DEPARTMENT OF HEALTH AND HUMAN SERVICES  
Centers for Medicare & Medicaid Services  
7500 Security Boulevard, Mail Stop S2-26-12  
Baltimore, MD  21244-1850  
Note:  This letter has been  recreated electronically from  
guidance previously issued in paper  form. 
FEB 12 1998 
Dear State Medicaid Director:  
The purpose of this letter is to provide information about recent advances in the treatment of  
schizophrenia.  New medications have been approved which are called atypical antipsychotic  
drugs, and include risperidone, olanzapine (Zyprexa) and quetiapine (Seroquel).  Several  
additional atypicals  are in clinical trials and/or pending  FDA  approval.  Current knowledge  
indicates side effects from these new antipsychotic drugs are much less severe than those of the 
older generation of drugs. 
All of the older  standard  antipsychotic medications are associated with a considerable number of  
side effects, some of which are severe and  can become permanent.  Due to  at least in part to  
these side effects, many  people with schizophrenia stop taking standard antipsychotic 
medications within a  year or two.  In fact, a  common reason for psychiatric  hospital readmissions  
is that patients stop taking these medications after  leaving the hospital.  The costs of revolving  
door readmissions are obviously substantial.  Short term saving  achieved in formulary budgets  
by not including the new  medications may be more than offset by spending on inpatient care.  
I  am enclosing a letter from the Director of the National Institute of Mental Health that includes  
more detailed information on this subject and summarizes the data indicating the  clinical 
advantages of the newly  available treatments for schizophrenia.  
Although many States and managed care organizations have already adjusted their formularies to 
recognize these new medications, we realize that the price of change is uneven and we are 
providing this information to ensure that all States are aware of the progress that has been made 
in treating this devastating illness.  For States that choose to require prior authorization, we  
include a reminder that Federal statute  requires that any prior authorization request must be  
responded to within 24 hours, and in emergency situations the State must provide for pharmacy  
dispensing of  at least a 72 hour supply of the requested drug.   We hope that this information proves useful in updating formularies that do not currently reflect  
the improvements that have taken place in the treatment of schizophrenia.  
 
         
                                         Sincerely,   
 
                                    /s/  
 
                                 Sally K. Richardson  
                                 Director    
                                 Center for  Medicaid and State Operations  
 
Enclosure  
 
cc:    
 
All HCFA Regional Administrators  
All HCFA Associate  Regional Administrators    
Division of Medicaid and State Operations  
Lee Partridge  
Joy Wilson  
Jennifer Baxendell  
            U.S. Department of Health & Human Services  
200 Independence Avenue S.W.  
Washington,  DC 20201  
DEPARTMENT OF HEALTH AND HUMAN SERVICES   Website: http://www.hhs.gov 
Note:  This letter has been  recreated electronically from  
guidance previously issued in paper form.  
January 16, 1998  
Ms. Sally  K. Richardson  
Director, Center for Medicaid and  
   State Operations  
Health  Care Financing Administration  
Baltimore, MD 21244 
Dear Ms. Richardson:  
Over the past decade, the serotonin re-uptake, inhibitor  (SRI) Class of  antidepressants has largely  
replaced the older  and more problematic tricyclic anti-depressants, based in large part on safety, 
and side effect considerations.  There is now clear  evidence that a similar shift in the state of the 
science regarding treatment of schizophrenia is taking place, and we are  concerned that despite  
recent medical advances  in atypical antipsychotic treatments, the response of various health care 
delivery systems may not have kept up with the clinical research findings.  Of course, formulary  
differences  and prescribing practices may vary  from state to state and from  one delivery system  
to another.  With the rapid pace of developments in psychopharmacology, some systems have  
been slower to  change than others.  We will attempt to summarize below some of the relevant 
data indicating that the newly  available treatments for schizophrenia offer substantial clinical 
advantages.  
The history of atypical  antipsychotic medications is not itself a new phenomenon.  The first drug  
of this class, clozapine, has been in use  around the world for many  years, but only in 1990 was it  
approved in the United States specifically for treatment-resistant schizophrenia. Unfortunately, 
clozapine has severe side effects, which require weekly blood testing and often limit its use to a  
treatment of nearly last resort.  Thus, please note that our comment below about the new  
atypicals do not apply to clozapine. 
The first of the new atypical antipsychotic medications, risperidone, was  approved for use and 
marketed in the United States in 1994.  Its efficacy  is superior to placebo and at least equal to 
haloperidol, the standard antipsychotic medication, but risperidone has a more favorable side  
effect profile.  In September 1996, the  FDA approved another  new atypical antipsychotic,  
olanzapine (Zyprexa), for use schizophrenia.  Quetiapine (Seroquel) was approved on September  
29, 1997, and is now available as well.  Several additional atypicals are currently in large-scale 
clinical trials and/or pending FDA  approval.  The pharmacologic profiles of these newer  
antipsychotic medications tend to resemble that of clozapine but are not associated with 
clozapines severe side effects.  Thus it appears that these atypical medications will be effective   
 
for a broad range of symptoms of schizophrenia, with substantial improvements in side effect  
profiles.  
 
