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Executive Summary

The Pharmaceutical Manufacturers Association favors vouchers as a means to meet the cost savings demands for Rx drug reimbursement under Medicaid. The association, however, rejects all three programs contained in the Aug. 19 Health Care Financing Administration (HCFA) proposed MAC-reform rule. PMA considers the three alternatives CIP, PhIP and a modified MAC as overly burdensome and vaguely defined. In preparation for a formal response to HCFA's proposal, the association will push instead for moves that are designed primarily to reduce administrative costs. One such change is the use of drug vouchers to be presented by Medicaid recipients to pharmacies. Pharmacists, in turn, would then redeem the vouchers for immediate payment. Alabama's voucher system in the mid-1970s has been credited with reducing processing costs by 15› to 45› per Rx. PMA also believes HCFA ought to pay more attention to utilization review as a cost control measure. As evidence of the effectiveness of utilization review, the Virginia Medical Assistance Services Department estimates that its drug utilization review program prevented hospitalization of 452 patients and saved the state $409,000 annually. PMA has noted that although drug claims represent only 8% of the Medicaid budget, processing those claims represents approximately half of the overall program paperwork and red tape. The association believes that the Administration can realize its goal of saving Medicaid $38 mil. in 1987 solely by reducing administrative costs. PMA's version of free market incentives would reimburse for all Rx drugs at the 90th percentile of their usual and customary prices. Under that plan, Medicaid would reduce its procedural burdens while exploiting marketplace forces. Product Availability Problems Would Plague PhIP Unless Generics Accounted For 50-75% Market Share PMA reportedly believes that product availability under PhIP could be a problem for pharmacists unless the program requires that generics hold 50-75% of an ingredient market share. Pharmacists will experience difficulty in obtaining drug products whose prices provide them maximum incentives if the least expensive generics are not widely and consistently available, the association reasons. Availability would not be sufficient unless the number of Red Book or Blue Book suppliers collectively account for a large market share, such as 50-75%. The association has said that PhIP wastes resources because it would pay a bonus to pharmacists for substituting generic drugs for brandname products, which is something they already do. Pharmacists often substitute by choice because generic products generally offer higher profit margins, and, in some states, they are required by law to substitute generics unless the prescriber orders the brandname product. PMA considers the discounts and screens in CIP to be arbitrary and vaguely defined. In addition, the screens could shift drug costs from the Medicaid program to non-Medicaid customers. The MAC revision proposal is unfair, PMA believes, in that it would eliminate the Pharmaceutical Reimbursement Board and public hearings from the MAC-setting process. Theoretically, the PRB and public hearings enable MAC decisions to benefit from industry, professional, and FDA consultation. PMA considers all three options to contradict the Reagan Administration goals of deregulation and federalism. According to the association's tentative position, the proposals would create federal regulatory burdens that would impede the states' demonstrated capacity for innovative solutions for cost control under Medicaid.

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