CARBONATE 600MG CAPSULE 33,910 498 DANTRIUM 25MG CAPSULE 33,680 499 REMERON 15MG TABLET 33,571 500 PENLAC 8% SOLUTION 33,287 Top 500 Prescription Drugs by Net Drug Ingredient Cost $153,663,006 All Prescription Drugs by Net Drug Ingredient Cost $171,712,727 Top 500 as a Percentage of all Prescription Drugs 89.49% Brand Name Drugs as a Percentage of All Prescription Drugs 90.89% Generic Drugs as a Percentage of All Prescription Drugs 9.11% 9988 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9999 APPENDIX B The Department of Health Services Has Not Fully Implemented Certain Prior Audit Recommendations Aimed at Reducing Drug Costs In the Bureau of State Audits’ (bureau) April 2003 report titled Department of Health Services: Its Efforts to Further Reduce Prescription Drug Costs Have Been Hindered by Its Inability to Hire More Pharmacists and Its Lack of Aggressiveness in Pursuing Available Cost-Saving Measures, we made numerous recommendations to help the Department of Health Services (Health Services) improve pharmacist staffing levels and take advantage of cost-saving strategies. Although our prior report included 23 recommendations, the focus of this Appendix is on Health Services’ efforts to implement 16 of the recommendations that relate to its strategies for procuring drugs, including ensuring that it has adequate staff to negotiate contracts with manufacturers and collect rebates. Table B summarizes each of these 16 recommendations and Health Services’ progress toward implementing them. TABLE B Status of Certain Recommendations From the Bureau of State Audits’ 2003 Report Titled Department of Health Services: Its Efforts to Further Reduce Prescription Drug Costs Have Been Hindered by Its Inability to Hire More Pharmacists and Its Lack of Aggressiveness in Pursuing Available Cost-Saving Measures Recommendation Progress Plan Health Services should broaden its According to Health Services, as of March 2005, all of its Fully implemented. recruitment efforts for pharmacists pharmacy positions have been filled and there is a waiting list of beyond the counties of Sacramento candidates, in case vacancies arise. and San Joaquin to all of California and advertise in pharmacy Health Services stated that it received approval from the periodicals. If necessary, it should Department of Personnel Administration to implement a seek the appropriate approvals recruitment and retention payment of $2,000 per month for its to expand its recruitment efforts pharmacists, which, according to Health Services, is primarily beyond California. responsible for the full staffing levels. continued on the next page 9988 California State Auditor Report 2004-033 California State Auditor Report 2004-033 9999 Recommendation Progress Plan Health Services should perform Although it did not perform a formal analysis, Health Services Partially implemented. an analysis to identify the number indicates it reclassified four pharmacy positions to either analyst of staff it needs to meet its federal or consultant positions and filled those positions in July 2004. However, because Health and state obligations. The analysis According to Health Services, only one of the four reclassified Services has been able to hire should include a reevaluation positions had an impact on federal reimbursements, which more pharmacists, it believes of the duties assigned to the reduced federal funding from 75 percent to 50 percent for one its pharmacy program is fully pharmacist classifications to identify reclassified position. staffed. Thus, the underlying those that could be performed reason for the recommendation by nonpharmacist classifications. has been addressed. Further, it should quantify the effect that using nonpharmacist staff has on its federal reimbursements for personnel costs. Health Services should research its Health Services indicates it initiated discussions with the Not implemented. ability to use the services of interns. University of the Pacific in 2003, but did not succeed in getting a proposal from the school. According to Health Services, an However, because Health Services informal analysis of the costs and benefits associated with an has been able to hire more intern indicate that it is not cost-beneficial because of the length pharmacists, the underlying of time it takes to train interns and the limited term of their reason for the recommendation assignments. Instead, Health Services stated it would be better to has been addressed. pursue fellowship opportunities because the increased experience of a post-graduate would better meet its needs. However, in April 2005, Health Services stated the fellowship is no longer necessary because the recruitment and retention adjustment in salary has permitted it to hire more pharmacists. Health Services should revise its Health Services published new policies and procedures for Partially implemented. procedures for performing reviews drug reviews in October 2004. Health Services’ Medi-Cal of new drugs to include a timeline Drug Review Policy and Procedures include timelines for drug for completing reviews and specific reviews. Although the policies and procedures did not originally steps on how staff should address address manufacturer nonresponsiveness, Health Services added manufacturers’ nonresponsiveness. wording to address this in April 2005. Specifically, it drafted language to add to its policy and procedures stating that a manufacturer will have 30 business days to respond to the assigned pharmacist to accept, reject, or present an alternative to Health Services’ counteroffer. If the manufacturer fails to respond within 30 business days, Health Services will conclude that the manufacturer is rejecting the counteroffer. Then Health Services will decide whether to add the petitioned drug to the drug list. As of April 27, 2005, Health Services was still conducting its internal review of the draft language. However, Health Services states that it will publish its updated policies and procedures for drug reviews on its Web site no later than June 1, 2005. Health Services should conduct the According to Health Services, it develops a list of TCRs to be Fully implemented. therapeutic category reviews (TCRs) performed annually. Health Services completed four TCRs specified in its budget proposal between July 2004 and December 2004. However, only one of for fiscal year 2002–03. Further, it the four TCRs were for drugs included in its budget proposal should develop and adhere to annual for fiscal year 2002–03. Health Services has not completed a schedules for future reviews. TCR for atypical antipsychotics. According to Health Services, it chose to renegotiate contracts with manufacturers of the atypical antipsychotic drug contracts, which also generates savings. Health Services should negotiate According to Health Services, it solicited contract proposals from Not implemented. state supplemental rebate contracts five generic drug manufacturers in 2003. However, by May 2004 with manufacturers of generic drugs, only one manufacturer had expressed an interest, which later However, according to Health as the Legislature intended. was withdrawn. According to Health Services, generic drug Services, implementing the new manufacturers are not interested in entering into supplemental MAIC should result in savings rebate agreements because their margins of profit are small and for generic drugs beyond those they have received negative feedback from the retail community. potential savings that may be According to Health Services, it decided to shift from attempting achieved through its negotiations to contract for generic drugs to implementing a new maximum with manufacturers of generic allowable ingredient cost (MAIC) described in its response to the drugs, assuming the manufacturers next recommendation. would even participate in the negotiations. 