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Executive Summary

Medicaid's "best price" formula for outpatient drug rebates would be replaced with a flat percentage rebate under legislation introduced in the House July 9 by Rep. Slattery (D-Kan.) and the Senate July 2 by Sen. Chafee (R-R.I.). Both Slattery's HR 5614 and Chafee's S 2950 would set the rebate at 22% of the average manufacturer's price for a product in fiscal year 1993, 19% in 1994, 17% in 1995 and 16% thereafter. Those figures are based on a final report submitted recently by the Congressional Budget Office. The final figures are identical to CBO's preliminary projections of the level of a fixed percentage discount needed to obtain the same savings as under best prices ("The Pink Sheet" June 15, p. 18). Completion of the CBO report appears to have renewed House momentum to examine the rebate program. The House Energy & Commerce/Health Subcommittee convene and informal an informal briefing July 14 to preview issues that the hearing will consider. The hearing agenda will include Slattery's bill, House V-A Committee Chairman Montgomery's (D-Miss.) HR 2890 to roll back Veterans Affairs Department drug prices to levels in place before enactment of the Medicaid rebate program ("The Pink Sheet" Nov. 18, 1991, T&G-5), and Rep. Wyden's (D-Ore.) HR 3405 to extend Medicaid discounted price levels to Public Health Service-funded clinics ("The Pink Sheet" Oct. 21, 1991, p. 3). The July 14 briefing is open to the public and will be held at 10:00 a.m. in Room 2123 of the House Rayburn Building. Staff will specify parameters for interested parties to submit suggestions for witnesses or other information. Rep. Montgomery is likely to appear at the July 31 hearing. Both Slattery and Wyden are on the Commerce Committee; Slattery also is a member of the V-A panel. * While removing the best price formula, both bills retain the current law's provision for Medicaid to recoup any drug product price increases above the Consumer Price Index. The bills' approach of decreasing the flat rebates from 22% to 16% over four years reflects CBO's conclusion that a decreasing amount of the total rebate savings will be derived from best prices as manufacturers begin raising their deeper discounts. CBO predicts that an increasing amount of the savings will come from the inflation recoupment. Under current law, the minimum flat rebate is set at 15% beginning in 1993; manufacturers must pay the lower of the minimum rebate or best prices, plus the inflation adjustment if applicable. [Editor's note: "The Pink Sheet" June 22, T&G-7 incorrectly said the minimum rebate moves from 12.5% to 15% in 1994.] Both Slattery and Chafee have said they would be willing to work out an approach using a single flat rebate percentage over all four of the bills' first years that would capture the same net savings over that period as provided by the CBO figures. The Slattery and Chafee measures diverge in their remedies for the V-A and Public Health Service clinics. Slattery's bill would require that manufacturers participating in Medicaid provide V-A with at least as good a price as that given to Medicaid (including both the flat discount and inflation recoupment) or a better negotiated price. Slattery's bill does not encompass PHS clinics but he said in a July 9 House statement that he is "interested in obtaining similar relief for rising drug prices for community health centers and other Public Health Service grantees and will work with my colleagues to achieve this goal." Chafee's measure requires discounts for drugs purchased by "federally qualified health centers," family planning services described in certain sections of the Public Health Service Act, and "entities pursuant to any federal pharmaceutical supply schedule administered by" the V-A. However, the bill specifies only that the revised flat percentage discounts be provided, not the additional inflation adjustment. Rep. Slattery, in his House address, maintained: "With the elimination of the 'best' price from the Medicaid rebate formula, large purchasers of pharmaceuticals, including the V-A, would again be able to negotiate discounts with the manufacturers based upon the volume of their purchases." The Kansas legislator added that "a flat rebate discount for the Medicaid program is essential to re-establishing a competitive market for pharmaceuticals and restoring the negotiating position of pharmaceutical purchasers."

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