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HCFA MEDICAID REPORT SHOWS "BEST PRICE" REBATES ARE GENERATING SAVINGS, SEN. PRYOR TELLS REP. WAXMAN; SENATOR SUPPORTS V-A’s EXEMPTION FROM BEST PRICES

Executive Summary

HCFA's recent analysis of the first year of the Medicaid drug rebate program demonstrates that the 1990 statute is working to generate price savings for state Medicaid programs, Sen. Pryor (D- Ark.) maintained in a Sept. 8 letter to Rep. Waxman (D-Calif.). Submitted to Congress Aug. 31, the Health Care Financing Administration analysis found that the "best price" component of the Medicaid rebate law "generated almost one-third of all the rebates received by the states" during the first three quarters of 1991, Pryor noted ("The Pink Sheet" Sept. 7, p. 6). Pryor's letter was sent in advance of a scheduled House Energy & Commerce/Health Subcommittee markup on Medicaid rebate legislation. The markup was postponed. The rebate revenues can be expected to grow, the Senate Aging Committee chairman suggested, as the upper-limit caps on best price rebates are removed. "These significant rebates were achieved even though the best price rebates were limited to 25% of the AMP [average manufacturer's price] during 1991. Because the best price cap increased from 25% to 50% of the AMP in 1992, states are reporting that their rebate amounts have increased significantly in the first quarter of 1992 from the last quarter of 1991," Pryor added, noting that "the best price cap expires at the end of this year, which means that rebates attributable to the best price provision could go even higher." Pryor is amenable to one change in the best price formula -- exempting discounts to the Veterans Affairs Department, the Defense Department and clinics funded by the Public Health Service. "Although state Medicaid programs would lose access to V-A best prices, I am informed that states fully support such legislation," Pryor wrote. Therefore, "I strongly believe that we can and we should pass this legislation before we adjourn the 102nd Congress." The National Governors Association recently wrote to Waxman to emphasize that it continues to oppose changing the best price formula at this point, but the association backed legislative remedies for the V-A and public clinics ("The Pink Sheet" Sept. 7, p. 6). Pryor continues to support the best price formula, contending that data on price changes to private sector hospitals and health maintenance organizations do not yet justify a Medicaid policy change. A delay in the release of the General Accounting Office report on the impact of the rebate law on hospital and HMO purchasers of pharmaceuticals is providing support for the proponents of no change in the formula. Preliminary GAO data are said to suggest that average best price increases to hospitals and HMOs have been minimal, and that the impact of best price rebate requirements on hospitals and HMOs may have been overstated. The Arkansas senator also maintained that the Congressional Budget Office "remains uncertain about their projections" that best price rebates will shrink as manufacturers reduce best prices to avoid having to provide deep discounts to Medicaid. "While CBO currently estimates that a 16% rebate would be needed in the outyears to maintain budget neutrality if best price is eliminated, data generated on behalf of the drug industry actually indicate that it would be closer to 24%-26%," the letter states.
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