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CALIFORNIA MEDI-CAL Rx DRUG MANUFACTURER REBATE

Executive Summary

CALIFORNIA MEDI-CAL Rx DRUG MANUFACTURER REBATE policy is strenuously opposed by the Pharmacuetical Manufacturers Association in an Aug. 4 letter to California Health and Welfare Agency Secretary Clifford Allenby. PMA requested a meeting with "the appropriate Medi-Cal officials" in "the near future" to discuss the issue. The rebate system would involve the removal of a prescription drug from the California Medicaid (Medi-Cal) formulary if the manufacturer does not agree to provide the drug at a rebate to the government. It requires legislative authorization. However, the department is reportedly considering ways of administratively requiring companies to negotiate price rebates. One way might be to require rebates for drugs coming on the formulary for the first time. Alternatively, the department may consider a regulation removing certain categories of drugs from the formulary, and then requiring rebates from drugs which are readmitted. PMA noted that the California Assembly has already rejected legislation in its current session which would have established the rebate policy. "Accordingly," the association said, "without commenting on current legal authority for such a program, we believe that any pursuit of a rebate policy by the Medi-Cal Department would be in clear conflict with the policy objectives and wishes of the legislature." Thus, PMA stated: "we urge you to direct officials in the Medi-Cal Department to abandon any plan to implement this program." In April, PMA appeared in budget hearings before the California legislature to suggest alternatives to proposed cuts in the Medi-Cal drug program. Among the suggestions was a statewide implementation of California's drug utilization review program ("The Pink Sheet" May 1, p. 13). The rebate policy is an outgrowth of the California fiscal 1990 budget bill, signed by Governor Deukmejian on June 30. The bill calls for cuts of more than $ 50 mil. from the prescription drug component of the Medi-Cal program. The rebates would be a way of recovering some of the budget deficit. In a July 7 response to the state legislature's appropriations bill, which did not provide authorization for a drug price rebate program as requested by the administration, Deukmejian said the budget includes a reduction of $ 40 mil. ($ 20 mil. general fund, $ 20 mil. federal funds) in Medi-Cal prescription drug expenditures "to reflect a program of negotiated rebates from drug manufacturers based on the volume of drugs sold to the Medi-Cal program annually." Currently, the governor's message continues, "the Medi-Cal program does not receive discounts or rebates of any kind from manufacturers, despite the fact that Medi-Cal spends in excess of $ 500 mil. annually for prescription drugs." The statement adds that "this is one of the fastest growing areas of the Medi-Cal Budget, exceeding the rate of growth for all other benefits, the number of prescriptions approved, and the number of beneficiaries using prescription drugs." The state budget also calls for $ 14.3 mil. in savings ($ 7.2 mil. federal funds) to be realized from a reduction in pharmacy reimbursement levels by Medi-Cal. The department expects that the reduction can be accomplished administratively and plans to issue regulations on Oct. 1. The reduction is based on a reimbursement level of average wholesale price (AWP) minus 12%. "AWP, which is used for about 30% of Medi-Cal purchases . . . is substantially above the pharmacy acquisition cost and has been questioned as a pricing standard by the federal government," Deukmejian said. "Recent field studies, which have been completed by the Department of Health Services, indicate that pharmacy actual acquisition costs are 12% less than AWP," he added. The proposal would not modify the current Medi-Cal dispensing fee.
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