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KANSAS MEDICAID REJECTS MERCK PROPOSAL, SEEKS TO REVIVE BIDDING PROGRAM WITH OTHER STATES; MERCK DENIES REBATE OFFER TO NON-MEDICAID PROGRAMS

Executive Summary

The Kansas Medicaid agency is turning down Merck's offer of price rebates on its single-source products. A spokesperson for the state agency explained that Kansas feared the unknown costs of the Merck proposal. "We can estimate potential savings" from price rebates for Merck prescription drugs dispensed under Medicaid during a 12-month period. However, the state did not feel that it could project the potential costs incurred in covering products currently not included in its "managed" (restricted) formulary. Kansas Medicaid officials expressed particular concern about future Merck products that might be approved and prove to be prohibitively expensive. Merck has reportedly mollified other concerns about changes in the future situation by pointing out that the contracts can be cancelled. "We were afraid that we would be committed to paying for a Clozaril," the spokesperson said. Clozaril (clozapine) is the new antischizophrenic agent from Sandoz which is stirring comment because of the ancillary costs of testing and product delivery associated with the product. Sandoz requires patients to receive the product through Baxter's subsidiary Caremark, which has lab tests performed for it by Roche's clinical lab operation. Merck says it has not received an official rejection from Kansas. A company spokesman said Merck's offer received a favorable response from the state legislature. The company acknowledges that the state's Medicaid agency has expressed concerns. Kansas has been one of the most active and vocal of the state agencies in seeking discount prices from drug manufacturers. Kansas said it also declined to sign a letter of intent to continue negotiations on an agreement with Merck that had a July 1 deadline. Merck was willing to provide price rebates for its products dispensed under Medicaid as of July 1 to any state that signed such a letter by that date. Although Kansas did not sign, the spokesperson for the state said: "We have not given up the concept of signing" onto the proposal. The state expects to send out a call to manufacturers for price-discount bids by late July or August. In 1988, Kansas launched a program to obtain prescription drug price rebates from manufacturers hoping to secure exclusive Medicaid markets for their drugs. However, the state obtained bids from just three manufacturers on six products. Contracts on those bids expired this year. The state has been attempting to put together a multi-state Medicaid drug buying group. In response to a questionnaire sent to other Medicaid programs, Kansas says that it received "positive responses" from 32 other states that indicated a willingness to join, or an interest in getting more information on, a multi-state Medicaid drug buying group. New York's Medicaid agency said it is still "looking at" the Merck proposal. However, during the last week of June, the state signed a letter of intent to negotiate with Merck about the proposal to hold open the option of receiving the discounts in the future. The New York Medicaid formulary covers most marketed prescription drugs. The state will waive its review process for Merck drugs if it accepts the company's rebate offer. Merck has offered its proposal to Medicaid programs only; state programs that provide pharmaceutical benefits to nonMedicaid elderly citizens are not eligible. For example, both New York's Elderly Pharmaceutical Insurance Coverage (EPIC) and Pennsylvania's Pharmaceutical Assistance Contract for the Elderly (PACE) programs have contacted Merck about its offer of price rebates. The firm reportedly declined to extend the rebates to non-Medicaid programs, explaining that the offer is an incentive to open restrictive Medicaid formularies. EPIC and PACE include all FDA-approved prescription drug products in their coverage. Pennsylvania's Medicaid agency is expected to accept the Merck proposal. The state legislature has been considering a bill that is analogous to federal legislation sponsored by Sen. Pryor (D-Ark.). The bill would require manufacturers of covered drugs to offer price rebates to the state ("The Pink Sheet" April 2, p. 2). The bill has not moved out of a House committee, but the state administration is expected to push for the measure when the legislature reconvenes in autumn. Under another state bill (S 1111), Pennsylvania's generic drug formulary will mirror the FDA "Orange Book" of therapeutically equivalent drug products. The legislature passed S 1111 on July 1. Gov. Casey (D) is expected to sign it into law during the week of July 9. Due to become effective in September, the legislation will eliminate a situation under which Pennsylvania covers all brandname products in its open Medicaid formulary but maintains an elaborate review process for generic versions of those same products. Michigan accepted Merck's offer during the last week in June, and the program became effective as of July 1. The state Medicaid agency's formulary is restricted but generous. All Merck products were already covered, including the anticholesterol agent Mevacor, a state agency spokesperson said. However, prior state authorization is required for many covered drug products, including Merck's Losec, although the spokesperson said the state was in the process of removing the preauthorization requirement. Texas also has signed a contract with Merck accepting the offer. A state official noted that Merck has indicated that the program can be quickly canceled and reinstated, as fiscal pressures fluctuate. The Texas fiscal year does not begin until September. Massachusetts and Florida are also poised to accept Merck's price discount, and Florida's agreement also is said to be all but complete. Illinois reportedly is still reviewing the offer.

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