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Executive Summary

V-A AIMS TO ISSUE DRUG DISCOUNT "MASTER AGREEMENT" BY NOVEMBER's END, perhaps as early as Nov. 16. The agreement is one step in implementing the new amendments to the Medicaid outpatient rebate law ("The Pink Sheet" Nov. 9, T&G-9). Enacted Nov. 4, the law exempts from Medicaid rebate calculations the discounts provided to government purchasers such as the Veterans Affairs Department and also provides certain discounts to V-A, Public Health Service-funded clinics and others. Drug manufacturers must agree to provide discounts to V-A and the public clinics in order to continue participating in Medicaid; V-A's "master agreement" sets in motion its part of the arrangement. Anticipating the President's signing of HR 5193, V-A sent a letter to drug manufacturers Oct. 28 advising that the law requires manufacturers to sign a "master agreement" with V-A by Jan. 1, 1993, in order to continue receiving coverage by V-A and Medicaid. The Health Care Financing Administration is readying a similar letter to companies with Medicaid rebate contracts in effect. How PHS is implementing the law remains less clear. The V-A had sought congressional action to address price increases it experienced following enactment of the Medicaid rebate program, worked with congressional drafters of the legislation and is long-experienced in drug procurement and payment issues. The administration of PHS-funded clinics is less centralized and not focused on direct payments for individual medical services such as pharmaceuticals. While HCFA has met with both V-A and PHS to discuss implementation issues, the PHS end of the project appears less far along. Further complicating the situation is the fact that V-A and the clinics will receive different discounts under the new law, and that the law also imposes a number of new recordkeeping and congressional reporting requirements. HCFA estimates that about 1,000 PHS-funded entities meet the new law's initial qualifications. However, there is no specific number yet for how many dispense drugs for the patient to take outside the clinic and thus may be eligible for discounts. The figure does not include hospitals that serve a disproportionate number of low-income patients that are also newly eligible for the discounts. While the law sets a Jan. 1 deadline for signing the V-A and PHS contracts, it is highly unlikely that HCFA will strictly enforce the requirement -- if only because the PHS contract may not be available before that date. Additionally, the Medicaid program requires a 60-day notice before terminating any contracts and there already is less than a 60-day lead time to that deadline. HCFA has yet to publish its own regulations to implement the original Medicaid rebate program and now will likely re-examine its draft regulations in light of the new law's requirements. The agency has planned to issue a revised Medicaid rebate contract only after those regs are published. The new contract being developed contains some changes that HCFA believes will improve the operation of the rebate program and reduce manufacturer/state disputes, for example, by standardizing remittance forms for the rebates. The draft of the V-A master agreement appears to follow closely the provisions of HR 5193 and the format of Medicaid's rebate contract. The law requires that for drugs listed on the V- A's Federal Supply Schedule or purchased through the depot system, prices be no more than 76% of the nonfederal average manufacturer's price (essentially the net price paid by wholesalers) for the preceding year. An "additional discount" provision compares the nonFAMP for the three months immediately preceding a contract year and the nonFAMP for the same three months a year earlier and then recoups price increases that exceed increases in the Consumer Price Index. The V-A's proposed master agreement defines the preceding year for determining the non-FAMP as Oct. 1, 1991-Sept. 30, 1992 and the three-month period for determining the additional discount as July 1-Sept. 30, 1992. Manufacturers will have to sign a separate Pharmaceutical Pricing Agreement detailing the price ceilings for each dosage form of each product for the year. The draft master agreement specifies that manufacturers should provide the data necessary for calculating 1993 price ceilings and discounts by no later than Dec. 4, 1992. Thereafter, the manufacturers must report each quarter's nonFAMP within a month after the quarter ends and must report the nonFAMP for each 12- month period ending Sept. 30 by Nov. 1. V-A is setting up an electronic bulletin board for transmission of the data.

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