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Executive Summary

MAC/EAC, PREFERENTIAL PRICING INFLATES Rx DRUG PRICES for the elderly and other segments of society, the National Association of Chain Drug Stores (NACDS) maintained in written testimony submitted Oct. 24 to the Consumer Interests Subcommittee of the House Select Committee on Aging. The association reasoned that price increases are subsidized by the federal government's MAC/EAC program, which provides "an openended account" to manufacturers, and abuses of the Nonprofits Institutions Act, which causes manufacturers to transfer costs from their nonprofit accounts to their pharmacy accounts. "One of the most significant reasons for the troublesome rise in drug costs in recent years has been outdated public policies that govern prescription drug reimbursement for federally assisted health care programs such as Medicaid and Medicare," the association maintained. "Manufacturers receive full payment for whatever price the company charges the Medicaid program," NACDS said. "With the exception of a few multi-source products, there are no competition or cost-containment features to encourage manufacturers to control prices under the MAC regulation, and consequently it is not uncommon to see several price increases by brandname companies for their product lines each year." As a result, "manufacturers' prices continue unabated on an upward trend, affecting all consumers, especially the edlerly," the association argued. Furthermore, the situation is exacerbated because the regulations "excessively regulate drug prices at the retail level," and pharmacies "are forced to adjust to compensate for inadequate reimbursement rates under Medicaid by cost-shifting these transaction losses over to the cash-paying customer" -- including the elderly. NACDS' comments were submitted for the record of the subcommittee's Oct. 8 hearing on the effects of high drug costs on the elderly ("The Pink Sheet" Oct. 13, p. 8). The testimony unites three distinct issues for pharmacy: prescription drug price inflation, drug diversion, and Medicaid drug reimbursement reform. The association maintained that its proposal for Medicaid reform -- setting reimbursement rates at usual and customary prices, capped at the 90th percentile for single-source drugs and at the 75th percentile for brandname versions of multi-source drugs ("The Pink Sheet" Oct. 13, p. 5) -- would increase generic dispensing and force brandname suppliers to adjust their pricing schedules down. In addition, NACDS said, because "pharmacies would be reimbursed at a fair rate" under such a plan, the need for cost-shifting from Medicaid to non-Medicaid customers would be obviated, and private pay customers and the elderly would benefit. By prohibiting the resale of drugs acquired by nonprofit institutions at discounts, the drug diversion bill also "will help to stabilize prescription drug prices," the association continued. Currently, hospitals resell pharmaceuticals donated to them or discounted for them to outpatients, and "compete directly with retail pharmacies." As a result, NACDS said, manufacturers compensate for the losses on drugs shipped to nonprofit accounts by cost-shifting "to the general public, the elderly, and the Medicaid recipient."

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