[Congressional Record Volume 153, Number 93 (Monday, June 11, 2007)]
[Senate]
[Pages S7454-S7458]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BINGAMAN (for himself, Mr. Kerry, Mr. Akaka, Mr. Salazar, 
        Mr. Whitehouse, and Ms. Mikulski):
  S. 1589. A bill to amend title XIX of the Social Security Act to 
reduce the costs of prescription drugs for enrollees of Medicaid 
managed care organizations by extending the discounts offered under 
fee-for-service Medicaid to such organizations; to the Committee on 
Finance.
  Mr. BINGAMAN. Mr. President, I rise today to with Senators Kerry, 
Akaka, Salazar and Whitehouse to introduce the Drug Rebate Equalization 
Act of 2007.
  As you know, the Medicaid drug rebate ensures that State Medicaid 
programs receive the best price for prescription drugs for their 
beneficiaries. Unfortunately, health plans that serve over 10 million 
Medicaid beneficiaries cannot access the same discounts

[[Page S7455]]

through the Federal drug rebate program. Plans typically get no rebate 
on generic drugs and about a third of the rebate on brand drugs as 
States receive. Therefore, States are paying more for the acquisition 
of prescription drugs for these health plan enrollees than for 
beneficiaries in fee-for-service Medicaid, raising costs for Federal 
and State governments.
  Even with this price disadvantage, the total cost of prescription 
drugs for health plans is less on a per member per month basis because 
of health plans' greater use of generics and case management. 
Unfortunately, many States are considering carving prescription drugs 
out from health plans for the sole purpose of obtaining the rebate, 
thereby undermining plans' ability to maintain a comprehensive care and 
disease management program that includes prescription drugs. Not only 
will this legislation save money, it will eliminate this incentive and 
ensure that health plans can maintain a comprehensive care coordination 
system for their patients.
  This policy change was passed by the Senate during last year's debate 
over the Deficit Reduction Act. This year's version of the bill 
improves on last year's bill in several important ways. First, the bill 
ensures that health plans can continue their good work by using their 
own integrated care coordination and disease management protocols. 
Second, the bill will maintain the fee-for-service prohibition against 
health plans ``double dipping'' into the Medicaid drug rebate and the 
340b discount drug pricing program. Finally, it will ensure that plans 
can use so-called positive formularies while simultaneously ensuring 
that enrollees will have access to off-formulary drugs through the 
regulated prior authorization process. These changes significantly 
improve the bill and will help improve its chances of passage.
  This policy enjoys widespread support. Extending the Medicaid drug 
rebate to enrollees in health plans is supported by the National 
Governors Association, the National Association of State Medicaid 
Directors, the National Medicaid Commission, the National Association 
of Community Health Centers, the Partnership for Medicaid, the 
Association for Community Affiliated Plans, and the Medicaid Health 
Plans of America. I am entering into the record copies of letters 
provided by these organizations over the last few years memorializing 
their support for this concept.
  Last year, the Congressional Budget Office estimated that the 
Bingaman amendment would have saved Federal taxpayers $1.7 billion over 
5 years. Likewise, the CMS Office of the Actuary estimated that 
extending the drug rebate to health plans would save Federal taxpayers 
$2.2 billion over 5 years. I think that we can say that this policy 
will provide significant savings to Americans, whatever the number.
  I urge my colleagues to join me in supporting this legislation.
  I ask unanimous consent that the text of the bill and letters of 
support be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1589

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Drug Rebate Equalization Act 
     of 2007''.

     SEC. 2. EXTENSION OF PRESCRIPTION DRUG DISCOUNTS TO ENROLLEES 
                   OF MEDICAID MANAGED CARE ORGANIZATIONS.

