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Executive Summary

Medicaid drug rebates will continue to be based on "best prices" -- with no legislative transition to flat rebates -- under legislation that passed the House Energy & Commerce Committee Sept. 17 by voice vote. The bill comprises a substitute amendment offered by Rep. Bliley (R-Va.) and approved by the committee's Health Subcommittee in a voice vote Sept. 15. A substitute for HR 2890, a Veterans Affairs Committee-passed bill, the measure exempts discount purchases by the Veterans Affairs Department, the Defense Department and other government pharmaceutical buyers from best price calculations under the 1990 Medicaid rebate law (OBRA '90). As amended, the legislation does not call for a transition to flat rebates as had Health Subcommittee Chairman Waxman's (D-Calif.) draft Medicaid proposal ("The Pink Sheet" Sept. 14, p. 5). The bill is scheduled to be considered by the full House under a suspension of the rules on Sept. 23. Measures placed on the suspension calendar are not subject to amendment but require a two-thirds majority for passage. The government or government-funded drug purchasing entities that the legislation now would exempt from Medicaid best price requirements include the V-A, DoD, the Indian Health Service, federally-funded health centers, family planning projects under contract with the Public Health Service, HIV early intervention programs, AIDS drug buying programs, hemophilia diagnostic treatment centers that receive federal grants, state-funded outpatient maternal and child health clinics and nonprofit institutions that are public or receive government funding and qualify as "disproportionate share" hospitals because greater than 12.5% of their patients are low income. Such drug purchasers also would be assured of receiving prices at least as low as those offered to Medicaid under the bill. In addition, pharmaceuticals purchased by V-A under its depot or Federal Supply Schedule would be priced at least 24% less than the nonfederal AMP (average manufacturers price which is charged to wholesalers for resale to the retail market). To remain "budget neutral," the bill compensates for the loss of best price revenues due to the exemptions by increasing minimum rebates for brandname drug manufacturers from the current law's 15% for 1993 to 15.7%. Unlike proposals by Reps. Waxman, Wyden (D-Ore.), Slattery (D- Kan.) and others, the bill does not relieve generic drug companies from the requirement to pay flat rebates, which under current Medicaid law will increase from 10% to 11% in 1992. Although support for the bill was unanimous, Reps. Sikorski (D-Minn.), Waxman, Wyden and Slattery contended that the Medicaid rebate issue will have to be revisited next year because the bill does not do enough to change the 1990 law. Commenting that "I do not consider this matter fully resolved," Waxman expressed "regret that [the bill] does not make some other changes that in my judgment ought to be made." The Health Subcommittee chairman said that he will continue efforts to change the best price formula to a flat percentage rebates and that he also remains "committed" to legislation that would provide "relief to generic manufacturers from the unjustifiably high rebate requirements under current law." Noting that "politics is the art of the possible," Waxman accepted Bliley's substitute as the most that can be accomplished in the few remaining legislative days in the current Congress. Waxman pointed out that his proposal had the support of House V-A Committee Chairman Montgomery (D-Miss.) and the V-A Department, and he expressed thanks to Reps. Kostmayer (D-Pa.), Wyden and Slattery, all of whom previously had proposed to require fixed- percentage rebates in 1993. Wyden told the full committee that "there is still much to do on this issue in the next session of Congress, but Congress must take this opportunity to secure fair drug prices for our veterans and millions of Americans who secure vital medicines through public health programs." The Oregon Democrat said that preliminary results of a study by the Congressional Budget Office demonstrate that average best prices fell from an average of 40% off AMP in January 1991 to 32% in March 1992 -- "a drop of one-fifth in just the first 15 months of this new program." The committee adopted an amendment by Rep. Hall (D-Tex.) to require HHS to report quarterly through 1995 on the contribution of best prices to total Medicaid drug rebates. The amendment requires that the report include the percentage of brandname drugs whose best prices increase, decrease or remain constant each quarter; the median and mean percentage increase or decrease best prices of brandname drugs; total rebates paid each quarter; and the portion of the total attributable to best prices. The first report is due July 1993 and must include such information for each quarter since Jan. 1, 1991. The General Accounting Office's upcoming report on drug price changes after enactment of the Medicaid rebate program will address only price changes from the perspective of hospitals and HMOs. It will not specifically determine the degree of change in the "best prices" offered by manufacturers ("The Pink Sheet" Sept. 14, p. 6). Changes to eliminate generic rebates and establish fixed- percentage rebates have not been politically viable in the current election-shortened Congress without a consensus of a wide range of constituencies, including brandname and generic drug manufacturers, the states, government drug purchasers and private hospitals and HMOs. Support for providing drug price relief for government purchasers was virtually universal. However, the brandname drug firms were split on the proposed transition to flat rebates, while HMOs and hospitals supported the change. Generic companies vigorously lobbied to be relieved of rebate requirements, but they were opposed by the brandname industry, which would have had to compensate for such relief through higher minimum rebates. During the subcommittee markup, Bliley cited a Sept. 14 letter from the National Governors Association. The letter states that NGA supports Bliley's limited bill because it "recognizes [NGA's] view that major changes to the best price provisions of the Medicaid rebate program are unwarranted at this time." In the Senate, the Finance Committee might consider exempting V-A prices from Medicaid best price calculations at a markup expected for the week of Sept. 21. Committee Chairman Bentsen (D-Tex.) said at a Sept. 17 briefing that he is aiming to focus a health markup on a "minimal bill on time-sensitive items on Medicare and Medicaid." Bentsen has asked members to bring up issues that are widely supported and not very costly. The Medicaid exemption would be added to the Senate V-A Committee's V-A drug discount bill when the latter is brought to the Senate floor. Bentsen has informed the committee that he would "support an exemption" of V-A prices from Medicaid best prices but he believes the Medicaid exemption to be solely within the Finance Committee's jurisdiction ("The Pink Sheet" Aug. 10, p. 3). The Senate V-A drug measure is part of a larger veterans health care bill, S 2575.

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