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REP. WYDEN's REBATE DRAFT PLAN GIVES V-A AND MEDICAID A BOTTOM LINE OF SEPTEMBER 1990 PRICES TO V-A; V-A COULD BE NEGOTIATOR FOR OTHER AGENCIES

Executive Summary

Rep. Wyden (D-Ore.) is circulating draft legislation on drug price rebates for federal health programs that would establish September 1990 prices to the Veterans Affairs Department as the reference price for calculating contracts with the V-A and Medicaid. The draft legislation would implement two key approaches that Wyden has been advocating to remedy the claimed erosion in drug discounts following enactment of the Medicaid drug rebate law: (1) having federal agencies take advantage of their combined market share by jointly negotiating discounts; and (2) severing the link between federal health program discounts and discounts obtained by private organizations such as health maintenance organizations. Wyden first outlined that strategy at a recent hearing convened by the Senate Labor & Human Resources Committee on drug prices to public health clinics ("The Pink Sheet" Oct. 21, p. 3). Wyden's measure is envisioned as an amendment to HR 2890 when the V-A bill is marked up by the House Energy & Commerce Committee. The Oregon Democrat is trying to line up the support of other prominent legislators before action is taken on his interagency plan. On Nov. 18, Reps. Montgomery (Miss.) and Stump (Ariz.), the top Democrat and Republican, respectively, on the House V-A Committee, sent letters to Commerce Committee Chairman Dingell (D- Mich.) and Health Subcommittee Chairman Waxman (D-Calif.) saying that Wyden's plan offers "very promising concepts for solving V- A's pharmaceutical procurement dilemma." Montgomery and Stump said: "We also recognize that a legislative remedy to V-A's problem does not necessarily lie in a bill addressed exclusively to V-A pharmaceutical procurement." HR 2890 was passed by the V-A Committee Nov. 13 ("The Pink Sheet" Nov. 18, T&G-5). For V-A, Wyden's proposal would set prices at the lower of September 1990 levels on the V-A depot or federal supply schedule or at the percentage discount amount set in Medicaid's current rebate formula (in 1992, average manufacturer's price minus 12.5%, in subsequent years, AMP minus 15%). Medicaid's inflation indexing would also be retained. That approach addresses the intention of HR 2890, that is, to roll back prices to levels in place before enactment of the Medicaid rebate program. Under the Wyden plan, a rollback is not mandated, but the September 1990 prices serve as V-A's fallback position if the department and manufacturers do not work out some other deal. For Medicaid, "best prices" would be redefined as being the lowest price obtained by V-A (except that depot prices and single- award contracts would generally continue to be exempted). A summary of Wyden's plan notes that this "will remove from Medicaid best price calculations all private sector drug purchasers and non-DVA government purchasers." Thus, Medicaid's price would become the lower of the V-A's FSS price or the average manufacturer's price minus the 12.5-15%. The bill also incorporates legislation (HR 3405/S 1729) to require rebates for Public Health Service-funded clinics. The bill is sponsored by Reps. Wyden and Cooper (D-Tenn.) and Sen. Kennedy (D-Mass.). While HR 3405 would provide that drugs could not be purchased from a manufacturer that has not entered into a clinic rebate plan, the Wyden bill goes a step further by stating that a manufacturer must have both a PHS and Medicaid rebate agreement in place to participate in either program. In lieu of the above scenario, V-A could negotiate prices on behalf of itself and both public and private entities. "As in current law, depot and single-award prices negotiated by the V-A would not be available to anyone outside of the V-A," the bill summary explains. "An exception would be created for single-award contract prices if a public or private entity enters into any agreement with the V-A Secretary, defining the circumstances (if any) under which the V-A Secretary agrees to negotiate drug prices on their behalf." Such an "agreement would have to be executed prospectively (i.e. before the V-A negotiated any deal with a manufacturer) to ensure that the manufacturer and V-A both know in advance of the negotiation who (representing what market share, etc.) is seeking to obtain the prices which may be agreed upon at the negotiating table," the document states. V-A would be permitted to charge a "contract user fee" for providing the negotiating services. The bill summary does not define what types of "private entities" might qualify to have V-A act as their negotiating agent. Wyden's current thinking is that V-A could either establish criteria or wait to be approach by a private purchaser. The provision is seen more as a "foot in the door" to the type of cost containment approach Wyden favors, whereby purchasers combine their buying power to obtain savings. The single-award contract approach generally implies competitive bidding where one winner is selected from multiple applicants. However, Wyden is not planning at present to limit V-A by statute to selecting one supplier if the department chooses to take on the negotiator's role.

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