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MEDICARE DRUG REIMBURSEMENT CEILING WOULD BE 93% OF AWP

Executive Summary

MEDICARE DRUG REIMBURSEMENT CEILING WOULD BE 93% OF AWP, according to the final version of the Health Security Act introduced in Congress Nov. 20. In the initial Clinton bill presented Oct. 27, the average manufacturer non-retail price was listed as the reference for establishing the estimated acquisition cost or reimbursement ceiling. The first version was presumably an example of a drafting mistake in the massive program and did not reflect an attempt to set a much lower reimbursement rate. The final legislative language of the proposal affirms that the Medicare reimbursement rate for multiple source generic prescriptions would be the pharmacy dispensing fee plus the EAC. For single-source drugs and multiple-source brand prescriptions, payment limits would be the dispensing fee plus EAC or "the 90th percentile of the actual charges for the drug product for the second previous payment calculation period." At a Special Senate Committee on Aging hearing on Nov. 16, Committee Chairman Pryor (D-Ark.) asked for comments on the pharmacy reimbursement schemes in the Clinton plan. Pryor asked Office of Technology Assessment Senior Associate Judy Wagner, for example, "what would you suggest the Congress proceed with in making the drug marketplace more competitive, are we on the right track?" Wagner urged Pryor to consider ways to encourage more managed pharmacy programs. "Letting the potential for generic substitution inherent in" managed pharmacy "evolve, is one good way to start." Wagner warned the committee that the Medicare benefit in the President's plan "takes Medicare out of the competitive structure and re-creates a fee-for-service system." The OTA senior staffer added: "I would like to see some way of encouraging, as part of this Medicare prescription drug benefit, that they fold it somehow into managed care pharmacy." Similarly, Pryor asked Mark Whitener, the Federal Trade Commission (FTC) acting deputy director of the Bureau of Competition, "what can Congress do to increase competition in the drug marketplace?" Whitener replied that "one advantage can be obtained through collective purchasing." He added that "there is no reason why government can't use market forces and collective purchasing to the extent that it becomes a more substantial purchaser of pharmaceuticals through Medicare." The OTA and FTC comments suggesting support for turning the Medicare drug benefit program over to private market forces could food one of the active lines of lobbying on the benefit. Some of the large pharmacy benefit managers have been pushing for the government to contract out the pharmacy benefit to the established private firms and let them handle the negotiations for providing drugs to patients. The firms pushing that line of argument note that about 40% of the Medicare eligibles are already receiving drug benefits through private insurance programs, most of which are managed or moving towards managed programs. The approach of relying on pharmacy management companies, however, is anathema to organized pharmacy groups that are providing the strongest block of support for the Clinton plan within the pharmaceutical business. NARD past-President Donald Moore reiterated his group's support for the plan at the Pryor hearing, noting that it "would allow community pharmacy providers to negotiate with health benefit plans to provide access to high- quality pharmacy services to consumers without relying on third- party brokers." Whitener also cited consumer and physician drug "information gaps" as a source of current inefficiencies in the system of delivering drugs. The FTCer concluded that "if Congress can find some way to encourage market forces through better information and market incentives it seems to me that that is one approach to the problem."
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