Vermont Commission on Vermont Commission on International Trade and International Trade and

State SovereigntyState Sovereignty

Overview ofOverview of

International Trade andInternational Trade andIts Impact on Its Impact on

Vermont’s Health Care Vermont’s Health Care

November 27, 2007

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What Is International Trade and What Is International Trade and What Are International Trade Agreements?What Are International Trade Agreements?

• International trade is the exchange of International trade is the exchange of goods and services across goods and services across international boundaries or territories. international boundaries or territories.

• International trade traditionally was International trade traditionally was conducted according to agreements between conducted according to agreements between two countries. Such agreements are referred two countries. Such agreements are referred to as bilateral agreements.to as bilateral agreements.

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What is International Trade and What is International Trade and What Are International Trade Agreements?What Are International Trade Agreements?

• Beginning in 1944 at Bretton Woods, trade Beginning in 1944 at Bretton Woods, trade began to be considered in a global manner and began to be considered in a global manner and global economic institutions were created global economic institutions were created to help regulate its conduct.to help regulate its conduct.

• These institutions include:These institutions include:

The World BankThe World Bank The International Monetary Fund (IMF) The International Monetary Fund (IMF) The Global Agreement on Tariffs and Trade The Global Agreement on Tariffs and Trade

(GATT)(GATT)

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The International Trading SystemThe International Trading System

In the U.S. :In the U.S. :• In 1974, “Fast-Track” authority was established, streamlining In 1974, “Fast-Track” authority was established, streamlining

congressional consideration of trade bills.congressional consideration of trade bills.

• In 1979, the Office of the U.S. Trade Representative In 1979, the Office of the U.S. Trade Representative (USTR) was created by Executive Order.(USTR) was created by Executive Order.

• The USTR is part of the Executive Office of the President and is not The USTR is part of the Executive Office of the President and is not subject to Freedom of Information Act subject to Freedom of Information Act (FOIA) requests.(FOIA) requests.

• USTR formally consults with states through the USTR formally consults with states through the Inter-Governmental Policy Advisory Committee (IGPAC) and Single Inter-Governmental Policy Advisory Committee (IGPAC) and Single State Points of Contact (SPOCs).State Points of Contact (SPOCs).

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The International Trading SystemThe International Trading System

• In 1994, the “Uruguay Round” global trade discussions were In 1994, the “Uruguay Round” global trade discussions were completed and the World Trade Organization (WTO) was completed and the World Trade Organization (WTO) was established. Today the WTO has established. Today the WTO has 149 members149 members

• WTO agreements includeWTO agreements include:: Goods Goods Services Services Government procurement Government procurement Agriculture Agriculture Intellectual property rightsIntellectual property rights A binding dispute resolution systemA binding dispute resolution system More than a dozen separate agreementsMore than a dozen separate agreements

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The International Trading SystemThe International Trading System

Enacted Since the Uruguay Round:Enacted Since the Uruguay Round:

• North American Free Trade Agreement North American Free Trade Agreement (NAFTA)(NAFTA)

• U.S.–Singapore Free Trade AgreementU.S.–Singapore Free Trade Agreement• U.S.–Chile Free Trade Agreement U.S.–Chile Free Trade Agreement • U.S.–Australia Free Trade Agreement U.S.–Australia Free Trade Agreement • Central American Free Trade Agreement Central American Free Trade Agreement

(CAFTA)(CAFTA)

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How Do Trade Agreements How Do Trade Agreements Affect Health Care?Affect Health Care?

Trade agreements potentially impact:Trade agreements potentially impact:

• Prescription drug purchasing, policies and Prescription drug purchasing, policies and importation.importation.

• Licensing of health care providers.Licensing of health care providers.

• Certificates of Need, health insurance, and Certificates of Need, health insurance, and other issues.other issues.

