department of administration pharmaceutical cost management

Departmental Review

Department of Administration Pharmaceutical Cost Management Council

August 2008PE 08-07-431

AUDIT OVERVIEW

The Legislature Should Consider Several Options Pertaining to the Future of the West Virginia Pharmaceutical Cost Management Council

WEST VIRGINIA LEGISLATIVE AUDITOR

PERFORMANCE EVALUATION & RESEARCH DIVISION

JOINT COMMITTEE ON GOVERNMENT OPERATIONS

Senate

Edwin J. Bowman, ChairBilly Wayne Bailey, Vice-ChairWalt Helmick Donna BoleyClark S. Barnes

House of Delegates

Jim Morgan, ChairDale Martin, Vice-ChairSam ArgentoRuth RowanPatti SchoenCraig Blair, Nonvoting Scott G. Varner, Nonvoting

Agency/ Citizen Members

Dwight CalhounJohn A. CanfieldW. Joseph McCoyKenneth Queen James Willison

JOINT COMMITTEE ON GOVERNMENT ORGANIZATION

Senate

Edwin J. Bowman, ChairBilly Wayne Bailey, Jr., Vice-ChairDan FosterEvan H. JenkinsJeffrey V. KesslerBrooks McCabeJoseph M. MinardRobert H. PlymaleRon StollingsRandy WhiteClark S. BarnesDonna J. BoleyDave SypoltJohn Yoder

House of Delegates

Jim Morgan, Chair Dale Martin, Vice-Chair Sam J. Argento Robert D. Beach Samuel J. Cann, Sr. Mike Caputo Joe Delong Jeff EldridgeWilliam G. Hartman Barbara HatfieldDave HigginsTal HutchinsHarold MichaelCorey L. Palumbo

Daniel PolingMargaret A. StaggersRandy SwartzmillerJoe TalbottTroy AndesRay Canterbury, Minority Vice-ChairDaryl E. CowlesCarol MillerThomas PorterRuth RowanPatti E. Schoen, Minority Chair

Aaron AllredLegislative Auditor

Building 1, Room W-314State Capitol ComplexCharleston, West Virginia 25305(304) 347-4890

John SylviaDirector

Denny RhodesResearch Manager

Megan KueckResearch Analyst



Derek Thomas Referencer

Performance Evaluation & Research Division | pg. �

Legislative Performance Review August 2008

CONTENTS

Executive Summary ......................................................................................................................................................................................................... 7

Objective, Scope and Methodology..................................................................................................................................................................11

Issue 1: The Legislature Should Consider Several Options Pertaining to the Future of the West Virginia Pharmaceutical Cost Management Council ............................................................................................13

List Of TablesTable 1: Similar Roles of the Pharmaceutical Advocate and the Pharmaceutical Cost Management Council .................................................................................................................................................................19Table 2: West Virginia Pharmaceutical Cost Management Council Survey Results ..............................................21

List of ChartsChart 1: Prescriber Contacts .....................................................................................................................................................17

List Of AppendicesAppendix A: Transmittal Letter to Agency ..........................................................................................................................31Appendix B: The Pharmaceutical Advocate’s letter to the President and Speaker ...............................................43 Appendix C: Letter from the Secretary of DHHR ..............................................................................................................47Appendix D: Letter from the Health Care Authority ......................................................................................................49Appendix E: Agency Responses ..............................................................................................................................................51

pg. � | West Virginia Legislative Auditor

Pharmaceutical Cost Management Council

Performance Evaluation & Research Division | pg. 7


EXECUTIVE SUMMARY


The Pharmaceutical Cost Management Council was created in2004 as part of the PharmaceuticalAvailability andAffordabilityAct.TheCouncilwaschargedwith10statutorymandates,8ofwhichhavebeencompleted. UponreviewingthePharmaceuticalCostManagementCouncil,the Legislative Auditor questions whether the Council needs to becontinued.TheLegislativeAuditorhasseveralreasonsforquestioningthecontinuedneedfortheCouncilwhicharelistedbelow.

• TheCouncilhascompleted themajorityof its statutorymandates.Eightofthe10havebeencompleted,andtheCouncildeterminedthatonewasnotnecessary.

• The Council has an indistinguishable mission from theOffice of the Pharmaceutical Advocate, and at times appearstooperateasanextensionofthePharmaceuticalAdvocate.

• TheCouncil’seffectonloweringpharmaceuticalpriceshasbeenminimal.TheLegislativeAuditorquestionswhetherthesavingswerearesultoftheeffortsoftheCouncilorthe efforts mainly of the Office of the Pharmaceutical Advocate.

• TheCouncilhasmixedinterestamongitsmembership.

TheCouncilwasmandatedbyWestVirginiaCode§5A-3C-8(d)-(12)to“determinetheabilitytoestablishasavingsof42percentoftheretailcost”onpharmaceuticaldrugs. AccordingtothePharmaceuticalAdvocate, the Council has worked in promoting the Federal 340bprogram.Furthermore,inalettertotheJointCommitteeonGovernmentandFinance,andtotheLegislativeAuditor,thePharmaceuticalAdvocatedescribed in detail the costs savings attained by the Council. ThePharmaceuticalAdvocateprimarilycreditedtheCouncilwiththesavings

Upon reviewing the Pharmaceutical Cost Management Council, the Legislative Auditor questions whether the Council needs to be continued.

pg. 8 | West Virginia Legislative Auditor


but theLegislativeAuditor cannotdeterminewhether the savings areactually a result of the Council’s efforts or the Office of the Pharmaceutical Advocate. The Legislature has several options regarding the future ofthe Council. The following options are provided by the LegislativeAuditor:

• TerminatetheCouncil.

