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CALIFORNIA STATEWIDE DRUG UTILIZATION REVIEW SYSTEM RECOMMENDED BY PMA AS ALTERNATIVE TO MEDI-CAL BENEFIT CUTS AT APRIL 26-27 STATE BUDGET HEARINGS

Executive Summary

Statewide implementation of California's drug utilization review program was recommended by the Pharmaceutical Manufacturers Association as one alternative to recent proposed cuts in the Medi-Cal prescription drug program in April 26-27 budget hearings before the California legislature. The association suggested that about $ 44 mil. could be saved in California's Medi-Cal program if a DUR system were implemented statewide, based on a 1985 analysis by the state's Department of Finance. The state currently plans to implement a DUR program in "selected counties." California Governor Deukmejian's budget for 1989-1990 proposes that prescription drug costs for Medi-Cal be cut by a total of $ 80 mil. ("The Pink Sheet" April 10, p. 16). The state's Assembly Ways & Means Subcommittee and the Senate Budget & Fiscal Review Subcommittee held hearings April 26-27 to consider the Governor's proposal. PMA also wrote Deukmejian on April 20. Among Deukmejian's proposals for reducing Medi-Cal drug costs are the elimination of certain categories from the formulary, establishment of a volume purchase program and adjustments to pharmacy reimbursement charges. The state has until July 1 to decide the size and nature of the pharmaceutical benefit cuts; however, Deukmejian is expected to propose a revised budget in mid-May. "The department already should be saving millions of dollars with the implementation of the HCFA upper payment limits on the most frequently prescribed multiple-source drugs," PMA said. PMA further noted that HCFA "just promulgated last week an expanded upper limits list which should save California an additional $ 7.5 mil. to $ 11 mil." On one refinement to pharmacy reimbursement, PMA supports a proposal made recently by the California Pharmacists Association. CPhA suggested in a March 15 letter to the California Health & Welfare agency that the state consider tightening the current average wholesale price/public charge reimbursement formula by adding in the lowest reimbursement level by third party payors. CPhA had estimated the modification could save Medi-Cal $ 15 mil. The state is further considering changes in its pharmacy reimbursement policy that would involve adopting wholesaler acquisition costs (WAC) in its reimbursement formula. WAC is essentially the price that the wholesaler pays to the manufacturer plus a percentage. CPhA is opposing the WAC method, maintaining that the net result of the change would be a reimbursement level equal to the pharmacist acquisition cost without the margins of AWP. PMA maintained that drugs account for "only 7.7% of total Medi-Cal expenditures, a rate which has remained unchanged since 1986." According to PMA, the average prescription drug expenditure per recipient in California "was $ 151 in 1987 compared to the national average of $ 198." Based on a November 1988 analysis by the state's Health Services Department, PMA continued, "$ 32.1 mil. in increased drug-program costs is attributed to an increased number of users, and $ 21.5 mil. is attributed to increases in utilization per beneficiary." State Assemblman William Baker (R-Alameda) is contemplating a bill that would require the state to seek Medi-Cal rebates or discount contracts with drug firms supplying products on the state formulary. Baker's legislation is designed to reduce Medi-Cal's drug benefit ingredient costs by $ 20 mil. Another $ 20 mil. is expected to result from the proposed administrative changes in pharmacy reimbursement. The changes would be implemented by the California Department of Health Services.
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