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SENATE V-A COMMITTEE COMPROMISE DRUG PRICING BILL SETS V-A DISCOUNTS AT AMP MINUS 24% BUT DROPS PRICE ROLLBACK; GSA WOULD SIGN "MASTER AGREEMENTS"

Executive Summary

Prices for brandname drug products purchased through the Veterans Affairs Department's federal supply schedule would be set at a "federal average manufacturer's price" less 24%, under a compromise measure adopted by the Senate V-A Committee on Aug. 7. The amendment, proposed by Sens. Rockefeller (D-W.Va.), Cranston (D-Calif.), Murkowski (R-Alaska) and Simpson (R-Wyo.) cleared the committee by unanimous voice vote with the exception of Sen. Specter's (R-Pa.) abstention. The pharmaceutical measure is tied to a veterans health bill (S 2575) that was subsequently reported out of committee. Specter was concerned that the committee had only about a day to read the amendment's 90-plus pages; he is said not to disagree with the compromise's substance. While sounding similar, the V-A "federal average manufacturer's price" is different from -- and probably less than -- Medicaid's average manufacturer price. Medicaid's AMP is essentially the average of wholesalers' prices to the retail market, with certain exclusions. The bill would establish a V-A "FAMP" that is the average of prices to all nongovernment purchasers, and would include, for example, discounted prices negotiated by health maintenance organizations and hospitals. The committee action may give momentum to what Rockefeller has previously called a "surgical specific fix" for federal agencies and specifically the V-A, in light of the committee's bipartisan endorsement, the support of other key senators and the comprehensiveness of the compromise. It is the Senate's first action on a rebate-related issue since the Labor & Human Resources Committee in February adopted S 1729 to give Public Health Service-funded clinics access either to the FSS or the Medicaid minimum rebate. The compromise addresses both the jurisdiction and substance of the legislation. The V-A panel members removed provisions within the jurisdiction of other committees. Also, Simpson and Murkowski agreed to drop their proposal to exempt the V-A's FSS from Medicaid's "best price" formula while Rockefeller and Cranston dropped their provisions to require a rollback in V-A drug prices and to establish a federal prescription drug policy review commission. The legislators began working on the compromise after the committee bogged down on the drug pricing issue at a June committee markup. At that time, Simpson and Murkowski offered an amendment to exempt the V-A's FSS from use by Medicaid in calculating the "best price" available to determine Medicaid rebates. Rockefeller countered that Finance Committee Chairman Bentsen (D-Tex.) objected to the amendment because it crossed into the jurisdiction of the Finance panel, which has purview over Medicaid. Rockefeller said he was working on his own amendment for the V-A bill that would include a price rollback to pre-Medicaid rebate levels and other provisions drawn from the proposal being drafted by the five senior Democratic senators who have been dubbed the "gang of five." Rockefeller and Cranston have joined with Sens. Pryor (Ark.), Kennedy (Mass.) and Mikulski (Md.) to develop a plan to address drug price increases seen by other federal agencies since enactment of the Medicaid rebate program ("The Pink Sheet" April 27, p. 3). The committee then decided to postpone the issue to give the V-A committee members time to work further. As a result, the final compromise does not include either the Medicaid exemption nor an earlier provision to give Public Health Service-funded clinics access to V-A prices, a measure within the jurisdiction of the Labor & Human Resources Committee. In an Aug. 6 letter to Rockefeller, Sen. Bentsen stated: "I endorse the 'two-track' approach you are taking with regard to the introduction of legislation." It "will enable the Finance Committee to address the question of exempting V-A prices from the Medicaid 'best price' calculation," while other committees address matters within their own jurisdiction. Bentsen also said he would "continue to support an exemption of V-A prices from the Medicaid best price calculation." Because the exemption will entail some added costs to Medicaid, the committee is expected to include some sort of savings offset, most likely in the Medicaid minimum rebate. Rockefeller has estimated that an increase of 0.7% in the minimum rebate would be needed in 1993, declining to 0.1% in 1996. V-A Committee leaders are expected to bring up S 2575 for a floor vote in September. In the interim, the Finance Committee is expected to pass an exemption measure, probably as an independent bill. It could then be added to the V-A bill. Labor Committee Chairman Kennedy or perhaps another senator also would propose an amendment to extend discounts to PHS-funded clinics access. Sen. Glenn (D-Ohio), chairman of both the Armed Services and Government Operations Committees, also wrote the V-A panel to support its approach. V-A Deputy Secretary Anthony Principi issued a statement Aug. 7 that the agency is "quite pleased with the positive movement toward providing the urgent relief we need. In particular, we are pleased with the compromise that would provide a permanent exemption of the FSS from best price calculations, as such legislation could be coupled with this bill on the floor." The 24% discount figure in the V-A bill is based on the Congressional Budget Office's June report on the Medicaid rebate program ("The Pink Sheet" June 13, p. 3). CBO calculated that rebate program yielded a total Medicaid discount of 24% for the first quarter of 1991. The V-A Committee's approach is that the 24% discount would provide V-A with at least as much savings as Medicaid and would provide significant savings even if it is not a rollback, committee staff said. For single source and innovator multisource products on the FSS, the FAMP would be based on prices in the 12-month period preceding establishment of a new FSS contract, indexed by the Producer Price Index for All Items. When the FSS contract is a multi-year agreement, the price would be updated annually, but with increases limited to the rise in the PPI-All Items index. The same discount would be used for the V-A's drug depot. The V-A would be authorized to negotiate a price that is "nominally higher" if the agency determines that "such excess price is in the best interests of the V-A," the committee's bill summary states. The measure also would direct V-A to determine prices for generic and nonprescription drugs through negotiation with the manufacturer. Another potentially key provision of the measure is that manufacturers would be required to sign a "master agreement" with the General Services Administration and agree to "enter into pharmacy pricing agreements with V-A, the Department of Defense, and the Public Health Service under which FSS and federal depot prices would be established" in accordance with the legislation. Manufacturers would not be eligible for Medicaid participation unless they have signed the master agreement covering the other agencies. The provision would require manufacturers to deal with government agencies as a unified whole if they want to sell to any one agency. Further down the road, the legislation would authorize V-A to negotiate "Uniform Pharmaceutical Award Contracts," or UPACs, on behalf of federal, state and municipal health care programs. UPAC would enable V-A to negotiate discounts based on volume purchases. Medicaid agencies could not join a UPAC but state-only drug coverage programs such as Pennsylvania's PACE and New York's EPIC could. While some Republican members of the committee were hesitant about the UPAC provisions, the V-A is said to be interested in the idea of obtaining more leverage through a joint bargaining approach.
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