SEN. PRYOR MEDICAID BILL SHIFTS COST-CUTTING TARGET FROM PHARMACY TO INDUSTRY; PROPOSED LEGISLATION FOCUSES ON "WHOLESALE ACQUISITION COST," NOT AWP

Medicaid prescription drug legislation proposed by Sen. Pryor (D-Ark.) targets prescription drug manufacturers as the source of potential program savings through rebates. The proposal was floated in summary form on March 20. In shifting the focus for cutting Medicaid drug costs from pharmacy to industry, the Pryor bill will set its price-reducing aim at WAC (wholesale acquisition cost, charged by manufacturers) rather than at the traditional target, AWP (average wholesale price, paid by pharmacies). As anticipated, the proposal directs state Medicaid agencies to form multiple-state prescription drug buying groups -- "jointly established by two or more" Medicaid agencies -- to negotiate price discounts from pharmaceutical manufacturers. Pryor tentatively has called the bill the "Prescription Pharmaceuticals Access and Prudent Purchasing Act." The legislation follows hearings in July and November by the senator's Special Committee on Aging ("The Pink Sheet" July 24, p. 5 and Nov. 20, p. 14). The hearings included testimony suggesting that Medicaid programs and individual patients pay premium prices compared to hospitals and HMOs. Kansas Medicaid officer Winston Barton testified that his state's bidding program after two years successfully solicited price discount bids on only six products from three manufacturers. According to the summary, buying groups will survey drug wholesalers every month to determine the wholesale acquisition cost for each covered outpatient drug. WAC is defined as "the price paid to [the product's] manufacturer by a wholesaler, as determined in a monthly survey of wholesalers." * The proposal stipulates that by Jan. 1, 1993, state Medicaid agencies will contract with a drug buying group representing at least one other state program "for the purpose of negotiating prescription drug prices with the manufacturers of those products." Each Medicaid agency, the legislation continues, "shall periodically obtain a rebate from each manufacturer with whom negotiations were successful, in an amount" based on the difference between the negotiated product price and the WAC, multiplied by the volume of product dispensed to Medicaid beneficiaries (see box on following page for proposed drug price rebate provision). Rebates should be obtained from the manufacturer of "at least one drug in every" therapeutic category, the proposal continues. By identifying a "preferred drug" for coverage and reimbursement within each category, "access to drug therapies [will be] guaranteed," according to the summary. The legislation defines "best price" as a charge established "pursuant to negotiations...by a prescription drug buying group...to offer superior economic advantages relative to other drugs rated as equally safe and effective therapeutic alternatives" within each class of therapy. However, the plan may provide manufacturers with opportunities to represent their products as preferred on the basis of cost-saving factors other than price. The legislation states that buying groups may determine that a "best price" is not necessarily "the lowest unit or per-dose price offered in a therapeutic class." A best price determination instead may be "based upon an evaluation of such additional cost factors as the total cost per day of medically necessary concomitant drug and/or other therapy, the duration of time for which a price may be guaranteed, the likelihood of new drug approvals which may create opportunities for lower negotiated prices in the therapeutic class, and other business factors," according to the summary. While Pryor's vision for Medicaid savings focuses on cutting into manufacturers' charges, it would completely reverse the current practice of squeezing pharmacists' margins. The proposal would reimburse pharmacists for Medicaid prescriptions at retail marketplace prices. Under the plan, pharmacists would be paid the lower of actual charges or the 90th percentile of actual charges within the state. To establish pharmacy reimbursement levels, state Medicaid agencies would be required each month to survey "the percentile distribution of actual charges" of pharmacists and other dispensing professionals within the state. Each survey would be used to set the 90th percentile limits for drugs during the following month. The requirement to conduct monthly surveys could present a burden to Medicaid agencies. However, the proposed frequency is probably a response to pharmacy complaints about the now-repealed Catastrophic Care Act. The 1988 law required HHS to survey drug prices semi-annually to establish reimbursement levels for the following six-month payment period. Pharmacists were concerned that, because pharmaceutical prices generally are raised twice a year, payment levels established for any given period would have been based on year-old prices. * The legislation could create stiff price competition between patented pharmaceutical products and generic and even nonprescription drugs within certain therapeutic classes. Preferred drugs within a therapeutic category may include a multiple-source product or an OTC drug, the