All of the standard antipsychotic medications (many in use since the 1950s) are  associated with a  
considerable number of side effects, including prominent extrapyamidal symptoms (EPS): acute  
dystoria, pseudiparkinsonism, akathisia, and even persistent (sometimes permanent) tardive  
dyskinesia  (TD).  The rate of development of TD  among patients treated with standard 
antipsychotics has been found by Kane et  al. (1995) to  be approximately 5  percent per  year. All  
off EPS movement disorders can be extremely troublesome to patients. In fact, virtually  every  
psychiatrist whose practice includes individuals with schizophrenia know that, due at least in part  
to such side effects, most people with schizophrenia will discontinue the standard antipsychotic  
medications within a  year or two, often without any  medical supervision. One of the most  
common reasons for psychiatric readmissions, which may number in the dozens for many  
individuals, is the repeated discontinuation of medication after leaving the hospital. The need for  
frequent re hospitalization has obvious implications for employment, school, and social  
functioning as  well as substantial costs involved for inpatient treatment  via what has been 
referred to as a revolving door.  
 
In some parts of the  country, we understand that health care systems will not routinely allow new  
patients to be started on atypical  antipsychotic medications until they have  failed a course of the  
standard (less  expensive generic) antipsychotic medications.  We see no scientific justification 
for such a practice and  consider it particularly ill-advised since, for many  people with 
schizophrenia, their first  exposure to antipsychotic medication may have  life-long implications  
for compliance with treatment.  
 
Given that these medications have been available  for only a short time, there is relatively little  
scientific literature on the subject, but a recent issue of Schizophrenia Bulletin (Vol. 23, No.4, 
1997), which is a peer-reviewed NIMH publication that does not accept drug or other  
advertisements, contains  several important papers.  One by Sheitman, Lee, Strauss, and 
Libermann (1997) seems particularly relevant to this issue.  These authors  note that consistent 
with enhanced efficacy in refusing psychotic symptoms, first episode patients also appear more  
vulnerable to side effects than chronic multi-episode patients.  They  further state: in our soon 
to be marketed...should be seriously considered as a first line therapy  for a first episode of 
psychosis.  Enhanced efficacy in the treatment of negative symptoms, and a  more favorable side  
effect profile, particular less EPS, have been demonstrated in chronic patient samples (Marder  
and Meiback 1995;  Beasley  et al. 1996) and might be expected to improve  medication 
compliance, allowing longer periods of maintenance treatment in patients at the beginning of  
their illness (Lieberman 1993).  
 
Please note that the NIMH is  not  currently advocating taking patients who are doing well on 
standard antipsychotic medication of such treatments. Some patients do reasonable well on these  
older antipsychotic medications and may suffer relatively few troublesome  side effects.  For a  
great many individuals with schizophrenia, however the standard medications are largely  
ineffective and/or produce intolerable side  effects, and there is a significant long-term risk of 
developing persistent TD.  There  are  also a number of partial responder patients who may have  
been tried on a variety of standard antipsychotic  medications without substantial clinical 
 
   
 
improvement.  Such patients may show  a better overall response when given a trial on new  
atypical antipsychotic medications.  
 
In addition to new patients with schizophrenia, we strongly believe that chronic patients who 
have relapsed while on standard antipsychotic medications should be candidates for the new  
atypical medications.  As Conley and Buchannan (1997) note, novel antipsychotics should be  
the first consideration after the failure of  conventional drug therapy.  With the exception of  
clozapine (because of its  serious side effects) these drugs are also indicated as a first line therapy.  
These authors of on to summarize the evidence for safety and  efficacy of  the new atypical  
antipsychotic medications, and one of their summary recommendations is to aggressively  
prevent EPS through appropriate choice of primary  therapy. With the availability of  
antipsychotic agents that  are clearly  effective at doses that do not produce EPS in the  vast  
majority of patients, it should be possible to almost eliminate persistent side effects as a reason  
for therapeutic failure.  We believe those patients with a history of prior treatment failure on  
standard antipsychotics should be offered a trial on the new atypical medications.  
 
Certain fairly recent publications, including the  American Psychiatric Association Practice  
Guideline for the Treatment of Patients with Schizophrenia and the Expert  Consensus Guidelines  
Series: Treatment of Schizophrenia, have appeared during the past  year or  so but do not include  
such detailed consideration of the newest available medications, there will be an additional  
impetus to update optimal practice  guidelines  for 1998 and beyond.  
 