       (a) In General.--Section 1903(m)(2)(A) (42 U.S.C. 
     1396b(m)(2)(A)) is amended--
       (1) in clause (xi), by striking ``and'' at the end;
       (2) in clause (xii), by striking the period at the end and 
     inserting ``; and''; and
       (3) by adding at the end the following:
       ``(xiii) such contract provides that (I) payment for 
     covered outpatient drugs dispensed to individuals eligible 
     for medical assistance who are enrolled with the entity shall 
     be subject to the same rebate required by the agreement 
     entered into under section 1927 as the State is subject to 
     and that the State shall allow the entity to collect such 
     rebates from manufacturers, and (II) capitation rates paid to 
     the entity shall be based on actual cost experience related 
     to rebates and subject to the Federal regulations requiring 
     actuarially sound rates.''.
       (b) Conforming Amendments.--Section 1927 (42 U.S.C. 1396r-
     8) is amended--
       (1) in subsection (d)--
       (A) in paragraph (1), by adding at the end the following:
       ``(C) Notwithstanding the subparagraphs (A) and (B)--
       ``(i) a medicaid managed care organization with a contract 
     under section 1903(m) may exclude or otherwise restrict 
     coverage of a covered outpatient drug on the basis of 
     policies or practices of the organization, such as those 
     affecting utilization management, formulary adherence, and 
     cost sharing or dispute resolution, in lieu of any State 
     policies or practices relating to the exclusion or 
     restriction of coverage of such drugs; and
       ``(ii) nothing in this section or paragraph (2)(A)(xiii) of 
     section 1903(m) shall be construed as requiring a medicaid 
     managed care organization with a contract under such section 
     to maintain the same such polices and practices as those 
     established by the State for purposes of individuals who 
     receive medical assistance for covered outpatient drugs on a 
     fee-for service basis.''; and
       (B) in paragraph (4), by inserting after subparagraph (E) 
     the following:
       ``(F) Notwithstanding the preceding subparagraphs of this 
     paragraph, any formulary established by medicaid managed care 
     organization with a contract under section 1903(m) may be 
     based on positive inclusion of drugs selected by a formulary 
     committee consisting of physicians, pharmacists, and other 
     individuals with appropriate clinical experience as long as 
     drugs excluded from the formulary are available through prior 
     authorization, as described in paragraph (5).''; and
       (2) in subsection (j), by striking paragraph (1) and 
     inserting the following:
       ``(1) Covered outpatients drugs are not subject to the 
     requirements of this section if such drugs are--
       ``(A) dispensed by a health maintenance organization other 
     than a medicaid managed care organization with a contract 
     under section 1903(m); and
       ``(B) subject to discounts under section 340B of the Public 
     Health Service Act.''.
       (c) Effective Date.--The amendments made by this section 
     take effect on the date of enactment of this Act and apply to 
     rebate agreements entered into or renewed under section 1927 
     of the Social Security Act (42 U.S.C. 1396r-8) on or after 
     such date.
                                  ____


   Controlling Pharmaceutical Costs through Greater Efficiencies and 
            Better Administration of the Drug Rebate Program


                               Background

       Medicaid fee-for-service and managed care spent an 
     estimated $36.8 billion in FY 2003 on pharmaceuticals. 
     Prescription drugs are one of the fastest growing categories 
     of Medicaid expenditures, having quadrupled between 1992 and 
     2003. Between 2000 and 2003, spending on drugs increased by 
     17 percent per year, faster than any other major type of 
     Medicaid service. In 1998, less than 8 percent of Medicaid 
     expenditures were for drugs--by 2003 drugs claimed over 13 
     percent. After 2006 drugs for Medicare beneficiaries will be 
     paid for by Medicare. These recipients currently account for 
     about half of all Medicaid drug spending. State Medicaid 
     programs will still be responsible for the drug costs of 
     children and families and other non-Medicare eligibles.
       Drugs are paid for by Medicaid through 3 separate 
     mechanisms. First, the state pays the pharmacists for the 
     ingredient costs of the drug. Previously, most states paid 
     pharmacists based on the average wholesale price (AWP) less 
     some percentage. AWP is the average list price that a 
     manufacturer suggests wholesalers charge pharmacies. Federal 
     reimbursements to states for state spending on certain 
     outpatient prescription drugs are subject to ceilings called 
     federal upper limits (FULs), also known as the maximum 
     allowable cost (MAC). The effect of the FUL is to provide a 
     financial incentive to pharmacies to substitute lower-cost 
     ``generic'' equivalents for brand-name drugs. The Deficit 
     Reduction Act (DRA) expanded the impact of FULs by applying 
     them to multiple source drugs for which the FDA has rated at 
     least 1 other drug (instead of the previous 2) to be 
     therapeutically and pharmaceutically equivalent. The DRA also 
     changed the FUL formula from a percentage of the AWP to a 
     percentage of the Average Manufacturer Price (AMP), which is 
     the average price paid to a manufacturer by wholesalers. For 
     those drugs, the FUL would be equal to 250 percent of the 
     AMP. The result of the AWP-to-AMP change is to make Medicaid 
     pharmaceutical payments closer to actual cost. The DRA also 
     expanded the required reporting of AMP and best price data, 
     allowing states to have access to reported AMP data for the 
     first time, and requiring HHS to make AMP data available to 
     the public.
       Second, the states pay the pharmacists a dispensing fee 
     which typically ranges from $3 to $5 per prescription. This 
     fee is expected to cover a wide range of services associated 
     with dispensing drugs to Medicaid patients. The need to 
     adequately reimburse pharmacists for these services was 
     recognized by Congress under the Medicare Modernization Act 
     of 2003, which included a provision requiring Medicare Part D 
     drug plans to reimburse pharmacists for ``medication therapy 
     management services'' administered to patients with multiple 
     chronic conditions.
       Third, states receive a rebate directly from the 
     manufacturers based on their utilization. The brand name 
     rebate is the greater of a flat rebate amount of 15.1 percent 
     of average manufacturers price (AMP) or the difference 
     between AMP and the best price offered to any nongovernmental 
     buyer. Manufacturers

