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Executive Summary

Sen. Pryor (D-Ark.) is retaining control of the Medicaid drug discount plan into the budget reconciliation debates. His continued control appears to assure a dominant role for Pryor II (S 3029), the legislative proposal introduced by Pryor on Sept. 12 ("The Pink Sheet," Sept. 17, p. 11). Although his proposal to require manufacturer rebates under Medicaid has spawned many permutations and alternate proposals by various interests, all roads in the Senate appear lead through the Finance Committee and to Pryor in particular. The top reconciliation figures in the Senate are all deferring to Pryor on the Medicaid drug proposal. Finance Committee Chairman Bentsen (D-Texas) has authority over all tax provisions and all proposals affecting Medicare and Medicaid, but he reportedly is directing all contacts on the drug rebate proposal to Pryor. Similarly, Sen. Riegle (D-Mich.) held a hearing on the drug rebate issue in mid-September in his Subcommittee on Health for Families and the Uninsured. But when pharmaceutical industry representatives approached Riegle to lobby on the Medicaid drug legislation, they were referred to the Arkansas Democrat. Budget summit negotiators agreed to a deficit reduction plan that includes provisions for saving $220 mil. in fiscal 1991 Medicaid prescription drug expenditures through manufacturer rebates and $1.6 bil. during 1991-1995. Overall, the summit agreement would reduce the federal budget deficit by $40 bil. in fiscal 1991 and $500 bil. through 1995. The summit agreement was rejected on Oct. 5 by a 254-179 House vote that cut across party lines. In a repeat of the Medicare Catastrophic Care repeal vote of last year, a majority was fashioned against the bill from members opposing new taxes in any form and members opposing cuts in services and the addition of new burdens on the elderly and elderly poor. The Congressional revolt against the summit effectively forestalls the Medicaid discount program as the defeat of Medicare Catastrophic Care prevented the establishment of a federal outpatient drug program. However, the summit's defeat is not likely to undo the Medicaid drug cuts for long. Congress, in fact, is more likely to look for deeper cuts from providers to replace the unpopular beneficiary revenue-raising sections of the budget agreement. That type of pressure may revive interest in other "cost-saving" measures that affect the drug industry, such as Rep. Stark's (D-Calif.) triplicate prescription bill. Stark is busy on a wide front of Medicare and Medicaid issues in the budget negotiations but he has expressed a continuing interest in his triplicate plan for scheduled drugs. Under the budget summit agreement, Congress was to enact budget reconciliation legislation based on the general summit numbers. In the meantime, a continuing resolution to keep the government funded through Oct. 5 was to be extended through Oct. 19. However, President Bush said he would veto a continuing resolution if Congress rejected the budget agreement. Because expiration of a continuing resolution would lead to automatic and severe across-the-board budget cuts under the Gramm-Rudman-Hollings deficit reduction law, Congress planned to work through the Columbus Day weekend if necessary to develop a second budget agreement acceptable to the House and Senate. The White House indicated that it would not veto a continuing resolution accompanied by budget reconciliation legislation. Legislative committee chairmen have been assigned to participate in the reconsideration of the summit agreement. The initial summit was limited to the House and Senate leadership, the budget committees and the White House. The top objective of the Pharmaceutical Manufacturers Association, preserving "open access" to the Medicaid programs, apparently is being accepted by many of the Hill staffers working on the Medicaid drug provisions of reconciliation. However, the Medicaid drug bill is also likely to include prior authorization requirements, which are opposed by PMA. One congressional aide pointed out that prior authorization is a standard legislative provision for all committees with jurisdiction over Medicare and Medicaid. The Senate Finance Committee and the House Energy & Commerce will be assigned to work out the details of the Medicaid drug rebate provisions in the budget reconciliation measure. Rebates may be phased in, as in HR 5589, sponsored by Reps. Wyden (D-Ore.) and Cooper (D-Tenn.) in the House. The summit agreement recommended rebates in fiscal 1991 ranging from 10%-20%; however, the Finance and Energy & Commerce Committees will be free to develop the details of the legislation as long as they meet the savings targets. Pryor II would have capped the rebates at 25% permanently. That provision was reportedly put in as a lure to drug manufacturers to accept the proposal. It may be lifted in favor of an escalating rebate ceiling. PMA is pushing fixed, industry-wide percentage rebates (see following story). The Medicaid legislation also can be expected to grandfather existing state-manufacturer rebate contracts, so long as the existing plans meet or exceed savings to the states equivalent to those available under the federal bill. Merck has signed contracts with more than 20 states. Glaxo has signed agreements with nine states and is negotiating contracts with an additional seven. Both companies could lose their contracts if the federal legislation requires larger discounts (below Merck's "best price") or requires a "best price" below the point defined by Glaxo as the best price to customers that do not actually take receipt of products. The summit agreement contains a provision for competitive bidding among generic manufacturers for sole supply contracts for each multiple-source product within each state. The generic industry, like PMA, is pushing for a fixed, percentage rebate requirement. Congressional staff suggest the committees may adopt a price negotiation process, similar to that used by the Veterans Affairs Department, which would not restrict states to one supplier for each product. The Administration is weighing into the budget reconciliation process with a recently floated Medicaid drug discount legislative proposal similar to the proposals by Pryor and Wyden/Cooper. However, the Administration proposal has some differences with the Congressional bills. For example, the Administration ties discounts for "high volume" single-source and branded multi-source drugs to prices offered to preferred provider organizations (PPOs). As an "alternative" maximum discount to the ceiling set for other single-source and branded multi-source products, the bill sets discounts at the difference between the manufacturer's average price and the price provided to any PPO. High volume drugs are defined as "those covered drugs which account for the greatest federal costs for the program." Under the Administration proposal, manufacturers would be required to charge Medicaid the best price given the Veterans Affairs Department or any bulk purchaser, subject to a maximum discount (20% in 1991, 25% in 1992 and 30% in 1993) and a minimum discount of 10%. Savings would be returned to Medicaid through quarterly rebates. As per HCFA's previous Capitol Hill testimony, the Administration would index aggregate manufacturer discounts to the Consumer Price Index, using 1990 best prices as the baseline.

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