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Executive Summary

Sen. Kennedy (D-Mass.) will be "working with" Sen. Pryor on the Arkansas Democrat's Medicaid drug price discount bill (S 2605), Kennedy staffer Stephen Keith, MD, noted at the NAPM mid-year meeting in Washington, D.C. "We would like to work with Sen. Pryor this year and on many things that are in the future relative to Medicaid," Keith said. "We have a great deal of interest in" the Pryor bill, he continued. "We very much agree that we would like to provide the drugs in a much more cost-effective manner while maintaining the highest quality possible." Senate Aging Committee staff investigator David Schulke acknowledged that, due to the tight legislative schedule as the Congress winds down, the only hope for enactment of S 2605 may be for it to forgo the full legislative process and to be attached to a budget bill. "We may not have time to get this thing through the legislative process this session," Schulke said. "I think the only way the bill will get through the process this year is [if the bill is] shown to achieve significant cost savings for the federal government," it is "incorporated into a budget deal," and "the budget issue [is] resolved." * The Senate Finance Committee, to which the Pryor bill has been referred, has asked the Congressional Budget Office to analyze the legislation to determine its potential cost savings for Medicaid. Senate Aging Committee staff estimates have predicted that drug price controls could save the Medicaid program $100-$250 mil. annually. The Aging Committee has been providing CBO with data in preparation for the study. The Finance Committee has also sought information from the Administration on how the program mandated by the bill would fit with the current Medicaid structure. For example, the bill calls for a utilization review program that is more complex than any now used and the committee is interested in HHS' opinion on whether and how such a program could be implemented. At this point, the committee is not asking the Administration to comment on whether it supports the bill. * The Senate Finance Committee will wait until it receives the input from CBO and the Administration before scheduling a hearing or markup on S 2605. With the federal budget yet to tackle, the committee may find it difficult to address the legislation in the short time remaining in this session. Schulke noted that under the legislation, "a substantial amount" of cost savings from discounted drug prices would be reinvested "improvements in the Medicaid program" that enhance access. Such improvements would be expanded coverage in states that now have highly restricted formularies of newer expensive products shown to be cost effective. This "will cost money," he continued. "We'll cover all FDA-approved drugs [and] all Medicaid-approved indications of FDA-approved drugs, [not just] labeled indications." * One specific aspect of the bill that CBO will look at is the provision for pharmacist reimbursement for Medicaid prescriptions at up to the 90th percentile of actual marketplace charges. Medicaid agencies have indicated concern over the potential increased costs that may result from the provision. For example, at the annual State Medicaid Directors' Conference in Washington, D.C. June 5, Kansas Medicaid program Director Kathryn Klassen said she was "very concerned...about paying pharmacists" in the 90th percentile. "We've always felt that pharmacists were paid more than any other provider group in the state of Kansas," Klassen explained. She added that her other main concern is that the bill's "physician override" provision could provide a loophole for pharmaceutical manufacturers to pressure physicians into specifying drugs not on the state's list of contract drugs. Responding to the concern over the pharmacists' reimbursement level set in the bill, Schulke, who also appeared at the Medicaid directors meeting, told the group that if they can provide the committee "with data that shows it's an egregious overinflated reimbursement system subject to abuse, we'll have a look at it again." However, he noted that "the whole point" of the bill's reimbursement schedule "was to try and restore what we thought were unreasonably great cutbacks focused on pharmacy." He added: "We feel we have data to back that up and we'd like to see yours." At the NAPM meeting, Schulke said that the bill is expected to reinvest savings by increasing pharmacist reimbursement. Over the past 10 years, Schulke told the generic manufacturers, "pharmacists have been cut back on in desperation by the states, and we need to restore...reasonable marketplace reimbursement." Schulke told NAPM that the Pryor bill will mean more competition among its member companies for Medicaid markets in many states. However, he maintained that the measure will also create opportunities for generic manufacturers to compete for the Medicaid markets of patented brandname drugs to which multiple-source products are judged therapeutically equivalent. However, he warned, the brandname pharmaceutical companies are fully capable of competing with the generic firms on the basis of price. They do so constantly in markets like hospitals and HMOs where purchasers negotiate with suppliers for price discounts. After the bill is enacted, NAPM members "may find that the brandname companies are both able and willing to receive generic prices, if you will, for their branded products. Once the buyer gets on the market and exercises some clout and makes educated judgments -- as many hospitals and HMOs do and as [the