[[Page S7456]]

     have to pay an additional rebate if their drug prices have 
     risen faster than the rate of general inflation. The DRA also 
     made limited changes to the Medicaid drug rebate program. In 
     addition, some states have entered into supplemental rebate 
     agreements with manufacturers in return for putting their 
     drugs on a preferred drug list. CBO estimates that the 
     average rebate received by the states equaled 31.4 percent of 
     AMP with the average basic rebate of 19.6 percent and the 
     inflation adjustment rebate equal to 11.7 percent. States 
     also receive a rebate on generic drugs of 11 percent of AMP. 
     In return for the rebates, states must provide access to all 
     FDA-approved drugs, although they may and do have extensive 
     prior authorization programs, step therapy, limited 
     prescriptions per month and co-payments.
       Medicaid managed care plans do not receive the statutory 
     rebate levels, and instead must negotiate rebates on their 
     own.


                           Issues to Consider

       Administration of the rebate program is inadequate. The 
     Government Accountability Office has found significant 
     shortcomings in the Centers for Medicare and Medicaid 
     Services' (CMS) administration of the Medicaid drug rebate 
     program, including lack of clear guidance to manufacturers 
     for determining AMP, poor reporting of certain group purchase 
     prices in setting ``best price'' levels, and limited audits 
     of manufacturer price setting methods. Moreover, the Health 
     and Human Services (HHS) Office of the Inspector General 
     (OIG) recently found that CMS's failure to add qualified new 
     drugs to the Federal upper limit list had resulted in state 
     Medicaid programs paying more than they otherwise would have 
     for these drugs. Changes to the rebate program in the DRA are 
     minimal and are not expected to have a major effect on it.
       Reimbursement is not reflective of the true costs of drugs 
     and pharmacy services. The DRA-driven changes in 
     pharmaceutical acquisition prices, by moving to an AMP-based 
     system, may result in some system savings, though how much is 
     not clear. However, the dispensing fee is also considered by 
     many to be inadequate for reimbursing pharmacists for the 
     range of services they provide. These services may include 
     managing inventory, counseling patients on proper medication 
     use, and complying with federal and state regulations in 
     addition to storing, warehousing, and dispensing the drug. 
     Without an adequate dispensing fee, some pharmacies may elect 
     not to participate in Medicaid rather than assume financial 
     loss.
       Exemption for managed care plans inefficient. Over 10 
     million Medicaid beneficiaries receive their drugs through 
     Medicaid managed care plans which do not have access to the 
     Medicaid drug rebate. Under the drug rebate, States receive 
     between 18 and 20 percent discounts on brand name drug prices 
     and between 10 and 11 percent for generic drug prices. 
     According to a recent study, Medicaid-focused managed care 
     organizations (MCOs) typically only receive about a 6 
     percent discount on brand name drugs and no discount on 
     generics. Because many MCOs (particularly smaller 
     Medicaid-focused MCOs) do not have the capacity to 
     negotiate deeper discounts with drug companies, Medicaid 
     is overpaying for prescription drugs for enrollees in 
     Medicaid health plans. The Congressional Budget Office 
     (CBO) recently estimated that this change would save $2 
     billion over 5 years.


