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Executive Summary

Upjohn's Medicaid drug price proposal has been accepted by Maryland, North Carolina and Connecticut. Maryland's Medicaid agency was the first to agree to the Upjohn proposal, the company announced Sept. 4. The agreement followed a meeting between Upjohn and the state on Aug. 30. Agreements with Connecticut and North Carolina followed shortly thereafter, according to the company. Upjohn will give the states rebates of $1.35 per Medicaid prescription filled with the company's products. The proposal includes both single-source and multi-source drugs. Upjohn's rebate offer differs from other companies' proposals in that the firm's per-prescription rebate amount is fixed; it is not a percentage and does not vary with drug prices. The contracts are one-year arrangements set to begin immediately. The discounts will be accomplished through quarterly rebate payments based on the number of prescriptions filled during the previous three-month period. The rebates are intended to "reimburse the states for a portion of their Medicaid prescription claims processing and dispensing costs," Upjohn explained. Maryland's Health and Mental Hygiene Department Deputy Secretary Nelson Sabatini commented that "the beauty of the Upjohn proposal is its simplicity." The amount of "the rebate doesn't change from drug to drug, and we see it as a very clean, workable plan," he added. Upjohn has negotiations scheduled with additional states, including California and Texas. California's Medi-Cal program serves the largest number of Medicaid beneficiaries in the U.S. California, which has agreements with Merck and Glaxo, reportedly is close to arriving at agreements with two additional firms. The state's Medicaid agency has also been negotiating for discounts with Syntex. The adoption of the individual company plans should create a favorable climate for the industry witnesses at the upcoming hearings on the Medicaid drug program scheduled for Sept. 14 by Rep. Waxman (D-Calif.) and Sept. 17 by Sen. Riegle (D-Mich.). With savings already being generated for the states, the political appeal of a federal program could be diminished. The activity of negotiations with Medi-Cal could be of particular importance in ameliorating criticism from Waxman. Sen. Pryor (D-Ark.), who created the impetus for manufacturer rebates for Medicaid prescription drugs, has criticized the Upjohn plan as a basis for federal legislation ("The Pink Sheet" Sept. 3, p. 11). In an Aug. 30 analysis of various industry proposals, Pryor said Upjohn's offer is "poorly thought out and totally unacceptable" because a flat rebate penalizes manufacturers of less expensive products. The senator contended that "it is absolutely unfair to ask a manufacturer of a much less expensive and competitively priced generic drug to rebate the same amount" that a manufacturer of a much higher-priced product would pay. An Upjohn spokesman said the firm considers its offer acceptable to the entire industry. Generic firms, which market competitively priced products without bearing the R&D costs borne by the innovator companies, should be willing to share in government cost-containment efforts, Upjohn contends.



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