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PMA PUSHING SENATE MEDICAID DISCOUNT PLAN AS BUDGET CONFERENCE BEGINS; DISLIKES HOUSE BILL REBATE TARGETS, SEPT. 1, 1990 "BEST PRICE" STARTING DATE

Executive Summary

The Pharmaceutical Manufacturers Association supports the Senate-passed version of the Medicaid drug discount plan over the House version as the congressional budget reconciliation conference gets underway. "While both bills would require substantial rebates from pharmaceutical manufacturers and thus have a harsh economic impact on the industry," PMA said in an Oct. 15 press statement, the association "nevertheless supports the Senate bill." PMA cited the Senate bill's three-year flat discount provision and its specific prohibition of formularies as two advantages over the House committee bill. The House passed its bill Oct. 16; the Senate bill passed on Oct. 19. The overall budget conference to reconcile budget bills from both the House and Senate began on Oct. 19 with opening statements by congressional participants. Health negotiations began the same day with staff-level meetings. The Senate bill requires states to cover all single source drugs for which the manufacturer has entered into an acceptable rebate/discount agreement and all innovator multiple source drugs when a restrictive prescription ("brand medically necessary") has been written and the drug is provided under an acceptable rebate. The only drugs that states are not required to cover under the Senate bill are those not subject to rebates and drugs used for anorexia or weight gain, fertility, hair growth or cosmetic purposes, barbituates, smoking cessation, prescription vitamins (except prenatal vitamins), fluoride preparations, OTC and cough/cold preparations, and drugs sold with associated tests or monitoring services that are available exclusively from the manufacturer (such as Sandoz' Clozaril). PMA contends that the House bill leaves the door open to the possibility of restrictions on prescribing. The bill states that nothing in it "shall be construed as preventing a state from restricting the amount, duration, and scope of coverage of covered outpatient drugs consistent with section 1902(a) (30)" of the Social Security Act, PMA noted. However, the association said it understands "that it is under that authority that California has established one of the most restrictive formularies in the nation. Thus, states would be free to continue -- and to enact -- new restrictions under which Medicaid patients might not receive the medication chosen by their doctors for their medical needs," the association contended. According to PMA, the Senate bill has a more favorable provision than the House on prior approval, a bone of contention between the drug industry and legislators developing the Medicaid plans. Under the Senate bill, state prior approval systems in place will remain for currently marketed drugs, but new drugs would not be subject to prior approval for the first 12 months of marketing. The House does not address prior approval, thus allowing those existing state programs to operate as before. PMA had previously pushed for language specifically removing prior approval requirements for companies providing rebates to states. For 1991-1993, the Senate bill imposes a 15% flat rebate, or the average price the manufacturer charges wholesalers for the product minus 15%. For 1994 and beyond, the bill would require the 15% rebate or the "best price" in the market, whichever is lower. PMA believes that the three-year phase-in period to best prices "allows companies a reasonable transition period to accommodate to new ground rules." In a legislative proposal circulated on Capitol Hill earlier in October, PMA had supported flat discounts of 15.4% to Medicaid ("The Pink Sheet" Oct. 15, p. 6). The House bill sets up a "best price" plan based on prices in effect as of Sept. 1, 1990 with minimum aggregate discounts set at 10% and capped at 25% in 1991-1992. In 1993 and 1994, the cap would rise to 50%; in 1995 and thereafter, the cap is lifted. In an Oct. 15 letter to Sen. Pryor (D-Ark.), the originator of the discount approach, Schering-Plough President and Chief Operating Officer Richard Kogan said that "while the discounts are strenuous and certainly more than I wish to see [in the Senate plan], they are not punitive. I wish I could say the same for the House proposal. Unfortunately, I cannot because their rebate structure and Sept. 1, 1990 best price date are draconian." PMA said the House plan is "inherently unfair because the economic impact of this provision would vary widely from company to company." Noting that "many" PMA companies have provided deep discounts to teaching hospitals or to the Veterans Affairs Department, the association maintained: "These companies that for lawful and ethical educational, patriotic and competitive reasons have provided deep discounts in exceptional cases would unfairly be hit the hardest by the House bill." PMA also objected to the fact that the prescription drug program developed by the House committee would "demand rebates from the pharmaceutical industry far in excess of the amount needed to satisfy the 'budget summit' goal." The House bill is expected to yield $2.1 bil. for 1991-1995. Savings from the Senate plan are expected to be closer to the $1.6 bil. federal budget summit target for the first five years. The additional $400-$500 mil. expected to be collected under the House plan has been earmarked for an expansion of Medicaid coverage for children. "If the expansions to Medicaid outside the pharmaceutical area are agreed to, the money should not come from a single industry just because it happens to provide products to another part of the Medicaid program," PMA asserted. For generic drug manufacturers, the House bill appears to offer a more favorable plan than the Senate bill. For generic drugs, the Senate bill calls for flat 12% discounts and the House bill provides for flat rebates of 10%. The Senate bill also requires a federal "look behind" program that would deny federal Medicaid match for states that do not enforce the "brand medically necessary" provision currently in Health Care Financing Administration regs. The provision requires dispensing of the brandname drug when the physician has issued, in his or her handwriting, a restrictive prescription indicating "brand medically necessary." In addition, HCFA is instructed by the Senate bill to establish a federal upper limit payment level for all multiple source drugs for which there are three or more products rated as therapeutically and pharmaceutically equivalent. The Senate bill contains a 5% reimbursement set-aside for pharmacists for the program's first three years while the House bill is silent on pharmacy payments. The Senate also prohibits states from altering the pharmacist reimbursement limits in place as of Aug. 1 for a period of two years. In addition, the bill requires HHS to undertake a study of each state's reimbursement rates to pharmacists.
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