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HENCE, IT IS QUITE EVIDENT THAT, ALTHOUGH THE INDUSTRY AS A WHOLE HAS NOT YET PUBLICLY CONCEDED, IN THE CORPORATE OFFICES THEY ARE SCRAMBLING FOR A SHARE OF THE NEW "OPEN" MARKET CREATED BY REPEAL OF THE ANTISUBSTITUTION LAWS. THIS IS THE MOST CONVINCING EVIDENCE POSSIBLE THAT THE WORD IS OUT THAT PHARMACISTS INDEED ARE PUTTING INTO ACTION THEIR HARD FOUGHT VICTORY.

MR. CHAIRMAN, I TOLD YOU THAT THIS WOULD BE A BRIEF OVERVIEW AND SUMMARY AND I HAVE ENDEAVORED TO LIMIT IT TO THAT. AS SUCH, I HAVE JUST BARELY TOUCHED UPON THE MAJOR HIGHLIGHTS OF A SAGA THAT COULD FILL SEVERAL VOLUMES. MY COLLEAGUES AND I WOULD BE HAPPY TO PROVIDE FURTHER

DETAIL ON ANY ASPECT OF OUR STATEMENT OR TO TRY TO ANSWER ANY QUESTIONS YOU MAY HAVE.

THANK YOU!

STATEMENT BY

VICTOR R. BOISSEREE', CHIEF, VOLUME PURCHASE PLAN
CALIFORNIA STATE DEPARTMENT OF HEALTH

BEFORE THE SUBCOMMITTEE ON MONOPOLY
SENATE SMALL BUSINESS COMMITTEE
NOVEMBER 16, 1977

MR. CHAIRMAN:

I AM PLEASED TO HAVE THIS OPPORTUNITY TO DISCUSS WITH YOU THE CALIFORNIA MEDICAID PROGRAM'S (MEDI-CAL) VOLUME PURCHASE PLAN AND SOME OF THE PROBLEMS THAT THE STATE OF CALIFORNIA HAS EXPERIENCED IN TRYING TO IMPLEMENT SUCH A PLAN.

BEFORE I DESCRIBE THE VOLUME PURCHASE PLAN, LET ME COMMENT
BRIEFLY ON SOME OF THE GENERAL RELATIONSHIPS OF CALIFORNIA'S
MEDICAID PROGRAM, MEDI-CAL. FOR THE CURRENT FISCAL YEAR
COMMENCING LAST JULY 1, $2.9 BILLION WAS BUDGETED FOR HEALTH
BENEFITS, OF WHICH $173 MILLION IS FOR THE DRUG COMPONENT.
INPATIENT HOSPITAL DRUGS AND DRUGS ADMINISTERED BY PHYSICIANS
OR OTHER PRESCRIBERS ARE NOT INCLUDED. THESE EXPENDITURES
INCLUDE BOTH DRUG PRODUCT INGREDIENT COST AS WELL AS THE
PROFESSIONAL FEE COMPONENT OF THE DISPENSING PHARMACIST. THEY
REPRESENT A PROJECTED 25,200,000 PRESCRIPTIONS AS COMPARED TO
21,653,000 PRESCRIPTIONS IN 1976-77, WITH AN EXPENDITURE OF
$145 MILLION.

IT WAS THIS PATTERN OF ESCALATING EXPENDITURES THAT CAUSED THE
STATE TO EXPLORE THE FEASIBILITY OF CENTRALIZED PURCHASING OF
VARIOUS HEALTH CARE PRODUCTS. THE IDEA IS NOT NEW OR UNIQUE
TO CALIFORNIA. COMPETITIVE BIDDING AND CENTRALIZED PURCHASING
OF DRUGS HAS BEEN PRACTICED AS A COST AND QUALITY CONTROL
MECHANISM BY STATE AND FEDERAL AGENCIES FOR YEARS. THE HEW
TASK FORCE ON PRESCRIPTION DRUGS ADDRESSED THIS ISSUE IN THE
LATE 1960'S. THE CONCEPT OF THE STATE OF CALIFORNIA GOING OUT
TO BID FOR MEDICAID DRUGS FIRST AROSE IN 1967 AND AGAIN IN
1971. VARIOUS PROBLEMS PREVENTED AN EARLY ATTEMPT AT IMPLE-

MENTATION.

IT WAS NOT UNTIL 1975, PRIMARILY ON THE BASIS OF STATE EMPLOYEE SUGGESTIONS FOR POSSIBLE MERIT AWARDS, THAT THE DEPARTMENT OF HEALTH ASSIGNED STAFF TO DO A FEASIBILITY STUDY FOR CENTRALIZED PURCHASING OF MEDICAID DRUGS.

PHARMACEUTICAL PRODUCTS WERE

CHOSEN RATHER THAN EYEGLASSES, HEARING AIDS, OR DURABLE MEDICAL EQUIPMENT SINCE THOSE EXPENDITURES REPRESENTED A SUBSTANTIAL INCREMENT OF THE MEDI-CAL PROGRAM.

