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OMB’s MEDICAID DRUG THERAPEUTIC SUBSTITUTION $300 MIL. DEFICIT-CUTTING ESTIMATE

Executive Summary

OMB's MEDICAID DRUG THERAPEUTIC SUBSTITUTION $300 MIL. DEFICIT-CUTTING ESTIMATE in the first year of a Medicaid drug cost reduction plan is "completely unrealistic," the Pharmaceutical Manufacturers Association told Senate Finance Committee Chairman Bentsen (D-Texas) in a June 26 letter. Office of Management and Budget Director Richard Darman sent the therapeutic substitution proposal to Capitol Hill during the week of June 18-22 ("The Pink Sheet" June 25, p. 3). "As you go through the difficult and challenging process of crafting a budget compromise," PMA President Mossinghoff said, "I hope you will agree that the OMB proposal to restrict Medicaid patients' access to prescription drugs should not be part of any 'solution.'" The letter was sent to all Congressional and Administration participants in the budget summit. A similar letter was sent to Darman. The OMB proposal 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 plan assumes a similar requirement for multi-source prescription drugs. The OMB document represents the Bush Administration's first indication of support for the legislative approach advanced by Sen. David Pryor (D-Ark.) to reduce drug costs to Medicaid. As such, it poses a different magnitude of challenge to PMA than Pryor's previous effort on his own. "The public-health implications for this proposal are grave indeed," PMA stated. "The core of the [OMB] proposal is 'therapeutic substitution' -- the switching of a patient's prescription to a different chemical from the one prescribed without the knowledge or consent of the patient's physician." The association maintained that therapeutic substitution "is vigorously opposed by the American Medical Association and virtually every other medical organization." For example, PMA added, "it has been described as a 'flawed and dangerous practice' by both the American College of Cardiology and the American Heart Association." PMA also cited its recently-commissioned report by the D.C. consulting firm New Directions for Policy, which shows, the association told Bentsen, that: "1) FY 1993 is the earliest that such a proposal could be implemented; 2) the total combined federal/state savings from such a proposal, without considering offsetting administrative expenses, would not exceed the range of $27 mil.-$135 mil.; and 3) administrative and other costs associated with this proposal would likely overwhelm any savings that might be achieved." The study's researchers include Jack Meyer, previously a health economist at the American Enterprise Institute.
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