Medicare Rx Plan Negotiations Will Avert Drug Industry “Windfall” – PhRMA

The Pharmaceutical Research & Manufacturers of America disagrees with the prediction that Medicare's assumption of "dual eligibles" will be a financial boon for drug makers.

"I'm not at all sure that manufacturers are going to see a spike in the price or in the amount paid for their drugs on the Medicare market" once drug coverage for dual eligible Medicaid recipients is moved under the federal program, PhRMA Senior Assistant General Counsel Marjorie Powell said Aug. 24 at the International Quality & Productivity Center's Medicaid drug rebate congress in Washington, D.C.

Horizon Blue Cross Blue Shield of New Jersey attorney Steve Birek asserted during the Centers for Medicare & Medicaid Services' "open door" forum Aug. 16 that the 2006 transfer of drug coverage for dual eligibles could create a "windfall" for manufacturers because plans may not be able to negotiate the same level of prices and rebates as Medicaid (¹ , p. 10).

Powell, however, maintained that Medicare drug plans will succeed in obtaining comparable discounts once the drug benefit kicks off.

She cited the temporary prescription drug discount card program as evidence that Part D plans will be successful negotiators. Powell claimed the card program's drug prices show "very good discounts."

"I assume that if the Medicare drug discount card sponsors can negotiate with manufacturers for Medicare lower prices, then they can also negotiate with manufacturers when there is a [comprehensive] Medicare program," the PhRMA attorney said.

However, she declined to predict how those prices will compare with "the Medicaid mandatory rebate - with inflation adjustor and the best price calculation - for any given drug."

Powell acknowledged that the transfer of dual eligibles could have a deleterious effect on states' negotiating position for remaining Medicaid beneficiaries.

"I think that states are going to find that they have a smaller number of people for whom they can negotiate," she said. There were over 7 mil. "duals" in 2002, according to the Kaiser Family Foundation.

As a result, Powell said, some states may include their employees or uninsured residents, or form multi-state pools to augment their bargaining power in dealings with drug makers.

A Maine official also has suggested that state programs could partner with Medicare drug plans to strengthen their negotiating position (² (Also see "Maine Medicaid May Use Medicare To Enhance Price Power: PDP Meets PDL" - Pink Sheet, 8 Mar, 2004.), p. 13).

Powell predicted that states and manufacturers could have "some interesting negotiations" once Medicare drug coverage begins, provided "we're going back to a system in which the state Medicaid program and the drug companies actually negotiate where you don't have a requirement that you must participate in Medicaid and you must give a fixed rebate."

Manufacturers of drugs for which there are a number of substitutes will be particularly inclined to toughen their negotiating stances, she remarked. "When it comes to drugs that are largely interchangeable, it will be easier for drug manufacturers to say, 'you don't have a large enough market for me to want to come in and spend the time negotiating.'"

Powell noted that "we will always have a mandatory Medicaid rebate" and demands for supplemental rebates, but she added that states will face increasing public pressure for "more rational formularies" with fewer restrictions related to price.

In the meantime, certain states' efforts to help residents obtain cheaper drugs through reimportation may yet be challenged by federal authorities, Powell indicated.

Some FDA officials have hinted at a reluctance to sue states that facilitate reimportation, she noted. The agency thus far has taken legal action against companies selling reimported drugs in the U.S., but not against plans initiated by Illinois and other states.

However, Powell said, the decision not to take states to court "was not made by a lawyer, and there are lawyers, both at FDA and HHS, and the Department of Justice who may or may not have some different views of that issue."