110000 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110011 Recommendation Progress Plan Health Services should obtain written In August 2004, state law was revised to impose penalties Fully implemented. assurance from drug wholesalers on wholesalers failing to comply with price reporting that they will provide their wholesale requirements. Specifically, the law requires wholesale drug selling prices so that it can compute distributors identified as a source of wholesale pricing information the new MAIC for generic drugs. to provide Health Services with the wholesale selling price of all If the wholesalers are not willing prescription and non-prescription drugs sold to pharmacies no to provide this information, Health later than 30 days after the end of each month. If a wholesaler fails Services should seek legislation to to report the wholesale selling price, Health Services must deny compel them to do so. payment for all drugs supplied by that wholesaler to Medi-Cal program beneficiaries. According to Health Services, it held its first meeting with manufacturers and wholesalers on April 8, 2005, to begin the discussions necessary to collect and calculate MAICs. Health Services should perform an Health Services has not performed a formal analysis to support Not implemented. analysis to support its proposal to its creation of a preferred prior-authorization list. However, Health create a preferred prior-authorization Services believes using a preferred prior-authorization list ultimately However, Health Services is list. The analysis should include gets it closer to entering into additional supplemental rebate addressing the spirit behind an evaluation of the impact this contracts. For example, Health Services already has conducted an our recommendation by proposal has on its workload and evaluation of drugs used to treat erectile dysfunction and placed demonstrating that its preferred adequate documentation to support these drugs on a prior-authorization list. Health Services’ analysis prior-authorization process can its estimated savings. indicates that it was able to generate a substantial increase in the result in savings through the per unit supplemental rebates initially offered by the manufacturer. negotiation of supplemental rebate Health Services plans to continue performing analyses of the contracts. cost-effectiveness of the preferred prior authorization on a drug-by-drug or therapeutic drug category basis. Health Services should seek federal According to Health Services, the center informally indicated that Partially implemented. approval from the Centers for the state law prohibiting retroactive rebate recalculations could not Medicare and Medicaid Services supercede the federal rule. In May 2004, Health Services indicated (center) to prohibit manufacturers to the bureau that it was seeking agreement from the center from making retroactive adjustments to incorporate language into its supplemental rebate contracts to to federal rebates owed as a prohibit manufacturers from making retroactive reductions to state result of revisions to their average rebates. Health Services’ Pharmacy Policy and Contracting Section manufacturer’s prices or best prices. forwarded proposed contract language to the department’s Office of Legal Services for approval in February 2003. On April 26, 2005, the Office of Legal Services made minor revisions and approved the proposed language to incorporate in the supplemental rebate contracts with manufacturers. Health Services intends to seek approval from the center before including the language in future contracts. Health Services anticipates sending its request for approval to the center by mid-June 2005. According to Health Services, in the meantime, a federal rule limiting manufacturers to a three-year retroactive window to adjust rebate amounts owed to states went into effect on January 1, 2004. Health Services should evaluate Health Services indicates it has not conducted a formal evaluation Not implemented. periodically the number of staff to determine the staff needed because available staff members needed to resolve disputed rebates have been working on “aged” disputes (those from 1991 through Health Services plans to implement within 90 days. June 30, 2002). According to Health Services, with the increasing this recommendation after its number of drugs, claims to review, and cost per claim, the staffing current backlog is resolved. Its study is more likely than not to show that at least some of the current target date to resolve currently limited term positions should be made permanent to disputes arising from 1991 through resolve disputes in a timely manner, to get the money being June 30, 2002, is June 30, 2005. withheld, and to prevent a backlog from recurring. continued on the next page 110000 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110011 Recommendation Progress Plan Health Services also should follow Although the ADAP does not plan on using RAIS, it plans to Partially implemented. the center’s guidance and ensure establish an alternative approach whereby ADAP regularly sends that the AIDS Drug Assistance its rebate claim forms with the number of drugs dispensed to Health Services’ ADAP’s Program (ADAP) staff and Medi-Cal Medi-Cal for verification that the ADAP is getting the correct unit alternative approach to using staff coordinate their activities for rebate amount. Additionally, to more closely estimate rebates RAIS may address our concern if obtaining federal rebates by using the on invoices, the ADAP will continue to use the most recent unit it follows through on its plans to Rebate Accounting and Information rebate amount provided by drug manufacturers on their most have Medi-Cal verify unit rebate System (RAIS) for invoicing its recent rebate transmittals, a process the program implemented amounts. However, the ADAP manufacturers. Furthermore, it in July 2004. According to Health Services, this has resulted in less is still pending feedback from should ensure that its ADAP emulates than 1 percent difference between estimated rebate totals and Medi-Cal on its willingness to the Medicaid model by seeking actual rebate amounts collected. cooperate with this plan. l i t e n h g t e e i y s r l e a d s t e t io l f a r n y o t m s o u b a m s m s a e i n t s t u s i n f a a g n c t d f u e c r d e o e r l r s l a e w l c r t h e e b n a tes. I b w n y h a s e d p n d r i t i n t h i g o e n y 2 , d 0 H 0 e e l 5 a a y t lt o s h u a S b s e s m e rv s it s ic t i a e n n s g d i n f e c d d o ic l e l a e r t a c e l t s r i e n it b t p e a r l t a e e n s s t . s f I t r n o o t m s h e e e m k m a le e n g a u n i f s a t la i c m t t i u o e r n , e rs T s c e o h e l e l k e i A c n t D g i A n le P te g ’s r i e s a l s a l t t t e i f o r r n o n m a t t o e m a a a s p s n p e u r s o s fa a a c c n t h u d r t e o r s the ADAP continues to