                          Potential Solutions

       Tighten administration of the rebate program. Inconsistent 
     and inaccurate calculations of AMP, best price, and other 
     components of the rebate formula have cost Medicaid millions 
     of dollars. By improving CMS oversight over the program and 
     increasing manufacturer accountability over proper 
     calculation of rebates, Medicaid would reap the full benefits 
     of the Medicaid drug rebate program.
       Increase the basic level of rebate. CBO has estimated that 
     setting the basic rebate level at 23 percent would result in 
     savings of $3.2 billion over 5 years. Available information 
     supports setting the rebate at a higher level than it is at 
     today.
       Payment for pharmacist services should be realigned to 
     reflect true costs, including medication therapy management 
     services. With the Congress having addressed the issue of 
     pharmaceutical acquisition prices, now is the appropriate 
     time to adjust reimbursement for pharmacists' services to 
     reflect their increased role in managing medication-based 
     therapies, counseling patients, and providing other critical 
     pharmacy services to Medicaid patients.
       Encourage evidence-based formularies where appropriate. 
     Development of formularies should provide access to necessary 
     treatments, and encourage and support benefit management best 
     practices that are proven in widespread use today. 
     Effectiveness, not cost, should be the main objective when 
     developing formularies. The goal is for plans to provide 
     high-quality, cost-effective drug benefits by using effective 
     drug utilization management techniques. Although 
     effectiveness data do not exist for all classes of 
     medications, and are not appropriate for certain populations, 
     well-designed evidence-based formularies that take into 
     account comparative effectiveness data have the potential to 
     provide access to high quality, cost-effective medications.
       Allow Medicaid managed care plans to have access to the 
     drug rebate for non-340B drugs. All Medicaid beneficiaries 
     should have their drug costs reduced to the maximum extent 
     possible, either by the Medicaid rebate or by the 340B 
     program. While recognizing that managed care plans should 
     have access to the Medicaid drug rebate, it is also important 
     to be mindful of the need to protect 340B-covered entities 
     from the risk of creating a ``duplicate discount'' due to the 
     overlap of the rebate and the 340B program.
       Extend the 340B drug discount to Inpatient Pharmaceuticals. 
     The Safety Net Inpatient Drug Affordability Act (S. l840/H.R. 
     3547) would require that 340B hospitals and Critical Access 
     Hospitals rebate Medicaid a significant portion of their 340B 
     savings on inpatient drugs administered to Medicaid patients. 
     In addition, to the extent that any Critical Access Hospitals 
     operate outpatient pharmacies, they would be required to pass 
     through to Medicaid their 340B savings for Medicaid patients. 
     These savings to Medicaid also accrue to taxpayers by 
     reducing costs for federal, state and local governments. The 
     proposal allows health care providers to stretch limited 
     resources as they care for America's neediest populations. 
     The Public Hospital Pharmacy Coalition (PHPC) estimates that 
     the Safety Net Inpatient Drug Affordability Act (S. 1840/H.R. 
     3547) would provide significant savings to the Medicaid 
     program and lower costs for taxpayer-supported safety net 
     institutions that care for low-income and uninsured patients. 
     PHPC estimates that this legislation would reduce Medicaid 
     costs by over $100 million per year.
                                  ____


