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DRUG INDUSTRY WINDFALL PROFITS TAX BEING CONSIDERED

Executive Summary

DRUG INDUSTRY WINDFALL PROFITS TAX BEING CONSIDERED by the White House for inclusion in its legislative proposal for reforming the national health care system. The Clinton Administration's health care reform task force intends the proposed tax to capture a share of the increased volume that companies are expected to experience from a projected increase in the prescription patient population from new pharmaceutical coverage under the proposed national system. Industry executives already have argued that any anticipated sales increas is mitigated by the reformed system's cost- containment requirements and the fact that many uninsured patients previously have been purchasing many of their prescription drugs. Manufacturers would be asked to hold price increases for all individual prescription drug products to the Consumer Price Index, under a "voluntary" price restraint program being contemplated by the task force. Such a cost containment plan would be more rigorous than proposals by a number of companies, such as Pfizer, Merck, Syntex and Lilly, which have offered to hold average price increases to inflation with leeway to raise prices of individual products somewhat higher. The White House also may require Medicare drug rebates. The industry has said it will be hurt if Medicaid-level rebate payments are required for pharmaceutical sales under Medicare. Company representatives also suggest that rebates are not needed if cost controls are imposed on the industry. However, task force officials reportedly believe that mandate discounts combined with an inflation check simply reflect the hospital/HMO market and anticipat price realities that will exist under managed competition. A national drug price review commission also is being considered by the White House, although it may be established in modified form. The review board being contemplated reportedly is only advisory in nature, and its scope is limited to newly marketed products in new reportedly is only advisory in nature, and its scope is limited to newly marketed products in new therapeutic categories. That is, the board will not have authority to affec drug prices directly, and it will not review prices of new "me-too" products or existing products. Industry spokespeople have cautioned that establishment of a price review board in any form will discourage financial market investment in pharmaceutical companies. The pharmacy profession is pushing for a single-price requirement to mandate that manufacturers sell their products at the same price, whether the buyer is a hospital or an independent retailer. Such a provision, which is being considered by the task force, would stipulate that variations in price beyond those attributable to the volume of purchase are subject to antitrust enforcement action.

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