While the evidence is clear and convincing  regarding the superior safety profile of the new  
atypical antipsychotic medications, there are also pharmacoeconomic factors to be considered,  as  
recently summarized by  Glazer and Johnstone in the Journal of Clinical Psychiatry (1997).  They  
note that medications comprise a minor portion of the cost of schizophrenia, but may have  a  
major impact on the likelihood of the successful outcome of the care.  Novel antipsychotic  
medications which demonstrate superior symptom control and improved safety profile, and 
benefits to quality of life, may  also reduce patients need for medical services and the associated  
cost of these treatments.  They  compared the use of medical services and treatment costs for  
over eight hundred schizophrenic patients in the  United States treated with either olanzapine or  
haloperidol, and report that in comprehensive health care cost  comparisons that incorporate the  
expenditures for study medications, the total cost of health care of olanzapine-treated patients  
was reduced by an  average of $431 per month in comparison with the haloperidol-treated  
patients during the initial six weeks of treatment.  Amount treatment responders receiving double  
blind therapy  for a maximum of one  year, the total cost of care among olanzapine responders 
was reduced by an average of $345 per month in comparison with haloperidol responders.  
 
There is one other financial issue that should be considered in this regard, and that is the  
potential cost of lawsuits that may result when patients now are started  on standard antipsychotic  
medication (rather than new atypicals)  and later develop persistent tardive dyskinesia.  It  would 
presumably take only one or two lawsuits of this sort to make up the difference between the  cost  
of generic standard antipsychotics  and the atypical antipsychotic medications currently available.  
Of course, the new  atypicals do have some side  effects, and such as sedation, weight  gain, mild 
transient abnormalities of liver function tests, and  a few  anticholinergic and orthstatic side  
effects.  Nevertheless, according to Dan Casey in the Journal of Clinical Psychiatry (1997), 
 
   
 
overall, the adverse effects profiles of the newest antipsychotics represent  a major improvement  
over those of the older neuroleptics.  Olanzapine, sertindole, and quetiapine  produce minimal or  
no EPS across the effective dose range and probably will have low rates of  TD.  
 
I should apologize for the excessive length of this letter but felt it necessary  to document some of  
these sericos public health implications.   I believe  this is a situation in which HCFA and the  NIH  
institutes working in concert can have  a substantial beneficial effect on the  health care of the  
American people.  I  encourage  you to contact me  should you have any questions about the issues  
raised  above and look forward to hearing from  you.  
 
 
                                                                                    Sincerely yours,  
 
                                                                                                           /s/  
 
                                                                                                     Steven E. Hyman, M.D.  
                                                                                                     Director  
 
Enclosure:  
 
References:  
 
 
American Psychiatric Association Practice Guideline for the Treatment of  Patients with  
Schizophrenia  Am J Psychiatry  154:4, April 1997 Supplement  
 
Beasley, C.M., Tollefson, G., Tran, P. et al: Olanzapine versus placebo and haloperiodol: Acute  
phase results of the  North American Double-Blind Olanzapine Trial. Neuropsychopharmacology  
14:111-123, 1996  
 
Casey, D.E.: The relationship of pharmacology to side effects. J Clin  Psychiatry 1997; 58 (suppl  
10)  
 
Conley, R.R., and Buchanan, R.W. Evaluation of  treatment-resistant schizophrenia.   
Schizophrenia Bulletin, 23(4); 663-674, 1997.  
 
Expert Consensus Guideline Series: Treatment of  Schizophrenia (http://www.psychguides.com)  
 
Glazer, W.M., Johnston, B.M.: Pharmacoeconomic evaluation of  antipsychotic therapy for 
  
Schizophrenia  J Clin Psychiatry  1997; 58 (suppl 10) 
 
 
Kane, J.M. Tardive dyskinesia: epidemiological and clinical presentation.  In: Bloom, F.E.,
  
Kuper, D.J., eds. Psychopharmacology:  The Fourth Generation of Press. New York, 
 
NY: Raven Press; 1485-1495, 1995  

 
   
 
   
 
Lieberman, J.A., et al: Time course  and biological correlates of treatment response in first-
 
Episode schizophrenia.  Archives of General Psychiatry, 50:369-376, 1993 
 
 
Marder, S.R., Meibach, R.C.:  Risperidone in the treatment of schizophrenia. Am J Psychiatry  
  
151:825-835, 1994
  
 
Sheitman, B.B., Lee, H, Strauss, R. and Lieberman, J.A. The evaluation and treatment of first- 
Episode psychosis.  Schizophrenia Bulletin, 23(4):653-661, 1997.