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PMA ENFORCEMENT PLAN FOR VOLUNTARY PRICE RESTRAINT CALLS FOR SMALLER PRICE INCREASES IF PREVIOUS YEAR INCREASES EXCEED CPI; DATA WOULD BE SHARED WITH HHS

Executive Summary

PMA's plan for voluntary industry price restraints calls for companies to pledge to hold average price increases for their product lines to the Consumer Price Index each year or else reduce price increases the next year by an offsetting amount, the Pharmaceutical Manufacturers Association explained in a March 12 letter to the Justice Department. The plan calls for companies to report price increases each year in a standardized format to PMA. The association would then provide the data to the HHS secretary "who would then be free to make such use of the information as she saw fit." In essence, the enforcement lever for the plan seems to be the publicity that might arise if companies do not stick with their pledges. PMA is requesting a Justice "Business Review Letter" of its plan. The Business Review is a procedure by which companies concerned about possible antitrust scrutiny of a proposed action can request that Justice state its likely enforcement response to that action. PMA has long maintained that antitrust concerns preclude it from working with member firms to develop a drug pricing policy or even developing data on pricing patterns across the industry. According to a March 9 summary of PMA's revised position on drug pricing and health reform, the association "recognizes the need for cost containment during the transition from the current system to managed competition" and thus is "seeking a method for action...on two fronts." The first is industry discussion of "price restraints and enforcement mechanisms," if permitted by Justice. "An alternative would be for the Administration to seek individual company commitments to restrain prices," PMA said, noting that about 10 companies have made such pledges. While PMA is trying to demonstrate a willingness to contain drug prices, it is clearly maintaining limits on how far it will go. For example, when the March 10 edition of the Wall Street Journal reported that PMA had agreed to legislation that would enforce voluntary price "controls," the association imme-diately responded with a letter to the newspaper that members want to work "on improving access to medicines, but have not accepted or endorsed any proposed laws on price controls." The program outlined in PMA's request to Justice has four elements. First, member firms would be asked to sign, "unilaterally and individually," a pledge "to hold the annual increase, if any, in the weighted average of changes in the net prices (i.e.) actual transaction prices net of all discounts, rebates and other similar adjustments) of its prescription drug products, including new products following their introduction into the market, to a level not greater than the increase in the Consumer Price Index." Company accountants would certify to PMA that the company held prices to the set ceiling and PMA would in turn certify to HHS that these pledges were met. Companies signing the pledges also would agree that if prices in one year exceed the CPI, any price increases in the next year would be reduced "so as to achieve a rolling average price increase not to exceed the CPI." The fourth element of the plan is that "continued adherence to this undertaking assumes enactment of overall health care reform establishing a managed competition system within a reasonable period."
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