proposal states, that "is an equally safe and effective therapeutic alternative to one or more nonmultiple-source drugs in the same therapeutic class." In addition to provisions to encourage formation of multi-state pharmaceutical buying groups, the legislation also would establish a federal buying group. Under the proposal, HHS would establish by June 1, 1993 a federal prescription drug buying group to "negotiate drug prices on behalf of...state medical assistance programs which...failed to receive from manufacturers by Dec. 31, 1991 written commitments for significant drug price reductions or rebates on a substantial number of covered outpatient drugs." The legislation would authorize HHS to dissolve any state buying group that has "performed poorly in its negotiations" for manufacturer price discounts. The department also would be required to prepare for Congress by 1995 a "review and evaluation of the drug price negotiating performance of prescription drug buying groups" and a determination whether the groups have "succeeded in achieving significant discounts or rebates from manufacturers." * The pharmaceutical industry has already begun to lobby against the legislation ("The Pink Sheet" Jan. 15, p. 3). As author of the bill, Pryor is anticipating opposing arguments from the industry. Addressing the final session of the March 19-21 American Society of Consultant Pharmacists legislative conference, the senator predicted: "Manufacturers will say that this is confiscation; they will say this is a subsidy," he said. However, the senator said his "Medicaid reform" legislation is designed "to get the states to bring the manufacturers to the bargaining table in the states." Pryor charged that the pharmaceutical industry is the one "link in the health delivery chain which is not participating in attempting to bring down the cost of health care." Pharmaceutical manufacturers "cannot justify their huge increases in prices, nor can they justify their huge increases in profits," the Arkansas Democrat told ASCP. Despite the concessions that the proposal apparently makes to pharmacy, national professional associations have withheld full endorsement to date. Although organized pharmacy supports the general thrust of the legislation, many specific provisions concern them. For example, the legislation would require both prospective (at the point of sale) and retrospective drug utilization review (DUR). The requirement for prospective DUR also mandates pharmacist counseling. "A reasonable effort must be made by the pharmacist...to counsel the patient or caregiver face to face whenever possible, and when appropriate, to make a reasonable effort to counsel the patient or caregiver via telephone," the summary states. Pharmacists have a single primary concern -- that the squeezing of pharmaceutical profits through competition in the marketplace has been exacerbated by efforts of the Health Care Financing Administration to discount AWP-based Medicaid reimbursements by states. If the industry helps pharmacy relieve the pressure being applied by HCFA, the profession is likely to spend more lobbying energy on the flaws in rather than the need for the Pryor legislation. The Food Marketing Institute, many of whose supermarket members provide pharmacy departments in their stores, has urged the House HHS Appropriations Subcommittee to prohibit HCFA from using its funds to coerce state Medicaid agencies to reduce AWP-based pharmacy reimbursements. In March 8 testimony submitted to Subcommittee Chairman Natcher (D-Ky.), FMI also urged Congress to stipulate that HCFA efforts to seek reductions in AWP-based reimbursements must follow notice-and-comment rulemaking procedures. HCFA's regional offices have threatened to withhold matching federal Medicaid funding from states whose Medicaid agencies persist in recognizing published AWPs as estimated acquisition costs. The federal agency has pressured Medicaid programs in many states, including Louisana, Iowa and Texas -- as well as Pryor's state, Arkansas, and Natcher's state, Kentucky. FMI reportedly discussed its proposal with the Pharmaceutical Manufacturers Association on March 21 in an attempt to gain industry support. Although industry lobbyists have been known to point to prescription drug price markups by pharmacies as a more appropriate target for Medicaid cuts, drug manufacturers should be willing to collaborate with the profession on the AWP issue in order to head off Pryor. In 1985, the Pharmaceutical Manufacturers Association was part of a coalition of seven pharmacy associations that sued HCFA to stop the agency from forcing states to discount AWP without first following regulatory rulemaking procedures. Unfortunately for the profession, when HHS presented documents to demonstrate that it had backed off the attack on AWP, the plaintiffs allowed their case to be dismissed as moot without obtaining a court order prohibiting the government from reinstituting AWP-reduction strategies. In addition, during 1988 negotiations on the Catastrophic Care Act, PMA signed on with pharmacy associations in letters to the Senate to urge that the legislation's reimbursement formulas recognize marketplace pricing and not authorize HHS to adjust such formulas.