WHEN you run a business, if you see a problem you solve the problem. If you don’t, as most business owners know well, it will only increase costs in the long run and may even do harm to one’s customers.
The same applies to state government, particularly as policymakers return to work and begin finding ways to address the significant state budget deficit brought about by the COVID-19 lock down. For now, the reality is that New Hampshire needs to identify budget savings that will free up dollars for critical state needs without asking more of businesses and taxpayers who are struggling to get by in the midst of the COVID pandemic.
One area for savings is reducing the amount of taxpayer funds that the state spends on prescription drugs. Fortunately, leaders in Concord are pursuing a bipartisan legislative solution that will save the state money, directly benefit taxpayers, and establish a model for businesses and municipalities large and small. It’s an approach that holds tremendous potential for significant and immediate savings.
Currently, New Hampshire is paying more than $70 million a year to a Pharmacy Benefits Manager (PBM) to negotiate drug prices for the medicines prescribed to state employees and retirees. A PBM is a company that purchases drugs from a pharmaceutical manufacturer and re-sells them to health plans and pharmacies. Under the current state purchasing system, it is difficult to know if the PBM is keeping prices low, because PBMs’ formulas are complex and not very transparent in multi-year contracts. With actual costs unknown, the marketplace doesn’t work very well for the purchasers like our state government.
Fortunately for all of us, legislation introduced by Nashua state Senator Cindy Rosenwald, passed by the Senate and under consideration by the New Hampshire House right now, gives us a chance to fix it.
The measure, called the “New Hampshire Prescription Drug Marketplace” has broad support from Democrat and Republican state legislators, as well as from state businesses and labor. It would replace our current method of contracting with a PBM with an eBay-like online competitive marketplace. It’s a “reverse auction” approach designed to achieve a simple, but necessary, objective — getting the best possible deal for state purchasers and taxpayers.
This reverse auction solution is already working in New Jersey, where the state has run two successful reverse auctions under former Republican Governor Chris Christie, and current Governor Phil Murphy, a Democrat. Maryland enacted similar legislation with bipartisan support earlier this year.
It works like this: First, the state writes its own best-in-class contract and invites PBMs to bid on it. Then, the state launches an automated, online competitive bidding process for all the companies that want our pharmacy benefits business. They give us their best price. But that’s just the first round. At the end of each bidding round, competing companies get to see the other offers and have the opportunity to underbid them over several rounds of bidding.
Stated simply, there is no downside. And facing a severe budget deficit, this proven method of providing cost-savings is exactly the type of action the state needs to take now. If a PBM wants New Hampshire’s business badly enough, it will compete by offering terms that enable them to make a fair profit without charging too much.
It’s worked well in New Jersey, which projects savings for state taxpayers of $2.5 billion over a five-year period and a 25 percent reduction in prescription drug costs in the first year. A projection out last week from the Josiah Bartlett Center for Public Policy shows tangible annual savings to New Hampshire taxpayers of up to $22.2 million a year.
The reverse auction solution is also an opportunity for state government to lead by example. The measure under consideration creates the opportunity for local government and, after the first reverse auction, even private businesses to join with the state government in receiving the benefits of substantially lower prescription drug costs. Our transparent New Hampshire competitive marketplace could eventually mean more affordable prescription drugs for everyone in our state.
Right now, the state is likely over-paying millions of dollars a year for prescription drugs. This is a problem New Hampshire can ill-afford with the pile up of public deficit from the COVID pandemic. Fortunately, relief is at hand. Now, more than ever, we need to recapture our state taxpayers’ money. With the bipartisan leadership in Concord, we can actually do this.