• Re-establish the Council as an advisory board for theOffice of the Pharmaceutical Advocate.

• Restructure the Council’s membership to be moreconsumeroriented.

The Pharmaceutical Advocate provides some caveats forterminating the Pharmaceutical Cost Management Council. Specifically, the Pharmaceutical Advocate believes if the Council is terminated,the advertising reporting rule would be lost. The LegislativeAuditorunderstandstheimportanceofthisrule,andrecommendsmaintainingitbytransferringittoanotheragency.TheLegislativeAuditorconsidersthemostappropriatestateagencywouldbetheHealthCareAuthority.

TheLegislativeAuditoralsoquestionswhetherthePharmaceuticalAdvocatecanlegallychairtheCouncil. WestVirginiaCodestatestheSecretaryoftheDepartmentofAdministrationshallserveaschairoftheCouncil.WestVirginiaCodealsoliststheSecretaryorhisdesigneeasastatutorymember. Currently, thePharmaceuticalAdvocateservesaschairoftheCouncil.LegislativeServiceslegalcounselconcludesthatitisnotanacceptablepracticeforthePharmaceuticalAdvocatetoserveaschairoftheCouncil.Furthermore,theLegislativeAuditorrecommendsthe Governor re-evaluate the need for the Office of the Pharmaceutical AdvocatebecausethesavingsattainedbytheCouncilandtheAdvocateareless than the total budget for the Office of the Pharmaceutical Advocate.

Performance Evaluation & Research Division | pg. �


Recommendations

1. TheLegislativeAuditorrecommendsthattheLegislatureconsiderseveral options pertaining to the future of the PharmaceuticalCostManagementCouncil:

a. TerminatetheCouncil,b. re-establish the Council as an advisory board for the

Office of the Pharmaceutical Advocate, orc. re-structure the Council’s membership to be more

consumeroriented.

2. IftheLegislaturedecidestoterminatethePharmaceuticalCostManagementCouncil,thentheLegislativeAuditorrecommendsthatoversightoftheadvertisingreportingruleforpharmaceuticalcompaniesbetransferredtotheHealthCareAuthority.

3. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, then the Legislative AuditorrecommendsthattheLegislatureamend§5A-3C-8oftheCodetoremovetheprovisionrequiringthattheExecutiveDirectoroftheWorkers’CompensationCommissionserveonthePharmaceuticalCostManagementCouncil.

4. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, then the Legislative AuditorrecommendsthattheLegislatureremovethesunsetprovisionin§5A-3C-16.

5. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, the Legislative Auditorrecommends that the Council member who no longer residesin West Virginia be replaced by a resident of the state of WestVirginiaorsurroundingarea.

6. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, then the Legislative Auditorrecommends that theSecretaryofAdministrationoradesigneeunderhisauthoritybeselectedaschairoftheCouncil.



7. TheLegislativeAuditorrecommendsthattheGovernorevaluatethe effectiveness and necessity of the Office of the Pharmaceutical Advocate.



OBJECTIVE, SCOPE & METHODOLOGY

ThisisaPerformanceReviewoftheWestVirginiaPharmaceuticalCostManagementCouncilconductedaspartoftheDepartmentalReviewoftheDepartmentofAdministration.

Objective

TheobjectiveofthisreportwastodeterminetheCouncil’seffectonthecostofpharmaceuticaldrugsandtheCouncil’scompliancewithWestVirginiaStateCode§5A-3C.

Scope

ThescopeofthisreportfocusedontheperiodbeginningwiththecreationoftheCouncilin2004throughJuly2008.

Methodology

The LegislativeAuditor utilized information received from theWest Virginia Pharmaceutical Cost Management Council, informationreceived from the office of the Pharmaceutical Advocate, meeting minutes fortheCouncil,asurveyofCouncilmembers,legalopinionsprovidedbyLegislativeServices legalcounsel,Councilexpenditureschedules,andWestVirginiaStateCode.EveryaspectofthisreviewcompliedwiththeGenerallyAcceptedGovernmentalAuditingStandards(GAGAS)assetforthbytheComptrollerGeneraloftheUnitedStatesofAmerica.



ISSUE 1


Issue Summary

TheWestVirginiaPharmaceuticalCostManagementCouncilwascreatedby thePharmaceuticalAvailability andAffordabilityAct in anefforttoprovidelow-costpharmaceuticalstouninsuredandunderinsuredWest Virginians. The Pharmaceutical Cost Management Council hascompleted8ofits10mandates.TheCouncilcreatedruleswhichrequirereportingofdrugadvertisingexpensesbypharmaceutical labelers andmanufacturers.TheeffectivenessoftheCouncilisquestionablebecausethere has been little discretion between the efforts of the Council andthe efforts of the PharmaceuticalAdvocate. The Pharmaceutical CostManagement Council has mixed interest among its membership. ThemajorityofCouncilmemberswhichrespondedtotheLegislativeAuditor’ssurveybelievetheCouncilshouldbeterminatedinitscurrentcapacity.The LegislativeAuditor has questions of whether the PharmaceuticalCostManagementCouncilshouldbecontinuedandhasseveraloptionsinregardstotheCouncil’sfuture.

The West Virginia Pharmaceutical Cost Management Council Has Completed 8 of Its 10 Mandates

The West Virginia Pharmaceutical Cost Management Council(Council)wascreatedin2004aspartofthePharmaceuticalAvailabilityandAffordabilityAct.TheActwascreatedasanefforttoprovidelowcostpharmaceuticalstouninsuredandlowincomeWestVirginians.ThePharmaceuticalAvailability andAffordabilityAct charged theCouncilwith10statutorymandates.TheCouncilconsistsof11members,6ofwhicharestateagencyheadsor theirdesigneeand5aregubernatorialappointedlaymembers.

