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Executive Summary

HCFA is designing a model Medicaid prescription drug rebate contract as part of its effort to implement the Pryor drug discount law, Health Care Financing Administration Medicaid Bureau official Lu Zawistowich said at a Nov. 26 conference sponsored by the American Society for Clinical Pharmacology and Therapeutics. "We are currently drafting a model agreement and will be discussing it at length with the states [and] with the manufacturers, so that we can get a workable draft we would use in our contractual arrangement between HCFA and the manufacturers," Zawistowich said. "We have examined a number of the agreements currently in existence and have attempted to develop a new rebate agreement that would take into consideration the content of the legislation," she added, "We will also be establishing a procedure for examining these [already existing state] contracts to make sure they are compliant with the law." The rebate agreements are the top priority at HCFA from the new drug law, Zawistowich said. She noted that "there are many components to the legislation -- the rebate agreement, the data reporting, the electronic claims management, the DUR, and of course...the communications and education activities that need to be undertaken in order to make these provisions work." The law sets a tight deadline of March 1, 1991 for rebate programs to be in place. As of that date, federal Medicaid funding for an outpatient prescription drug will be provided only if HCFA and the manufacturer have signed a rebate contract. The agency is still considering ways to provide the draft agreement for review, such as a Federal Register notice, mailing copies to manufacturers and other affected parties, or other approaches. The agency also is drawing up a schedule of steps needed to implement the law. Zawistowich stressed in her presentation that "it is important to do this right, and we really are trying, even though the timeframes are very tight." Zawistowich is deputy director of the bureau's Office of Medicaid Policy, which is overseeing implementation of the rebate provisions of the law. The office has established a prescription drug working group headed by Larry Reed. Implementation of the administrative aspects of the law, as well as electronic claims processing and DUR guidelines, will be handled by the bureau's Office of Medicaid Management, headed by David McNally. Zawistowich said HCFA is taking a "team approach" to implement the law, including working with other HHS offices, states, industry and other "health care experts." HCFA has "already met with the Pharmaceutical Manufacturers Association, and we anticipate in early December meeting with other representatives...[to] gather information on pricing structures so that we can more objectively establish average manufacturer prices," she added. Average manaufacturer price is defined in the law as the average price charged by the manufacturer to wholesalers or direct accounts. There may be some room for interpretation (or confusion) about that price and whether it includes chargebacks which would not appear in the price to the wholesaler ("The Pink Sheet," Nov. 5, p. 14). "We also want the industry's views concerning rebate agreements, necessary reporting requirements for exchanging information," and information systems, Zawistowich said. The HCFA official indicated that data processing requirements are perhaps the main "stumbling block" of implementing the rebate agreements. "Because of the quantity of information and the legislation's timeframes, we plan to develop a strategy that would allow the exchange of data electronically," Zawistowich continued. "A crucial consideration here will be the development of compatible formats with those used in state Medicaid management information systems [and] with industry capabilities. Also, another crucial component here is the development of a reporting structure that will be compatible and useful for the aspects of drug utilization review," he said. The two main concerns being expressed about implementation from state Medicaid officials, Zawistowich said, are the management information systems needed and DUR. However, the agency has almost two years lead time for implementing the DUR provisions (see related story, p. 12). Zawistowich also told the meeting that HCFA plans "to work with the Inspector General to obtain their expertise in the monitoring and auditing of areas relating to the rebate agreements and the exchange of information between the states, manufacturers and HCFA."

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