  American Public Human Services Association, National Association of 
                        State Medicaid Directors


  policy statement: mco access to the medicaid pharmacy rebate program

     Background
       The Omnibus Budget Reconciliation Act of 1990 (OBRA '90) 
     established a Medicaid drug rebate program that requires 
     pharmaceutical manufacturers to provide a rebate to 
     participating state Medicaid agencies. In return, states must 
     cover all prescription drugs manufactured by a company that 
     participates in the rebate program. At the time of this 
     legislation, only a small percentage of Medicaid 
     beneficiaries were enrolled in capitated managed care plans 
     and were primarily served by plans that also had commercial 
     lines of business. These plans requested to be excluded from 
     the drug rebate program as it was assumed that they would be 
     able to secure a better rebate on their own. Though 
     regulations have not yet been promulgated, federal 
     interpretation to date has excluded Medicaid managed care 
     organizations from participating in the federal rebate 
     program.
       Today, the situation is quite different. 58% of all 
     Medicaid beneficiaries are enrolled in some type of managed 
     care delivery system, many in capitated health plans. Some 
     managed care plans, especially Medicaid-dominated plans that 
     make up a growing percentage of the Medicaid marketplace, are 
     looking at the feasibility of gaining access to the Medicaid 
     pharmacy rebate. However, a number of commercial plans remain 
     content to negotiate their own pharmacy rates and are not 
     interested in pursuing the Medicaid rebate.
     Policy Statement
       The National Association of State Medicaid Directors is 
     supportive of Medicaid managed care organizations (MCOs), in 
     their capacity as an agent of the state, being able to 
     participate fully in the federal Medicaid rebate program. To 
     do so, the MCO must adhere to all of the federal rebate rules 
     set forth in OBRA '90 and follow essentially the same 
     ingredient cost payment methodology used by the state. The 
     state will have the ability to make a downward adjustment in 
     the MCO's capitation rate based on the assumption that the 
     MCO will collect the full rebate instead of the state. 
     Finally, if a pharmacy benefit manager (PBM) is under 
     contract with an MCO to administer the Medicaid pharmacy 
     benefit for them, then the same principal shall apply, but in 
     no way should both the MCO and the PBM be allowed to claim 
     the rebate.--Approved by NASMD June 24, 2002
       We oppose the Senate provision that provides for mandatory 
     dispensing fee guidelines. States welcome more research in 
     dispensing fees throughout the US health care system. 
     Currently, there is very little information for states to use 
     when considering appropriate dispensing fees. New reference 
     information would be helpful; but mandatory guidelines should 
     not be imposed on states.
       The effective date for any dispensing fee provisions should 
     be the date 6 months after the close of the first regular 
     state legislative session. A state may need extra time to 
     implement a pharmacy reimbursement system to determine 
     appropriate dispensing fees and make changes to separate out 
     the dispensing fee from the reimbursement in their systems.
       Governors should maintain flexibility to establish 
     dispensing fees to maintain access to both pharmacies that 
     may provide specialty services as well as those that serve 
     beneficiaries in rural and underserved areas. Limiting such 
     pharmacies by arbitrary federal statutory definitions or 
     regulation will not help states to manage their pharmacy 
     programs. New federal mandates on how to consider dispensing 
     fees for such pharmacists are unnecessary and burdensome.
     Preferred Drug List Restriction: NGA opposes House provision
       The House provision (SEC.3105) that would limit states' 
     current ability to include mental health drugs on a state's 
     preferred drug

[[Page S7457]]

     list should be dropped from the final bill. This provision 
     would be very costly--far beyond the $120 million estimated 
     by the Congressional Budget Office--and would undermine 
     states current ability to use common-sense tools that are 
     used throughout the health care system to manage expensive 
     mental health drugs. For example, Texas estimates the 
     provisions federal impact from its state would be a cost of 
     $50 million over five years and California alone estimates 
     $250 million cost to the federal government over the five 
     year budget window.
     Tiered Co Pays for Prescription Drugs: NGA supports House 
         provision with modification
       The House provision that would allow states to use tiered 
     co-pays to encourage use of more affordable drugs should be 
     maintained in the final package; however, the provision that 
     limits this flexibility and otherwise links Medicaid program 
     administration to TRICARE-approved formularies should be 
     dropped.
     Rebates: NGA supports some Senate provisions, one with 
         modification
       The Senate provision that would increase minimum rebates on 
     brand name drugs should be maintained in the final bill.
       The Senate provision that extends rebates to managed care 
     organizations that care for Medicaid beneficiaries should be 
     maintained in the final bill.
       Regarding the requirement in both the House and Senate bill 
     for states to collect rebates on physician administered 
     drugs, the provision in the House bill that provides for a 
     hardship waiver for those states that require additional time 
     to implement the reporting system required to collect these 
     rebates should be maintained in the final bill.
                                  ____