The Council is statutorily chaired by the Secretary of the

Department of Administration or his or her designee. Currently, thePharmaceutical Advocate, appointed by the Governor, serves as thedesigneefortheSecretaryofAdministrationandchairstheCouncil.TheCouncilmeetsatthediscretionoftheChairorupontherequestoftwomembers.

The West Virginia Pharmaceutical Cost Management Council was created by the Pharmaceutical Availability and Affordability Act in an effort to provide low-cost pharmaceuticals to uninsured and underinsured West Virginians.

The Pharmaceutical Availability and Affordability Act charged the Council with 10 statutory mandates.



TheCouncilhascompleted8of its10statutorymandates.TheLegislativeAuditorcommendsthecouncilforcompletingthesemandates.Themandatesthathavebeencompletedareasfollows:

• (§5A-3C-4(a)) - Recommend the state agency to own, control and operate the state prescription drug assistance clearinghouse program. Therecommendedagency was the Department of Administration in itsClearingHousereportinSeptember2004.

• (§5A-3C-5) - Establish a pharmaceutical discount program with eligible individuals.TheCouncilreportedinSeptember2004thatitwouldbebetterpracticetohavea central fill pharmacy instead of a discount card program. The Office of the Pharmaceutical Advocate, West Virginia HealthRightandtheGovernorworkedincooperationtocreate WVRx, a central fill pharmacy, in March 2008.

• (§5A-3C-8(11))-Evaluate the discount program and the clearing house program created by the Council.TheCouncildeliveredthisreporttotheJointCommitteeonGovernmentandFinanceinSeptember2004.

• (§5A-3C-6(e))–Develop a pricing schedule and report it to the Legislature. TheWestVirginiaPharmaceuticalCostManagementCouncilreportedtheReferencePricingReporttotheJointCommitteeonGovernmentandFinanceinSeptember2004.ThepricingschedulechosenbytheCouncilwastheFederalSupplySchedule(FSS).

• (§5A-3C-8(d)(8))-Report to the Legislature annually and provide recommendations on needed legislative action and other functions established in the article or requested by the Legislature.TheCouncilreportstotheJointCommitteeonGovernmentandFinanceeverymonth.TheCouncilsubmitsannualreportsinDecemberofeachyear.Thusfar,theCouncilhasmadetworecommendationsto the Legislature. The first recommendation was to consider making remote dispensing legal. The secondrecommendation was to make electronic dispensinglegal.

Performance Evaluation & Research Division | pg. 1�


• (§5A-3C-8(d)(9)) - Study the fiscal impact of the “Medicare Prescription Drug Improvement and Modernization Act of 2003” and report its findings to the Legislature. TheCouncilreportedontheMedicarePrescription Drug Improvement and ModernizationActonOctober15,2004.

• (§5A-3C-13) - Establish reporting requirements by labelers and manufacturers of all expenses associated with advertising and direct promotion of pharmaceutical drugs. TheEmergencyRulewentintoeffectinAugust2007.ReportsfrompharmaceuticalcompaniesweredueMarch1,2008.Atthetimeofthiswriting111companieshave submitted reports to the Council. (The followingsectionincludesmoredetailedinformationonthisrule.)

• (§5A-3C-17)-Savings by the Council will be directed towards maintenance of existing health programs and expansion of insurance programs for the uninsured and under insured.ThesavingsattainedbytheCouncilhavealloweditnottorequireadditionalLegislativefunding.

ThetwomandatestheCouncilhasnotcompletedareasfollows:

• §5A-3C-8(d)-(12) -The Council shall: (1) review and determine the implementations of programs that will not jeopardize the benefits of veterans or other recipients of FSS drug prices; (2) commence negotiations to obtain independent agreements with as many as 10 states to use or reference pricing schedules; (3) and determine the ability to establish a savings of 42 percent of the retail cost. TheCouncilfoundtodatetherehasbeennoexplicituseofaFederalSupplySchedule(FSS)andtherewasnoreasontoevaluatetheeffectsonveterans,thusthismandatehasnotbeencompletedbytheCouncil.

• (§5A-3C-6(e)) – Develop a strategic plan for implementation. The West Virginia PharmaceuticalCostManagementCouncilreportedtheReferencePricingReport to the Joint Committee on Government and

Establish reporting requirements by labelers and manufacturers of all expenses associated with advertising and direct promotion of pharmaceutical drugs.

pg. 1� | West Virginia Legislative Auditor


Finance inSeptember2004. According to theCouncil,thestrategicplanhasnotbeencompletedbytheCouncilbecausetheAdvertisingReportingRuletooktheCouncillongerthanexpected.

The Council Promulgated Legislative Rules Requiring the Reporting of Drug Advertising Expenses by Pharmaceutical Companies

Asstatedpreviously,theCouncilwasmandatedbyWestVirginiaCode §5A-3C-13 to establish reporting requirements by labelers andmanufacturersofallexpensesassociatedwiththeadvertisinganddirectpromotion of pharmaceutical drugs. Specifically, the rule requires all pharmaceutical manufacturers, drug manufacturers and labelers ofprescription drugs dispensed in West Virginia to report advertisingexpenses.Pharmaceuticalmanufacturersandlabelersarenotrequiredtoreportthefollowing:freesamplesofprescriptiondrugs;compensationand reimbursement of expenses in connection with a bona fide clinical trial; and scholarships or other support for medical students, residentsandfellows.

