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Executive Summary

OTA STUDY ON MEDICARE DRUG PAYMENT ALTERNATIVES, FORMULARIES was requested by the Senate Special Committee on Aging in a March 17 letter. Signed by committee Chairman Pryor (D-Ark.) and Ranking Minority Member Heinz (R-Pa.), the letter asks the Congressional Office of Technology Assessment for a broad analysis of the relative cost-savings derived from different payment methods, including formularies. OTA plans to submit a draft proposal of the study to its Technology Assessment Board at a meeting scheduled for April 11. The project is expected to get underway this summer and take roughly 18 months to complete. One focus of the study would be the payment formulas for single and multiple source drugs, as specified by the catastrophic care law. The committee expects that OTA will analyze how Medicare pays for different compounds used for the same indication as well as for different indications in the same multiple-source category. The committee also expects OTA to consider the policy implications of reimbursing for off-label uses. The letter specifically requests OTA's study to encompass "as least" the following: "(1) the potential for cost-savings in drug reimbursement, (2) the impact of alternative reimbursement methodologies -- including alternative methods for excluding from reimbursement certain drugs or groups of drugs -- on beneficiary access to an adequate selection of high quality drug products, both within multiple source categories and for specific indications." The committee maintains its opposition to a formulary in the Medicare program. However, the committee is seeking data on excluding certain drugs from coverage in anticipation of future discussion of the issue as a cost-saving measure. In the current budget climate, it is likely that the Office of Management and Budget may seek reconsideration of the issue. The committee is emphasizing the need for information leading to long-term savings. Noting the original purpose of the study, "was to 'promote greater program efficiencies'," the letter adds: "As you know from your work in the field of technology assessment, true 'efficiencies' can only result from cost-effective program policies -- and may actually be thwarted or undermined by short term savings from reductions in reimbursement or payment only for inferior technologies." The study request "arises from discussions among conferees on the Medicare Catastrophic Coverage Act," the committee notes. At the urging of the Senate Finance Committee, of which Pryor and Heinz are members, a section was added to the legislative report to the Catastrophic Act last year calling for the OTA review of "alternative payment methodologies." OTA has been in discussion with Hill staffers for the past few months regarding the study ("The Pink Sheet" March 6, T&G-1).

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