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Executive Summary

V-A Rx DRUG COSTS WOULD BE EXCLUDED FROM MANUFACTURERS' BEST PRICE calculations under Medicaid by legislation introduced July 15 by House Veterans Affairs Committee Chairman Montgomery (D- Miss.). In a floor statement introducing the legislation, Montgomery said his bill (HR 2890) is needed to "reverse" 40% increases in drug prices manufacturers are charging the Department of Veterans Affairs. Montgomery said drug manufacturers have responded to the Pryor Medicaid price rebate law by imposing "sweeping price increases on an array of . . . pharmaceuticals which, prior to the [Medicaid legislation(BRACKET), V-A had procured at substantial discounts based on high volume." Such cost shifting, he added, has "resulted in sudden, unbudgeted increases" in pharmaceutical costs that "average an unprecedented 40% more this year than last." At a July 16 conference on Medicaid rebates sponsored by the National Capital Area Hospital Council, Senate Special Committee on Aging aide John Coster suggested that his boss, Sen. Pryor (D- Ark.) might support the Montgomery bill but that it is unlikely to have a significant effect on manufacturers' best prices or rebates. Coster noted that several manufacturers have increased their depot prices to V-A even though depot prices are excluded from best price calculations under the current Medicaid law and that the House bill therefore would eliminate only federal supply schedule prices from best price calculations. The Senate aide predicted that the Aging Committee would hold a hearing on cost shifting in September, after Chairman Pryor returns to Congress. Coster pointed out that the General Accounting Office could not meet its May 1 deadline to complete a report on the market effects of the Medicaid legislation because contracts between states and manufacturers were still being negotiated in May. However, he remarked, GAO has also been "frustrated at being unable to collect [cost-shifting] data people say are out there." Parke-Davis Federal Health Care Policy Director Bill Prince told the conference that one of his company's primary concerns about the Medicaid legislation is the reliability of drug utilization data, which is currently being collected by companies from the first quarter. "How do you verify that your product was dispensed?" Prince asked. "We can't now," he said, but expressed hope that those who labored toward enactment of the bill "will work as hard to work out the bugs" of utilization data. Parke-Davis has first quarter data from seven states and has detected "problems in six of them," Prince said, explaining that "the [National Drug Code] codes are wrong." The Parke-Davis official said the industry knows "from past experience that pharmacists tend to use one NDC code for all brands of a given drug." The problem is exacerbated by the fact that "state legislatures are modeling bills on the federal program" to collect manufacturer rebates to help defray the costs of state drug programs for the elderly, Prince added. "I think there are nine states with separate programs for the elderly, and I think they all" are seeking manufacturer price rebates. Prince said Parke-Davis will pay $ 11 mil. in rebates this year; he added that the company spent $ 379 mil. in R&D in 1990. Maryland state Medical Care Policy Administration Director Joseph Millstone commented on states' need for the "flexibility of prior authorization." Maryland Medicaid contemplates a program in which "we'll implement prior authorization for higher-cost prescriptions." Explaining the plan, Millstone said "approval won't be denied"; the procedure will simply be informative in nature. "The prescriber will be informed of the cost" of the expensive product prescribed as compared to the lesser expense of an available therapeutic alternate. "The prescriber will probably say, 'I'm the doctor,' and he'll be given an authorization number."

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