As of July 2008, 111 companies reported their advertisingexpensestotheWestVirginiaPharmaceuticalCostManagementCouncil.ThereportreleasedbytheCouncilshowstherewere13,998prescribercontacts that resulted in reported expenses from $50 to $1,250. Thetotal amount spent on advertising in West Virginia was $16,019,155.TheCouncilalsoreportedthata total14,933gifts,grantsorpaymentsweremadetopharmaceuticalprescribersinthatsametimeframe.Chart1 below shows the total expenses pharmaceutical manufacturers andlabelersonadvertisingfromJuly2007toDecember2007.

The rule requires all pharmaceutical manufacturers, drug manufacturers and labelers of prescription drugs dispensed in West Virginia to report advertising expenses.

As of July 2008, 111 companies reported their advertising expenses to the West Virginia Pharmaceutical Cost Management Council.



Furthermore, the total reported expenses to patient advocacygroups inWestVirginiabypharmaceuticalmanufacturers and labelerswere $31,675. The total reported expenses to licensed West Virginiapharmaciesbypharmaceuticalmanufacturersandlabelerswere$13,469.Onlythreemanufacturersorlabelersreportedcontributingtoadvocacygroups,andonemanufacturerorlabelerreportedpaymentstolicensedWestVirginiapharmacies.

The Legislative Auditor Questions Whether the Pharmaceutical Cost Management Council Should Be Continued

UponreviewingthePharmaceuticalCostManagementCouncil,the Legislative Auditor questions whether the Council needs to becontinued.TheLegislativeAuditorhasseveralreasonsforquestioningthe continued need for the Council which are listed below. With theexception of the first item, each item will be discussed in further detail in thefollowingparagraphs.

• Asdiscussedpreviously, theCouncilhascompleted themajorityofitsstatutorymandates.Eightofthe10havebeencompleted,andtheCouncildeterminedthatonewasnotnecessary.

The report released by the Council shows there were 13,998 prescriber contacts that resulted in reported expenses from $50 to $1,250. The total amount spent on advertising in West Virginia was $16,019,155.

Upon reviewing the Pharmaceutical Cost Management Council, the Legislative Auditor questions whether the Council needs to be continued.



• The Council has an indistinguishable mission from theOffice of the Pharmaceutical Advocate, and at times appearstooperateasanextensionofthePharmaceuticalAdvocate.

• The Council’s effect on lowering pharmaceutical priceshasbeenminimal.

• TheCouncilhasmixedinterestamongstitsmembership.

The Office of the Pharmaceutical Advocate and the West Virginia Pharmaceutical Cost Management Council Have Similar, Indistinguishable Missions

The Office of the Pharmaceutical Advocate was created in 2004 perarecommendationoftheCouncilandsignedasanExecutiveMandate.ThemissionsofthePharmaceuticalAdvocateandtheCouncilaresimilar.BoththePharmaceuticalAdvocateandtheCouncil’sprimarymissionsare toprovide lowcostpharmaceuticaldrugs toWestVirginians. ThemandategiventothePharmaceuticalAdvocatereadsasfollows:

The Pharmaceutical Advocate shall develop acomprehensiveplanandexercisehisorherauthoritytoachievethelowestfeasiblecostofprescriptiondrugsfortheStateofWestVirginiaanditscitizens.

ThePharmaceuticalAvailabilityandAffordabilityAct,thestatutewhichcreatedtheCouncil,statesthefollowingmission:

…to promote healthy communities and to protect thepublichealthandwelfareofWestVirginiaresidents,theLegislature finds that it is its responsibility to make every effort to provide affordable prescription drugs for allresidentsofWestVirginia.

Table 1 below shows the similarities in missions between theOffice of the Pharmaceutical Advocate and the Pharmaceutical Cost ManagementCouncil.

The Council has an indistinguishable mission from the Office of the Pharmaceutical Advocate, and at times appears to operate as an extension of the Pharmaceutical Advocate.



Table 1Similar Roles of the Pharmaceutical Advocate and the

Pharmaceutical Cost Management CouncilPharmaceutical Advocate Pharmaceutical Cost Management Council

Provide discount prices or rebateprograms as prudent for seniors andpersonswithoutadequateprescriptioninsurance.

Explore discount prices or rebate programs forseniors and persons without prescription drugcoverage.

Worktoachievedisclosureoftheamountspent by prescription manufacturerswith regard to expenditure foradvertising,marketing,andpromotionaswellasforproviderincentivesandresearchanddevelopmentefforts.

The Council shall establish, by legislative rule,thereportrequirementsofinformationbylabelersandmanufacturerswhichshallincludeallnationalaggregate expenses associated with advertisinganddirectpromotionofprescriptiondrugsthroughradio, television magazines, newspapers, directmailandtelephonecommunicationastheypertaintostateresidents.

Establishprogramsaimedateducationhealthcarepractitionersauthorizedtoprescribeprescriptiondrugsabouttherelative costs and benefits of various prescription drugs, with emphasis ongeneric substitutions for brand namedrugswhenavailableandappropriate;prescribing established, less-costly drugs instead of newer moreexpensive drugs when appropriate;and prescribing lower dosages ofprescriptiondrugswhenappropriate.

Explore establishment to educate practitionerswhomprescribeprescriptions.

Explorepolicieswhichpromotetheuseofgenericdrugs.

DevelopandimplementaprogramtomaximizesavingstotheStateanditscitizensfromSec.340boftheFederalPublicHealthServiceActand42USC256,asapplicable.

