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MEDICAID REBATE AMENDMENTS SIGNED INTO LAW

Executive Summary

MEDICAID REBATE AMENDMENTS SIGNED INTO LAW by President Bush on Nov. 4. The legislation (HR 5193), which Congress passed on Oct. 8, exempts federal drug purchases from best price calculations required under the 1990 Medicaid rebate law. Because of the exemptions, pharmaceutical manufacturers can offer deep price discounts to government agencies without having to extend similar discounts to the larger Medicaid market. Government drug purchasers that can expect to obtain more favorable prices under HR 5193 include the Veterans Affairs Department, the Department of Defense, the Indian Health Service, numerous types of clinics that receive funding from the Public Health Service and state-run homes ("The Pink Sheet" Oct. 12, p. 6). In addition, the new law exempts "any prices charged under the Federal Supply Schedule" (FSS) and "any prices used under a state pharmaceutical assistance program." It also assures V-A, DoD, PHS and IHS that drugs they purchase under the FSS or a depot system after Jan. 1 will be priced at least 24% under the price manufacturers sell to distributors serving retail markets. Furthermore, discounts offered to such purchasers must be equal to or greater than Medicaid rebates. The primary impetus for the bill originated with the V-A, which complained that drug manufacturers were raising their prices to the department to avoid having to match the low V-A prices in rebates to Medicaid. The House and Senate Veterans Affairs Committees eagerly sought a legislative fix. As a stop-gap measure, the Senate 1992 V-A appropriations law contained a provision offered by Sen. Mikulski (D-Md.) to exempt V-A prices from Medicaid for the first six months of the year. The House V-A Committee passed legislation requiring manufacturers to roll back prices to 1990 levels. The pharmaceutical industry successfully fought off bills with price rollback requirements, persuading Congress that such measures would be unfair and inappropriately punitive. Other provisions that were included in earlier Medicaid bills were omitted from HR 5193. They include a change to fixed- percentage rebates from "best price" rebates and a provision to delete generic rebate requirements. Legislation to change to flat rebates and to relieve generic manufacturers from the 11% rebate requirement will be introduced in the 103rd Congress. Sen. Chafee (R-R.I.) and Reps. Synar (D-Okla.), Slattery (D-Kan.), Wyden (D- Ore.) and Waxman (D-Calif.) all support a move to flat rebates, and Waxman and Wyden can be expected to introduce legislation to end generic rebate requirements. President Bush also on Nov. 4 vetoed HR 11, a tax package, because it included tax increases which would fund urban aid programs. The measure also included a capital gains tax credit for start-up firms, and one-year extensions of R&D and orphan drug tax credits. Bills to extend the orphan drug and R&D tax credits will be reintroduced early in the 103rd Congress. Both tax credits have broad bipartisan support, and President-elect Clinton has called for making the R&D tax credit permanent. The capital gains credit for startups also has broad congressional backing and will be reintroduced. The legislation would have provided a 50% tax exemption for gains on investments held for at least five years in small start-up companies. Sen. Bumpers (D-Ark.), a principal Senate sponsor of the credit, has indicated that he plans to introduce the bill early in the new Congress.
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