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Executive Summary

NACDS is describing its modified Competitive Incentive Program (CIP) proposal as a generic drug dispensing system that would achieve desired program savings simply by relying on marketplace competitive factors. The association submitted its formal comments on the Health Care Financing Administration's Medicaid Rx reimbursement reform proposal Oct. 8. "The real savings in Medicaid," NACDS contends, "wall come from increased use of generic drugs, rather than from tinkering with reimbursement formulas." The chain group argued that the savings potential from generic use "is readily apparent from looking at retail prices." In support of its position, NACDS cites examples of generic versus brandname prices from a recent sampling of five cities in Texas. For instance, NACDS states, "Lasix averaged $15.18 per Rx, while its generic equivalent, furosemide, averaged $8.52. Similarly, Valium averaged $12.56, diazepam $8.41.; Inderal $24.83, propranolol $16.45." In addition to reimbursement for generics at marketplace prices, the NACDS plan recommends reimbursement for single source products at marketplace prices capped at the 90th percentile. Marketplace prices for brandnames in multisource categories would be capped at the 75th percentile. The NACDS comments for the first time place the association in support of increased generic drug dispensing as a means to achieve program savings. Previously, the association had indicated support for the CIP option, without overtly championing the increased use of generic products. At its board meeting on Oct. 9, PMA voted not to support an across-the-board 90th percentile reimbursement level for all drugs single and multiple source. The association had been considering whether to offer that concept to HCFA as an alternative to the weighted reimbursement formulas contained in the options proposed by HCFA. Pfizer's comments to HCFA explain the view that the government will meet its savings estimates by the shifts to generic dispensing caused by the Waxman/Hatch law. Pfizer estimates that using the marketplace pricing changes alone, HCFA would save $56 mil. extra in the year 1989. With the decision against the 90th percentile plan, PMA moved further away from the NACDS position and other pharmacy groups. Although NACDS's proposal would cap reimbursement for multiple source branded products well below the 90th percentile level considered by the PMA board, the two ideas were at least conceptually similar, and might have served as a base from which a compromise might have been negotiated. In May, PMA joined NACDS, the American Pharmaceutical Association, the National Association of Retail Druggists, the National Wholesale Druggists' Association, the American Society of Consultant Pharmacists, and the American Society of Hospital Pharmacists in urging HCFA to base reimbursement on a "basic set of principles" that emphasize marketplace competition. The coalition of organizations told HCFA that all drug products should be reimbursed at "usual and customary charges," and agreed that those charges should be capped, "for example, at the 90th percentile for all charges within a state," according to a press release issued at the time ("The Pink Sheet" June 2, p. 5). The comments from NACDS, submitted in response to HCFA's proposed options for Medicaid Rx drug reimbursement published in the Aug. 19 Federal Register, contend that marketplace price reimbursement provides sufficient incentive for generic dispensing. The chain drug store group would do away with HCFA's CIP version, which recommends government discounts and/or statewide price caps for drugs based on dispensing surveys. NACDS, however, is also dropping its earlier call for direct incentives to pharmacists for generic dispensing. HHS Secretary Bowen told the group that incentive payment was not realistic politically. In light of Bowen's comments, NACDS is now urging the federal government to set marketplace reimbursement levels high enough to encourage generic dispensing and to build in an implicit disincentive to brandname dispensing. At a press briefing on the day that NACDS filed its comments with HCFA, the association's outside counsel Nancy Buc (Weil, Gotshal & Manges) explained that Rx drugs differ from other health care services for which HCFA reimburses because of the "intensely competitive" nature of the pharmacy marketplace. This "price sensitive" character "drives the marketplace," she said, adding: "When you sell an Rx drug to the 72% of the population who pay on their own . . . the margins are thin, but there's a profit there." Medicaid legislation reguires government to permit pharmacy profits, NACDS contends. The Social Security Act "requires that HCFA devise a system that allows pharmacy providers to make a profit." In a press release on its revised CIP proposal, NACDS said that its plan is based on legal guidelines for Rx drug reimbursement, stating that "a dispensing fee should cover the operating costs of a pharmacy, encourage efficient and complete services, and provide the pharmacist a reasonable return on his investment." NACDS supported its mandatory profit arguments with an analysis of Medicaid law by University of Chicago Law professor Paul Bator. He submitted a memorandum Oct. 1 to HHS, asserting: "The dispensing fee was originally intended to ensure efficient pharmacists a reasonable profit, yet state-set dispensing fees have failed to keep pace with inflation and HCFA has failed to exercise its statutory responsibility to require states to remedy the defect." If HCFA decides that requiring regular dispensing fee adjustments is too difficult, he added, it must select some other reimbursement formula that allows efficient pharmacies to be reasonably profitable under the Medicaid business. Regarding the HCFA option of allowing individual states to determine their own Medicaid Rx drug reimbursement plans, Buc contended that it is inefficient policy to make pharmacies to deal with 50 reimbursement formulas. Furthermore, she said that to allow states to "do anything they want as long as it saves enough money" is "not the correct legal test." She pointed out that "some states haven't raised their dispensing fees in ten years." In the comments submitted to HCFA, NACDS also reiterated its previous position that the agency should explore the use of vouchers to reduce administrative costs in the Medicaid program. "We strongly recommend that HCFA should commit existing research and development funds for the purpose of testing the voucher concept," the association maintained. NACDS supported the establishment of pilot programs in order to offer "the best system . . . as a national standard."

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