Determinetheabilitytoestablishasavingsof42percent the retail cost tobe reported to the JointCommittee.*

Facilitatetheestablishmentofvoluntaryprivate buying clubs, cooperativesof purchasing alliances comprised ofsmallbusinessesand/orindividualsforthepurposeofpurchasingprescriptiondrugsatoptimalprices.

Explorecurrentdrugpurchasingagreementsintheprivatesector.

*TheWestVirginiaPharmaceuticalCostManagementCouncilcurrentlypromotestheFederal340bplantolowercostofpharmaceuticaldrugsby51percent.



The Council’s Effect on Lowering Pharmaceutical Drug Costs in West Virginia Has Been Minimal

TheCouncilwasmandatedbyWestVirginiaCode§5A-3C-8(d)-(12)to“determinetheabilitytoestablishasavingsof42percentoftheretailcost”onpharmaceuticaldrugs. AccordingtothePharmaceuticalAdvocate, the Council has worked in promoting the Federal 340bprogram. This federal program offers savings of up to 51 percent onprescriptiondrugs.1

Furthermore,thefollowingcostsavingswererecentlyattributedtotheCouncilbythePharmaceuticalAdvocate,whoservesasChairofthe Council. These cost savings were indicated by letter to the JointCommitteeonGovernmentandFinance,andtotheLegislativeAuditor(seeAppendixB).

• Through contract negotiations and joining group purchasingorganizations, the Pharmaceutical Cost Management Council,with assistance from the Office of the Pharmaceutical Advocate savedWestVirginiahospitals$118,096.45.

• With the assistance of the Office of the Pharmaceutical Advocate, theBureauofPublicHealthfoundoptimumpricingforantibioticswhichledtoa33percentincreaseintheamountofantibioticstheBureauofPublicHealthwasabletopurchase.

• ThePharmaceuticalCostManagementCounciluseditspurchasingexemptions toenter the340bPrimeVendorProgramonbehalfoftheFamilyPlanningProgram.TheCouncilattainedsavingsoncontraceptiveproductsusedbytheFamilyPlanningProgram.ThetotalsavingsbytheCouncilisnotavailableyet.

• Through the use of the 340b program, the Bureau of MedicalServicesprojectedasavingsof$181,352.40andavoidedcostsof$725,000.

TheLegislativeAuditorrequestedaresponsefromtheSecretaryoftheDepartmentofHealthandHumanResourcesregardingtheattributedsavings(seeAppendixC).ItmustbenotedthattheSecretaryisstatutorilyamemberoftheCouncil.TheSecretarystatedinpart:

1In2004,theLegislativeAuditorrecommendedthattheCouncilcontinueitseffortswiththeDivisionofCorrectionstocontractwith340bproviders.Asofthiswrit-ing,theDivisionofCorrectionsisstillnotcontractingwith340bproviders.



I would note that in a department where the Medicaidbudgetaloneforpharmaceuticalsisapproximately$181millionafter rebatesand theDepartmentofHealthandHuman Resources’ (DHHR) total expenditure is about$192million, the total savings listed – less than $300,000 in actual dollars – is less than two tenths of one percent of our budget.(emphasisadded)

While theLegislativeAuditorhadnoticed theminimal savingsas a result of the attributed efforts of the Council, the LegislativeAuditoralsoquestionedwhetherthesavingswerearesultoftheeffortsof the Council or the efforts mainly of the Office of the Pharmaceutical Advocate. As stated previously, the Council and the Office of the PharmaceuticalAdvocatehavesimilarmissions,andtheredoesnotseemtobeadistinctionbetweentheeffortsoftheCouncilandtheeffortsofthePharmaceuticalAdvocate. ThePharmaceuticalAdvocateprimarilycreditedtheCouncilwiththesavingsbuttheLegislativeAuditorcannotdeterminewhetherthesavingsareactuallyaresultoftheCouncil.TheSecretaryofDHHRappearedtocreditthesavingstothePharmaceuticalAdvocate,whichisasfollows:

I applaud the Pharmaceutical Advocate for her efforts. Any savings stated in (the letter to the JointCommitteeonGovernmentandFinanceandtheLegislativeAuditor)havebeenaresultofherwork.I,asamember,donotseeapositiveroleforthePharmaceuticalCostManagementCouncil.Becauseofitspurchasingpowerandcontinuedattention to national trends, the DHHR has and willcontinuetouseeverymeansavailabletoreducethecostofprescriptiondrugsonitsowninitiative.

TheLegislativeAuditoralsocommendstheeffortsofwhicheverentity- the PharmaceuticalAdvocate or the Council – is responsible for theattributedsavings.But,thesesavingsareminimalatbest.

The Council Has Mixed Interest Among Its Membership

TheLegislativeAuditor surveyed members of theCouncil andaskedtheiropinionsoftheCouncil.Eightofthe10membersrespondedto the Legislative Auditor’s request. Five of the eight respondents

The Pharmaceutical Advocate primarily credited the Council with the savings but the Legislative Auditor can not determine whether the savings are actually a result of the Council.



believe that the Council was worthwhile and important to facilitatingthe Pharmaceutical Availability and Affordability Act. Five of theeightrespondentsbelievedthattherewouldbediscernableeffectsiftheCouncilwasterminated.WhenaskedifthePharmaceuticalAvailabilityandAffordabilityActcouldbecarriedoutwithouttheCounciltheresultswereinconclusive.Halfoftherespondentsbelieveditcouldandhalfoftherespondentsbelieveitcouldnot.Five of the eight Council members who responded believe the Council should be terminated in its current capacity.

