REP. WAXMAN’s MEDICAID REBATE DRAFT PLAN MAY FACE STATE OPPOSITION DUE TO MOVE AWAY FROM "BEST PRICES"; CAPITOL HILL UP AGAINST TIGHT SCHEDULE

Executive Summary

Rep. Waxman's (D-Calif.) proposed modifications to the Medicaid outpatient rebate program are likely to face opposition from the National Governors Association, a key player in the debate, due to provisions to phase out "best prices" over four years. Consistent with testimony presented at an earlier hearing of Waxman's Energy & Commerce/Health subcommittee ("The Pink Sheet" Aug. 3, p. 3), the governors association's initial concern about the Waxman plan is two-fold: (1) that a convincing case has not been made to support switching to a fixed percentage rebate; and (2) that, if such a change is made, it should only follow a thorough reexamination of the overall rebate program. However, NGA is indicating that it could support very targeted legislation aimed at remedying drug price increases experienced by the Veterans Affairs Department and public health clinics. Waxman's draft, described as a starting point for discussion, was released Aug. 12, the day the House recessed for the Republican National Convention and Labor Day holiday. The health subcommittee has scheduled a markup on the measure for Sept. 10, one day after the House officially reconvenes. The combination of the abbreviated calendar and states' opposition may be hard for Waxman to overcome to enact a bill this year. Although Republican members of the committee have not developed an official response to the proposal, they generally are inclined to defer to states' preferences for Medicaid. A board committee of the Pharmaceutical Manufacturers Association is meeting during the fourth week in August to try again to find a consensus industry position on the rebates. The strong support of the best price formula by a group of companies (led by Merck and Pfizer) has prevented the association from endorsing any previous plans for fixed rebates. The Waxman phase- in approach may provide a new opportunity for the PMA board to examine a middle ground between the best price formula and fixed rebates. The danger from industry failing to have a consensus position is the development of a new congressional formula calculated to increase manufacturer rebates above the current, higher-than-anticipated levels. Few members of Energy & Commerce have had time for a thorough look at the discussion draft. It may be difficult for Waxman to delay the markup too long since the House is aiming to be in session for only about a month, in order to have time to focus on the November elections. Full committee Chairman Dingell (D-Mich.) has not announced his position on the measure but will be occupied at least part of the month with House-Senate conferences on three or four major bills. Waxman's bill would retain the best price formula until FY 1996 and then switch to a fixed percentage rebate of 18.5% that year, increasing to 19% in 1997 ("The Pink Sheet" Aug. 17, p. 3). In the interim years, however, the minimum rebate would be raised to 16%-17.25%. The Waxman bill would exempt discounts from several other government purchasers, such as the V-A, from the best price formula and also would phase out rebates for generic products. In addition, manufacturers would have to provide V-A with prices as least as low as Medicaid's rebated price level. Subcommittee staff acknowledged at the introductory briefing on the proposal that the plan would "basically ratify" projections by the Congressional Budget Office that best price discounts could disappear on their own by 1996. NGA objected at the subcommittee's July hearing that CBO's calculation about decreases in savings derived from best prices were a starting assumption of the report rather than a conclusion. Other bills including Rep. Slattery's (D-Kan.) fixed percentage rebate bill (HR 5614) are also keyed to the CBO figures. Sen. Pryor (D-Ark.) has been skeptical about any move away from best prices. However, he is described as willing to consider fixed rebates -- but only if a fixed rebate plan were endorsed by the states. The legislative vehicle for the Sept. 10 markup is Rep. Montgomery's (D-Miss.) HR 2890, which would roll back V-A prices to levels in place before Medicaid rebates. In addition to the Waxman and Slattery proposals, measures that could be proposed include Rep. Wyden (D-Ore.) and Cooper's (D-Tenn.) HR 3405 to extend Medicaid rebated prices to public clinics and a more comprehensive bill being drafted by Wyden. Editor's note: see box below, for comparison of Medicaid rebate plans being floated in the House. In state actions, New Jersey Gov. Florio (D) signed into law on Aug. 11 a bill to establish a best price rebate requirement for the state's Prescription Assistance to the Aged and Disabled (PAAD) program. A statement issued by Florio's office after the bill was signed described the law as instituting the "same mandate" for best prices to PAAD as required for Medicaid, with expected annual saving of $33.3 mil.