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State of Vermont State of Vermont Prescription Drug ProgramsPrescription Drug Programs

Medicaid program covers 146,821Medicaid program covers 146,821Vermonters (2006 data):Vermonters (2006 data):

• Medicaid, Vermont Health Access Plan, Medicaid, Vermont Health Access Plan, Dr. DynasaurDr. Dynasaur

• VPharm – Medicare Part D wrapVPharm – Medicare Part D wrap

• VermontRx – drug coverage for VermontRx – drug coverage for non-Medicare eligible elderly and individuals non-Medicare eligible elderly and individuals with disabilitieswith disabilities

• Healthy Vermonters – discount cardHealthy Vermonters – discount card

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State of Vermont Prescription Drug State of Vermont Prescription Drug Purchasing ProgramsPurchasing Programs

• Catamount Health (Oct. 1, 2007)Catamount Health (Oct. 1, 2007)

• Vermont state employeesVermont state employees

• Teachers and municipal employeesTeachers and municipal employees

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Statutes Aimed at Controlling CostsStatutes Aimed at Controlling Costs• Coverage of over-the-counter drugs, 33 V.S.A. 1998Coverage of over-the-counter drugs, 33 V.S.A. 1998

• Mandatory generic substitution, 18 V.S.A. 4601 et seq.Mandatory generic substitution, 18 V.S.A. 4601 et seq.

• Preferred Drug Lists (PDL) and prior authorizations, Preferred Drug Lists (PDL) and prior authorizations, 33 V.S.A. 199833 V.S.A. 1998

• Medicaid only:Medicaid only:

Multi-state purchasing pool and non-profit pharmacy Multi-state purchasing pool and non-profit pharmacy benefit manager (PBM), 33 V.S.A. 1998benefit manager (PBM), 33 V.S.A. 1998

Supplemental rebates , 33 V.S.A. 2002Supplemental rebates , 33 V.S.A. 2002

• Importation – I-Save Rx Importation – I-Save Rx

No. 2 of the Acts of 2005No. 2 of the Acts of 2005

Mandatory insurance coverage of I-SaveRx, Mandatory insurance coverage of I-SaveRx, 8 V.S.A. 4089i 8 V.S.A. 4089i

1111

Drug & Supplies Spending by PayorVermont 2004

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

$180.0

$200.0

Out of Pocket Medicaid Self-InsuredEmployers

BC/BS Other PrivateInsurance

MVP Medicare

Payor

Mil

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of

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Why Are Prescription Drugs a Why Are Prescription Drugs a Trade Issue?Trade Issue?

Domestic challenges to state cost control measures:Domestic challenges to state cost control measures:• PhRMA v. WalshPhRMA v. Walsh: unsuccessful challenge to Maine’s use of : unsuccessful challenge to Maine’s use of

a Medicaid PDL a Medicaid PDL Federal Medicaid lawFederal Medicaid law Commerce clauseCommerce clause

• Importation of lower-cost pharmaceuticalsImportation of lower-cost pharmaceuticals Dorgan/Snowe bill: would have allowedDorgan/Snowe bill: would have allowed

“parallel imports” “parallel imports”• USTR wrote a trade agreement that would have USTR wrote a trade agreement that would have

made passage of the bill a trade violationmade passage of the bill a trade violation Vermont v. FDAVermont v. FDA: refusal to allow reimportation: refusal to allow reimportation

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Why Are Preferred Drug Lists (PDLs) a Why Are Preferred Drug Lists (PDLs) a Trade Issue?Trade Issue?

Because the Australian-U.S. Free Trade Agreement (AUSFTA) applies to Because the Australian-U.S. Free Trade Agreement (AUSFTA) applies to “federal health care programs,” it addresses:“federal health care programs,” it addresses:

• The Australian Pharmaceutical Benefit Scheme (PBS)The Australian Pharmaceutical Benefit Scheme (PBS)

• Medicaid – federal/state partnershipMedicaid – federal/state partnership Mixed fundingMixed funding Federal law and regulations on pricing and Federal law and regulations on pricing and

prior authorizationprior authorization 1115 waivers1115 waivers

• Medicare Part DMedicare Part D Federal fundingFederal funding Federal law and regulations Federal law and regulations Private insurers administrating with CMS oversightPrivate insurers administrating with CMS oversight

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Why Are Preferred Drug Lists a Why Are Preferred Drug Lists a Trade Issue?Trade Issue?

