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Responding to Enforcement Initiatives: Designing the Successor(s) to the Medicaid Rebate Program

Responding to Enforcement Initiatives: Designing the Successor(s) to the Medicaid Rebate Program. The Fourth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum Concurrent session 3.05 November 13, 2003 2:15 – 3:15 Edwin Rauzi Davis Wright Tremaine

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Responding to Enforcement Initiatives: Designing the Successor(s) to the Medicaid Rebate Program

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  1. Responding to Enforcement Initiatives: Designing the Successor(s) to the Medicaid Rebate Program The Fourth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum Concurrent session 3.05 November 13, 2003 2:15 – 3:15 Edwin Rauzi Davis Wright Tremaine edrauzi@dwt.com

  2. Current Medicaid Rebate design elements • Universal contracting • Rebates calculated by reference to • Best Price • AMP • Reliance on NDC numbers • Medicaid payment precedes rebates

  3. Problems with current design elements • Universal contracting means a lack of competition for Medicaid business • Rebates calculated by reference to Best Price leaves open the possibility of • manipulation • errors by pharmaceutical manufacturers

  4. Problems with current design elements • Relying on NDC numbers results in "garbage in/garbage out" • Paying well in advance of rebates implicates cash flow and the time value of money

  5. Options in dealing with problematic design elements • Retrospective • pursue rebate disputes • litigation • AWP • Best Price • Prospective—various initiatives under way

  6. Possible refinements of design flaws • Selective contracting • just like the private sector and portions of the federal government • create financial incentives for pharmacies to use preferred vendors • Negotiated prices • supplemental rebates • AMP could continue to play a role

  7. Possible refinements of design flaws • Assign rebate claims to pharmacies • reduces GIGO • reduces cash flow and gives states the time value of money • Creates opportunities to • "mix and match" • create multi-state purchasing coalitions and/or • phased implementation

  8. Some of the "Why" Questions Why will a pharmaceutical manufacturer consider contracting directly? • push the competitive button • they recognize that the current system cannot last forever • avoid becoming tobacco companies • it is the lesser of the various evils

  9. Some of the "Why" Questions Why will the retail pharmacy lobby consider accepting an assignment of a rebate claim? • to make more money (i.e., you could split the savings with them) • the Wal-Mart factor • to avoid making less money (i.e., lesser of two evils)

  10. Some of the Why Questions Why will CMS consider allowing States to contract directly and on a selective basis? • Because the Secretary has the explicit authority under section 1927 of the Social Security Act to “authorize a State to enter directly into agreements with a manufacturer . . . .” • Because it’s good public policy

  11. Illustrative examples • Consider epogen/procrit • two manufacturers • clinically identical drugs • Consider generic amoxicillin • multiple manufacturers • currently “substitutable” drugs

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