MSD BEST PRICE PROGRAM COULD SAVE MEDICAID PROGRAMS $200-$300 MIL.

Executive Summary

MSD BEST PRICE PROGRAM COULD SAVE MEDICAID PROGRAMS $200-$300 MIL. annually if adopted on a nationwide basis, the company guesstimated in testimony prepared for an April 24 hearing before the California Assembly Committee on Health. At that level of savings, the MSD approach would exceed the projected savings ($100-$200 mil.) from Sen. Pryor's (D-Ark.) proposed national formulary legislative plan. MSD Executive Director of National Accounts Robert Hills explained the savings estimate at the California hearing. Using "financial press" calculations that Merck would be offering discount savings of about $20-$30 mil., Hills multiplied that by ten to reflect MSD's position as about 10% of the U.S. market. Hills' approach works as a quick calculation, but it does not take into consideration at least two factors. The projected savings from the MSD offer should not be calculated for total U.S. drug sales; it would be more accurate to estimate it for single-source products only. MSD also did not take account of the added costs to states from the other part of the equation for state programs -- the coverage of currently excluded products. MSD emphasized to the state assembly committee that its offer could be implemented quickly. That may have special appeal. The state legislature reportedly faces about four dozen cost-of-drugs bills to review. HHS is working separately on a series of volume purchasing proposals (see related item previous page). "Were California able to add all our single-source products to its formulary today," Hills said, "we could probably implement the program next week with no significant burden on people or added expense either in California or at MSD." Hills contrasted that apparent simplicity to "other proposals, which we oppose, [that] would require new distribution systems or elaborate formulary and negotiation processes." MSD noted that, for its program, "the company is not even asking for the repeal of existing California formulary laws, even though we and the PMA (Pharmaceutical Manufacturers Association) oppose this formulary." With its plan, MSD would in essence create a private open formulary for its products. Merck said that it has unveiled the program widely to state Medicaid administrators and pharmacy associations. Hills told California that "official state endorsements are expected soon." He noted that "the 45 states that already have our major single-source products on formulary" are likely to be the first to accept the discount offer. Hills declared that MSD had not, for antitrust reasons, discussed the program with other pharmaceutical manufacturers. As a legislative proposal, however, the MSD plan is a key topic for the upcoming May 3 PMA executive committee session. The association sent out a special notice one day after Merck announced the program encouraging all board members to attend the May 3 session to review the status of state Medicaid programs. Just three weeks before at the annual meeting, the association convened a special ad hoc committee on Medicaid. At that meeting, reportedly, no one offered any alternatives to Sen. Pryor's Medicaid plan. Merck Vice Chairman John Lyons was the 1989-1990 PMA chairman; his term continued through the middle of the annual meeting.