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Executive Summary

Pharmaceutical manufacturers would be required to provide Medicaid-like drug price rebates to Public Health Service programs under legislation drafted by Sen. Kennedy (D-Mass.). Prepared as an amendment to the fiscal 1992 HHS appropriations bill, Kennedy's measure would require manufacturers of prescription drugs and biologicals purchased by PHS-funded "entities" to provide rebates that effectively would reduce the price to levels paid by Medicaid. The programs that would receive the rebates under the bill include migrant health centers; community health centers; alcohol and drug treatment or mental health centers; family planning clinics; and black lung clinics that receive PHS funding. Under the legislation, manufacturers may not sell to PHS-funded entities unless they provide price rebates. The amendment has not been introduced by Kennedy because the appropriations bill has yet to be called up on the Senate floor. Debate on the HHS appropriations bill reportedly has been blocked by Senate Republicans. Unlike the Medicaid rebate law, Kennedy's amendment does not require rebates sufficient to lower PHS' costs to manufacturers' "best price" levels. Instead it requires HHS to issue regulations requiring that PHS-funded programs pay no more than Medicaid for prescription drugs. The bill further requires HHS to "attempt" to negotiate with manufacturers to obtain rebates sufficient to reduce prices to levels "comparable to or lower than the price charged [to the PHS] entities by the manufacturer on Sept. 1, 1990, increased by the fiscal year 1991 consumer price index." Reportedly, many PHS-funded programs that are the focus of the bill are charity programs that formerly benefited from deeply discounted drug prices from several manufacturers. However, the eleemosynary discounts were discontinued after the Medicaid legislation was enacted. The companies raised their prices to the programs to avoid having to offer similar prices to the larger Medicaid market, as would be required under the Medicaid legislation's best price provision. The Pharmaceutical Manufacturers Association opposes the Kennedy amendment, and a number of Republican senators reportedly have holds on it. PMA wants to add a provision stipulating that prices offered to PHS-funded programs be exempt from Medicaid best price calculations. The industry was successful in persuading Kennedy's staff to remove a provision from an earlier draft that would have authorized HHS to fine companies $ 10,000 a day for not offering rebates to PHS.

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