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COMPULSORY LICENSING TO ADDRESS RESTRICTIVE DISTRIBUTION, IN PRYOR BILL

Executive Summary

Sen. Pryor's (D-Ark.) Medicaid drug price discount legislation includes a compulsory licensing provision that would authorize the government to contract with an alternative manufacturer when a single-source drug's marketer establishes a restrictive distribution plan that adds to the product's cost. Apparently addressing the Sandoz arrangement with Caremark and Roche, the measure states: the government "shall enter into negotiations with the manufacturer of any drug, now or hereafter marketed" with a stipulation "that the purchaser pay for associated services, such as a patient monitoring system." The purpose of such negotiations is to provide that "nursing homes, federally funded hospitals and appropriate selected outpatient pharmacies will be authorized to purchase each such drug without the charge for associated services" and "to provide those services at their own expense," the legislation states. If such an agreement cannot be negotiated within six months, the bill states, HHS, "as authorized by section 1498 of title 28, U.S. Code, shall enter into a contract for production of the drug for the use of the entities on behalf of which the negotiations were undertaken." Building upon a law enacted in 1910 and last used in the early 1980s, the selected alternative manufacturer would be required to submit an ANDA for the product, and the government would be required to pay the initial sponsor royalties. The provision was added to the bill after Pryor's staff heard from government hospitals, including St. Elizabeth's psychiatric hospital in Washington, D.C., and state Medicaid administrators. They objected to having to pay for the patient monitoring services that are required with use of the anti-schizophrenia drug Clozaril, but which could be performed by the hospitals if not for the Sandoz-Caremark-Roche contract. Organized pharmacy strongly supports inclusion of the provision in the Pryor bill. The profession also is pushing states to examine the Sandoz-Caremark-Roche agreement as a possible antitrust violation. The Michigan attorney general has written Sandoz saying that its restrictive distribution system for Clozaril may be illegal. In an April 25 letter to the firm's CEO Jacques Rejeange, Michigan Attorney General Frank Kelley advised: "Preliminary review of the program indicates that it may be an illegal tying arrangement whereby the availability of the drug, clozapine, is tied to the purchase of the total patient management system." Such a "method of marketing and distribution may be a violation of the Michigan Antitrust Reform Act as well as federal antitrust laws," Kelley continued. The letter notes that the legal review of the Clozaril Patient Monitoring System was prompted by a complaint from the Michigan Society of Hospital Pharmacies. Michigan is one of several states reviewing the Sandoz distribution system for antitrust implications. The Massachusetts attorney general's office also has initiated a legal review of the program. Although the office has taken no action to date, it reportedly is exploring the possibility of informally persuading Sandoz to permit alternative monitoring programs in locations such as state hospitals, which consider the Caremark service expensive and unnecessary.
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