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Executive Summary

Several manufacturers are close to unveiling Medicaid discount or rebate plans, Pharmaceutical Manufacturers Association President Mossinghoff predicted at a July 10 press conference on Capitol Hill. Noting that Merck has offered its best government prices to state Medicaid agencies in exchange for open access to its products on state formularies, Mossinghoff said "several other companies have signed onto that" approach. Bristol-Myers Squibb, Burroughs Wellcome and Procter & Gamble originally expressed support for the Merck offer. "Four or five more companies have indicated that they will give their very best price in the country to Medicaid," Mossinghoff said. Officials of more than half a dozen different companies reportedly indicated at a July 12 PMA board meeting that their firms were working on individual proposals for Medicaid cost savings. That measure of activity is an expansion of the initial reaction to Merck's proposal in early May, when three PMA firms expressed support for the plan in concept: Bristol-Myers Squibb, Burroughs-Wellcome and Procter & Gamble. Mossinghoff credited Sen. Pryor (D-Ark.), who has sponsored legislation to obtain drug price rebates for Medicaid, with providing the impetus for company interest in cost-savings plans for the government program. Pryor "deserves credit for the fact that he is moving the industry," Mossinghoff said. "I think there will be some movement." The PMA president noted that "a lot of people might be looking at what might be done to" provide Medicaid program savings and "preserve our two major principles: one is the free market principle," and the second is the principle "that the poor, just because [they're] on Medicaid, should not have artificial restrictions placed on drugs available." The Merck proposal, Mossinghoff added, "satisfies those two criteria." Because other PMA firms are continuing to hold their ideas on discount plans close to the vest, Mossinghoff and other PMA representatives have been left to fight a congressionally mandated program with somewhat hollow predictions and assurances. Schering, one of the companies believed by state Medicaid officials to be near offering a proposal, exemplifies the generally cautious public posture the industry is taking to the discount/rebate idea. Schering continues to say that it is "reviewing the Merck proposal and its implications." Other firms appear reluctant to follow Merck openly for a number of reasons: a traditional reticence on marketing and pricing issues; caution about the reliability of the state open access guarantees; and, in some cases, difficulty in developing a discount formula in relation to current prices. While the nascent programs are being treated with marketing plan secrecy by many companies, Merck made its offer a public, political event. By taking that approach, Merck made its equal access idea both a marketing ploy and a political weapon. It combined an attempt to open a closed market for several key products with a political move to provide an alternative to Medicaid programs such as the one proposed legislatively by Sen. Pryor. Merck reports that 17 states have formally accepted its offer and another 14 states are ready to sign on. The company contends that Kansas, the one state that has openly shied away from the program, may still accept the offer. PMA was joined at the July 12 press conference by a panel of 10 groups which assembled to oppose the Medicaid drug plan proposed by the Office of Management and Budget. That plan, modeled after the Pryor legislation, was introduced during the middle of June as part of the larger overall deficit reduction plan. A coalition of 15 organizations on July 9 sent a memorandum to Administration and congressional budget summit negotiators, urging them to oppose the OMB proposal because of its reliance on therapeutic substitution. The memo states that the proposal acknowledges "the danger of" therapeutic substitution by indemnifying pharmacists who substitute a "preferred" drug for a prescribed one. The groups asked budget negotiators to "oppose the OMB drug-switching plan, as well as any other proposal which attempts to treat drug switching as an innocuous practice." Absent from the organizations participating in the press conference and/or cosigning the memo was the American Medical Association. However, the AMA sent a separate letter to OMB Director Richard Darman in opposition to the proposal. The medical organization and the Heritage Foundation were cited by PMA as opposing therapeutic substitution in materials handed out at the press conference. Mossinghoff also hinted that the industry might encourage Medicaid to adopt a depot system for government handling and distribution of prescription drugs to Medicaid recipients. The Veterans Affairs Department, often cited for its ability to obtain pharmaceuticals at significant price discounts, operates such a depot system. "Now there could be a decision made by the Congress or by the Administration to use a V-A type system and have government depots, where...there would probably be the same kind of situation that has grown up in the" V-A, he said. The "depot approach or "centralized buying" by Medicaid "could be other ways" to obtain savings for the Medicaid program besides those involving rebates for Medicaid prescriptions distributed through normal channels. The difficulty for PMA in fighting OMB's proposal is that it is just a small part of a larger, more amorphous budget plan and