implement a process of evaluating the when they delay submitting appropriateness of removing the drug from the ADAP formulary federal rebates is reasonable. when the manufacturer delays rebate payment. However, we encourage it to follow through with seeking legislation as recommended. Health Services should establish In April 2005, Health Services established draft policies and Partially implemented. policies and procedures to ensure procedures for following up on and renegotiating supplemental that it follows up on and renegotiates contracts before they expire. Health Services still was conducting supplemental contracts before their its internal review of the draft language as of April 27, 2005, but expiration dates. Further, it should expects to finalize these draft policies and procedures no later establish a review process to ensure than June 1, 2005. supplemental rebate contracts are appropriately entered into its By November 2003, Health Services had established a process for contract tracking database and RAIS. entering contract expiration dates into a tracking system, as well as the RAIS system. If Health Services is unable to Health Services has said it evaluates the net cost impact on a Fully implemented. complete negotiations for state case-by-case basis. If unable to renegotiate a state supplemental supplemental rebates before rebate contract on a labeler-restricted drug by the expiration contracts expire, it should date, Health Services stated that it instructs EDS to remove the immediately instruct Electronic Data restriction for a brand name drug only (thus making generically Systems Federal Corporation (EDS) equivalent drugs available). Health Services believes this is an to remove the restriction on brand effective way of getting manufacturers motivated to participate in name drugs to allow pharmacies the renegotiation process. to dispense less expensive generic drugs without requiring a treatment In addition, Health Services states that it compares the net cost authorization request (TAR) approval. of the generic drug in question to other brand and generic drugs within the same therapeutic category to determine if, based on the five statutory criteria, the drug in question should remain available without prior authorization. Finally, Health Services also indicates that these labeler-restrictive contracts have provisions that remove the exclusivity upon introduction of a federal upper limit or state maximum allowable ingredient cost, both of which typically make generic drugs the least costly alternative. Health Services should ensure that it Health Services reports it changed its procedures for writing Fully implemented. secures written assurance from the contracts in order to implement this recommendation. Rather drug manufacturer for all agreements than having one central person write all contracts, pharmacists are made during a negotiation and now responsible for negotiating and writing all contracts, using includes this information in the terms standard boilerplate language, but tailoring specific terms and and conditions of the contract. provisions to reflect agreements reached with the manufacturer. Once the contract is signed by the manufacturer, Health Services’ unit manager, section chief, division chief, and deputy director review it. 110022 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110033 Recommendation Progress Plan Health Services should require the The ADAP indicates it has not worked with Medi-Cal’s contract Partially implemented. ADAP to capitalize on the expertise unit. Instead, the ADAP chooses to work with other ADAPs of Medi-Cal’s contract services nationwide to combine purchasing power and negotiate unit and work with it to negotiate additional rebates and/or price freezes with manufacturers of supplemental rebates with drug the program’s most expensive drugs. By November 2003, the manufacturers. If it chooses not national organization had secured supplemental agreements to work with Medi-Cal, the with eight HIV drug manufacturers. According to the ADAP, costs ADAP needs to ensure that it for these drugs comprise approximately 82 percent of ADAP requires manufacturers to enter expenditures. Although the ADAP only provided us with two rebate agreements. fully executed rebate agreements between it and manufacturers that identified the parties and authorized representatives, terms, and conditions, and signatures of authorized representatives of the State, the ADAP indicates it plans to pursue similar written agreements from the remaining six manufacturers. Health Services should evaluate Health Services did not conduct an evaluation of the pros Fully implemented. the pros and cons of deducting and cons because various cost-sharing proposals, including co-payments from its reimbursement co-payments, are being addressed at the statewide level in the rate and having pharmacies collect governor’s Medi-Cal Redesign Effort that we discuss on pages 36 them from beneficiaries. The through 38. evaluation should include, at least, an analysis of costs, benefits, and pharmacies’ collection rates. 110022 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110033 Blank page inserted for reproduction purposes only. 110044 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110055 Agency’s comments provided as text only. State and Consumer Services Agency Office of the Secretary 915 Capitol Mall, Suite 200 Sacramento, CA 95814 May 9, 2005 Elaine Howle, State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Elaine Howle: Enclosed is our response prepared by the Department of General Services to the Bureau of State Audits’ Report No. 2004-033 entitled, Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies. A copy of the response is also included on the enclosed diskette. If you have any questions or need additional information, please contact me at (916) 653-4090. Sincerely, (Signed by: Fred Aguiar) Fred Aguiar, Secretary Enclosures 110044 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110055 State and Consumer Services Agency, Department of General Services Executive Office 707 Third Street West Sacramento, CA 95605 May 10, 2005 Fred Aguiar, Secretary State and Consumer Services Agency 915 Capitol Mall, Room 200 Sacramento, CA 95814 Response to Bureau of State Audits’ Report No. 2004-033 – “Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies” Thank you for the opportunity to respond to the Bureau of State Audits’ (BSA) Report No. 2004-033 which addresses recommendations to the Department of General Services (DGS). The following response addresses each of the recommendations. OVERVIEW OF THE REPORT The DGS has reviewed the findings, conclusions and recommendations presented in Report No. 2004-033. The DGS has implemented policies that provide for continually seeking new methods for procuring drugs at lower prices and evaluating the effectiveness of existing procurement methods. As part of this process, the DGS will take appropriate actions to address the BSA’s recommendations. Overall, upon comparing the DGS to the Department of Health Services’ (DHS) and California Public Employees Retirement System’s (CalPERS) prescription drug costs, we are pleased that the BSA found that the DGS generally had the best price for the cost of a drug when rebates, dispensing fees and co-payments were not taken into account. This reflects favorably on the performance