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Executive Summary

Pfizer would support providing prescription drug rebates for Public Health Service-funded clinics but cannot endorse price rollbacks, the company told Senate Labor & Human Resources Committee Chairman Kennedy (D-Mass.) and committee ranking Republican Hatch (Utah) in Oct. 15 letters. During an Oct. 16 hearing on Sen. Kennedy's Public Health Service clinic legislation (S 1729), the senator commended Pfizer for its expression of support. Signed by VP-Federal Government Relations M. Kenneth Bowler, Pfizer's letter states that the firm "supports legislation providing certain clinics assisted under the Public Health Service Act with prescription drug rebates similar to those provided to state Medicaid programs. Such legislation should provide these rebates without affecting the current Medicaid rebate program and without provisions resulting in further government intrusion in the existing market system." However, the Pfizer letter goes on to say that the firm has "identified some remaining, primarily technical, problems with this bill, and [has] suggested modifications. Most important, Pfizer cannot support the price indexation and rollback provision contained in S 1729." In addition, Pfizer notes that the "provision requiring the Secretary of HHS to attempt to negotiate new contracts, in our view, would involve the government in price setting actions that we think are unwarranted and unpredictable in their effects. We cannot support legislation that incorporates this approach." Introduced Sept. 19, Kennedy's bill would provide that federally-funded clinics receive drug price rebates when the prices they pay for drugs exceed those paid by Medicaid. The bill would apply to Community Health Centers, migrant health centers, certain homeless centers, family planning clinics, recipients of Ryan White program grants for AIDS services, black lung clinics and sexually-transmitted disease clinics. A committee fact sheet on the bill says that under the negotiation provisions, HHS "would be encouraged to work cooperatively with the clinics to negotiate lower prices for drugs in those cases where the clinics have experienced substantial price increases since the passage of the Medicaid [rebate] provision." However, the fact sheet adds, "there is no mandated rollback of drug prices." The Congressional Budget Office estimates that the bill would save clinics about $ 30 mil. per year in drug expenditures and benefit about 570 health care "entities." Kennedy characterized this dollar figure as a "drop in the bucket" for pharmaceutical companies and said he had hoped that the industry would step forward voluntarily to assist public health clinics. Pharmaceutical Manufacturers Association President Gerald Mossinghoff suggested that concerns about price increases to clinics might better be addressed by exempting those clinics' prices from Medicaid calculations of manufacturers' "best prices" used in determining Medicaid rebates, as has been proposed for the Veterans Affairs Department. A temporary exemption along these lines is proposed for V-A in the FY 1992 V-A appropriations bill now awaiting presidential review. In an Oct. 3 letter to PMA members, Mossinghoff and John Stafford, American Home Products chairman and CEO and the current PMA chairman, described the V-A provision and urged members to "cooperate fully" in V-A negotiations to obtain lower prices ("The Pink Sheet" Oct. 14, T&G-6). The V-A proposal is "less intrusive in company decision making" than are other proposals to address the erosion of V-A discounts, the letter suggests. Though its position differs somewhat from Pfizer's, PMA has shared a particular concern about mandatory price rollbacks for government programs. Mossinghoff said if an exemption approach was used for PHS clinics, he would "exhort" member firms to cooperate in negotiations with the clinics. In testimony at the hearing, Mossinghoff characterized CBO's cost projection of $ 30 mil. as a "back of the envelope" calculation. He said PMA has been unable to come up with a precise number of clinics that would be affected by Kennedy's bill. He also maintained that some of the entities included "in S 1729 are not reimbursed by the federal government for the pharmaceuticals they purchase and dispense, and that they receive pharmaceuticals through normal commercial distribution systems, including wholesalers and buying groups." Mossinghoff asserted that "providing special prices or rebates" to clinics already purchasing drugs through commercial distribution systems "would be totally different administratively and far more complex than providing discounts or rebates to state Medicaid programs or through contracts with the V-A." For these reasons, Mossinghoff said, PMA is "not in a position to support" enactment of S 1729. Family Planning Council of Western Massachusetts Executive Director Leslie Tarr Laurie reported to the committee that her organization has experienced a 39% increase in prices over the past year for oral contraceptives and a 61% increase for the "most popular" OCs. Those findings were supported by a survey conducted by the Alan Guttacher Institute that was included in the hearing record. That survey found that family planning centers on average paid 42% more for OCs in 1991 than in 1990. Laurie also told the committee that the prices paid by her group for two of the most commonly prescribed antifungal drugs, Monistat and Terazol, increased by 108% and 40%, respectively. University of Minnesota pharmaceutical economics professor Stephen Schondelmeyer, PhD, cautioned that the Medicaid rebate law may be contributing to drug price inflation, but is not the sole cause. He noted that drug price increases have accelerated over the past several years -- with drug prices growing at an annualized rate of 11% this year, as measured by the Consumer Price Index, versus 9.3% in 1990 and 8.7% in 1989. Schondelmeyer said PHS clinics should be given the "most favorable pricing terms" because they are government programs as well as target the low-income and thus often resemble charitable organizations. He also added that they purchase a "substantial volume" of pharmaceuticals, which he placed at $ 218 mil. per year. Sen. Pryor (D-Ark.), the Medicaid drug rebate law's original author, told Kennedy at the hearing that he would like to sign on as a cosponsor of S 1729. He joins Sens. Simon (D-Ill.), Mikulski (D-Md.) and Hollings (D-S.C.) as sponsors. Sen. Hatch said that he also is concerned about drug price increases but added that he might be more "enthused" about approaches such as S 1729 if more effort was made to improve drug approval times and FDA's "antiquated" facilities and resources. In response to suggestions by Pryor and other witnesses that drug industry profits and marketing budgets are too high in comparison to the number of breakthrough drugs actually developed, Hatch suggested that the goals of industry profits and improved health care are "not mutually exclusive" even though there may be questions about how to "balance them." Hatch questioned whether "government intervention [is] the answer" and put the issue of drug price inflation in the context of American industrial competitiveness. "Here we have some companies that are thriving while the rest of industry in America is having a very rough time, and our solution is to do to them what we've done to the rest of industry in America," Hatch declared. "If that's the solution, you can't count on me." He added: "If there are innovative ways" to preserve innovation while "getting prices down, I'll be a small part of helping to put that forward." Schondelmeyer suggested that the commitment of pharmaceutical firms to R&D should be "applauded and rewarded," but should not be a "'carte blanche' for price increases well beyond the inflation rate in the broader economy." To illustrate, he said that a firm that "spends 15% of sales revenue on R&D could raise their R&D expenditures by 10% in a given year with a price increase of just 1.5%. In addition to this R&D commitment, that firm could raise prices another 4% to keep up with inflation and still have an overall inflation rate of only 5.5%." Schondelmeyer suggested that the rest of "the 10% to 11% increase in prices" is used by some firms "to prop up declining sales volumes" and improve their "Wall Street profiles."

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