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PMA’s MEDICAID PLAN WOULD SWITCH TO FLAT REBATES IN 1996 IF SAVINGS YIELD MORE THAN BEST-PRICE FORMULA; PMA ASSAILS PROPOSED PHASE-OUT OF GENERIC REBATES

Executive Summary

Medicaid's "best price" rebates would be replaced with an 18.5% flat rebate in 1996, but only if flat rebates provide equal or greater savings, the Pharmaceutical Manufacturers Manufacturers Association recommends in a legislative counter-proposal approved by PMA's board of directors Sept. 3. PMA's plan is written as an amendment to Rep. Waxman's (D- Calif.) draft legislation, which calls for switching Medicaid to an 18.5% flat rebate in 1996 and a 19% rebate in subsequent years. PMA distributed its proposal to Washington representatives of association members on Sept. 8. The Sept. 10 Medicaid markup by Waxman's House Energy & Commerce/Health Subcommittee was postponed to Sept. 15. Waxman is also trying to complete an FDA user fee bill in time for the same markup (see related story, p. 3). The California congressman is said to be still counting votes on the Medicaid proposal. PMA emphasizes that the proposal provides assistance to the Veterans Affairs Department and Public Health Service-funded clinics, maintains Medicaid savings levels and ensures "fairness" between the brandname and generics industries. A summary of PMA's proposal explains: "Beginning in 1996, the bill would substitute a flat rebate for the 'best price' method of calculating the basic rebate for brandname drugs. The flat rebate would be set at no more than 18.5% in FY 1996, unless such flat rebate would produce a lower total rebate in FY 1996, based on then-current projections." If projections in 1995 indicate that flat rebates would produce lower revenues than best price rebates, the summary states, "the best price method would continue, with the FY 1995 minimum remaining thereafter." Early indications are that PMA's plan has made no headway on Capitol Hill. Its value may lie more in bringing closer together the two sides of the fixed versus best-price rebates debate. The proposal also puts PMA on record as agreeing to a V-A exemption from best prices and perhaps higher rebates to pay for it. PMA also has agreed to give V-A access to Medicaid discounted price levels. The merit of a "fix" for V-A price increases since the Medicaid rebate program's enactment in 1990 is one of the few apparent areas of agreement among all of the parties affected. At the Health Subcommittee's July hearing, the V-A issue elicited concern even from subcommittee members who were not very familiar with the Medicaid rebates or appeared disinclined to change them. At a recent hearing before Waxman's House Health Subcommittee, Merck and Pfizer testified in favor of retaining rebates based on best prices, while Glaxo and Johnson & Johnson argued for a transition to flat rebates because rebate caps are removed in January 1993 under current law, meaning that Medicaid must receive rebates equal to 100% of the deepest discounts drug manufacturers offer their most favored customers. Glaxo has been one of the companies most affected by the best-price formula: the firm paid Medicaid $130 mil. from July 1991 through June 1992. Some state officials expressed concern that the PMA plan, while appearing to keep the door open for best prices, would, in effect, serve as a ceiling on discounts. That is, if companies know they have to pay at least an 18.5% rebate under the fixed- rate approach, they will trim their discounts to result in a best price rebate of no more than 18.5%. Both the National Governors Association and American Public Welfare Association have written to Waxman to reiterate their stance that current data do not yet warrant a move to fixed percentage discounts ("The Pink Sheet" Sept. 7, p. 6). State officials said that some preliminary state data indicate that 1992 rebate savings may be in the neighborhood of 26%, not the 22% recently projected by the Congressional Budget Office. Like Waxman, PMA would exempt best prices offered to the V-A, the Defense Department, the Indian Health Service and clinics funded by the Public Health Service from Medicaid best price calculations through 1995. The PMA plan also would give these other government buyers access to Medicaid discounted prices. However, Waxman, unlike PMA, would include in those provisions family planning programs, Ryan White AIDS early intervention grantees, state AIDS drug purchase programs and public hospitals for which low-income patients comprise 60% of the case-load. For the three years when the best price formula is still in use for brandname drugs, Waxman's plan would raise the minimum rebate to 16% in 1993, 17% in 1994 and 17.25% in 1995. PMA is ready to discuss a minimum rebate above 15% but has not committed to a specific percentage level. They most likely would not be as high as those proposed by Waxman. PMA issued a separate Sept. 9 statement blasting the idea of phasing out generic drug rebates. Such an approach would "reward" a generics industry that has been "wracked by bribery and fraud," would "penalize research- based companies by shifting the entire rebate burden" onto them and would "upset the balance that has been carefully maintained between generic and pioneer manufacturers" since passage of the 1984 Waxman/Hatch Act, PMA contended. The Generic Pharmaceutical Industry Association and National Association of Pharmaceutical Manufacturers issued a joint response declaring that the brandname and generic "balance was upset when generic companies were included in the 1990 law" establishing rebates. Brandname product prices have escalated while generic prices have been held down by competition, the two generics groups argued.
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