of the professional pharmaceutical and acquisitions staff within the DGS’ Procurement Division (PD). Based on a recent analysis of a three month period of purchases made by departments through the use of DGS’ competitively bid or negotiated contracts or through the use of the State’s contracted group purchasing organization (GPO), the DGS determined that approximately $6 million was saved during the period of December 1, 2004 through February 28, 2005, by departments purchasing drugs at the contracted price in contrast to wholesale acquisition cost. The BSA’s report does point-out that after rebates, dispensing fees and co-payments are included in the cost calculations, costs generally are lower at the other two departments. Since all information related to the DHS’ and CalPERS’ procurement programs had been redacted from the draft report provided to us for review and comment, we could not verify the BSA’s calculations. Further, we could not determine if the BSA’s report fully explained the significant differences in the drug prescription programs administered by the various departments. Therefore, we would point-out that, because of 110066 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110077 Fred Aguiar -2- May 10, 2005 the different types of procurement programs in place at those departments, it would be expected that after taking into account rebates and co-payments the DHS’ and CalPERS’ final State prescription drug costs may be lower than DGS’ contracted costs. In brief, for the DHS, Federal regulations that govern the Medi-Cal program enable the DHS to negotiate rebates below the Medicaid Best Price for a drug. Further, only those manufacturers that offer rebates are included on the Medi-Cal preferred drug list. The DGS’ drug prices cannot fall below Medicaid Best Price. Therefore, the DHS has advantages related to pricing and rebates that are not available to the DGS. For CalPERS, drugs are provided as part of the health benefit plans it offers to public employees. The population served by these plans is very different than that served under the DGS’ contracts. Therefore, CalPERS is able to subsidize its drug costs by requiring that plan participants pay co- payments for drugs dispensed through pharmacies. The DGS is not aware of any state department that requires co-payments to be paid by the population it serves, such as charging co-payment fees to California Department of Corrections’ (CDC) inmates or Department of Mental Health patients. As noted in the BSA’s report, the DGS agrees that opportunities exist to obtain further savings within the State’s drug procurement program. Toward this end, the overall category of pharmaceuticals has been included as part of the California Strategic Sourcing Initiative. Strategic sourcing is an approach where the buyer (State of California) analyzes what it is buying, what the conditions are, and who can supply those goods or services. Then the buyer uses that information, plus innovative contracting techniques, to find the best values available in the marketplace. Strategic sourcing is used to purchase goods and services that are bought in large quantities, generally by multiple agencies, where careful analysis shows it can be successful. Currently, the strategic sourcing contractor and its partners are providing consulting, data and strategic support services to the PD’s pharmaceutical contracting activities. It should be noted that the BSA’s current audit report does show that the DGS has made significant progress toward including more drugs under contract since a prior report on the State’s drug procurement program that it issued in January 2002. Specifically, the prior BSA report showed only 40% of State department purchases at contracted prices while the current report shows a 52% rate during the 2003/04 fiscal year, a 30% increase. At this time, the DGS has over 3,500 drugs available for use by State departments through either its competitively bid/negotiated contracts or its GPO contractor. The following response only addresses the recommendations that were presented to the DGS. In general, the actions recommended by the BSA have merit and will be promptly addressed. RECOMMENDATIONS RECOMMENDATION # 1: General Services should seek more opportunities for departments to receive rebates by securing more rebate contracts with manufacturers. DGS RESPONSE # 1: This recommendation pertains to the receiving of rebates within contracts entered into based on direct negotiations with manufacturers of prescription drugs. Since the statutory authority for negotiating drug contracts only became effective in January 1, 2003, the DGS is still in the early stages of implementing 110066 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110077 Fred Aguiar -3- May 10, 2005 this program. The DGS’ policies and practices provide that the focus of negotiations be on achieving the best and lowest price overall to the State. To achieve this objective, the DGS attempts to negotiate prices that either match or are as close as possible to the Medicaid Best Price. Per Federal regulations, the manufacturers can not offer the State prices below the Medicaid Best Price. To obtain the best and lowest price, the DGS’ primary strategy is to negotiate price discounts upfront with the manufacturer. This approach is preferable to obtaining rebates to achieve pricing goals for various reasons including the necessity of the State incurring administrative costs to track and account for amounts due from manufacturers. However, it should be noted that, if they result in the State obtaining the best and lowest price, rebates have been and will continue to be pursued. In fact, one of the three contracts that have been negotiated to date includes provisions for the receipt of rebates. RECOMMENDATION # 2: General Services should continue its efforts to obtain more drug prices on contract by working with its contractor to negotiate new and renegotiate existing contracts with certain manufacturers. DGS RESPONSE # 2: As discussed in the Overview section of this response, pharmaceuticals have been included as a category within the California Strategic Sourcing Initiative. Consequently, the strategic sourcing contractor and its partners are providing support to the PD in its efforts to negotiate/renegotiate contracts with manufacturers. This includes the contractor providing consulting assistance during the negotiation/renegotiation of contracts within the Atypical Antipsychotic category of drugs, which makes-up approximately 30% of annual drug costs, and the negotiation of a contract for drugs used to treat hepatitis. It is estimated that the recently completed hepatitis contract, which was awarded on February 28, 2005, will result in annual savings of $1 million on a prior spending level of $5 million. In the near future, the PD also plans to pursue the negotiation of contracts with manufacturers of two other classes of drugs that are widely used by the State: Anticonvulsants and Gastrointestinal drugs. The strategic sourcing contractor will be used to provide consulting support during this contracting effort. RECOMMENDATION # 3: General Services should follow through on its plan to solicit bids to contract directly with a group-purchasing organization to determine if additional savings can be realized. However, in doing so it should thoroughly analyze its ability to secure broader coverage of the drugs state departments purchase by joining MMCAP. The analysis should include the availability of current noncontract drugs from each organization being considered and the savings that could result from spending less administrative time trying to secure additional contracts directly with drug manufacturers. 