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Executive Summary

FSS DRUG PRICE RISES ARE DOUBLE WHOLESALE INFLATION RATE since 1990, the General Accounting Office advised House and Senate legislators in a Sept. 18 letter. The letter accompanies the first installment of GAO's review of drug price changes since enactment of the Pryor Medicaid drug rebate law; the current study focuses on expenditures by the Veterans Affairs Department and Department of Defense. "Prices for drugs purchased from the Federal Supply Schedule, a main source of drug purchases for about 10,000 pharmaceutical and drug items, have on average increased at almost twice the 8.3% increase in the 1990 producer price index," GAO reported. "This includes 12 drugs that had price increases of over 300%." The FSS is included in calculations of manufacturers' best available prices used to determine Medicaid rebate amounts. Prices for depot items, which are purchased in large quantities by the federal government and then distributed to its health facilities, are exempted. Prices for widely used drugs in V-A and DoD depots "have increased at about the inflationary rate for 1990," GAO reported. Prices for 57% of FSS drugs have increased since 1990 but decreased for 28%, the report states. For depot items, prices remained the same for 48%, increased for 30% and decreased for 22% of items purchased. Regarding interpretations of the data, GAO cautioned that it "could not determine whether the price growth was attributable to [the rebate law]." GAO noted the difficulty in determining "the effect of these price changes on overall V-A and DoD costs because neither agency maintains centralized price and utilization information for the drugs it buys. Further, we could not determined how the increases in drug costs experienced by V-A and DoD since [the rebate program's] enactment compare with those of previous years because the agencies could not give us historical price data." GAO also looked at the 50 FSS drugs that seven V-A medical centers said accounted for the greatest share of their drug expenditures in 1990. For five of the centers, expenditures in 1991 will increase by 8%-11% for those drugs. Costs for the other two centers will rise by 17% and 26%, respectively. The centers are in Minneapolis, Syracuse, N.Y.; San Antonio; West Los Angeles; Miles City, Montana; Cheyenne, Wyo. and the Bronx, N.Y. GAO noted that the V-A's own preliminary analysis of 30 widely used FSS drugs indicates that price increases will raise the department's costs by $ 28 mil., or about 21%, over 1990 spending. V-A representatives told the House V-A/Health Care Subcommittee last week that the agency currently believes that the Medicaid rebate law has led to a $ 60 mil. increase in overall agency pharmaceutical expenditures ("The Pink Sheet" Sept. 16, p. 13). The V-A spends roughly $ 700 mil. a year on prescription drugs used in its 159 medical centers. House Committee Chairman Montgomery (D-Miss.) is sponsoring HR 2890, which aims to address the V-A's concern that the Medicaid rebate program is leading to an erosion in the drug discounts traditionally provided to the V-A. The bill proposes to exempt federal drug prices from Medicaid rebate calculations and further to roll back prices to pre-rebate law levels. GAO's letter is addressed the Senate Finance Committee Chairman Bentsen (D-Tex.), House Energy & Commerce Committee Chairman Dingell (D-Mich.), Senate Aging Committee Chairman Pryor (D-Ark.) and House Aging Committee Chairman Roybal (D-Calif.).

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