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Executive Summary

MERCK DRUG DISCOUNT PLAN ADDS COMMUNITY AND MIGRANT CLINICS as defined by the Public Health Service Act. Announced Jan. 17, the Merck plan provides discounts that are "largely based on those Merck currently provides to Medicaid under federal 'best price' legislation" to "qualified" Community Health Centers and Migrant Health Centers. There are over 500 community and migrant health centers as defined by the PHS statutes; the company expects "most" to qualify for the rebate plan, a spokesman said. The plan is expected to go into effect on May 1. Sen. Kennedy (D-Mass.) has introduced legislation, S 1729, that would mandate rebates to PHS-funded clinics, including not only community and migrant centers but also certain AIDS centers, homeless clinics, and family planning and sexually transmitted disease centers. One of the industry's concerns with the Kennedy legislation is the uncertain number of clinics that might be covered by the bill given its broad scope ("The Pink Sheet" Oct. 21, p. 5). Merck also noted it has few products that are used in AIDS and family planning centers. Bristol-Myers Squibb announced a discount extension on Jan. 7 that does not specifically limit eligibility to community and migrant health centers but instead specifies that clinics must be fully funded by the federal government in order to receive discounted drugs ("The Pink Sheet" Jan. 13, p. 4). The Merck plan does not set the latter condition. Merck's eligibility criteria for qualified community and migrant centers includes that they purchase pharmaceuticals directly from the company, that they provide assurances that products are dispensed to patients and not resold, and that they not seek discounts for drugs provided to patients already covered by the Medicaid rebate program. Merck estimates that about 70% of the low-income patients served by community and migrant health centers are not covered by Medicaid. Merck plans to work with the National Association of Community Health Centers to iron out administrative and record- keeping procedures and other "technical issues." Discounts under the Merck plan are limited to prescription single-source drugs. Merck said it will "seek assurances from qualified centers that open access to Merck's products will be provided." Merck adopted a similar strategy of using discounts as a bargaining chip for open access when the company began the Medicaid rebate snowball by offering rebates to Medicaid programs in April 1990. Merck Chairman Roy Vagelos recently told stock analysts that the firm is using the same strategy in some of its private contracts ("The Pink Sheet" Nov. 11, p. 3). When Merck first offered its Medicaid rebate plan, about 40 states signed up. Of those individual state contracts that were grandfathered under the Medicaid rebate law, most were superceded by the HHS-administrated Medicaid rebate contract on Jan. 1, 1992. The company said it is still finalizing how the rebates to PHS clinics will be calculated. However, the company noted that the PHS clinic rebates will "approximate the Medicaid best price rebate." Merck did not put a figure on the potential savings for public clinics from the company's rebate plan. Bristol-Myers estimated that its plan would save a total of $20 mil. in 1992 for PHS clinics, the Department of Veterans Affairs and other federal purchasers using the federal supply schedule. Merck's current FSS contracts and other V-A contracts are not affected by the discount program for PHS clinics.

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