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Executive Summary

The Senate Special Committee on Aging accused drug companies of obstructing development of drug price negotiation programs in 12 of 14 state Medicaid programs in a Nov. 16 majority staff "briefing paper" distributed at a same-day committee hearing on drug pricing. "Prescription drug manufacturers have waged an all-out national campaign to undermine and frustrate state efforts to negotiate lower prices for therapeutically interchangeable drugs," the paper contends. "Opposition from drug manufacturers has succeeded in blocking 12 out of 14 states' previous attempts to negotiate lower drug prices for their financially-strapped Medicaid programs." This is the case, the paper asserts, despite the fact that "Medicaid programs include more drug products on their formularies than either hospitals or HMOs [Health Maintenance Organizations], and pay much higher prices for the prescription drugs they purchase." Based on a survey of 51 state Medicaid agencies, the report notes that two agencies now have "active" drug price negotiation programs underway -- Alabama and Kansas -- "but have been severely hampered by manufacturers' intensive lobbying and nearly uniform refusal to bid on state solicitations." In California, a bill introduced in the state legislature authorizing the Medicaid program to negotiate rebates from manufacturers of single-source drugs was defeated in the last legislative session ("The Pink Sheet" Oct. 9, T&G-7). However, the staff report notes, "despite the lobbying campaign against this legislation," the state is attempting to implement the program administratively (see following story). Twenty-two states reported operating a drug formulary, "but these vary a great deal in degree of restrictiveness," the staff said. Two states, New Jersey and South Dakota, reimburse for virtually all FDA-approved drugs, the report notes. The staff paper further argues that "drug companies, using arguments judged lacking credibility by thousands of practicing clinicians in pharmacy and therapeutics committees across the nation, have succeeded in the political arena with their assertion that all precription drug products are uniquely effective and distinct, rather than therapeutically duplicative." Solutions for Medicaid agencies in reducing prescription drug costs were offered by a panel of witnesses who appeared at the Nov. 16 committee hearing. Among them, Michael Berryman, chairman of the Virginia Board of Medical Services, noted that a state legislative commission, recently formed to analyze cost saving measures in drug reimbursement, "is seriously considering" recommending the initiation in Virginia of a manufacturer's rebate program and/or a restrictive drug formulary. The Virginia program recently developed a regulation establishing a committee to determine whether newly-approved drugs should be reimbursed by Medicaid. The reg is scheduled to go into effect Feb. 1 ("The Pink Sheet" Oct. 23, T&G-9). PMA is actively opposing formation of the committee. Another witness, Tery Baskin, chairman of the PACE Alliance, a retail pharmacy buying group, recommended that Medicaid agencies consider implementing the "chargeback" system used by his group. Through the system, he explained, "only members of the PACE Alliance can purchase our contract items at the bid price. Our prime vendor wholesalers pay their regular price and if they sell one of these items to a member of our group, they bill the pharmacy the contract price and then charge the manufacturer the difference."

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