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Executive Summary

Burroughs Wellcome is rolling back its Federal Supply Schedule prices to Sept. 1, 1990 levels, the company announced Feb. 12. Prices on the FSS, which is administered by the Veterans Affairs Department but is also available to other federal purchasers, will be rolled back to Sept. 1, 1990 levels for products on the list as of that date. Prices for products added later will be reduced to their price at the time of addition to the FSS. In essence, Burroughs Wellcome is lowering prices to levels in place before enactment of the Medicaid rebate program. Burroughs Wellcome's voluntary reduction is a counterpoint to industry's general opposition to legislative provisions currently pending in the House. Rep. Montgomery's (D-Miss.) V-A bill (HR 2890) would mandate an FSS rollback ("The Pink Sheet" Oct. 7, T&G- 15). While a number of companies recently have unveiled voluntary initiatives to assist federal health programs, particularly PHS- funded clinics, Burroughs Wellcome appears to be the first to actually roll back FSS levels. Unlike most pharmaceutical firms, Burroughs Wellcome has not offered multi-tier prices or deep discounts to favored customers. Bristol-Myers Squibb's January announcement that it is extending its Medicaid price to PHS clinics also extended the Medicaid levels to FSS buyers ("The Pink Sheet" Jan. 13, p. 4). Burroughs Wellcome also announced that it plans to extend discounts to Public Health Service clinics that are "comparable to" discounts provided under the Medicaid rebate program, effective March 1. Burroughs Wellcome said in a release that it "is taking this step to demonstrate its support of" the compromise version of S 1729 that was developed by Kennedy and Sen. Hatch (R- Utah) and cleared by the Senate Labor & Human Resources Committee on Feb. 5 ("The Pink Sheet" Feb. 10, p. 3). The two actions together will increase Burroughs Wellcome's discounts and rebates to state and federal agencies by $25 mil. in 1992 and $40 mil. in 1993. Two key products affected by the new policies are the AIDS drug Retrovir (zidovudine, AZT) and the herpes therapy Zovirax (acyclovir). The FSS reduction also has potential for lowering the company's Medicaid price, particularly if there are cases where the FSS serves as the best price available in Medicaid rebate calculations. Pharmaceutical firms are taking a number of approaches to respond to the discount/rebate proposals for other federal agencies. Rhone-Poulenc Rorer, for example, says it is rethinking its overall public and private purchaser discount policy in light of the Medicaid rebate program. During the Q&A portion of a Feb. 7 company presentation to securities analysts in New York City (see story p. 4), Rhone- Poulenc Rorer Chairman Robert Cawthorn commented that "we were one of the companies that gave discounts to various classes of [purchasers] -- to veterans hospitals or buying groups -- and with the Medicaid rebates, the best prices are calculated off the lowest price. So we are getting rid of those discounts, moving to a one-class strategy and then will have a modest price increase on that." An RPR spokesperson explained that the company will maintain discounts to the FSS and other V-A programs, as well as Medicaid rebates. However, the company is looking at its "whole set of [pricing] practices" to "bring them in line" and move to a "more consistent" pricing strategy among all purchasers. The company declined to specify whether it is altering the amount of discount offered to the V-A or whether it is trimming discounts to large buyers to be closer to those already offered to the government. ICI Pharmaceuticals is the most recent of a number of companies to announce a plan to hold price increases to the projected general inflation rate for 1992. ICI announced Feb. 3 that price increases for all products would be limited to 4.1% and will not exceed 3.3% "on a volume-weighted basis for our entire product line." ICI Pharmaceuticals Group President Robert Black said the policy "was developed in an effort to strike a reasonable balance between the company's desire to contribute toward a reduction in the escalating cost of health care while attempting to maintain shareholders' value to support increased investment" in R&D. The Pharmaceutical Manufacturers Association also is keeping up its heightened effort to present the industry's side of the debate on pricing and promotional practices. PMA released two letters: a Feb. 12 letter in response to a recent installment of ABC-TV's "American Agenda" that addressed health issues and a Feb. 11 letter responding to a segment of "60 Minutes" broadcast two days before.

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