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MEDI-CAL ENFORCEMENT OF SUPPLEMENTAL REBATE REQUIREMENT STARTS WITH LETTER TO BENEFICIARIES LISTING 200 FIRMS WHOSE ENTIRE LINES WILL BE ON PRIOR APPROVAL

Executive Summary

Medi-Cal has begun to put muscle behind its recent requirement that manufacturers provide supplemental rebates with a late March letter to beneficiaries listing about 200 companies whose entire outpatient product lines will be removed from the state formulary June 1 and subsequently available only with prior authorization. Many of the firms appear to be very small companies with limited product lines, repackagers or firms that may have a limited Medicaid business. Merck, which had most visibly campaigned against the supplemental rebates last year, is not on the list of 200. Neither is Lilly, which in protesting the rebates suggested it would end plans for expanding its facilities in California ("The Pink Sheet" Sept. 28, 1992, T&G-2). Larger firms named include Abbott, Burroughs Wellcome, Connaught, Immunex, Upjohn and the generics firm Zenith Labs. The situation most likely will change by June 1 in that at least some of the 200 companies returned to Medi-Cal for further talks after the letter was issued. Other firms included in the list -- such as Immunex and home state companies Amgen and Genentech -- market primarily hospital or physician-delivered products or products with no competitors for their indications. The budget rescue plan adopted in California last year calls for $27 mil. in rebates from drug manufacturers above what was previously provided and permits use of prior authorization if the rebates are not forthcoming. To implement that directive, Medi-Cal asked that manufacturers raise rebates for single-source outpatient products to a net 25% of average prices. Medi-Cal asked firms to increase rebates for generic products by another 5% of average manufacturer's price. For brandname multi-source products, manufacturers were asked to provide the lesser of the 5% increase or an amount that would bring the net total rebate to 25% of AMP ("The Pink Sheet" Sept. 14, 1992, p. 7). The notice to beneficiaries, in both English and Spanish, explains that the legislature "requires drug companies to provide extra rebates to the Medi-Cal program, to help reduce Medi-Cal costs. Drugs from those companies which refuse to provide these extra rebates will require prior approval." Patients will be able to continue on any existing drug without prior approval even if the manufacturer of the product falls under the prior authorization requirements. Medi-Cal will set up an automated procedure for pharmacists to determine whether a patient's prescription is part of an ongoing regimen. Also exempted from prior authorization are all cancer and AIDS therapies, although some uses may be subject to review. Medi-Cal has decided that five products that are marketed by firms slated to be placed on prior authorization will also be exempted. These are ICN's Mestinon (pyridostigmine bromide) for myasthenia gravis; pyrimethamine. (Burroughs Wellcome's Daraprim and Roche's Fansidar) for chemoprophylaxis of malaria; Abbott's Depakote (divalproex sodium), an anti-epileptic agent; B-W's digoxin products, including Lanoxin; and cromolyn sodium, the active ingredient in Fisons' Gastrocom, Intal, Nasalcrom and Opticrom ophthalmic solution.
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