PMA has a more difficult challenge in bringing attention to its specific concerns. PMA is "very concerned about this," Mossinghoff continued. "The problem is that in a budget summit, as you know, very strange things happen, sometimes late at night and sometimes without benefit of clergy or other representation." Making changes in the delivery of drugs to Medicaid "is not something to be done lightly." An overhaul of Medicaid involves "a major change in policy, and that should not be done late at night with budget negotiators in the context of the budget summit," he added. "It ought to be done in the sunshine, with hearings" and the checks and balances that the full legislative process entails. In establishing the Medicaid program, Congress decided to rely on distribution through local pharmacies, Mossinghoff noted. If Medicaid pays "the highest price" for prescription drugs, "it's the same price for everyone else" who obtains products through local pharmacies. Asked about the extent of support for the OMB proposal, Mossinghoff responded: "I've been spending a lot of time on this issue, as you might imagine, and I haven't talked to anyone who supports this [proposal], other than OMB officials. And that includes other officials of the executive branch." Discussing the differences between the Pryor legislation and the OMB proposal, Mossinghoff pointed out that "Sen. Pryor in some of his earlier drafts had naked therapeutic substitution, and, I think to his credit, decided that was not a good idea, and I hope he realizes that it's a dangerous practice." Instead, Mossinghoff noted, the current legislation requires pharmacists to double-check substitution with prescribers and limit supplies to three days when the pharmacist cannot contact the physician. Pryor's bill, PMA contends, would create "in effect two lines" of customers within pharmacies. "You'd have one line in the pharmacy for people on Medicaid, and they'd have to wait for diligent efforts by the pharmacist to try to reach a busy doctor, who's in examinations and maybe in the hospital or in surgery. Failing that, the pharmacist dispenses a three-day supply of the [prescribed] drug to the patient. If that's not by definition second-class medicine I don't know what is." One sentiment frequently expressed in Washington is that it may be too late for the pharmaceutical industry to defuse the OMB bombshell with voluntary proposals. OMB has estimated that its proposal can save Medicaid at least $300 mil. in 1991, and those savings have been calculated into the formula for trying to meet Gramm-Rudman-Hollings targets. Pulling one component out of the budget package is difficult because it changes the savings calculations. Taking a page from the congressional hearing format of showcasing a disadvantage individual, PMA introduced a Medicaid recipient at the press conference. June Cronk noted that the three-day provision would require patients to make a second trip to the pharmacy. "Only 10%" of the Medicaid population "has private transportation," she said. "We're talking about very poor people...mothers of medically fragile children...chronically ill and disabled people." National Black Nurses Association President C. Alicia Georges said pharmacists will not be able to reach "a physician in any city hospital after he has written a prescription." Because the poor usually do not have private physicians, the prescribers of Medicaid prescriptions in urban areas are often doctors who work in overcrowded emergency rooms, she maintained. Pryor's staff has estimated that S 2605 would result in physicians across the country receiving on average only one call per week from pharmacists seeking to substitute a "preferred drug" for one prescribed for a Medicaid patient. Furthermore, physicians would receive as many as one call weekly if they never write "brand medically necessary" on their prescriptions. Noting that only about 10% of prescriptions are written for Medicaid patients, the staff estimates that approximately one-quarter of prescribed drugs will have what the legislation calls "therapeutic alternates." On July 11, Pryor told reporters that he thinks the OMB proposal "helps" the chances that his bill will pass this year. His staff has estimated that chances for enactment of the bill jumped from 10% to 50% since OMB placed its proposal on the budget summit table. Pryor added that the Administration plan is favorable to S 2605 in that it would become effective sooner. The OMB calls for rebates beginning in fiscal 1991; his measure would require states to have programs in effect by 1993. In response to concerns about S 2605 expressed by the American Medical Association at its annual meeting in June, Pryor has drafted several changes. One would reportedly restrict the proposed National Pharmacy and Therapeutics Committee's authority to identify accepted indications for prescription drugs. Under the proposed change, the committee would lose authority to define indications and to identify drugs that are "superior" or "drugs of choice." Rep. Wyden (D-Ore.) is said to be one of the House members considering introduction of a companion bill to S 2605. Such a measure cannot be expected to move through the full legislative process in the House in the time remaining in the current Congress. However, Wyden is a member of the Energy & Commerce Committee, which (like the Ways & Means and Senate Finance Committees) is represented in budget summit negotiations regarding the Medicaid program.

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