The effect of moving 60% of the prescriptions covered by Medicaid into Medicare is one issue being considered by the Medicare prescription drug conference committee as it determines how to handle "dual-eligibles."

One of the major differences between the two chambers' Medicare bills is the handling of dual eligibles. Conferees have tentatively agreed to follow the House approach and shift coverage to the new Medicare program (see ¹ Also see "Medicare Rx Agreement Nears; Bill Looks Good For Pharmaceutical Firms" - Pink Sheet, 27 October, 2003. ).

Medicare conferees are working under the assumption that 50% to 60% of Medicaid prescriptions are written for dual-eligibles. While state Medicaid costs would be cut by moving dual-eligibles to Medicare, states would also see a drastic drop in the amount of drug rebates, which are often counted as revenue. The National Governors Association continues to support having dual-eligibles covered by a Medicare drug program.

Moving over half of Medicaid's prescription volume into a more competitive Medicare program is seen by Republicans in the House Energy & Commerce Committee as the first step in reforming the Medicaid drug program.

Republican members of Energy & Commerce hope to introduce a Medicaid reform bill in 2004 that would phase out the existing Medicaid best price/rebate system, viewed by many as a price control, and replace it with a more market-oriented structure.

A Medicaid reform bill likely would build on the current waiver program to provide more flexibility to states in designing benefit packages.

The committee has been expressing interest in overhauling Medicaid for over a year but wants to have a Medicare bill enacted before turning to Medicaid (² [A#00640250010], p. 16). One aspect of the Medicare bill that has pushed members to examine the best price rules is a provision that would exempt drug prices negotiated by Medicare drug plans from Medicaid rebate calculation.

Energy & Commerce has had five hearings on Medicaid reform and is hoping to have as many again in 2004 in preparation for markup of a bill. The committee has a Republican Medicaid working group that includes Reps. Heather Wilson (N.M.), Mary Bono (Calif.), Nathan Deal (Ga.), Ed Whitfield (Ky.) and Ernie Fletcher (Ky.). The group first met in May.

In June, the committee sent letters to cancer drug manufacturers, wholesalers and a cancer services provider requesting detailed reports on pricing practices, including records concerning the "spread" between actual market prices and payments by Medicaid (³ Also see "Oncology Rx Pricing Focus Shifts To Medicaid: House Cmte. Seeks Documents" - Pink Sheet, 30 June, 2003., p. 44).

One problem that has slowed Energy & Commerce's Medicaid investigation is that many of the states do not have quarterly prescription data, as many private plans do. The committee wants to provide states with resources to upgrade their systems so that they will have up-to-date information on spending for particular drugs and providers.

Not all Medicaid rebates are driven by best price; drugs classified as non-innovator multisource drugs have a flat rebate. Drug classification for Medicaid now appears to be the subject of a government investigation.

The government recently issued subpoenas to a number of drug manufacturers regarding drug classification, attorney Ethan Posner (Covington & Burling, Washington, D.C.) told the American Conference Institute's drug pricing forum Oct. 20 in New York.

"There are a few areas, particularly when you'll be talking about essentially branded generic products, where I think the government is going to be asking some questions," Posner said.

"It would appear that CMS and possibly Justice are going to be looking more closely at the drugs that were classified as non-innovator products because the discount's less to the government, and I think they may be looking at whether those were appropriately classified," he added.

"If a company has a drug that's classified that way, it may want to give some thought to just reviewing how that classification was made and to ensure that it is consistent with the statute and the guidance and the withdrawn regulations."

Medicaid Best Price Reform: Dual-Eligible Move To Medicare May Be 1st Step

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