110088 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110099 Fred Aguiar -4- May 10, 2005 DGS RESPONSE # 3: As noted in the BSA’s report, as staff resources become available, the DGS intends to conduct a solicitation to determine if additional savings can be realized by the State directly contracting with a GPO. The current arrangement of State departments accessing a GPO’s prices through an alliance with the State of Massachusetts has been in place since October 2001 and has resulted in significant savings to the State. However, as part of its operating policy of continually seeking new methods for procuring drugs at lower prices and evaluating the effectiveness of existing procurement methods, the DGS has determined that an alternative method of accessing a GPO should be assessed as soon as feasible. As recommended by the BSA, this assessment will include an analysis of the benefits of joining the cooperative purchasing arrangement used by MMCAP. At this time, the PD tentatively plans to begin the solicitation process for directly contracting with a GPO during the fourth quarter of the 2005/06 fiscal year. Currently, after consultation with the State’s strategic sourcing contractor, the PD’s pharmaceutical staff is working on such high priority activities as pursuing a new prime vendor contract, awarding a pharmacy benefits manager contract for the CDC and performing negotiations or renegotiations of contracts for high-dollar value therapeutic classes of drugs (see prior recommendation). RECOMMENDATION # 4: General Services should facilitate the Formulary Committee and Board’s development of guidelines, policies, and procedures relating to the departments’ adherence to the statewide formulary and ensure that departments formalize their plans for compliance. DGS RESPONSE # 4: At the next meetings of the Pharmacy Advisory Board and the Common Drug Formulary Committee, the DGS will discuss the BSA’s recommended actions related to the need for written guidelines, plans, policies and procedures governing the administration and enforcement of the statewide drug formulary. As relatively new organizations with limited resources, to date, the groups’ efforts have been focused on the area that will provide the most immediate benefit to the State, i.e., development and issuance of a common drug formulary for State departments. An effective drug formulary creates competition among manufacturers of similar drugs resulting in reduced prices. RECOMMENDATION # 5: In order to make more informed decisions concerning the operation of its prescription drugs bulk purchasing program and to be able to expand the program to include those prescription drugs that best serve the needs of state departments, General Services should ask those departments that are otherwise required to participate in the bulk purchasing program to notify General Services of the volume, type, and price of prescription drugs they purchase outside of the bulk purchasing program. 110088 California State Auditor Report 2004-033 California State Auditor Report 2004-033 110099 Fred Aguiar -5- May 10, 2005 DGS RESPONSE # 5: The DGS will study the feasibility of adding a requirement to each department’s delegated purchasing authority that the PD be periodically provided with detailed information on prescription drugs purchased outside of the bulk purchasing program. Currently, the PD receives information on department drug needs that may not being met by maintaining ongoing direct communications with departments and surveying department needs during the formal bid process. CONCLUSION The DGS is firmly committed to effectively and efficiently controlling the State’s prescription drug procurement program. As part of its continuing efforts to improve this process, the DGS will take appropriate actions to address the issues presented in the report. If you need further information or assistance on this issue, please call me at 376-5012. (Signed by: Ron Joseph) Ron Joseph Director 111100 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111111 Agency’s comments provided as text only. State of California Health and Human Services Agency S. Kimberly Belshé, Secretary 1600 Ninth Street, Room 460, Sacramento, CA 95814 May 10, 2005 Elaine Howle, State Auditor* Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, California 95614-6404 Dear Ms. Howle: Enclosed is the California Department of Health Services’ (CDHS) response to the recommendations described in the Bureau of State Audits’ (BSA) draft report entitled, “Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies.” The objective of the BSA review was to determine whether the State is getting the best value in purchasing prescription drugs. The CDHS is pleased that the BSA acknowledges that the CDHS negotiates the lowest prices of any of the departments considered in this review. The California Health and Human Services (CHHS) and CDHS will continue to work hard to achieve the lowest prices and appropriate services for Californians. The CHHS and CDHS appreciates the opportunity to respond to the recommendations contained in the draft report. Should you have any questions pertaining to the CDHS response to the draft’s recommendations, please contact Mr. Stan Rosenstein, Deputy Director, Medical Care Services, at (916) 440-7800. Sincerely, (Signed by: David M. Topp) David M. Topp Assistant Secretary *California State Auditor’s comments appear on page 117. 111100 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111111 Response to Bureau of State Audits AB 1959 Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies 2003/2004 BEST VALUE FOR PRESCRIPTION DRUGS We were very pleased to see the audit findings that among the State programs reviewed the Department of Health Services Medi-Cal program obtained the lowest net ingredient cost for drugs in 95 percent of drugs reviewed in this audit. This confirms the effectiveness of Medi-Cal’s approach of obtaining large discounts from drug manufacturers. Further, after deducting co-payment amounts from pharmacy payments and including dispensing fees in the calculation, Medi-Cal still was the lowest purchaser of drugs for 73 percent of the drugs reviewed in this audit. This is notable because: • This calculation deducted co-payment amounts from pharmacy payments for State employee health plans. Under state law, Medi-Cal cannot deduct co-payment amounts from the amount paid to pharmacies. • The calculation added in dispensing fee amounts. Medi-Cal has a higher dispensing fee than State employee health plans and there is no dispensing fee added to the cost of drugs provided by the Department of General Services (note these costs exist and are paid for by the State department dispensing the drug but were not included in this review). Therefore, even though Medi-Cal must pay dispensing fees and is not able to reduce its expenditures by the use of co-payment amounts, in a large majority of cases, Medi-Cal was still able to generate enough savings on net ingredient costs to remain the best value for the State. FINDING 