Vermont Commission on International Trade and State Sovereignty

1. Vermont Commission on International Trade and State Sovereignty Overview of International Trade and Its Impact on Vermont’s Health Care November 27, 2007

2. What Is International Trade and What Are International Trade Agreements? • International trade is the exchange of goods and services across international boundaries or territories. • International trade traditionally was conducted according to agreements between two countries. Such agreements are referred to as bilateral agreements.

3. What is International Trade and What Are International Trade Agreements? • Beginning in 1944 at Bretton Woods, trade began to be considered in a global manner and global economic institutions were created to help regulate its conduct. • These institutions include: • The World Bank • The International Monetary Fund (IMF) • The Global Agreement on Tariffs and Trade (GATT)

4. The International Trading System In the U.S. : • In 1974, “Fast-Track” authority was established, streamlining congressional consideration of trade bills. • In 1979, the Office of the U.S. Trade Representative (USTR) was created by Executive Order. • The USTR is part of the Executive Office of the President and is not subject to Freedom of Information Act (FOIA) requests. • USTR formally consults with states through the Inter-Governmental Policy Advisory Committee (IGPAC) and Single State Points of Contact (SPOCs).

5. The International Trading System • In 1994, the “Uruguay Round” global trade discussions were completed and the World Trade Organization (WTO) was established. Today the WTO has 149 members • WTO agreements include: • Goods • Services • Government procurement • Agriculture • Intellectual property rights • A binding dispute resolution system • More than a dozen separate agreements

6. The International Trading System Enacted Since the Uruguay Round: • North American Free Trade Agreement (NAFTA) • U.S.–Singapore Free Trade Agreement • U.S.–Chile Free Trade Agreement • U.S.–Australia Free Trade Agreement • Central American Free Trade Agreement (CAFTA)

7. How Do Trade Agreements Affect Health Care? Trade agreements potentially impact: • Prescription drug purchasing, policies and importation. • Licensing of health care providers. • Certificates of Need, health insurance, and other issues.

8. State of Vermont Prescription Drug Programs Medicaid program covers 146,821Vermonters (2006 data): • Medicaid, Vermont Health Access Plan, Dr. Dynasaur • VPharm – Medicare Part D wrap • VermontRx – drug coverage for non-Medicare eligible elderly and individuals with disabilities • Healthy Vermonters – discount card

9. State of Vermont Prescription Drug Purchasing Programs • Catamount Health (Oct. 1, 2007) • Vermont state employees • Teachers and municipal employees

10. Statutes Aimed at Controlling Costs • Coverage of over-the-counter drugs, 33 V.S.A. 1998 • Mandatory generic substitution, 18 V.S.A. 4601 et seq. • Preferred Drug Lists (PDL) and prior authorizations, 33 V.S.A. 1998 • Medicaid only: Multi-state purchasing pool and non-profit pharmacy benefit manager (PBM), 33 V.S.A. 1998 Supplemental rebates , 33 V.S.A. 2002 • Importation – I-Save Rx No. 2 of the Acts of 2005 Mandatory insurance coverage of I-SaveRx, 8 V.S.A. 4089i

12. Why Are Prescription Drugs a Trade Issue? Domestic challenges to state cost control measures: • PhRMA v. Walsh: unsuccessful challenge to Maine’s use of a Medicaid PDL • Federal Medicaid law • Commerce clause • Importation of lower-cost pharmaceuticals • Dorgan/Snowe bill: would have allowed “parallel imports” • USTR wrote a trade agreement that would have made passage of the bill a trade violation • Vermont v. FDA: refusal to allow reimportation

13. Why Are Preferred Drug Lists (PDLs) a Trade Issue? Because the Australian-U.S. Free Trade Agreement (AUSFTA) applies to “federal health care programs,” it addresses: • The Australian Pharmaceutical Benefit Scheme (PBS) • Medicaid – federal/state partnership • Mixed funding • Federal law and regulations on pricing and prior authorization • 1115 waivers • Medicare Part D • Federal funding • Federal law and regulations • Private insurers administrating with CMS oversight

