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Executive Summary

The American Medical Association is opposing the Office of Management and Budget's deficit-reduction plan involving Medicaid drug price reductions. In a July 3 letter to OMB Director Richard Darman, AMA states that it "strongly opposes this item, as it is now contained in the President's [budget] proposal." Although the AMA said it has "no objections to the federal or state governments acting as prudent purchasers for drugs or other products under the Medicaid program," the association maintained that "the proposal would substantially lower the quality of care to patients under the Medicaid program." The letter was also sent to other budget summit participants. AMA further objected to the proposal's pharmacist provision, noting the provision had previously been removed from legislation sponsored by Sen. Pryor (D-Ark.) after "intensive negotiations" between AMA and the senator's staff. The OMB proposal requires pharmacists to substitute the lowest-priced drug in a class unless the physician specifies "brand medically necessary." However, AMA points out, "there are no provisions to inform physicians of the nature of the substitution made, nor is there any opportunity for a physician to override the substitution after the prescription is written." The Administration proposal "would grant pharmacists outright immunity from liability under all state and federal laws for any damages caused relating to a substitution made in accordance with the national formulary," the letter states, noting: "there is no similar protection for physicians." AMA maintained that "issues of substitution, of changing a physician's written treatment order for an individual patient, are too important to be dealt with in the context of a government-wide budget summit." Noting that Pryor has expressed a commitment to work with AMA to address the association's concerns with his bill, the letter states: "We urge the Administration, like Senator Pryor, to work with all interested parties to reach a fair and equitable solution to Medicaid drug pricing concerns, without trying to regulate therapeutic decisions for individual patients." The issue of therapeutic substitution has become an effective rallying point for the Pharmaceutical Manufacturers Association. The association is stepping up its effort against the OMB proposal as the budget summit goes into its final weeks. The July negotiations on the budget could be crucial to PMA's effort to stop the Medicaid drug expenditures cut. If the cuts slip into an overall budget plan, they could be unstoppable. PMA is showing success in drawing support from medical and health groups under the anti-substitution banner. For example, PMA and groups including the Cystic Fibrosis Foundation, the National Hemophilia Foundation and the American College of Cardiology are planning to send a joint memorandum opposing the plan to participants in the budget summit during the week ending July 13. The Industrial Biotechnology Association has also signed the memo. In addition, PMA is planning a Washington press conference on the issue on July 10. The memo asks members of the summit to oppose any deficit reduction measure based on the concept of therapeutic substitution, which would include Sen. Pryor's (D-Ark.) Medicaid drug price legislation. The memo also disagrees with OMB's proposal to empower pharmacists with the ability to dispense the lowest priced drug within a therapeutic class without consulting the physician. Other co-signers of the memo include: the Alliance for Aging Research; the Coalition of Hispanic Health and Human Services Organizations; League of United Latin American Citizens; National Black Nurses Association; National Black Caucus of State Legislatures; the Rainbow Coalition; Opportunities Industrialization Centers of America; the American Legislative Exchange Council and the Coalition Against Therapeutic Substitution. The American Society for Clinical Pharmacology and Therapeutics and the Heritage Foundation also have objected to the proposal in letters to Darman. The ASCPT said that "under your scenario, Medicaid patients, particularly the elderly and the poor, would become therapeutic orphans often denied the best drug for the cheapest." The society added: "To attempt to select a single drug for each illness on the basis of cost alone would hurt the very people who need the medicine the most." The letter was signed by Tulane Medical School professor Gilbert McMahon, MD, who serves as chairman, government affairs, of the society. According to the Heritage Foundation, "encouraging pharmacists to substitute a lower cost drug in the same therapeutic class...would be a budget saving with no harm to the patient or anyone else." However, "relieving pharmacists of legal liability in such situations while allowing the physician to remain exposed would have serious consequences," the conservative think-tank maintained.

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