NUMEROUS

THE INITIAL DESIGN PHASE TOOK OVER A YEAR TO ACCOMPLISH.
PROBLEMS RELATING TO WHICH DRUGS SHOULD BE INCLUDED, MANUFACTURER,
WHOLESALE, AND PHARMACY CONTRACT REQUIREMENTS, INVENTORY MONITOR-
ING, DATA REPORTING, AND THE MYRIAD OF OTHER ADMINISTRATIVE
DETAILS ASSOCIATED WITH SUCH AN ENDEAVOR NEEDED TO BE SOLVED.

You MIGHT BE INTERESTED TO NOTE THAT THE STATE OF CALIFORNIA
FROM THE VERY START ASSUMED THAT THE STANDARDS DEVELOPED BY
THE FEDERAL FOOD AND DRUG ADMINISTRATION WERE THE STANDARDS
WHICH ALL PHARMACEUTICAL PRODUCTS WOULD BE COMPARED TO AND
WOULD MEET. AT NO TIME DID THE STATE CONSIDER ITS OWN PRODUCT
FORMULATIONS OR ITS OWN STANDARDS, EVEN THOUGH THESE WERE
IDENTIFIED AS OPTIONS DURING THE EARLY DESIGN PERIOD. THE USE
OF AN INDEPENDENT TESTING LABORATORY TO VALIDATE MANUFACTURER
ASSAYS AND ADHERENCE TO COMPENDIAL STANDARDS WAS INCORPORATED
INTO THE PILOT PROGRAM.

FROM THE TOP 200 DRUGS COVERED BY THE MEDI-CAL PROGRAM, 75 MULTISOURCE PRODUCTS WERE SELECTED AS POSSIBLE VOLUME PURCHASE PLAN PRODUCTS. SOME OF THE MORE HIGHLY UTILIZED MULTISOURCE PRODUCTS WERE NOT CHOSEN FOR A NUMBER OF REASONS INCLUDING STORAGE OR STABILITY PROBLEMS. THIS WOULD INCLUDE, FOR EXAMPLE, ITEMS SUCH AS INSULIN OR NITROGLYCERIN. OTHERS WERE EXCLUDED

BECAUSE OF LIMITED MULTISOURCES, PRIMARILY THE RESULT OF CROSSLICENSING OF A PRODUCT STILL UNDER PATENT. A LIST OF THE VOLUME PURCHASE PLAN DRUGS HAS BEEN PROVIDED TO THE COMMITTEE AND IS NUMBERED AS ATTACHMENT 2.

THE INITIAL DESIGN CONTEMPLATED A PILOT PROGRAM TO TEST THE
SYSTEM, VALIDATE THE PROJECTED SAVINGS, AND ASSURE THAT ACCEPTABLE
PRODUCTS COULD BE SUPPLIED IN A TIMELY MANNER TO THE PHARMACIST.

THIS TEST PHASE WAS TO BE PERFORMED IN 11 OF CALIFORNIA'S
58 COUNTIES WITH VOLUNTARY PARTICIPATION BY DRUG WHOLESALERS
AND PHARMACIES. WE ANTICIPATED A NEED FOR APPROXIMATELY 300
TO 400 PHARMACIES OR APPROXIMATELY 10 PERCENT OF THE PHARMACIES
IN THE TEST AREA TO ADEQUATELY TEST THE SYSTEM AND TO PROVIDE
A POTENTIAL DRUG PURCHASE VOLUME SUFFICIENT TO ENTICE THE
DRUG MANUFACTURERS TO BID. OUR INITIAL REPORT TO THE CALIFORNIA
LEGISLATURE ON THIS APPROACH IS LABELLED ATTACHMENT 3A.

ALMOST IMMEDIATELY UPON PRESENTATION TO THE PROFESSION AND
DRUG MANUFACTURING INDUSTRY, WE RAN INTO PROBLEMS. SPEAKING
FROM A PROFESSIONAL BASIS AS A PHARMACIST, I CAN APPRECIATE
THE MISGIVINGS OR DISTRUST SOME PHARMACISTS FELT OVER FDA's
HISTORICAL TRACK RECORD OF SOME YEARS AGO. THOSE MEMORIES OF
EARLIER PROBLEMS DIE HARD. IN TODAY'S LITIGIOUS SOCIETY NO ONE
WANTS REPEAT OF THOSE EARLY YEARS. DRUG MANUFACTURERS, ON THE
OTHER HAND, HAD SOME OTHER CONCERNS. TO THE DEGREE THEIR
EXISTING MARKET WAS THREATENED, THEY DISAGREED WITH THE APPROACH.
I ASSUME COMPANIES WERE REASONABLY CONFIDENT THAT THEIR CURRENT
MARKETING EFFORTS COULD AFFECT THE CHOICE OF PRODUCT SELECTED
BUT THAT THOSE EFFORTS WOULD NOT ASSURE THEM THE SAME RESULTS
WITH CENTRALIZED PURCHASING BY THE STATE.

MY PREDECESSOR, MR. CARLO MICHELOTTI, MADE A LARGE NUMBER OF
PRESENTATIONS DURING THE DESIGN PHASE TO BOTH INDIVIDUAL