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MEDICAID INFLATION-BASED REBATES GREW THROUGHOUT 1991, HCFA TELLS CONGRESS; BEST-PRICE REBATES ACCOUNT FOR JUST UNDER ONE- THIRD OF TOTAL PAYMENTS

Executive Summary

State revenues from the "additional" (inflationary) rebates stipulated by the 1990 Medicaid rebate law increased steadily throughout calendar 1991, according to a report by the Health Care Financing Administration. The report measures the effect of the inflation rebate requirement on the "unit rebate amount (URA) -- the factor that is used in conjunction with utilization to compute total rebates." Of the 143 brand-name products in the top 150 drugs, 46 (32% of the 143) had a greater than 20% increase in URA during the first quarter of 1991, the report states. The increase meant an additional $4 mil. in rebate revenues. "In the second quarter, the adjustment accounted for more than a 20% increase in URA for 72 drugs (50%), contributing $10.2 mil. to the rebates," the report continues. "In the third quarter, the URAs for 85 drugs (60%) were similarly affected, with the inflation factor contributing $17.8 mil. to the rebates." The steady growth in inflation rebates reflects recent projections by the Congressional Budget Office indicating the increasing importance of the inflation rebate requirement as a revenue source over time ("The Pink Sheet" June 15, p. 18). Submitted to Congress on Aug. 31 by HHS Secretary Sullivan, the HCFA report contains Medicaid rebate data from calendar year 1991. The report indicates that "best price" rebates accounted for just under one-third of rebate revenues. In the first quarter of 1991, 27 states received $47.4 mil. in total rebates, HCFA said. Best price rebates accounted for $14.7 mil. (31.1%) of the total rebates. In the second quarter best prices accounted for $20.7 mil. (29.4%) of $70.4 mil. in rebates; in the third quarter, best prices accounted for $26.2 mil. (28.6%) of $91.7 mil. in total rebates, the report states. HCFA also measured whether manufacturers raised the prices of outpatient prescription drugs purchased under Medicaid. The report states that in the first nine months of 1991 "44 of the top 150 drugs (29.3%) showed no increase" in price, before rebates. It further reports that 47 drugs (31.3%) increased by 3% or less, another 47 (31.3%) increased 4%-10% and 12 (8%) increased by more than 10%. When factoring for ingredient cost (actual price paid minus the dispensing fee) during the same three quarters, the report states that "37 of the top 150 drugs (24.7%) had no increase in ingredient cost," 50 drugs (33.3%) increased 3% or less, 50 increased 4%-10% and 13 (8.7%) increased more than 10%. For the last six months of calendar 1991, states received $235.3 mil. ($136.8 mil. federal share) in rebate revenues from 342 manufacturers, the report states. No rebates were received before July 1991. HCFA noted that the number of companies offering rebates is growing: 415 companies as of April 1, 1992. The National Governors Association and the American Public Welfare Association is urging Rep. Waxman (D-Calif.) not to alter best price as the basis for rebates under the Medicaid rebate law. Waxman has scheduled a markup of Medicaid rebate amendments by his House Health Subcommittee for Sept. 10. In a Sept. 2 letter NGA Executive Director A. Sidney Johnson III maintained that "to date there are no data that support a change from the best price methodology." Johnson said Waxman's draft legislation for phasing in a fixed-percentage rebate in 1996 "will exacerbate the problem for both states as well as institutional purchasers by giving manufacturers an explicit incentive not to negotiate prices for three years" ("The Pink Sheet" Aug. 17, p. 3). In a Sept. 3 letter to Waxman, APWA Chairman and Colorado Gov. Roy Romer (D) and Vice Chairman and South Carolina Gov. Carroll Campbell, Jr. (R) said they oppose changes to the best price rebate formula. However, they noted that APWA supports "changes that would permit access by the [Veterans Affairs Department] and other federal purchasers to low pharmaceutical prices." APWA added that although "more time is needed to allow for collection of trend data," it "will not necessarily oppose changes to the best price provisions in the future when and if we can be more certain that the changes will be truly budget neutral for states."
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