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Executive Summary

Rep. Wyden (D-Ore.) is drafting a Medicaid/Veterans Affairs pharmaceutical flat rebate bill that also would reduce or even eliminate rebates required for generic drug products. Wyden is drafting the measure as an amendment to Rep. Montgomery's (D-Miss.) bill, HR 2890, that would roll back V-A drug prices to levels in place before enactment of the Medicaid rebate program. The Montgomery bill is one of three rebate-related bills slated for a July 31 House Energy & Commerce/Health Subcommittee hearing. Wyden would obtain savings to offset the generic provision by keeping the flat rebate set at 22% of the average manufacturer's price for a drug product. Legislation (HR 5614) already introduced by Rep. Slattery (D- Kan.), as well as a similar Senate bill (S 2950) introduced by Sen. Chafee (R-R.I.), would replace Medicaid's "best price" rebate formula with a flat rebate set at 22% in 1993, 19% in 1994, 17% in 1995 and 16% thereafter ("The Pink Sheet" July 13, p. 3). Those figures are based on the Congressional Budget Office's projection of the level of flat rebate needed to obtain the same savings as under best prices. Wyden is said to disagree with this approach because it makes the flat rebate "budget neutral" to manufacturers' continuing increases in best prices, and thus he believes it has the effect of condoning those increases. Wyden projects that keeping the rebate at 22% would result in additional savings of $1 bil. through 1996. On the other hand, Wyden is described as believing that reducing rebates for generic drugs is merited due to the continuing strong price competition among generics. Wyden's bill would extend his proposed flat rebate to V-A, other purchasers using the V-A's federal supply schedule, Public Health Service-funded clinics and Medicare "disproportionate share" hospitals. The latter are hospitals designated by Medicare as serving disproportionately large amounts of Medicaid and other low-income patients. The July 31 hearing will consider an earlier Wyden measure (HR 3405) that would extend Medicaid discounted prices to PHS clinics as well as the Montgomery and Slattery bills. At a July 14 informal briefing previewing the hearing, subcommittee Counsel Andy Schneider advised that any rebate legislation emerging from the Commerce Committee this year would probably go to the House floor under a "suspension of the rules." Under this procedure, no amendments are allowed but a two-thirds vote is required for passage. Thus, Schneider advised parties interested in the rebate program to make their views known prior to the subcommittee and full committee markups. On the Senate side, the V-A Committee has scheduled a July 23 health markup that is expected to include rebate proposals from Sens. Simpson (R-Wyo.) and Rockefeller (D-W.Va.).

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