Veterans Affairs Department pharmaceutical procuring agency] certainly does, the prices of those branded products will come down, and they can compete with you on the basis of price." * The Pharmaceutical Manufacturers Association is also looking at the potential costs of the provision. PMA State Government Affairs VP Woodrow Allen maintained in his presentation to the state Medicaid directors that "the bill would basically take off any limits to pharmacy reimbursement." He said that PMA is "now crunching numbers on this" but that the association expects the reimbursement provision to cost Medicaid "hundreds of millions of dollars." PMA is studying the reimbursement issue and other portions of the bill in-house. Allen urged the states "to go back and look at what you pay now versus what you would pay under the Pryor legislation. We're convinced that [the pharmacy reimbursement provision] would completely negate whatever potential savings might be involved in savings from the manufacturers costs." Schulke explained that the provision was designed as it was because "the last time everybody that was a party in these agreements in Washington agreed on anything, including PMA, it was that [the 90th percentile] was marketplace pricing...and [PMA and the pharmacy groups] believed the competitive market will make that a good, reasonable reimbursement rate under Medicaid." Schulke was referring to a position paper signed by PMA in 1986 that aligned PMA with six national pharmacy groups in support of market-based reimbursements. The pharmacy groups were in the midst of seeking to enjoin the Health Care Financing Administration from discounting AWP-based drug reimbursements. Schulke also noted that the same reimbursement concept was picked up the following year in fashioning the pharmaceutical component of the defunct Catastrophic Coverage Act. "So for everybody who's out there now wondering why we did it, part of the reason is because in Washington, anyway -- far from you and wat you're dealing with -- this was thought to be a terrific idea not long ago." Schulke told the conference that Pryor hopes that the bill will encourage manufacturers to discount prices to state agencies but added "on the other hand," that the bill has more than discounts to offer. He noted in particular the bill's provisions for drug utilization review. The bill requires prospective (at point of sale) and retrospective DUR as well as pharmacist counseling. "We think that by putting this legislation on the table into the process -- that will cause more companies to step forward and respond to the Medicaid programs when you ask for a good deal," he said. "If this bill were never enacted and you were successful in getting these savings, it would be a tremendous victory." However, Schulke pointed out, "if all you get is price concessions from a few companies...and you don't end up with something to enhance the quality of prescribing and dispensing, you probably are falling short of...taking advantage of the poineering work in the private sector that we learned about in the course of our investigation." He noted that "drug utilization review, for example, is a very useful way to not only save states money but to improve the quality of prescribing." Klassen said the Kansas Medicaid program has begun to move toward setting up a multi-state bidding program. She noted that the agency has asked the state attorney general's office "their opinion of multi-state bidding" and "if they see nothing wrong with that, we intend to work with other states" in setting up a program. As a result, she pointed out, "whether such a bill as S 2605 passes or not, we're going to have some good programs out there." She noted that she is working with the California and Oregon agencies on the effort. Kansas Governor Mike Hayden (R) signed a bill (SB 180) on May 16 to open the state's restrictive formulary, Klassen said. However, she noted the bill was passed with three stipulations: (1) that it would go into effect in two years; (2) that it must pass through the legislature once again prior to enactment; and (3) that PMA would underwrite a $10,000 study to prove that the program can save more with an open formulary than with a "managed" formulary. Klassen observed, with respect to the study, that "people that really know anything about research are telling us that if [PMA has] offered us $10,000 to do a study...that [we] don't have a study. If you're really going to have a good study, you're talking $100,000 [to] $200,000. So my expectation is that we're going to do a good study." * PMA State Government Affairs VP Woodrow Allen confirmed that the association would support the research in Kansas "even if it costs more than $10,000...We're willing to put our money where our mouth is." Allen also reiterated the association's opposition to the Pryor bill. The association "strongly believes" that drug availability should not be based on a "company's willingness" to provide discount prices, he stated. Such a policy, Allen said, is in effect a "national restrictive drug formulary." Allen maintained that the bill "misses" the experience of the states. He pointed out that four states -- South Carolina, Orgeon, Oklahoma and Louisiana -- have recently shifted to open formularies. PMA is also concerned that the S 2605 would incur "tremendous" administrative costs. Allen said that PMA thinks it can "defeat" Pryor's bill and the association "hopes" the Medicaid agencies "won't see that as something that will push you into" developing individual rebate programs.

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