Table2showsindetailhowCouncilmembersrespondedtotheLegislativeAuditor’ssurvey.

Table 2West Virginia Pharmaceutical Cost Management Council

Survey Results*

Percentage(Based on Responses)

Question 1: Do you find the Council meetings worthwhile and important to facilitate the West Virginia Pharmaceutical Availability and Affordability Act?

A.YesB.No

53

62.5%37.5%

Question 2: Do you feel there would be any discernable effects if the Council was terminated?

A.YesB.No

53

62.5%37.5%

Question 3: In your opinion, could the West Virginia Pharmaceutical Availability and Affordability Act be adequately and completely carried out if the West Virginia Pharmaceutical Cost Management Council were to be terminated?A.YesB.No

44

50%50%

Question 4: In your opinion, should the council be continued?

A.YesB.No,terminatedC.No,butshouldbere-establishedasanAdvisoryBoard

332

37.5%37.5%25%

*Surveywassenttoall10Councilmembers,with8responding.

Source:SurveyconductedbytheLegislativeAuditor.

Five of the eight Council members who responded believe the Council should be terminated in its current capacity.



Inadditiontothesurveyquestions,Councilmemberswereinvitedtoprovideadditionalcomments,whichareasfollows:

IbelievetheCouncilhascompleteditsmission.

Itwashard for theCouncil tobeproductivebecauseofspecialinterestandpersonalagendas.

I believe the effectiveness of the Council would beenhancedifmoreconsumerinterestswereinvolvedandifinterestedLegislatorshadmoreinput.

The Council focuses attention, but it also delays issuesthroughlongdiscussion.

ThePharmaceuticalAdvocatechairstheCouncilinsteadof reporting TO the Council, so there is a blurring ofresponsibilities.

Wehavenooperatingrules.

Toomanypeopleparticipatebyphonemostofthetimesothereisnopersonalinteraction.

The comments and survey results from the Council membersshow a mixed interest in the effectiveness of the Council. Accordingto the survey results, the greatest lack of interest in the future of theCouncil was among the state agency representatives. State agency representatives are the majority of those who thought the Council should be terminated in its present capacity.

The Legislature Has Several Options in Considering the Future of the Council

Asstatedpreviously, theLegislativeAuditorquestionswhetherthePharmaceuticalCostManagementCouncilshouldbecontinued,butmust acknowledge that additional time or making modifications to the

The comments and survey results from the Council members show a mixed interest in the effectiveness of the Council.



Councilcouldallowittobecomemoreeffective.Thus,theLegislativeAuditorprovidestheWestVirginiaLegislaturewithseveraloptions:

• TerminatetheCouncil.Thisoptionisdiscussedinmoredetailbelow.

• Re-establish the Council as an advisory board for theOffice of the Pharmaceutical Advocate. Two of the current Council members recommended this in the LegislativeAuditor’ssurveyresults.

• RestructuretheCouncil’smembershiptobemoreconsumeroriented.Surveyresponsesshowsomedisinterestbystateagency representatives. Replacing these members withmembersfromaconsumerbackgroundcouldsparksomerenewedinterestintheCouncil.

Caveats for Terminating the Pharmaceutical Cost Management Council

IftheLegislaturechoosestoterminatetheCouncil,therewouldpotentially be three main losses, according to the PharmaceuticalAdvocate.First,thestatutoryauthorityfortheadvertisingreportingrulewouldbelost.ThePharmaceuticalAdvocatedoesnothaverulemakingauthority,unliketheCouncil,andthisauthoritywouldbelostcompletelyiftheCouncilwerecompletelyterminated.Secondly,withouttheCouncilthere would be a loss of the exemption from state purchasing rules.The State would be able to enter into purchasing agreements throughtheDepartmentofAdministration,buttherewouldnotbeapurchasingexemption.Lastly,thePharmaceuticalAdvocatebelievesiftheCouncilisterminatedtherewouldbealackofprofessional,private-sectorexpertise,whichisrepresentedbyCouncilmembers.

If the Legislature Terminates the Council, Oversight of the Advertising Rule Could Be Transferred to the Health Care Authority

TheLegislativeAuditoracknowledges that theoversightof theadvertisingreportingrulebypharmaceuticalcompanieswouldbe lost.

If the Legislature chooses to terminate the Council, the statutory authority for the advertising reporting rule would be lost. However, the Legislative Auditor contends that the authority for the reporting rule can be transferred to another agency.



But, this authority could be transferred to another state agency. TheLegislativeAuditorsuggeststhattheoversightoftheadvertisingreportingrule shouldbe transferred to theHealthCareAuthority if theCouncilis terminated. TheHealthCareAuthorityhasaccesstodataregardinghealthcare,andshouldbeabletoacceptthismandate.TheLegislativeAuditorcontactedtheChairoftheHealthCareAuthorityforheropiniononthissuggestion.SherespondedbystatinginpartthattheHealthCareAuthority does not have “any experience with pharmaceutical data ordata related specifically to advertising”. Although the Chair does not feel asthoughtheHealthCareAuthorityis thecorrectentitytoacceptthismandate,theLegislativeAuditorfeelsthatitisfullycapable.ThisdataissubmittedtotheCouncilbypharmaceuticalmanufacturersandlabelers;itrequiresnoactivecollectionprocess.AlsotheHealthCareAuthoritywould simply be receiving, compiling, and reporting the data with noanalysis needed. Thus the LegislativeAuditor maintains the opinionthattheHealthCareAuthorityistheproperentityforthismandate.TheChair’sresponsecanbeseeninitsentiretyinAppendixD.

