The Penobscot Indian Nation will be opening Maine’s first mail-order drug company this spring as part of a state plan to reduce the cost of prescription medicines – a plan that has some drug store owners worried because it could cut them out of the picture.

Plans also are in the works to create a public purchasers pool – including state employees and public school teachers – where the state would negotiate for the cheapest drug prices from pharmaceutical houses. Public employees would not be ordered to get their drugs in the mail; the incentive to do so exists in their current health care plans.

The state is planning a stepped-up campaign to encourage Medicaid clients to use mail-order once the Penobscot pharmacy is online. The Department of Health and Human Services has budgeted $5 million annually in cost savings in 2006 and 2007 based on Medicaid patients making the switch.

The mail-order pharmacy will be located in a warehouse on Indian Island in Old Town, renovated, in part, with a $400,000 state Department of Economic and Community Development grant. Gov. John Baldacci promoted the grant last fall – about a month before Election Day – saying the money would be used by the Penobscots to set up a facility to bring in cheaper drugs from Canada. Federal regulations, however, still ban the practice, although authorizing legislation is supposedly on a fast track to be considered by Congress.

Mail-order drugs are the next best thing, according to the state, because they are generally cheaper than what can be purchased at the drug store. Pharmacy owners say a state-promoted mail-order drug plan will put more of them out of business.

“If they’re going to set up those (pool) programs and push those programs in various ways into mail order,” it’s a major problem, said Douglas Carr, the legal counsel and lobbyist for Rite Aid in Maine. The state’s plan alone to steer more Medicaid clients into mail-order could cost retail pharmacies $120 million to $130 million, he said.

The mail-order operation on Indian Island – tentatively named PINRX for Penoboscot Indian Nation RX – will work like other existing mail-order pharmacies, where people can fill their prescriptions over a Web site. The advantage it will have is the state’s plan to push Medicaid business its way.

The mail-order pharmacy helps the Indians by giving them ownership of a company that the state estimates could do $100 million in business annually. The company will cost $1.4 million to set up – including the DECD grant – and will employ 14 people within six months of opening and up to 40 in two years.

Carr, however, questions whether it makes good economic sense for the state to subsidize a competing business to Maine’s existing retail pharmacies. The switch in Medicaid business alone could have a “dramatic impact on the ability of many retailers to survive,” he said, and that means lost wages and taxes.

State drug plan

The mail-order pharmacy is just one piece of Gov. Baldacci’s plan to overhaul the pharmaceutical business in the state.

He also has budgeted about $10 million in savings over two years by getting the Maine State Employees Union, the Maine Education Association and other public-employee unions to let the state bargain for them on their drug prices.

These public purchasers, whose health and drug benefits are paid for entirely or in part with state funds, would essentially join a drug-buying pool, which already includes people on Medicaid and those in the Drugs for the Elderly program. Medicaid covers more than 250,000 people filling prescriptions worth $320 million annually. The pubic employees unions would add more than 100,000 people – when you consider employees’ dependents – spending $114 million annually.

While the unions negotiate the best prices for their clients, “they don’t have the market power” the state has, said Jude Walsh, who works on drug policy in the Governor’s Office of Health Policy and Finance. The state, she said, can get discounts of up to 15 percent, and not just on generics, but rather brand names willing to offer rebates to get Medicaid business.

“The effect is not really on the individual going to the pharmacies,” Walsh said, because they would still pay their co-pay as outlined in their health insurance or drug coverage plan. The state would benefit ultimately – by $4.3 million in fiscal year 2006 and $5.3 million in 2007 – because it subsidizes public employee coverage.

Carl Leinonen of the Maine State Employees Association said his organization believes the plan could work, but the details are still being discussed.

“There’s no reason to want the state to spend one nickel more for health insurance than it has to,” he said, because holding down costs helps preserve the benefit. “It helps the state and it also helps our members.”

The state also would like to increase its bargaining power by having other states join in Maine’s pool – a plan the governor referred to in his state-of-the-state address. Maine has invited 26 states to join, and six have shown interest to date, Walsh said.

Jim McGregor of the Maine Merchants Association, which represents pharmacies, wants to know, “Where does retail pharmacy fit?” He noted that a pharmacist was not on the council setting up the purchasing pool.

Penobscot RX

Tim Love, the economic development advisor to the Penobscot Nation chief and council, said the mail-order pharmacy hopes to capture as much state business as possible, as well as pitching its services to other states and companies that are self-insured.

“We’ll be beating the bushes for other contracts … looking everywhere and anywhere” for business, he said.

The goal is to have the pharmacy up and running by May 1 in a renovated manufacturing facility on Indian Island. The “closed pharmacy,” as it is called, because people cannot walk in to buy their drugs, only takes up a small portion of the building, so a warehouse for drugs from Canada may still be in the cards.

Baldacci announced a plan last fall to use the Penobscot warehouse for FDA-approved drugs reimported from Canada, essentially promising the Indians the $400,000 DECD grant for the project.

The Bush administration has been opposed to reimportation and Walsh admitted that things are “not moving very quickly” with the state’s request to get a waiver to the federal ban.

“There’s still a lot of barriers and obstacles” being put up by the federal government over the safety of drugs imported from Canada, Walsh said. “We will move forward in a way that positions the state carefully,” to be able to import from Canada, should permission come from the federal government.

Recently, U.S. Sen. Olympia Snowe said her bill to allow drugs to be imported from Canada and other countries was on a fast-track because of growing alarm in Washington over drug prices.