14. Why Are Preferred Drug Lists a Trade Issue? Vermont’s criteria and procedures for choosing the drugs on its PDL may not comply with AUSFTA • AUSFTA’s preamble requires PDLs to be based on drug safety, quality and efficacy. “Affordability” is not addressed and thusit is unclear whether it is an allowable criterion. • Vermont’s Medicaid PDL strives for a balance of cost and quality • Over-the-counter and generics preferred • Manufacturers agree to supplemental rebate • Prior authorization needed for drugs not on PDL

15. Why Are Preferred Drug Lists a Trade Issue? AUSFTA has been used to challenge Australia’s PDL: Pfizer Ltd – Australian case Facts: Pfizer argued that VIAGRA should be covered as part of Australia’s Prescription Benefit Scheme (PBS). Federal PBS authorities declined to include Viagra. Pfizer appealed to the Medicines Review Board and lost. Medicines Review Board - required by the US-Australia agreement. Gives pharmaceutical companies another venue.

16. Why Are Prescription Drugs a Trade Issue? Generic Drugs U.S. patent law allows pharmaceutical manufacturers to keep the formulation of a drug private. • Brand name drugs are under patent protection. • Generics • Same drugs after the patent runs out • Less expensive than brand name drugs • Used as a cost-saving measure in Vermont

17. Why Are Prescription Drugs a Trade Issue? Generic Drugs Trade Related Aspects of Intellectual Property (TRIPS) agreements protect patents of World Trade Organization (WTO) members • Patents allowed for 20 years from time filed • Countries have right to protect public health • Compulsory licensing – state requires generic production for public health reason

18. Why Are Prescription Drugs a Trade Issue? Generic Drugs AUSFTA and CAFTA • Require 5-year period of data used in patent approval process • Data used by generic manufacturers USTR negotiations seem to prioritize patent protection over public health issues

19. Why Are Prescription Drugs a Trade Issue? Generic Drugs Vermont requires a generic drug preference in prescription drug programs • cost-saving measure for Vermonters and for the state Medicaid program • limits on the production of generics will increase health care costs to Vermonters

20. Why Are Prescription Drugs a Trade Issue? Importation • U.S. law regulates the sale of drugs, including their importation • Food and Drug Administration (FDA) • Approves drugs for certain uses by specific manufacturers • Patent law • FDA guidance on enforcement • Discretion for enforcing when quantity is for personal use • FDA approval for programs • Authority to approve importation programs • To date, no program approved

21. Why Are Prescription Drugs a Trade Issue? Importation • Because of patent protection in FTAs, there is potential international liability if states pursue importation programs (for example, AUSTFA and arguably NAFTA). • Several states and cities have started importation programs to offer less expensive drugs. • Vermont joined I-Save Rx, an Illinois program. • Participants in I-Save Rx are expected to save 20-50%. • Efforts are underway to change federal law on drug importation.

22. GATS and Health Care Issues • GATS rules apply to countries that join the World Trade Organization. The rules apply to specific “sectors.” • For example, the domestic regulation rule currently under negotiation could potentially affect health insurance, hospitals and other health care facilities, prescription drug distribution, medical records and claims processing. • Regulations must be “no more burdensome than necessary” and may be challenged if they are an “unnecessary barrier to trade.”

23. GATS and Health Care Issues • Health Insurance • Catamount Health • Licensing of Health Care Providers and Pharmacy Benefit Managers • Other Regulation • Certificate of Need – restrictions on facilities and purchasing of equipment • Health Resource Allocation Plan • Standards of Care - staffing regulation

24. Results of Interested Party Input Input from the National Legislative Association, from state legislators, and from other interested parties led to the USTR clarifying theU.S.-Korea FTA’s application to state health care programs. • The U.S.-Korea FTA applies to the health programs of the party countries’ central governments. • A footnote to the FTA clarifies that state health care programs are programs of regional levels of government, not programs of the central level of government.