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Executive Summary

The Congressional Budget Office's preliminary estimates on the Medicaid drug price discount bill sponsored by Sen. Pryor (D-Ark.) project savings in fiscal 1991 at just $43 mil. However, in a draft report released July 27, CBO estimated that the legislation (S 2605) would save almost $1.6 bil. in prescription drug expenditures under Medicaid over the first five years. In a same day press statement, Pryor said "it is hard to imagine how a package that saves almost $1.6 bil. over a five-year period would not be included in the final budget summit agreement." The Office of Management & Budget has estimated that its Medicaid drug proposal would result in annual savings of $300 mil. for the program. Pryor's staff had projected savings under S 2605 at $100- $200 mil. annually. Betraying a hint of disappointment in the relatively moderate CBO projections, Pryor said: "I believe that the estimate of the savings may be significantly increased after CBO finishes collecting and compiling new information." The CBO draft report projects average price rebates of 25% due to negotiations. "We estimate that 25% reduction is a reasonable assumption for the rebates," the draft states. "However, we estimate that 30% of the time physicians will override the alternates, and no savings will be achieved." The savings from the substitution of therapeutic alternates for single-source drug products would total $2 mil. in fiscal 1991 and $35 mil. in 1995, the report states. Medicaid agencies' price discount negotiations with generic companies for multi-source drugs will result in 5% discounts and "savings of $5 mil. in FY 1990 and $105 mil. through FY 1995. CBO estimated that 45% of prescription drugs dispensed under Medicaid are single-source products, and 20% of those would be subject to substitution with therapeutic alternates. CBO estimated that the bill's provision for reimbursing pharmacy at actual charges capped at the 90th percentile would increase Medicaid costs by 2%, or "$85 mil. in FY 1993, growing to $115 mil. in FY 1995." The report estimates that drug utilization review requirements under the bill produces savings of "$15 mil in FY 1991 that grows to $180 mil. in FY 1995." The bill requires pharmacists to receive physician approval before substituting therapeutic alternates and to dispense three-day supplies of prescribed drugs if the prescriber cannot be contacted. Dispensing three-day supplies will reduce potential savings from substitution by $5, CBO estimated. "This leads to a cost offset of approximately $5 mil. in FY 1993, the first year of implementation of these requirements."

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