1990 Annual Report

At the outset of the decade Medicaid spending was $23 billion a year By the end of the decade,
Medicaid spending had reached S51 billion annually-and was heading higher

MEDICAID BUDGET

$ Billions

50

30
20
10

1980 1981 1982 1983 1984 1985 1986 1987 1988
Source: Health Care Financing Administration

The rise in Medicaid spending helps to
explain why the states have become increasingly
important to the pharmaceutical industry. Medicaid
now is the second largest item in most state
budgets after education-accounting for about 11
percent of state spending-and Medicaid drug programs spend about $3.5 billion annually. Ten years
ago, only a few pharmaceutical companies had
full-fledged state government-affairs programs
and now, reflecting the increased importance of
the states to industry, 24 companies have such programs involving more than 150 people.
Not surprisingly, PMA has concentrated
on Medicaid cost problems during the past decade.
The industry was able to persuade state legislators
to increase Medicaid drug budgets by hundreds of
millions of dollars and to prevent the enactment
of restrictive formularies. Open-formulary legislation was passed in Oregon, Utah, South Carolina,
Oklahoma and Louisiana.

EFFECTS OF RESTRICTED FORMULARY
ON MEDICAID EXPENDITURES

+31%

+28%
30
+ 4.1% to 20
15.5%
10

PMA also successfully carried out the tortHospital Physician Total
Mental Care Services Medicaid Cost reform program authorized by the Board of DirecSource: William J. Moore and Robert J. Newman, An Economic Analysis of State
Medical Formularies, Department of Economics, Louisiana State Univer- tors. Since the Association launched the program
sity, December 1989.
in 1986, 37 states have enacted at least one of the
industry's key reforms and 23 states have enacted two or more of these reforms. In addition, five states
have enacted a government-standards defense, under which compliance with FDA drug-approval standards provides a defense against punitive damages in product-liability cases.
International events frequently dominated the news during the 1980s: Anwar Sadat and Indira
Gandhi were assassinated; an earthquake in Soviet Armenia killed 25, 000 people,; Great Britain
recaptured the Falkland Islands from Argentina; the Berlin Wall was dismantled; and the
eight-year Iran-Iraq war finally ended.
The industry also was occupied by foreign developments during the 1980s. At the outset of the
decade, countries that did not provide adequate intellectual property protection for pharmaceutical products had no incentive to do so-and would hardly even discuss the matter. The Trade and Tariff Act
of 1984, which made the denial of intellectual property protection an unfair trade barrier, changed all
that-and provided the basis for an aggressive PMA effort to achieve adequate patent protection abroad.

8