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SEN. PRYOR MEDICAID PROPOSAL LIKELY TO BE SUBJECT OF HEARINGS THIS YEAR, MAY BE CONSIDERED AS SEPARATE BILL RATHER THAN PART OF BUDGET RECONCILIATION

Executive Summary

Sen. Pryor's (D-Ark.) Medicaid drug cost reduction legislation is likely to be the subject of a Senate Finance Committee hearing this year, according to committee staff. Pryor is expected to try to attach his proposal to budget reconciliation legislation in the Finance Committee since the vast majority of provisions in budget reconciliation measures are not subject to hearings, particularly if they address programs that are neither controversial nor major. As a $3 bil. annual expenditure, the Medicaid pharmaceutical program is relatively minor compared to other health care provisions considered under reconciliation, such as Medicare's $103 bil. physician and hospital reimbursement programs. However, Finance Committee Chairman Bentsen (D-Texas) reportedly considers the Pryor proposal sufficiently controversial to warrant at least one hearing and, possibly, an independent markup. An additional advantage of tying the proposal to budget reconciliation is that the budget measure is considered "must-do" legislation each year. However, if Pryor must request a hearing on his bill, he could face time restraints in getting the legislation attached to reconciliation or marked up as a free-standing legislation by the end of the current session of Congress, which is expected to end by early October. Individual members of the Finance committee have not yet publicly taken positions on the Pryor bill. Nor does Pryor's bill have any cosponsors at this early juncture. Cosponsors might sign on to the bill by late April or early May, when it is formally introduced. The Pharmaceutical Manufacturers Association already has expressed its strong opposition to the proposal in visits with the senators on the Finance Committee and their staffs. Committee members are waiting to hear the pros and cons of the proposal aired in a public hearing. Like the rest of his committee, Chairman Bentsen is said to be still weighing arguments on both sides of the proposal. He and Pryor have worked closely in the past. However, industry lobbyists may have a good chance to gain his sympathies if they can persuade him that the legislation effectively would create a national formulary: Bentsen was responsible for adding the formulary prohibition provision to the Medicare Catastrophic Care Act in 1988. Reportedly, Bentsen was concerned at that time that state formulary reviews unnecessarily delay the use of valuable new prescription drugs by Medicaid beneficiaries. Like Bentsen, Sen. Durenberger (R-Minn.) is not eager to move the Pryor proposal through the reconciliation process. A Durenberger aide said the senator felt it was "not wise" to try to push substantive legislation through reconciliation without a hearing. Durenberger is understood to be a proponent of the idea that Medicaid can be a more efficient purchaser of prescription drugs. On the other hand, he reportedly is not yet convinced that there is evidence that multiple-state group buying efforts can work or that better or less controversial alternatives cannot be found. * The Industrial Biotechnology Association has taken the position that the Medicaid program should not be evaluated as a purchaser of prescription drugs. In a March 27 letter to Pryor, IBA President Richard Godown wrote: "Medicare and Medicaid are not purchasers of pharmaceuticals, they are insurers of health care. Insurers are not in as good a position to influence treatment choices as direct providers, such as the Veterans Administration." Godown contended that "it is not possible to maintain a 'free choice' insurance system for some aspects of care, while at the same time superimposing a closed 'supply schedule' system for that portion of the health care system that offers the most cost effective advances." IBA noted that many of its comments reflect PMA's criticisms of the Pryor bill ("The Pink Sheet" March 26, p. 3). However, Godown added, the concerns "are felt even more acutely by young biopharmaceutical companies." Because IBA's young member "biotech companies have discovered many promising new drugs, the quality of health care is likely to suffer if formularies are used to bar products from the Medicaid program solely on the basis of their cost," he said. Ironically, IBA argued that Pryor's proposal would not work because it is predicated on manufacturer bidding, which the industry has undermined on the state level through its refusal to participate. "Volume purchasing, centralized procurement, and a variety of rebate schemes have been attempted at the state level without success," the letter states. "They have proven unwieldy and impractical." The IBA also contended that the proposal's reliance on therapeutic alternatives "appears to ignore the dynamic of the drug development process." Even when unique characteristics of a second-generation product may turn out to be "not as significant as they originally appeared" to be in early research, "experience has shown that some variation will occur in patient response, side effect profiles and ease of administration," IBA stated. "These products, which you characterize as 'me-too' drugs, offer genuine therapeutic alternatives as well as the opportunity for marketplace competition in pricing." State Medicaid agencies can be expected to weigh in with their support for Pryor's bill. A spokesperson for Pennyslvania's PACE (Pharmaceutical Assistance Contract for the Elderly) program said the state is "very impressed" with the legislation and "elated" that the senator has taken the initiative to help states establish bidding programs. * Pennsylvania is considering a state program with a goal to obtain 15% price rebates from pharmaceutical manufacturers for both its Medicaid and its PACE programs. The state is expecting to save up to $26 mil. in prescription drug expenditures from the proposal. Gov. Casey (R) proposed the prescription drug bidding program on Feb. 6 in his state budget for the 1990-1991 fiscal year. The state estimates that pharmaceutical cost savings under the bidding program would total $9.8 mil. for Medicaid and $15.9 mil. for the PACE program during the year. Other states, such as Virginia and Kansas, which have established Medicaid bidding programs have expressed their support for the Pryor proposal. Kansas and Pennsylvania Medicaid officials have indicated that federal legislation mandating establishment of group buying programs to seek bid prices under Medicaid will facilitate the states' efforts. The New Jersey Medicaid agency, which has no such plan, also "supports the Pryor proposal in concept," the agency's Chief Consultant Pharmacist Sanford Luger said. The Kansas bidding program is starting anew this year because the initial contracts signed three years ago, when the program began, have expired. In the first two years of the program the state's Medicaid program was successful in obtaining bid prices for only six products marketed by three companies. Kansas is exploring the option of enlarging the volume of the market it offers bidders by forming an interstate buying group to negotiate with manufacturers. The state initiated a survey of Medicaid agencies and initially found that more than 30 would consider multiple-state purchasing arrangements. Kansas Medicaid has asked the state's attorney general to develop a legal opinion on forming such arrangements. * National pharmacy associations are also suggesting that they will support Pryor. No association has filed formal comments on the proposal; however, they are in continuing discussions with the staff of the senator's Aging Committee in an effort to shape the legislation before it is formally introduced.
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