Vermont’s criteria and procedures for choosing the drugs on its PDL Vermont’s criteria and procedures for choosing the drugs on its PDL may not comply with AUSFTAmay not comply with AUSFTA

• AUSFTA’s preamble requires PDLs to be based on drug safety, AUSFTA’s preamble requires PDLs to be based on drug safety, quality and efficacy. “Affordability” is not addressed and thusquality and efficacy. “Affordability” is not addressed and thusit is unclear whether it is an allowable criterion.it is unclear whether it is an allowable criterion.

• Vermont’s Medicaid PDL strives for a balance of cost and Vermont’s Medicaid PDL strives for a balance of cost and qualityquality

• Over-the-counter and generics preferredOver-the-counter and generics preferred• Manufacturers agree to supplemental rebate Manufacturers agree to supplemental rebate • Prior authorization needed for drugs not on PDLPrior authorization needed for drugs not on PDL

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Why Are Preferred Drug Lists a Why Are Preferred Drug Lists a Trade Issue?Trade Issue?

AUSFTA has been used to challenge Australia’s PDL:AUSFTA has been used to challenge Australia’s PDL:Pfizer Ltd – Australian casePfizer Ltd – Australian case

Facts: Pfizer argued that VIAGRA should be covered as Facts: Pfizer argued that VIAGRA should be covered as part of Australia’s Prescription Benefit Scheme (PBS). part of Australia’s Prescription Benefit Scheme (PBS). Federal PBS authorities declined to include Viagra. Pfizer Federal PBS authorities declined to include Viagra. Pfizer appealed to the Medicines Review Board and lost.appealed to the Medicines Review Board and lost.

Medicines Review Board - required by the US-Australia Medicines Review Board - required by the US-Australia agreement. Gives pharmaceutical companies another agreement. Gives pharmaceutical companies another venue.venue.

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Why Are Prescription Drugs a Trade Why Are Prescription Drugs a Trade Issue? Generic DrugsIssue? Generic Drugs

U.S. patent law allows pharmaceutical manufacturers to keep U.S. patent law allows pharmaceutical manufacturers to keep the formulation of a drug private. the formulation of a drug private.

• Brand name drugs are under patent protection.Brand name drugs are under patent protection.• GenericsGenerics

Same drugs after the patent runs outSame drugs after the patent runs out Less expensive than brand name drugsLess expensive than brand name drugs Used as a cost-saving measure in VermontUsed as a cost-saving measure in Vermont

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Why Are Prescription Drugs a Trade Why Are Prescription Drugs a Trade Issue? Generic DrugsIssue? Generic Drugs

Trade Related Aspects of Intellectual Property (TRIPS) Trade Related Aspects of Intellectual Property (TRIPS) agreements protect patents of World Trade Organization agreements protect patents of World Trade Organization (WTO) members(WTO) members

• Patents allowed for 20 years from time filedPatents allowed for 20 years from time filed• Countries have right to protect public healthCountries have right to protect public health

• Compulsory licensing – state requires generic Compulsory licensing – state requires generic production for public health reasonproduction for public health reason

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Why Are Prescription Drugs a Trade Why Are Prescription Drugs a Trade Issue? Generic DrugsIssue? Generic Drugs

AUSFTA and CAFTAAUSFTA and CAFTA• Require 5-year period of data used in Require 5-year period of data used in

patent approval processpatent approval process• Data used by generic manufacturersData used by generic manufacturers

USTR negotiations seem to prioritize USTR negotiations seem to prioritize patent protection over public health issuespatent protection over public health issues

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Why Are Prescription Drugs a Trade Issue? Why Are Prescription Drugs a Trade Issue? Generic DrugsGeneric Drugs

