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Executive Summary

SEN. PRYOR ASKS GAO TO EXPAND MEDICAID REBATE ANALYSIS in light of the General Accounting Office's earlier advisory that it will miss the May 1 deadline for its report to Congress on how the Medicaid outpatient drug rebate program is affecting prices to health maintenance organizations and hospitals. In an April 2 letter to GAO, Pryor said that the delay provides an opportunity to make the report "more comprehensive" by: (1) determining whether price increases result specifically from the Medicaid rebate mechanism or from manufacturer "cost shifting"; (2) identifying specific drug manufacturers which have shown a pattern of more significant price increases and how increases to institutional buyers compare with retail price increases; (3) estimating the impact of price changes on total prescription drug expenditures for health facilities; and (4) comparing price increases for single versus multiple source products. Regarding potential cost-shifting, Pryor's letter states that "excessive price increases on institutional-use only products would be difficult to directly attribute to the Medicaid rebate law since these products are not subject to rebates under the Medicaid law and furthermore are not subject to 'best price' calculations." GAO recently informed Congress that it would be unable to meet the May 1 deadline because some HMOs and hospitals do not have multiple-year drug pricing data readily accessible in a computerized format and others have said that purchasing contract provisions with pharmaceutical companies bar them from disclosing price agreements ("The Pink Sheet" March 2, T&G-10). Pryor sent a separate letter to hospitals and HMOs, informing them of the expanded request and urging them to "do all you can to assist GAO" in completing its report. While noting that many organizations have responded to GAO's inquiries, Pryor said the agency "has not received responses from a number of parties. By all appearances, GAO has provided more than adequate safeguards to assure that any data supplied will be reported in a professional and confidential fashion." This second letter, also dated April 2, was sent to a group of hospital and HMO-related organizations called the Coalition of Health Care Providers Concerned about Rising Drug Costs. The coalition is recommending that recent drug price increases to its members be addressed by basing Medicaid rebates on a fixed percentage discount rather than the current best price available to any purchaser ("The Pink Sheet" Feb. 24, p, 5). Pryor added, "I am concerned about reports of significant drug manufacturer cost shifting to other purchasers. However, I continue to believe that Congress cannot and will not respond to any cost shifting without strong data that documents that it is occurring, to what degree it is occurring, on what drugs it is occurring, and who is being burdened by cost shifting." The senator also invited suggestions on "measures that should be considered in the health care reform debate that would help contain the cost of drugs for all purchasers." Pryor also wrote HHS Secretary Sullivan April 1 requesting that the secretary direct the Health Care Financing Administration to issue "immediately" a drug use review (DUR) "instruction manual for states" to guide them in developing regulations required under the 1990 Medicaid price rebate law. The Medicaid rebate legislation requires "that each state Medicaid program develop a comprehensive program of prospective and retrospective DUR by Jan. 1, 1993," Pryor noted. Yet, with only seven months before the deadline and with many state legislatures about to adjourn for the year, "states have had little direction from the department on many issues of implementation." It is "unacceptable," he added, that states may have to pass DUR laws "without knowing whether these laws will conform to the regulations that HCFA will ultimately issue."

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