1: HEALTH SERVICES NEEDS TO IMPROVE THE ACCURACY OF ITS PHARMACY REIMBURSEMENT CLAIM DATA The audit findings state that, “Our review found that Health Services sometimes uses incorrect information when making payments to pharmacies. Specifically, in several instances Health Services’ payments to pharmacies were based on outdated or incorrect information.” The Department of Health Services (DHS) generally agrees with this finding, which addresses prices used to pay pharmacies. However, it should be noted that a portion of the instances identified above was due to the timing of updates to DHS’ pricing file, which were done within the timeframe established for posting newly received price changes. It is existing State policy based on Medi-Cal budget authority to post new prices to the file on a monthly basis. This sometimes results in payments being made to pharmacies according to the price on file without reflecting a new pricing change that came in after the monthly price update was made. This update gets applied the next month. In recognition of the possibility that the normal frequency of updating the pricing file may result in pharmacies not being paid based upon the most recently updated price for a drug, DHS specifically allows pharmacies to re-bill any claim that has been paid inappropriately due to this timing circumstance. DHS believes this practice is the most cost effective policy for both the State and affected pharmacies. 1 111122 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111133 All other instances in which incorrect pricing information was used when making payments to pharmacies were due to an error in implementing a specific computer system change (System Development Notice [SDN] 2063). This issue affected only about 40,000 out of 47 million claims processed in 2002-03, or less than one-tenth (1/10th) of one percent (1%) of the annual pharmacy claim volume. Also, DHS has determined that over ninety-eight percent (98%) of the affected formulary file records involved drugs that had already been inactivated for payment by the Medi- Cal program. As a result, only a small percentage of the total records affected could have resulted in inaccurate claim payment. In addition, this error occurred prior to DHS implementing additional system change testing requirements, involving an integrated test unit (ITU), which would most likely have prevented this kind of error from occurring in production. DHS is in the process of working with the Medi-Cal Fiscal Intermediary (FI) in correcting the problems created by the above system change error, and plans to reprocess these claims to correct payment on all affected claims. We believe that the new ITU process will prevent these types of errors from occurring in the future. RECOMMENDATIONS Health Services should continue to work toward fully implementing the recommendations shown in Appendix B. The DHS will continue to implement those recommendations described in the draft report pending budget constraints and resources. To ensure it reimburses pharmacies the appropriate amounts for prescription drug claims, Health Services should: 1A Identify claims that were processed using outdated pricing file data, determine the appropriate price for the claim, and make the necessary corrections. 1 The DHS disagrees with the audit recommendation. The cause of this finding has been determined to be a normal consequence of DHS’ policy to only apply pricing updates to its formulary file on a monthly basis due to existing budget authority limitation. Because the Department updates its pricing files on a monthly basis, whereas the pricing clearinghouse, currently First DataBank (FDB), updates the prices on a daily basis, the prices on file are sometimes out of synchronization with pricing dates from FDB. If the desire is to pay drug claims using the most up to date prices, increasing the frequency of pricing updates would be a more cost effective alternative than the auditor’s recommendation of reprocessing claims. This change would increase Medi-Cal administrative and program cost. In recognition of the fact that the frequency by which DHS normally updates its pricing file sometimes results in claims being paid based upon a recently outdated price, DHS allows pharmacies to re-bill claims paid inappropriately due to this timing circumstance. However, DHS does not attempt to identify or correct all such inappropriately paid claims, since such an effort would be extremely cost ineffective for both the State and affected pharmacies. 2 111122 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111133 1B. Analyze the cost-effectiveness of establishing a process to review paid claims before and after its update process to ensure that the prices agreed with the appropriate process in the relevant pricing file. 2 The Department disagrees with this recommendation, since the basis for it has been found to be an error in the implementation of a computer system change (SDN 2063), rather than a problem with the process in updating DHS’ pricing files. DHS has implemented an independent test unit function in implementing system changes that is specifically designed to prevent this type of error. DHS is in the process of working with the Medi-Cal FI to correct the computer system error and plans to conduct an erroneous payment correction to rectify payment on all affected claims. DHS agrees that it is critical to ensure that the drug file includes correct prices. The most effective way of doing this is to have each update of the file reviewed, which is current policy. 1C. Identify prescription drug claims paid using the direct pricing method, determine the appropriate price for these claims, and make the necessary corrections. The Department agrees with this recommendation and has written a Fiscal Intermediary Problem Statement to address those claims that were paid in error at the direct price. These errors were a direct result of the implementation of SDN 2063. This recommendation, in combination with recommendation 1E where the Average Wholesale Price percent field and Estimated Acquisition Cost (EAC) did not match, relate to the same issue. Today, the FI has established the Integrated Testing Unit that currently prevents these errors from occurring with the implementation of an SDN by validating claims through regression testing. This allows the FI to see the differences after the system logic changes have occurred. To address this finding, a FI Problem Statement has been written. It has been determined that between audit Finding 1C and 1E, there are 18,891 formulary records affected. However, the impact to claims reimbursement has been determined to be small, given that seventy-three percent (73%) of the affected records involved drugs that had already been inactivated at the time the system problem occurred, and subsequently over ninety-eight percent (98%) have been inactivated. 1D. Ensure that the fiscal intermediary’s Integrated Testing Unit removes future outdated pricing methods promptly. The Department agrees with this recommendation. Subsequent to the system problem occurring that allowed the application of the outdated direct pricing method, DHS has required the FI to establish an Independent Testing Unit to identify these types of errors prior to implementing the system change in production. 