Increasing the minimum Medicaid rebate on brand drugs by 5% would save $3 bil. between fiscal years 2006 and 2011, Congressional Budget Office Director Douglas Holtz-Eakin said June 22.

"The basic rebate being moved from 15% to 20% would save about $600 mil. in 2006 and a bit over $3 bil. over the five-year budget window," Holtz-Eakin testified during a House Energy & Commerce/Health Subcommittee hearing.

The Bush Administration has proposed overhauling the Medicaid drug reimbursement system by abandoning the "best price"-based system in favor of a flat rebate amount.

The Administration also proposes to restructure Medicaid pharmacy reimbursement by replacing the average wholesale price-based payment system with 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).

The National Governors Association is seeking an increase in minimum rebates but opposes abandoning best price (² Also see "Governors’ Medicaid Reform Proposal Takes Aim At Pharma Companies" - Pink Sheet, 20 June, 2005., p. 24).

Rep. Michael Ferguson (R-N.J.) said Medicaid reform proposals that would merely increase the rebate percentage do not constitute actual reform.

"Some have suggested raising the rebate from 15.1% to 20% as a way to raise more money," Ferguson said. "That's not reform; that's simply changing some of the numbers of the system."

Holtz-Eakin highlighted potential problems in moving away from AWP.

AWP is "always available," he said. "It's updated by the manufacturers. It's available in a timely fashion. So would the proxy be available in a regular fashion?"

The CBO official also questioned the impact on private sector bargaining. "If you went to a different index and manufacturers knew that that was going to affect reimbursements, it might change the way they cut the deals with their other customers," he said.

Furthermore, moving to payment based on a percentage of ASP could incentivize pharmacists to dispense more expensive brand drugs instead of substituting generics, Holtz-Eakin said.

"Six percent of a brand name drug could be a potentially large number...whereas 6% of a generic drug would be much smaller," he said.

"The question will be: is it desirable to shift incentives in that way, move people toward brand name drugs, other things equal, which might be more expensive for the system as a whole?"

Holtz-Eakin suggested that ASP-based reimbursement for retail pharmacies could be lower than pharmacies' acquisition costs because of their inability to negotiate prices on drugs.

National Association of Chain Drug Stores CEO Craig Fuller also cautioned that changing to a reimbursement calculation based on ASP would adversely affect pharmacies.

If we "use ASP as a reform mechanism to save money...we'll lose money every time we dispense a Medicaid prescription," Fuller said.

ASP "doesn't really recognize class of trade," Fuller said. "This is very important. We don't negotiate with brand manufacturers on price; we buy the medication at the price it's sold to our retailers at, usually through a wholesaler."

"In retail pharmacy, we pay a higher price than other people buying exactly the same drug," such as hospitals or pharmacy benefit managers, he said.

Fuller suggested wholesale acquisition cost could be used as an alternative basis for reimbursement. WAC "is actually a published price that you can go to and look up and it's updated frequently," he said.

Subcommittee Chairman Nathan Deal (R-Ga.) said many committee members generally oppose making changes "that are going to adversely effect the pharmacists because many of those really are the point of contact for health consultations."

NGA also asserts that dispensing fees should not be tied to a percentage of the cost of the drug dispensed.

Increasing Medicaid Rebates 5% Would Save $3 Bil. Over Five Years – CBO

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