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MEDI-CAL TOTAL MINIMUM REBATE WILL BE 25% FOR SINGLE-SOURCE DRUGS; GENERIC PRODUCTS ARE SUBJECT TO ADDED 5% INCREASE, CALIFORNIA LETTER TO FIRMS ADVISES

Executive Summary

California's Medicaid program is requiring participating drug companies to provide a total minimum Medicaid rebate of 25% for single-source products during the state's fiscal year 1993, the agency advises in a letter to pharmaceutical companies. The increase is, in effect, a doubling of the current federal minimum rebate (12.5%) and a 10-percentage point increase in the minimum (15%) for the federal fiscal year 1993. The letter is the first step toward implementing the recently-signed California budget compromise package that calls for $57 mil. in FY 1993 savings from the state's share of Medicaid pharmaceutical reimbursements, including $27 mil. from supplemental rebates ("The Pink Sheet" Sept. 7, p. 4). Dated Sept. 9, the Medi-Cal letter requests responses from firms by Sept. 30. For companies that do not respond by the deadline, "your company's drugs will be available to Medi-Cal beneficiaries only with prior approval," the letter advises. The letter was sent to approximately 325 companies that do not have a rebate contract directly with Medi-Cal. Companies that have direct contracts with Medi-Cal are being contacted separately, although they are subject to the same supplemental rebate requirements. For generic products, the supplemental rebate being sought is 5% of the average manufacturer's price, a 50% increase in the current federal generics rebate of 10% of AMP. For brandname multi-source products, California wants to receive the lesser of a 5% increase or an amount that would bring the total rebate to 25% of AMP. "These rebates are in addition to rebates currently provided to the California Medicaid program under the terms of your rebate agreement with the Health Care Financing Administration," Medi-Cal explained. "Any manufacturer who is currently providing a rebate for a product in excess of the applicable amount indicated as supplemental does not have to provide an additional supplemental rebate for that product. For example, if a manufacturer...[of a single-source product] is currently providing a basic rebate equal to 27.5% of AMP, no state supplemental rebate for that drug would be required. If that same manufacturer is providing a basic rebate equal to 17.8% of AMP, a minimum state supplemental rebate of 7.2% [is sought]....If your current rebate agreement with the [California] Department includes supplemental rebates, these can be used to meet the 25% minimum." Medi-Cal said also that it has been "assured" by HCFA that the additional state rebates will not be included in the federal rebate "best price" formula. The California supplements are being sought for a 15-month period: July 1, 1992 through Sept. 30, 1993.
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