Legal counsel from Legislative Services stated that if theLegislatureterminatedtheCouncil,theassociatedbillcouldamend§5A-3C-13toreportdatatotheHealthCareAuthorityratherthantheCouncil.Inaddition,thebillcouldincludelanguagetransferringtheenactingruletotheHealthCareAuthority.Furthermore,theLegislaturecouldrequirethe Health Care Authority to re-file rules under its authority at a later date.

If the Council Continues, Several Modifications Should Be Made

If the Legislature chooses the option to keep the Council, theLegislative Auditor recommends that several modifications be made. WhentheCouncilwascreatedin2004therewasastatutorypositionfortheExecutiveDirectoroftheWorkers’CompensationCommissionorhisorherdesignee.SincethereisnolongerastateWorkers’CompensationCommissionthereshouldnotbeaplaceontheCouncilforthisposition.If the Council continues, the Legislative Auditor recommends that the Legislature amend §5A-3C-8 of the Code to remove the provision requiring that the Executive Director of the Workers’ Compensation Commission serve on the Pharmaceutical Cost Management Council.

The Legislative Auditor suggests that the oversight of the advertising report-ing rule should be transferred to the Health Care Authority if the Council is terminated.

Legal counsel from Legislative Services stated that if the Legislature terminated the Council, the associated bill could amend §5A-3C-13 to report data to the Health Care Authority rather than the Council.



The Council currently has a member living in Massachusetts.WestVirginiaCode§5A-3C-8requiresthatthisparticularpositionto:

...represent those who will receive benefit from the establishment of(theCouncil)...

Since this member lives outside West Virginia, the LegislativeAuditor questions how this person represents those who will benefit from theCouncil’sactivitiesorservestheinterestofWestVirginians.If the Council continues, the Legislative Auditor recommends that this member living in Massachusetts be replaced with an individual who represents the conditions of the statute, and who represents those who receive benefits from the Council.

SomemembersoftheCouncilattendmeetingsbyteleconference,as documented by meeting minutes and survey results from Councilmembers.StateCodeallowsformeetingstobeheldviateleconference.ThemostrecentmeetingheldonJuly7,2008wasconductedbyMicrosoftWebEx which was an internet teleconference. There was no physicalmeetingplace,andmembersandthosewishingto“listen”tothemeetinghadtologinonline.TheLegislativeAuditorattemptedtologintothemeeting, but technical difficulties would not allow access. This could haveposedproblemsforotherindividualsaswell.ThelackofinterestbysomeCouncilmembersmaybeattributedtotheabsenceofpersonalinteractionatCouncilmeetingsbecausemeetingsarebeingheldbythesemeans.

Finally,theCouncilwasscheduledtosunsetonJuly1,2008.TheSunsetLawnolongerexistsandhasbeenamendedasthePerformanceReviewAct. Since the Sunset Law no longer exists, the Legislative Auditor recommends that the sunset language be removed from the Council’s Code if the Council continues.

The Legislative Auditor Questions Whether the Pharmaceutical Advocate Can Legally Chair the Pharmaceutical Cost Management Council

Legislative Services legal counsel is of the opinion that thePharmaceuticalAdvocatechairingtheCouncilisimproper.WestVirginiaCode §5A-3C-8(b) states that the Secretary of Administration shall

The lack of interest by some Council members may be attributed to the absence of personal interaction at Council meetings.



serveaschairof theCouncil. Theprevioussection lists theSecretaryor his designee as a statutory member. The PharmaceuticalAdvocatecurrentlyisservingaschair,butthatpositionislocatedintheGovernor’sOffice. Legislative Services legal counsel states that the Secretary of Administrationdoesnothaveauthoritytoappointadesigneeoutsideofhisauthority.Thus,iftheLegislaturechoosestocontinuetheCouncil,thePharmaceuticalAdvocateshouldnolongerbedesignatedasamemberbytheSecretaryofAdministration,thusshouldnotserveasitschair.

In a letter to the Legislative Auditor regarding the matter ofthe PharmaceuticalAdvocate serving as the chair of the Council, theLegislativeServiceslegalcounselstatedthefollowing:

Based on the information you provided me, thePharmaceutical Advocate is not an officer or employee of theDepartmentofAdministration.

W.Va.Code§5A-3C-8provides,inpart:

(a)ThereisherebycreatedtheWestVirginiapharmaceuticalcostmanagementcouncilwhichconsistofthesecretaryofthedepartmentofadministrationorhisorherdesignee,…(b)Thesecretaryofthedepartmentofadministrationshallserveasthechairpersonofthecouncil,whichshallmeetat times and places specified by the chairperson or upon therequestoftwomembersofthecouncil.…

AlthoughthiscodesectiondoesnotelaborateonwhotheSecretarymaynameashisdesignee,severalothercodesectionsprovideguidanceonthisissue.

W.Va.Code§5A-1-7provides:

The powers and duties vested in the secretary may bedelegatedtohimto his assistants and employees,butthesecretary shall be responsible for all official acts of the department.(Emphasisadded.)

W.Va. Code §5F-2-2, in outlining the powers of thedepartmentsecretaries,providesthatthesecretarymay:…

Legislative Services legal counsel states that the Secretary of Administration does not have authority to appoint a designee outside of his authority.



(14)Delegatetoadministratorsthedutiesofthesecretaryasthesecretarymaydeemappropriate,fromtimetotime,tofacilitateexecutionofthepowers,authorityanddutiesdelegatedtothesecretary;…

§5F-1-4 defines an “administrator” as:

…any person who fills a statutorily created position within or related to an agency or board (other than a boardmember)andwhoisdesignatedbystatueascommissioner,deputy commissioner, assistant commissioner, director,chancellor,chief,executivedirector,executivesecretary,superintendent, deputy superintendent, or any otheradministrativetitlehoweverdesignated.

