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Executive Summary

Pharmaceutical manufacturers that raise their lowest prices in an effort to cut back the size of their Medicaid rebates under the recently enacted budget law will elicit a legislative response from Congress, Senate Aging Committee Chief Investigator David Schulke warned at a Nov. 13 symposium in Washington, D.C. sponsored by Scott-Levin Associates. Additional Medicaid price discount legislation to guarantee further savings over the bill enacted this year "will be ensured if manufacturers systematically seek to eliminate the lowest price on the market as a way of" avoiding having to give Medicaid equivalent rebates, Schulke said. "I predict that if [best prices are eliminated,] Congress will come back and make the discounts more draconian, deeper and perhaps go back to indexing the best price" to inflation. The Senate aide's concern about the narrowing of the price range for individual pharmaceutical products confirms one of the early post-mortem analyses of the legislation: that it provides the opportunity and excuse for some companies to pull back from the aggressive discounting of the 1980s. In addition to the indirect acknowledgement of that outcome in his warning, Schulke openly conceded that the recently enacted law actually encourages the pharmaceutical industry to raise best prices. "What we have done is give manufacturers an incentive to raise their prices on those who now either have been granted or have earned the lowest prices on the market," he said. "We regret that very much." As initially proposed by Sen. Pryor (D-Ark.), the legislation indexed best prices to inflation. Schulke contended that Pryor's original bill would have had a larger rippling effect throughout the private markets for pharmaceutical products. "The original bill would have facilitated others -- such as employee benefit plans and third-party payers in the private sector -- to negotiate a deal and earn their discounts according to the precepts established by managed care organizations already," Schulke said. A rollback of best prices "may" lead to the return of legislation featuring therapeutic alternates, formularies and national pharmacy and therapeutics committees, Schulke continued, in what he called "a value-based" approach. "If the lowest prices on the market evaporate mysteriously or are driven dramatically upwards so that Medicaid cannot realize the savings" customarily realized by HMOs and other favored customers, "the government may come back with more draconian schemes, and you may see, finally, a value-based approach to reimbursement and pricing in the Medicaid program," he said. Such an approach would attempt to exploit "the way the smartest buyers in the market now value prescription drug products, one compared to another," Schulke explained. "The people that we're trying to emulate...are the pharmacy and therapeutics committees that operate in hospitals and HMOs and other managed care settings around the country," he continued. "Those people have trained themselves and made it their business to scrutinize existing identify the real therapeutic contribution of a new product that may be priced 40%-50% higher than the product it would replace on the market," he said. "We would like to recognize the value judgments made, the therapeutic comparisons made by those" committees. The congressional aide rejected arguments that drug manufacturers with single-price policies are somehow superior to others, although the legislation seems to favor such firms. Repeating a refrain on single prices, Schulke said: "I've said this to Merck's people" and "other companies that have the same kind of picing practices: I don't think it's any great deal or any great moral victory that a company doesn't give a good deal to anybody, that everybody pays a high price." "Some people in the pharmacy trade are very excited that Sen. Pryor has finally given industry an incentive to go to a one-price policy," Schulke noted. "I really don't think that's what Sen. Pryor had in mind; that was one of the original things we considered, finding a mechanism to do that. We discarded that. We believe people can earn a better price through standard business practices that are now prevalent in the market." Sen. Kennedy's (D-Mass.) ongoing investigation into pharmaceutical marketing practices is focusing on the effects of marketing on prescribing and drug costs, Senate Labor & Human Resources Committee Counsel Mark Childress told the symposium. The probe is focusing more on the "qualitative aspects" of drug promotions than Kennedy's investigation of the 1970s, Childress said. "We really would like to see in a more direct way to what extent, if any, these sorts of activities have on the prescribing habits of physicians and on the cost of prescription drugs." The Kennedy aide remained copy when asked about hearings on drug promotions. Pleading ignorance about whether hearings will be held, he said only: "I'll have to ask the senator about that." The short-notice hearing was a distinguishing attribute of Kennedy's previous investigations of the drug industry. Childress disclosed that Kennedy and committee staff share many of the same concerns with FDA about pharmaceutical marketing in connection with symposia. "For instance, control of CMEs [symposia offering continuing medical education credits] by marketing officials within companies -- I don't know anybody that has a very good idea about how widespread that problem is, and I do think that is a problem." Another concern at FDA and at the committee "is the extent to which there is overt and extensive promotion of unapproved uses at CMEs," the staffer continued. Childress said "there are data to indicate that this is a concern, and it's a concern to FDA, and it's a concern on Capitol Hill." Similarly, promotional inducements are a concern. The problem, he suggested, is drawing a line to distinguish acceptable promotional items, such as ballpoint pens with drug tradenames, from unacceptable gifts. When physicians are given all-expenses-paid "trips and take folks with [them] to exotic locations and do exotic things, there may be some questions about those inducements," he said. There are questions about detailing, whether it is overused and whether it obfuscates the distinction between information and promotion, Childress continued. "It is clear that Sen. Kennedy was concerned about the idea of detailers, sales reps, being the principal source of information that a doctor has about products," he said. Indicating the rhetoric of this round of promotional investigations, Childress said that Kennedy is concerned about the use of "paid evangelists" -- i.e. scientists who are paid by a manufacturer to travel and deliver information on therapies but whose financial relationship to the manufacturer is undisclosed. In 1974, Kennedy effectively tagged drug promotions with the moniker of "payola." With "paid evangelist," Kennedy may have coined a phrase with a catchy political currency for the 1990s. Summarizing the committee's view, Childress concluded: "There is a perception of a problem" by FDA staff who "in my opinion are not...overly aggressive." Responses to the problem "by folks within the industry and folks within the medical societies perhaps are going to be sufficient to address the problem, perhaps not. If not, there is going to be more interest or activities on Capitol Hill to address these same problems." [EDITORS' NOTE: See previous story for an account of new FDA Commissioner Kessler's views on promotional practices.]

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