                                 National Association of Community


                                         Health Centers, Inc.,

                                  Washington, DC, August 18, 2005.
     Margaret A. Murray,
     Executive Director, Association for Community Affiliated 
         Plans, Washington, DC.
       Dear Ms. Murray. The National Association of Community 
     Health Centers (NACHC), the national trade organization 
     representing America's 1,100 federally qualified health 
     centers, has reviewed your proposed initiative to provide 
     Medicaid managed care organizations with access to the 
     Medicaid drug rebate found in Section 1927 of the Social 
     Security Act.
       ACAP and NACHC share a very special relationship. Many of 
     ACAP's member plans are owned and governed by community 
     health center representatives. This unique relationship often 
     creates a mutual policy interest and this proposal is an 
     example of such an intersection.
       Your proposal to allow Medicaid managed care organizations 
     access to the Medicaid drug rebate makes sense given the 
     migration of Medicaid beneficiaries from fee-for-service to 
     managed care since 1990. Increasingly, states have not been 
     able to take advantage of the drug rebate for those enrollees 
     in managed care, thus driving up federal and state Medicaid 
     costs. The savings estimated in the Lewin Group study are 
     significant and may help to mitigate the needs for other cuts 
     in the program. In addition, it demonstrates a proactive 
     effort to offer solutions to improving the Medicaid program. 
     We applaud this effort.
       While we are deeply concerned that Congress may engage in 
     budget-driven, rather than policy-driven, efforts to restrain 
     or reduce Medicaid spending, we also recognize that--as 
     providers to a substantial portion of the Medicaid-enrolled 
     population--we have a responsibility to put forth viable, 
     realistic alternatives that can help slow the growth on 
     Medicaid spending without throwing people off the rolls, or 
     cutting benefits or payment rates, Your proposal offers just 
     such a common-sense solution, one that we would be pleased to 
     support in the event that the Congress acts to constrain 
     costs without undermining the fundamental goals of the 
     program.
           Sincerely,

                                       Daniel R. Hawkins, Jr.,

                                Vice President for Federal, State,
     and Public Affairs.
                                  ____

                                         Association for Community


                                             Affiliated Plans,

                                     Washington, DC, June 5, 2007.
     Hon. Jeff Bingaman,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Bingaman: On behalf of the Association of 
     Community Affiliated Plans (ACAP), our 32 member health 
     plans, and over four million Americans they serve, I am 
     writing to express our gratitude and support for your 
     legislation to extend the benefits of the Medicaid drug 
     rebate to the Medicaid beneficiaries enrolled in Medicaid 
     health plans.
       Created by the Omnibus Budget Reconciliation Act (OBRA) of 
     1990, the Medicaid Drug Rebate Program requires a drug 
     manufacturer to have a rebate agreement with the Secretary of 
     the Department of Health and Human Services for States to 
     receive federal funding for outpatient drugs dispensed to 
     Medicaid patients. At the time the law was enacted, managed 
     care organizations were excluded from access to the drug 
     rebate program. In 1990, only 2.8 million people were 
     enrolled in Medicaid managed care and so the savings lost by 
     the exemption were relatively small. Today, 18 million people 
     are enrolled in capitated managed care plans. Pharmacy costs 
     in Medicaid Fee-for-Service settings are 18 percent higher on 
     a per-member-per-month basis than in the managed care setting 
     even though plans are at a disadvantage with respect to the 
     federal rebate. With the federal rebate as an additional 
     tool, plans could save the Medicaid program even more.
       Extending the Medicaid drug rebate to Medicaid health plans 
     has been championed by ACAP for several years as a common 
     sense approach to reforming the Medicaid program, while 
     ensuring that all Medicaid beneficiaries receive the care 
     they need. The proposal to extend the drug rebate has been 
     endorsed by the National Governors Association, the National 
     Association of State Medicaid Directors, the National 
     Medicaid Commission, the Medicaid Health Plans of America, 
     the Partnership for Medicaid, and the National Association of 
     Community Health Centers. The Congressional Budget Office and 
     the CMS Actuary have said that this policy will save between 
     $1.7 billion and $2.2 billion in Federal tax dollars over 5 
     years.
       Again, thank you for your leadership to help modernize the 
     Medicaid program in a commonsense manner by extending the 
     savings of the drug rebate to Medicaid health plans. Please 
     do not hesitate to contact me if I can be of any further 
     assistance.
           Sincerely,
                                               Margaret A. Murray,
     Executive Director.
                                  ____



