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Executive Summary

MEDICAID REBATES WITHOUT "BEST PRICE" PROVISION WOULD CUT 30% OFF SAVINGS, the HHS Inspector General's Office advised in a March 13 memo to the Health Care Financing Administration. HHS IG Richard Kusserow reported that using "utilization data for the second quarter of calendar year 1991 for the top 100 single source and innovator multiple source drugs, we found that eliminating best prices from the rebate formula would reduce drug rebates for that quarter by $9.9 mil., a reduction of 30.1%." The figures represent combined federal and state funds; second quarter 1991 was the second three-month period in which the rebate program was in effect. For the most part neither the states nor drugs reviewed are named, although the memo does report that the potential rebate reductions ranged from $273,972 in Kansas to $4.46 mil. in California. The memo says there have been suggestions to alter or delete the best price formula from the Medicaid calculations to address the erosion of discounts that is perceived to be a consequence of the Medicaid rebate program. The IG concluded, however, that "deleting best price from the Medicaid drug rebate formula would not, at this time, be appropriate." The memo further advises HCFA to "alert the Congress of the impact" of eliminating the best price formula. The memo says the IG's analysis is confirmed by separate studies performed by the Congressional Budget Office. "We have contacted the CBO and found its staff had estimated that second quarter FY 1991 rebate reductions (through elimination of best price) would be 29.8%, essentially identical to our calculation using actual usage results," the memo states. "Using third quarter data, and assuming that pricing behavior remains constant, the CBO estimated that reductions in rebates would increase to 46.9% in FY 1992 if best prices were eliminated from the formula." While the report might temper some enthusiasm for doing away with best prices, legislators looking at other formulas, such as a fixed-rate discount, are expected to design proposals to obtain at least as much savings as in the current rebate program. Sandoz has joined a number of pharmaceutical companies in announcing new discounts to the Department of Veterans Affairs and Public Health Service Clinics ("The Pink Sheet" Feb. 10, p. 3). The Sandoz discount will be a minimum of 12.5%, effective April 1, the company said in a March 26 announcement. Both the Sandoz anti-schizophrenia drug Clozaril (clozapine) and the post-transplant immunosuppressive Sandimmune (cyclosporine) will be discounted by 12.5%, which also is the current Medicaid minimum rebate. Sandoz said that many of its products are already discounted by a greater percentage and that the "weighted average discount" under the offer "exceeds 26%."

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