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MEDICARE OUTPATIENT DRUG REIMBURSEMENT ALTERNATIVE FORMULAS: OTA

Executive Summary

MEDICARE OUTPATIENT DRUG REIMBURSEMENT ALTERNATIVE FORMULAS: OTA (the Office of Technology Assessment) may be asked in the near future by Capitol Hill to report on future strategies for setting drug reimbursement rates. At the urging of the Senate Finance Committee staff, a section was added to the legislative report to the Catastrophic Care Act last year calling for an OTA review of "alternative payment methodologies." The probable focus of an OTA study would be the two payment formulas in the law: for single source products, the 90th percentile of actual charges; and, for multiple source products, the unweighted median price plus a dispensing fee. Critics of the formulas have questioned several points such as the establishment of a $ 4.50 dispensing fee two-and-a-half years prior to the start of the program and the scheduling of surveys for determining actual charges. OTA has reportedly been in discussions with Hill staffers for the past few months on the need for the study. While staffers on the Senate side appear to remain interested in the study, there is reportedly concern among key House members. Some of the House concern is expressed as a fear of overloading OTA and delaying other study requests. The reimbursement alternatives study, for example, could supplant the requests by Rep. Waxman (D-Calif.) and Rep. Dingell (D-Mich.) for an OTA study on drug development costs. The OTA study would overlap in its general charge with another group, the Prescription Drug Payment Review Commission (RxPRC). That recently appointed group, (which is being called the Rivlin Commission based on the selection of former Congressional Budget Office Director Alice Rivlin as chairperson), has been established to provide annual reports to Congress on current methods of determining payment for outpatient drugs ("The Pink Sheet" Jan. 16, p. 7). The RxPRC reports are due on May 1, starting in 1990.

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