3 111144 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111155 1E. Make the necessary corrections to the claim data to adjust for the incorrect data in the estimated acquisition cost and AWP percent field. The Department agrees with this recommendation and a FI Problem Statement has been written. It has been determined that between audit Finding 1C and 1E, there are 18,891 formulary records affected. However, the impact to claims reimbursement has been determined to be small, given that seventy-three percent (73%) of the affected records involved drugs that had already been inactivated at the time the system problem occurred, and subsequently over ninety-eight percent (98%) have been inactivated. 1F. Ensure that its fiscal intermediary’s Integrated Testing Unit verifies that, in the future, drug prices in the pricing file are calculated correctly before authorizing their use for processing claims. The Department agrees with this recommendation. DHS already has a process to ensure the appropriateness of the pricing calculations used to process claims, including the use of its FI Integrated Testing Unit that is designed to prevent any problems with the system logic for these calculations prior to them being implemented into production. 4 111144 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111155 Blank page inserted for reproduction purposes only. 111166 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111177 COMMENTS California State Auditor’s Comments on the Response From the Health and Human Services Agency To provide clarity and perspective, we are commenting on the Department of Health Services’ (Health Services) response to our audit. The numbers below correspond to the numbers we have placed in its response. 1 Based on Health Services’ response, we have revised our recommendation relating to it identifying claims that were processed using outdated pricing file data. Specifically, as stated on page 58, we now recommend that Health Services analyze the cost-effectiveness of increasing the frequency of its pricing updates. If it determines that it would be cost effective to conduct more frequent updates, it should seek budgetary authority to do so. 2 Health Services incorrectly asserts that the basis for this recommendation is an error in the implementation of a computer system change. Rather, this recommendation stems from Health Services’ policy of only updating pricing files on a monthly basis. 111166 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111177 Blank page inserted for reproduction purposes only. 111188 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111199 Agency’s comments provided as text only. State and Consumer Services Agency Office of the Secretary 915 Capitol Mall, Suite 200 Sacramento, CA 95814 May 11, 2005 Elaine Howle, State Auditor* Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Elaine Howle: Enclosed is our response prepared by the California Public Employees’ Retirement System to the Bureau of State Audits’ Report No. 2004-033 entitled, Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies. A copy of the response is also included on the enclosed diskette. If you have any questions or need additional information, please contact me at (916) 653-4090. Sincerely, (Signed by: Fred Aguiar) Fred Aguiar, Secretary Enclosures *California State Auditor’s comments begin on page 123. 111188 California State Auditor Report 2004-033 California State Auditor Report 2004-033 111199 California Public Employees’ Retirement System Executive Office P.O. Box 942701 Lincoln Plaza, 400 P Street Sacramento, CA 95814 May 11, 2005 Elaine M. Howle, State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Subject: Response to Draft Report on Pharmaceuticals Dear Ms. Howle: CalPERS appreciates the opportunity to respond to the Bureau of State Audits draft report titled Pharmaceuticals: State Departments That Purchase Prescription Drugs Can Further Refine Their Cost Savings Strategies (May 2005, Report No. 2004-033). For our response, we offer the following comments: 1 1. The cost comparisons presented in the report do not yield reliable results. The report compares the pharmaceutical programs administered by the Department of Health Services, the Department of General Services and CalPERS. Each department, however, purchases and delivers prescription drugs in fundamentally different ways, operates under different laws and serves different populations. For example, the Department of Health Services’ (DHS) Medicaid Program (i.e., Medi-Cal) is subject to statutory provisions requiring manufacturers to provide their “best price” when contracting to sell prescription drugs to DHS. Similar provisions are not available to CalPERS. The Department of General Services orders, stores and distributes drugs. This is not the delivery system under which CalPERS administers its pharmacy benefits. CalPERS contracts with three Health Maintenance Organi-zation (HMO) plans and self-funds two Preferred Provider Organization (PPO) plans. Each HMO administers its own pharmacy benefits program. For its PPOs, CalPERS contracts with a pharmacy benefits manager. These inherent differences preclude reliable cost comparisons. 2 2. The Bureau’s use of ingredient cost is not the best measure of the CalPERS pharmacy benefits programs. The report’s drug cost analysis uses ingredient cost, net ingredient cost and state cost to compare the three departments. Ingredient cost is not a sufficient metric for comparing the cost of prescription drugs because CalPERS health plans could lower ingredient costs by raising dispensing fees, but this action would not reduce overall prescription drug costs. 112200 California State Auditor Report 2004-033 California State Auditor Report 2004-033 112211 -2- May 11, 2005 The report’s calculation for state cost, identification of the top 500 drugs, and its comparison of the prices paid by the three departments all emphasize “best cost,” with a focus on rebates 3 (which are paid on brand-name drugs). CalPERS believes there are several key variables missing from the analysis that positively affect the quality and value of pharmacy benefit management. These variables include population demographics, disease burden, clinical and formulary management and delivery system variations. CalPERS focus has always been to provide best value to its members in a number of ways, including incentives to migrate from brand-name drugs to generic drugs (which does not generate a rebate), improvements in pharmacy management and use of formularies to achieve further savings. With this comprehensive approach, CalPERS believes the savings achieved are greater than seeking deeper discounts and rebates on brand-name drugs. Furthermore, effective clinical utilization of pharmaceuticals keeps costs from being shifted to more expensive medical care. 3. Regarding CalPERS ability to ensure that the state receives all the rebates to which it is entitled, CalPERS has a guaranteed rebate provision in its self-funded pharmacy program, and intends to contractually negotiate for greater disclosure and transparency for pharmacy rebates with all contracting plans. Our current self-funded programs’ pharmacy benefits manager contract specifically prohibits access to information regarding rebates between the entity and drug manufacturers. While CalPERS is not entitled to the distribution of manufacturers’ rebates, the pharmacy benefits manager contract provides for a discount off the Average Wholesale Price, in the form of a rebate, which CalPERS validates. The HMOs give CalPERS a percentage of rebates based on CalPERS-specific member utilization, effectively reducing the premium cost to the member and state. CalPERS is acutely aware of the need to contain pharmacy costs and uses a pharmacy benefit manager and HMOs to apply managed care principles to prescription drug programs with the goal of cost-effective drug prescribing and usage. In addition to rebates, these drug purchasers provide cost savings by taking advantage of economies of scale, as well as pharmacy group practice and health care network concepts. CalPERS cost containment more importantly focuses on Average Wholesale Price discounts, low dispensing fees, and claims processing fees, in addition to rebates. Nevertheless, CalPERS concurs with the need for greater disclosure and transparency for pharmacy rebates in both types of plans and intends to accomplish this through its contract negotiations. 