Vermont requires a generic drug preference in Vermont requires a generic drug preference in prescription drug programs prescription drug programs

• cost-saving measure for Vermonters and for cost-saving measure for Vermonters and for the state Medicaid programthe state Medicaid program

• limits on the production of generics will limits on the production of generics will increase health care costs to Vermonters increase health care costs to Vermonters

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Why Are Prescription Drugs a Trade Issue? Why Are Prescription Drugs a Trade Issue? ImportationImportation

• U.S. law regulates the sale of drugs, including their U.S. law regulates the sale of drugs, including their importation importation

Food and Drug Administration (FDA)Food and Drug Administration (FDA) Approves drugs for certain uses by specific manufacturers Approves drugs for certain uses by specific manufacturers Patent lawPatent law

• FDA guidance on enforcementFDA guidance on enforcement Discretion for enforcing when quantity is for personal useDiscretion for enforcing when quantity is for personal use

• FDA approval for programsFDA approval for programs Authority to approve importation programsAuthority to approve importation programs To date, no program approvedTo date, no program approved

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Why Are Prescription Drugs a Trade Why Are Prescription Drugs a Trade Issue? Issue? ImportationImportation

• Because of patent protection in FTAs, there is potential Because of patent protection in FTAs, there is potential international liability if states pursue importation international liability if states pursue importation programs (for example, AUSTFA and arguably NAFTA).programs (for example, AUSTFA and arguably NAFTA).

• Several states and cities have started importation Several states and cities have started importation programs to offer less expensive drugs.programs to offer less expensive drugs. Vermont joined I-Save Rx, an Illinois program. Vermont joined I-Save Rx, an Illinois program. Participants in I-Save Rx are expected to save Participants in I-Save Rx are expected to save

20-50%. 20-50%. • Efforts are underway to change federal law on drug Efforts are underway to change federal law on drug

importation.importation.

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GATS and GATS and Health Care IssuesHealth Care Issues

• GATS rules apply to countries that join the World Trade GATS rules apply to countries that join the World Trade Organization. The rules apply to specific “sectors.”Organization. The rules apply to specific “sectors.”

• For example, the domestic regulation rule currently under For example, the domestic regulation rule currently under negotiation could potentially affect health insurance, hospitals negotiation could potentially affect health insurance, hospitals and other health care facilities, prescription drug distribution, and other health care facilities, prescription drug distribution, medical records and claims processing.medical records and claims processing.

• Regulations must be “no more burdensome than necessary” Regulations must be “no more burdensome than necessary” and may be challenged if they are an “unnecessary barrier to and may be challenged if they are an “unnecessary barrier to trade.” trade.”

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GATS and GATS and Health Care IssuesHealth Care Issues

• Health InsuranceHealth Insurance Catamount HealthCatamount Health

• Licensing of Health Care Providers and Pharmacy Benefit Licensing of Health Care Providers and Pharmacy Benefit ManagersManagers

• Other RegulationOther Regulation Certificate of Need – restrictions on facilities and Certificate of Need – restrictions on facilities and

purchasing of equipmentpurchasing of equipment Health Resource Allocation PlanHealth Resource Allocation Plan Standards of Care - staffing regulationStandards of Care - staffing regulation

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Results of Interested Party InputResults of Interested Party Input

Input from the National Legislative Association, from state Input from the National Legislative Association, from state legislators, and from other interested parties led to the USTR legislators, and from other interested parties led to the USTR clarifying theclarifying the U.S.-Korea FTA’s application to state health care U.S.-Korea FTA’s application to state health care programs.programs.

• The U.S.-Korea FTA applies to the health programs of the The U.S.-Korea FTA applies to the health programs of the party countries’ central governments.party countries’ central governments.

• A footnote to the FTA clarifies that state health care programs A footnote to the FTA clarifies that state health care programs are programs of regional levels of government, not programs are programs of regional levels of government, not programs of the central level of government.of the central level of government.