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OMB ADOPTS PRYOR-TYPE MEDICAID DRUG PLAN IN DEFICIT-CUTTING PROPOSAL, FIVE-YEAR SAVINGS PLACED AT $2 BIL.; PRYOR, PMA VYING FOR AMA BACKING

Executive Summary

A Medicaid drug price negotiating provision similar in concept to Sen. Pryor's (D-Ark.) Medicaid drug bill is included in the latest batch of federal deficit reduction measures from the Office of Management and Budget. OMB Director Darman sent the most recent budget package to Capitol Hill budget negotiators the week of June 18. The OMB plan would "require states under Medicaid to join in a multi-state or federal buying group to negotiate the best price for single-source prescription drugs in the same 'therapeutic' class based on a national drug formulary," the Darman document states. "A similar requirement for multi-source prescription drugs is also assumed." The document represents the Administration's first indication of support for the legislative approach Pryor (D-Ark.) has advanced. The White House/OMB endorsement adds momentum to Pryor's proposal on several levels: (1) it undercuts possible opposition from Republican legislators; and (2) it moves the proposal from a drug industry bill to a deficit-reduction item. Pryor's most realistic hope for passage this year is tied to getting the proposal onto the "must-do" budget reconciliation bill. Five-year savings from the OMB Medicaid plan are pegged at $2 bil. Savings are estimated at $300 mil. in fiscal year 1991, increasing by $50 mil. in each of the subsequent four years. Those savings levels are presumably federal monies since they are contained in a federal deficit reduction plan. Even if that level does include state savings, the five-year federal savings would be roughly $1 bil. The federal government picks up at least half the Medicaid bill in most states. Overall, the OMB-initiated package would save more than $25 bil. over five years in entitlement and low-income programs. * Pryor hailed the Administration's move June 22 as a "ground-breaking proposal" that sends a "loud and clear" message that the Administration "supports the concept of assisting states negotiate with drug manufacturers price discounts on prescription drugs." The Arkansas Democrat cautioned, however, that the Administration plan "must be reviewed to assure that it guarantees Medicaid patients access to needed medications, is coordinated with and responsive to state concerns, assures adequate and fair reimbursement to pharmacists and does not unduly restrict physicians' ability to prescribe desired medications." * Ironically, while the Administration picks up on the Pryor bill's concept of Medicaid savings through direct negotiations with drug manufacturers, the White House proposal appears more severe and presents a more immediate challenge from the point of view of brandname drug manufacturers. Introduced May 10, Pryor's bill would give states two years to begin working on drug cost containment. In 1993, states would join either a multi-state or federal buying group and negotiate rebates from manufacturers. HHS, under Pryor's plan, would be required to contract with a nongovernmental group to identify classes of drugs that can be interchanged for achieving therapeutic effect, for states' consideration when negotiating preferred drugs. However, physicians could override the selections, and all FDA approved drugs and indications would be reimbursable. The OMB plan, in contrast, would require a national drug formulary, an idea Pryor earlier considered and discarded as unworkable. HHS would designate "one or more existing" formularies as the transitional formulary for 1991, only half a year away. A "single national" formulary would be established beginning in 1992. Pharmacists would be required to substitute the formulary's preferred drug "for the drug prescribed by the physician, unless the physician overrides the substitution by writing '(brandname) medically necessary' or a similar phrase approved by [HHS]." OMB documents also hint that the "preferred drug" would be the one for which the highest discount is offered, while Pryor would allow additional consideration of other factors, such as length of time the rebate is guaranteed or total daily cost of therapy. For pharmacy, OMB would base pharmacy payment levels at product acquisition costs, and not offer Pryor's inducement to pharmacy. The senator's plan would set reimbursement at a pharmacy's actual charges up to a ceiling set at the 90th percentile for the entire state. Pryor staffers have contended that a move to "marketplace reimbursement" for pharmacies is needed to remedy "unreasonable" cutbacks made over the past several years ("The Pink Sheet" June 11, p. 5). The Congressional Budget Office has not yet issued its cost review of the Pryor legislation (S 2605). The Senate Finance Committee is awaiting those figures before scheduling a hearing or markup on the bill. However, Pryor's bill is likely to yield lower savings than the $2 bil. due to the "cushions" included in the bill and provisions such as the pharmacy payment revision. * A cost analysis just completed for the Pharmaceutical Manufacturers Association projects combined federal and state Medicaid savings from Pryor's bill in the $27 mil. to $135 mil. range for fiscal 1993, the "first year that the proposal could realistically have any budget impact." These savings would be partially offset by factors such as the "complex administrative mechanisms" required by the bill (roughly estimated at $34-$51 mil. in 1993), and "substantial indirect costs" from greater use of other services after the bill "adversely" affects access to drugs. The report was prepared by New Directions for Policy, a Washington, D.C. research and consulting firm. The report's researchers include Jack Meyer, previously a health economist at the American Enterprise Institute. Both Pryor and PMA are actively wooing the American Medical Association. Pryor's staff and PMA officials (led by President Gerald Mossinghoff and Chairman Richard Kogan) met with the AMA legislative council June 22 in Chicago to debate the issue. Sen. Pryor had planned to present his side in person but cancelled at the last moment due to Senate floor business. AMA's Council on Legislation and Board of Trustees are expected to draft a resolution on the Medicaid proposal for consideration by the House of Delegates during their June 24-28 annual meeting. In addition, state delegations could offer their own resolutions. One version being drafted by AMA officials is expected to conclude that Medicaid drug cost containment programs are acceptable providing certain safeguards are met. Pryor's staff has been paying attention to AMA concerns during the drafting of the bill. PMA is also calling attention to June 20 letters opposing Pryor's bill that were issued by the National Coalition of Hispanic Health and Human Services Organizations and the American Legislative Exchange Council, which represents about 2,400 individual state legislators. In separate letters to members of Congress, both groups maintain "the legislation would compromise the quality of care received by Medicaid recipients," PMA stated June 21. The Hispanic health coalition asserts that Pryor's bill "establishes a new and cumbersome bureaucracy to oversee the program and select 'equivalent' medications. This selection of prescription medications 'by committee' is an inappropriate intrusion in the Medicaid recipient's relationship with [his] physician," the coalition maintains. PMA earlier publicized a similar letter by another minority group, the National Caucus of Black Legislators ("The Pink Sheet" May 28, p. 7).
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