The National Governors Association is calling for Medicaid reform that extracts more savings from pharmaceutical companies than the proposal put forth by the Bush Administration.

"Our concern with the Administration approach is it seemed to take most of the savings out of the hides of local pharmacists," NGA Chairman Virginia Gov. Mark Warner (D) told the Senate Finance Committee June 15.

"We think it ought to be borne not only by pharmacists, but also by pharma," he declared.

Warner, joined by NGA Vice Chairman Arkansas Gov. Mike Huckabee (R), presented the group's bipartisan plan for Medicaid reform at back-to-back, same-day hearings before the Senate Finance Committee and the House Energy & Commerce Committee.

A preliminary policy paper released by NGA outlines the group's recommendations, including its concerns about the Bush Administration's proposal to overhaul the Medicaid drug reimbursement system by abandoning average wholesale price.

Under the system endorsed by the Administration, state Medicaid programs would pay pharmacies according to the new price target used in Medicare - average sales price plus 6% (¹ Also see "Medicaid “Best Price” Would Be Eliminated Under Bush Budget Proposal" - Pink Sheet, 14 February, 2005., p. 28).

House Energy & Commerce Committee Chairman Joe Barton (R-Texas) has expressed interest in implementing such changes (² Also see "Medicaid AWP Reform Planned By House Energy & Commerce Panel" - Pink Sheet, 13 December, 2004., p. 22).

Governors, however, "believe that the burden of reducing Medicaid expenditures for prescription drugs will require a multi-prong approach and should include savings proposals that affect both drug manufacturers and retail pharmacists," NGA stated.

In addition, Medicaid reform should "increase state utilization management tools that decrease inappropriate prescribing and utilization."

NGA acknowledged that there may be benefits to using a calculation such as ASP as a reference price, but the group stresses the need for more flexibility with respect to dispensing fees.

"They should not be tied to a percentage of the cost of the drug dispensed," the group said.

The governors group also calls for increasing the minimum rebates that states collect on brand and generic drugs to "ensure lower total costs that would not solely impact pharmacists nor create disincentives to provide generic drugs where appropriate."

During the hearings, Warner cited approvingly the Bush Administration's proposal to increase the mandatory Medicaid rebate amount (³ Also see "CMS Wants Bigger Medicaid Rebates, Elimination Of “Best Price”" - Pink Sheet, 10 February, 2003., p. 13).

However, NGA does not believe such an increase should be paired with abandonment of "best price" calculations, as proposed by the Administration. "Medicaid's 'best price' provision should not be eliminated in exchange for this," the group said.

NGA also endorses the inclusion of "authorized" generics in Medicaid rebate calculations. "This product is essentially a brand product at a cheaper price...and because CMS does not include these products in the Medicaid rebate calculations, it results in hundreds of millions of dollars in lost revenue for state Medicaid programs."

CMS has recently signaled that the definition of best price will be expanded to include authorized generics (⁴ Also see "“Authorized” Generics Will Be Subject To “Best Price” Calculations – CMS" - Pink Sheet, 11 April, 2005., p. 19).

Other reforms called for by NGA include requiring manufacturers to make rebate payments on the front end of drug purchases, rather than waiting an average of six months, and giving states the authority to use tools such as tiered copays to encourage greater generic utilization.

In addition, NGA proposes allowing states to adopt closed formularies to "drive beneficiary utilization and decrease costs similar to those that will be used by Medicare Part D plans."

Stronger sanctions for companies and individuals that fail to accurately report ASP (or whatever reimbursement methodology is adopted), allowing managed care organizations to access Medicaid rebates directly, and allowing states to form purchasing pools are also recommended in the NGA proposal.

Governors’ Medicaid Reform Proposal Takes Aim At Pharma Companies

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