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Executive Summary

Retail prices for 27 major multiple source prescription drug products will fall by 4.4% in 1986 compared to 1985, a decline which could save the federal government about $34 mil. in reimbursement costs for Medicaid Rx drug services, PMA said in Oct. 16 comments on HHS's reimbursement reform initiative. In an analysis of data provided by IMS America, PMA said that prices for the 27 drugs declined 2.9% in average retail price from 1985 to the first half of 1986. "We expect this trend will continue in the latter half of 1986 . . . We chose conservatively to adjust the results from the first six months by 50% and estimate the average decline at 4.4% for the full year. This would yield annual Medicaid savings of $61 mil., relative to a 1985 baseline." The association continued: "The estimated federal savings would be approximately $34 mil. based on an average federal share of 55%. Therefore, market forces, coupled with administrative streamlining . . . and a percentile screen should [the Health Care Financing Administration] choose to implement one to prevent abuses, will clearly achieve savings well in excess of the $38 mil. goal." [In proposing to reform the Rx drug reiumbursement system, the administration set a target of $38 mil. in the first year of implementation of a new system.] PMA said that the data analysis supports its overall argument that a changing pharmaceutical marketplace can by itself bring about program cost reductions sought by the federal government. The association argues that the drug market is more price sensitive as a result of the 1984 patent restoration/ANDA law. PMA President Mossinghoff summarized the association's position in a cover letter to HCFA Administrator William Roper, MD, saying that PMA supports "a system that principally relies on the marletplace to achieve savings. This should be done by paying pharmacists their ususal and customary charges and streamlining the administration of the Medicaid drug program by using the proven voucher system. Sufficient savings are readily available through these steps, together with a percentile screen if adopted by the government, to more than meet the Department's immediate goal of $38 mil., with a clear trend for savings beyond this level over the next several years." By basing a system on the marketplace, and by implementing administrative improvements, HCFA would not need to rely on what Mossinghoff called "new, cumbersome and costly administrative mechanisms." The association said HCFA should reject implementation of any of the three program reform options presented in the August 19 Federal Register notice announcing HCFA's intent to reform the drug system. The three options are the Pharmacists Incentive Program (PhIP), the Competitive Incentive Program (CIP), and a revised form of the current Maximum Allowable Cost (MAC) program. PMA said that the sample of drugs it analyzed using the IMS data "includes those with recent patent expirations as well as drugs that have faced competition for several years. We also found that the generic share is about 30% greater in the Medicaid market than in the non-Medicaid retail market. Our results indicate that marketplace forces not only are having a significant impact on those drugs that recently became multi-source, but also are intensifying the competitive forces affecting older multi-source products." The association also cited a study conducted by Pracon, Inc., which "estimates that market forces alone, without any action by the government, will reduce Medicaid outlays (federal and state) by a total of $324 mil. over the five years 1986-1990, assuming that current federal and state MAC prices remain in place. This estimate includes 38 drugs losing patent protection by 1989." PMA also included in its submission to HCFA specific objections to the three possible options proposed by HCFA. For example, the association said that the PhIP plan's major shortcoming is that it does not take into account that many low priced multi-source products are unavailable to a wide geographic area. "We see no way to avoid serious problems stemming from unavailability, unless PhIP prices are based on a sufficient number of Red Book suppliers which collectively account for a large market share (e.g., 50-75%)," the association said. PMA also asserted that Red Book price quotes are unreliable, and that PhIP could actually increase Medicaid drug expenditures in some states. HCFA's proposal to revise the current MAC program by eliminating public hearings and the Pharmaceutical Reimbursement Board is unadvisable because "the process would proceed on a narrower base of information, leading to poorer judgments and greater difficulties with product availability," PMA said. Elimination of the current system of specialized consultation with FDA -- as proposed in the revised MAC option -- could lead to serious questions concerning the bioequivalence of multi-source products selected for a MAC, the association maintained. The CIP program option, in which the government would reimburse at a discount off of the usual and customary charge to non-Medicaid retail customers, is "an exercise of raw market power," PMA maintained. "It costs pharmacists no less to serve Medicaid customers than to serve others. This discount must come out of either the pockets of pharmacists or the pockets of non-Medicaid drug purchasers," PMA declared. PMA also maintained that the terminology of the CIP proposal leads to many questions, including the exact meaning of the phrase "retail price for the drug supplied." PMA questioned: "Does this imply a separate price determination for each supplier, or an average of all generic versions, or an average of all versions?" PMA questioned. Noting that the CIP proposal contains provisions for two separate pricing rules, one for single and one for multi-source products, PMA said that "there is potential for conflict between the two rules. A discount of 25% off a brand-name price may result in lower reimbursement than 5% or 10% off the highest generic price. Forcing brand-name reimbursement below generic reimbursement is clearly unreasonable," the association stated. PMA also said that the government's proposal to exempt states from a federally adopted system if the state can demonstrate equal or greater savings under a system of its own devise could lead to "endless disputes." It is "very difficult to forecast outlays net of administrative costs for any given option." PMA said, adding that "judgment on budget neutrality will be highly subjective, giving HCFA tremendous leeway when it judges the acceptability of Medicaid state plans. If HCFA wants widespread adoption of the baseline federal program, it can, in practice, make it impossible for states to gain exemption, and it can do this without the need for further rulemaking." In his cover letter, Mossinghoff stressed that a reduction in administrative costs, according to PMA's view, can be achieved through implementation of a voucher collection system similar to the one implemented in Alabama. Mossinghoff said that Alabama Medicaid was able to reduce administrative costs by two-thirds, from 45› to 15› per prescription. "That program had an added advantage: it provided for prompt payments of pharmacists so that they were not forced to finance a 'float' of funds due them," Mossinghoff said. PMA's comments embrace the broad principals set out in a letter to HCFA last May and signed jointly by seven different trade and professional associations. However, PMA's unqualified rejection of the three program options proposed by HCFA goes beyond the position adopted by the National Association of Chain Drug Stores, one of the signees of the May letter. Last week, NACDS said it supported a modified version of CIP which included reimbursement for multi-source drugs at the 90th percentile. NACDS said that the major savings for Medicaid will come from increased generic prescribing regardless of the system used, and PMA's comments indicate tacit acknowledgement of that view.

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