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MEDICAID DRUG FORMULARIES RESURFACE IN CLINTON DEFICIT REDUCTION PACKAGE WITH FOUR-YEAR SAVINGS OF $70 MIL; MEDICARE EPO CUTS OF $160 MIL. PROPOSED

Executive Summary

The Clinton Administration is proposing to repeal the prohibition against restrictive state formularies to control drug costs. As part of the deficit reduction/economic stimulus package unveiled by President Clinton Feb. 17, the administration is proposing to undo one of the major concessions to the brandname drug industry in the OBRA '90 Medicaid rebate plan -- provisions barring the use of restrictive formularies. Potential savings from the formulary provision are estimated at $70 mil. over the next four years, including $10 mil. in 1994, $15 mil. in 1995, $20 mil. in 1996 and $25 mil. in 1997. Potential savings from the formulary provision underscores two recurring themes of the Clinton Administration: enthusiasm for drug cost containment measures and support for state flexibility in program administration. Many states had objected strongly to giving up their formularies when the rebate program was implemented. A White House Office of Management & Budget summary of the package states: "Before OBRA 1990, states were allowed to limit the number of drugs listed on their formularies, e.g. states could cover only the generic alternative of a multiple-source drug. The OBRA 1990 formulary restriction resulted in increased expenditures for states and the federal government." OMB's assessment does not analyze expenditures from repealing formularies versus savings from the flip side of OBRA: rebate revenues. HHS calculated that, at mid-year 1992, the rebates had reached a point at which 12% of total Medicaid pharmaceutical expenditures were being returned to the program via manufacturer rebates ("The Pink Sheet" Nov. 16, 1992, T&G-2). The open access (anti-formulary) provision was advocated vigorously by the Pharmaceutical Manufacturers Association during debate on the Medicaid legislation and was seen at the time as an incentive for industry support in exchange for providing rebates to states for outpatient drugs. When the Health Care Financing Administration was drafting the master contract to implement the rebate program, PMA had also raised concern that states could use prior authorization programs as a de facto restrictive formulary. Commenting on the Clinton proposal, PMA said that during debate on OBRA, advocates "of the [formulary] prohibition argued persuasively that Medicaid formularies would create a two-tiered system of medical care that would deny Medicaid patients the benefits of the state-of-the art prescription drugs." Formularies "actually raise overall healthcare costs by increasing the use of more expensive [nondrug] treatments," PMA added. A perennial Medicare budget-cutting idea -- reductions in payments for erythropoietin (Amgen's Epogen) for kidney dialysis patients -- reappears in the Clinton package. The proposal would reduce payments from the current $11 per 1,000 units of the product to $10, for projected savings of $160 mil. over five years. The same proposal was included in last year's tax/urban aid measure ("The Pink Sheet" Oct. 12, 1992, p. 8) that former President Bush vetoed on Nov. 4. The proposal would reduce payments from the current $11 per 1,000 units of the product to $10, for projected savings of $160 mil. over five years. The same proposal was included in last year's tax/urban aid measure ("The Pink Sheet" Oct. 12, 1992, p. 8) that former President Bush vetoed on Nov. 4. The OMB summary describes the proposal as setting "EPO at non- U.S. market rates." Medicare is "virtually the sole purchaser of EPO and should exercise its market power to pay reasonable costs while maintaining access for all Medicare beneficiaries," OMB adds. Amgen was reportedly one of the companies under consideration to testify at Rep. Waxman's (D-Calif.) Feb. 22 hearing on the differentials between U.S. and non-U.S. pricing. Amgen is not on the final hearing agenda, however (see related story, T&G-1). The economic stimulus portion of the budget package also includes the $300 mil. boost President Clinton pledged last week for childhood immunizations ("The Pink Sheet" Feb. 15, p. 7). The Clinton Administration estimates these funds will allow an additional 1 mil. children to be immunized.

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