4. The Bureau indicates that its findings may be skewed because it excluded the experience of one-third of CalPERS membership. The health plan providing pharmacy benefits to this portion of our membership is “the best overall performer for pricing and pharmacy benefit management,, “ according to a recent CalPERS study. Consequently, 4 excluding the data related to this group from the calculations used to compare CalPERS to the other state departments materially underrepresents CalPERS performance. 112200 California State Auditor Report 2004-033 California State Auditor Report 2004-033 112211 -3- May 11, 2005 5. Ensuring best value in pharmacy management for our members and employers has been a longstanding priority of the CalPERS Board of Administration. Commencing in 2003, CalPERS conducted an extensive study to evaluate the effectiveness of its pharmacy programs. That study, concluded in February 2005, identified best industry practices. It also created a framework to optimize pharmacy utilization management programs to dispense evidence-based, clinically appropriate and cost-effective drugs to treat a disease or medical condition. CalPERS is using the results of this study in its annual health plan contract negotiations and current pharmacy request for proposal. Thank you again for the opportunity to review and comment on this draft report. My staff and I appreciate your endorsement of our continuing efforts to promote transparency and accountability in our pharmacy program. Please contact me or Jarvio Grevious if you have any questions about our response or need further information before you release the final audit report. Sincerely, (Signed by: Jarvio Grevious for) Fred Buenrostro Chief Executive Officer California Public Employees’ Retirement System 112222 California State Auditor Report 2004-033 California State Auditor Report 2004-033 112233 COMMENTS California State Auditor’s Comments on the Response From the State and Consumer Services Agency To provide clarity and perspective, we are commenting on the California Public Employees’ Retirement System’s (CalPERS) response to our audit. The numbers below correspond to the numbers we have placed in its response. 1 Chapter 938, Statutes of 2004, requires the Bureau of State Audits (bureau) to report on the State’s procurement and reimbursement practices as they relate to the purchase of drugs for or by state departments. Therefore, our report examines the purchasing strategies of the three primary departments that contract for prescription drugs— the Department of General Services (General Services), the Department of Health Services (Health Services), and CalPERS. Our report recognizes that there are fundamental differences in the procurement and reimbursement practices that these three departments use to purchase drugs for state beneficiaries and we clearly present those differences on pages 7 through 15. Notwithstanding these differences, we believe that the cost comparisons presented in this report are reliable and suggest that the State can further refine its cost savings strategies for prescription drugs. 2 CalPERS’ statement that the use of ingredient cost is not the best measure of its pharmacy benefit programs fails to recognize that ingredient cost is only one of the measures that we used to compare the prescription drug costs of the three departments. In fact, because we recognize that the drug ingredient cost is only one component in arriving at the ultimate cost of the drug, as we clearly state on page 36 of our report, we also analyzed the effect of any rebates or additional discounts, dispensing fees, co-payments, and third-party reimbursements. Consequently, our cost comparisons displayed in Figure 2 on page 30 of our report ultimately reflect the overall cost of the prescription drugs in our sample. 3 CalPERS states correctly that there are other variables that affect the quality and value of pharmacy benefit management. Although Chapter 938, Statutes of 2004, requires the bureau to determine whether the State is receiving the best value of 112222 California State Auditor Report 2004-033 California State Auditor Report 2004-033 112233 the drugs it purchases, on pages 1, 23, and 30, we clearly state that our analysis does not address the clinical management or formulary decisions made by the departments and entities they contract with to provide drug coverage nor does it reflect their decisions related to product mix such as encouraging the use of generic over brand name drugs or shifting from older to newer drugs. Therefore, we acknowledge that the data in our report may not represent the best value for each drug. 4 CalPERS did not offer any data to support its assertion that excluding the entity materially underrepresents its performance. Further, CalPERS states that this entity is the best overall performer for pricing. However, because CalPERS does not have access to the entity’s actual drug pricing information, it cannot ensure that this entity’s performance would have been better than the other CalPERS’ entities in our sample. Although this entity represents roughly one-third of CalPERS’ membership, without analyzing the actual pricing data, it is unclear whether the impact of the exclusion would be material. Thus, as we describe on pages 1, 24, and 30, it is more appropriate to state that the exclusion of the entity’s data could materially skew CalPERS’ results in this report. Finally, even including this entity, the conclusions we reached more than likely would not change. Specifically, as we state on page 2, Health Services’ prices are far lower than either of the other two departments for the net drug ingredient cost and state cost for 95 percent and 72 percent, respectively, of the drugs common to all three departments because it receives substantial federal Medicaid program (Medi-Cal) and state supplemental rebates. 112244 California State Auditor Report 2004-033 California State Auditor Report 2004-033 112255 cc: Members of the Legislature Office of the Lieutenant Governor Milton Marks Commission on California State Government Organization and Economy Department of Finance Attorney General State Controller State Treasurer Legislative Analyst Senate Office of Research California Research Bureau Capitol Press 112244 California State Auditor Report 2004-033 California State Auditor Report 2004-033 112255