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MEDICAID WOULD SAVE $2.49 PER Rx IN REIMBURSEMENT OVER PRIVATE-PAY PRICES FOR SINGLE-SOURCE DRUGS UNDER CIP PLAN WITH 10% DISCOUNTS, HHS ANALYSIS FINDS

Executive Summary

The federal Medicaid program could save $2.49 per Rx over private pay prices by implementing the Competitive Incentive Program (CIP), according to a preliminary report on an analysis of Medicaid Rx drug reimbursement proposals, released Sept. 4. The average per-Rx private charge for drugs, from a sample of the 100 largest selling single-source Rx drugs, is $22.20, the document states. By comparison, the CIP payment would be $19.71, for a savings of $2.49, based on a 10% discount from retail prices. At a 5% discount, CIP would pay $20.73, for a $1.47 savings. Factored into both estimates is use of a screen limiting payment to 125% of the median retail price. Under the current MAC program, the reimbursement for the average single-source Rx is $20.92, yielding a $1.28 savings. When it published its triple-optioned MAC-reform proposal ("The Pink Sheet" Aug. 25, p. 3), HHS said it would would analyze the three alternatives -- CIP, the Pharmacists Incentive Program (PhIP), and a revised MAC plan -- by calibration the three options so that they would achieve approximately $80 mil. in federal and state savings over the current MAC program. Although HHS has "not yet extrapolated the data to national totals, or included state specific 'mini-MAC' or discounting policies," the department said in a cover memorandum that its new data provide "preliminary estimates as to the effect of present policies, each option, and some variations of the options." HHS added that it "would welcome independent review of these estimates and the underlying data and calculations on which they are based." Drug Reimbursement Data Preliminary, Subject To Change When State Procedures Factored Into Savings -- HHS However, the department cautioned: "These estimates are preliminary and will certainly be revised." The analysis was prepared for HHS by Professional Management Associates, Inc., using data obtained from Pharmaceutical Data Services. As a further variation on CIP, the proposal might discount by 5% or 10% single-source Rx prices, based on 120% of the private-pay median. Using the 120% screen with a 10% discount, reimbursement under CIP would be $19.66, saving the federal Medicaid program $2.54 per single-source Rx. With a 5% discount, the payment under CIP would be $20.66, for a $1.54 savings. The data base includes information on "the 100 largest volume single-source and the 50 largest volume multiple source Rx drugs in 15 states," the memo notes. "Including generic equivalents, these data cover almost 1,500 actual brands and almost one-half million Rxs." Data on the sample Rxs was compiled for March 1985, because March "is a high volume Rx month and is in the middle of" the most recent full fiscal year, the report explains. The Rx products are taken from PDS' sample of 1,503 drug stores in the following 15 states: Alabama, California, Florida, Georgia, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio, Pennsylvania, Virginia, and Washington. "At this stage of the analysis," the report states, "state-specific structures or discounting policies were not imposed; only the federal MAC was used." To the extent that state parameters will have an effect on the numbers, the savings calculated for the various options are "understated," the draft notes. Savings on the multiple-source drugs not currently covered by MAC would be "substantial under all options," the memo states. The average retail price for Rxs not subject to MAC limits is $12.07. "A revised MAC program would save on average $2.64, and PhIP $2.40," the report indicates. CIP savings vary, depending upon the parameters used, "but are generally even higher," HHS said. "With the leading brand reimbursed at 80% of retail; and generics at the lower of 95% of retail, a screen of 80% of the median price for the average price for the leading brand, or a screen of 125% of the median price for each generic; CIP would save on average $2.52, assuming no change in dispensing patterns, and $3.87, assuming that pharmacists substituted generic drugs in all cases not subject to physician override." Savings under CIP were calculated two ways: based on the brandname/generic market shares reflected in the March 1985 data, and based on "an assumed shift of 98% of the innovator Rxs to generic substitutes." HHS estimates that prescribers will order that the brandname product be dispensed in 2% of all Rxs. "To the extent that pharmacists will dispense leading brand products more than 2% of the time, the savings will be correspondingly reduced," the department said.
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