If the Secretary is to designate another to serve in hisplace he most do so in a manner consistent with thesestatues.DesignatingsomeonewhoisnotemployedwithintheDepartmentofAdministration isnot consistentwiththesestatues.

Consequently, it is my opinion that it is not acceptablepractice for the Pharmaceutical Advocate to chair theWestVirginiaPharmaceuticalCostManagementCouncilas the Secretary of the Department of Administrationsdesignee.

The Legislative Auditor Recommends that the Governor Re-evaluate the Need for the Office of the Pharmaceutical Advocate

The Office of the Pharmaceutical Advocate was created by ExecutiveOrder18-04 in2004under thepreviousadministration. Asstatedpreviously, theAdvocateor theCouncilhasassistedthestate insavinglessthan$300,000.Thissavingsislessthantheannualbudgetof the Office of the Pharmaceutical Advocate. The FY 2008 budget for the Office is $503,138, and the budgets for FY 2006 and FY 2007 were $501,200respectively$501,800.ActualexpendituresforFY2008were

As stated previously, the Advocate or the Council has assisted the state in saving less than $300,000. This savings is less than the annual budget of the Office of the Pharmaceutical Advocate.



$469,806. The total actual expenses for the Office of the Pharmaceutical AdvocatefromFY2006toFY2008were$1,105,191,whichfarexceedsthe$299,449attributedsavingstotheState.As a result, the Legislative Auditor recommends that the Governor re-evaluate the necessity of the Office of the Pharmaceutical Advocate.

Conclusion

TheWestVirginiaPharmaceuticalCostManagementCouncilwascreatedby thePharmaceuticalAvailability andAffordabilityAct in anefforttoprovidelow-costpharmaceuticalstouninsuredandunderinsuredWestVirginians.TheCouncilwaschargedwith10statutorymandatesand has completed 8. Although it has completed the majority of itsmandates,itisquestionablehoweffectivetheCouncilhasbeen.ThereisnodistinctionbetweentheeffortsoftheCouncilandtheeffortsofthePharmaceuticalAdvocate,sincetheCounciliscurrentlychairedbythePharmaceuticalAdvocate. The LegislativeAuditor can not determinewhether the savings attributed by the Advocate were a result of theCouncil. Thiscost savingswas less than$300,000,which isminimalcompared to the pharmaceutical budget of the Department of Healthand Human Resources. The LegislativeAuditor recommends severaloptionsfortheLegislaturetoconsiderinrespecttotheCouncil’sfuture.Theseoptions include terminationof theCouncilor continuationwithmodifications to the entity that it reports and to its membership. If the Council is terminated, the Legislature could consider transferring theoversightoftheadvertisingreportingruleforpharmaceuticalcompaniestotheHealthCareAuthority.Inaddition,iftheCounciliscontinued,theLegislativeAuditorisoftheopinionthattheCouncilcannotbechairedbythePharmaceuticalAdvocate. ThispositiondoesnotliewithinthepurviewoftheSecretaryofAdministration,thusshouldnotserveashisdesigneetotheCouncil.

The total actual expenses for the Office of the Pharmaceutical Advocate from FY 2006 to FY 2008 were $1,105,191, which far exceeds the $299,449attributed savings to the State.



Recommendations

1. TheLegislativeAuditorrecommendsthattheLegislatureconsiderseveral options pertaining to the future of the PharmaceuticalCostManagementCouncil:

a. TerminatetheCouncil,b. re-establish the Council as an advisory board for the

Office of the Pharmaceutical Advocate, orc. re-structure the Council’s membership to be more

consumeroriented.

2. IftheLegislaturedecidestoterminatethePharmaceuticalCostManagementCouncil,thentheLegislativeAuditorrecommendsthatoversightoftheadvertisingreportingruleforpharmaceuticalcompaniesbetransferredtotheHealthCareAuthority.

3. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, then the Legislative AuditorrecommendsthattheLegislatureamend§5A-3C-8oftheCodetoremovetheprovisionrequiringthattheExecutiveDirectoroftheWorkers’CompensationCommissionserveonthePharmaceuticalCostManagementCouncil.

4. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, then the Legislative AuditorrecommendsthattheLegislatureremovethesunsetprovisionin§5A-3C-16.

5. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, the Legislative Auditorrecommends that the Council member who no longer residesin West Virginia be replaced by a resident of the state of WestVirginiaorsurroundingarea.

6. If the Legislature decides to allow the Pharmaceutical CostManagement Council to continue, then the Legislative Auditorrecommends that theSecretaryofAdministrationoradesigneeunderhisauthoritybeselectedaschairoftheCouncil.

7. TheLegislativeAuditorrecommendsthattheGovernorevaluatethe effectiveness and necessity of the Office of the Pharmaceutical Advocate.



Appendix A: Transmittal Letters



Appendix B: The Pharmaceutical Advocate’s letter to the President and Speaker



Appendix C: Letter from the Secretary of DHHR



Appendix D: Letter from the Health Care Authority

pg. �0 | West Virginia Legislative Auditor


Performance Evaluation & Research Division | pg. �1


Appendix E: Agency Responses

Performance Evaluation & Research Division | pg. ��


pg. �� | West Virginia Legislative Auditor


Performance Evaluation & Research Division | pg. ��




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telephone: 1-304-347-4890 | www.legis.state.wv.us /Joint/PERD/perd.cfm | fax: 1- 304-347-4939

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