                             Medicaid Health Plans of America,

                                    Washington, DC, April 7, 2005.
     Margaret A. Murray,
     Executive Director, Association for Community Affiliated 
         Plans, Washington, DC.
       Dear Ms. Murray: The Medicaid Health Plans of America 
     (MHPOA) supports your proposed initiative to provide Medicaid 
     managed care organizations with access to the Medicaid drug 
     rebate found in Section 1927 of the Social Security Act. We 
     support this effort and urge Congress to enact this common 
     sense provision.
       Medicaid Health Plans of America, formed in 1993 and 
     incorporated in 1995, is a trade association representing 
     health plans and other entities participating in Medicaid 
     managed care throughout the country. It's primary focus is to 
     provide research, advocacy, analysis, and organized forums 
     that support the development of effective policy solutions to 
     promote and enhance the delivery of quality healthcare. The 
     Association initially coalesced around the issue of national 
     health care reform, and as the policy debate changed from 
     national health care reform to national managed care reform, 
     the areas of focus shifted to the changes in Medicaid managed 
     care.
       Your proposal to allow Medicaid managed care organizations 
     access to the Medicaid drug rebate makes sense given the 
     migration of Medicaid beneficiaries from fee-for-service to 
     managed care since 1990. Increasingly, states have not been 
     able to take advantage of the drug rebate for those enrollees 
     in managed care, thus driving up federal and state Medicaid 
     costs. The savings estimated in the Lewin Group study are 
     significant and may help to mitigate the needs for other cuts 
     in the program. In addition, it demonstrates a proactive 
     effort to offer solutions to improving the Medicaid program. 
     We applaud this effort.
       MHPOA is proud to support this legislative proposal and 
     will endorse any legislation in Congress to enact this 
     proposal.
           Sincerely,
                                                   Thomas Johnson,
     Executive Director.
                                  ____


                        The Medicaid Commission

 (Report to the Honorable Secretary Michael O. Leavitt, Department of 
 Health and Human Services and The United States Congress September 1, 
                                 2005)

     Proposal
       The Commission recommends allowing states to establish 
     pharmaceutical prices based on the Average Manufacturer Price 
     (AMP) rather than the published Average Wholesale Price 
     (AWP). Additionally, reforms should be implemented to ensure 
     that manufacturers are appropriately reporting data. Such 
     improvements should include reforms to ensure: (1) clear 
     guidance from CMS on manufacturer price determination methods 
     and the definition of AMP; (2) manufacturer-reported prices 
     are easily auditable so that systematic oversight of the 
     price determination can be done by HHS; (3) manufacturer-
     reported prices and rebates are provided to states monthly 
     rather than the current quarterly reporting; and (4) new 
     penalties are implemented to discourage manufacturers from 
     reporting inaccurate pricing information.
     Estimated savings
       $4.3 Billion over 5 years (CMS Office of the Actuary)


 Extension of the Medicaid Drug Rebate Program to Medicaid Managed Care

     Current law
       Section 1927 of the Social Security Act, effective January 
     1, 1991 sets forth the requirements of the Medicaid Drug 
     Rebate Program. In order for Federal Medicaid matching funds 
     to be available to States for covered outpatient drugs of a 
     manufacturer, the manufacturer must enter into and have in 
     effect a rebate agreement with the Federal government. 
     Without an agreement in place, States cannot generally 
     receive Federal funding for outpatient drugs dispensed to 
     Medicaid recipients. Rebate amounts received by states are 
     considered a reduction

[[Page S7458]]

     in the amount expended by States for medical assistance for 
     purposes of Federal matching funds under the Medicaid 
     program.
       The basic rebate for brand name drugs is the greater of 
     15.1 percent of the Average Manufacturer Price (AMP) or AMP 
     minus Best Price (BP). Best Price is the lowest price at 
     which the manufacturer sells the covered outpatient drug to 
     any purchaser, with certain statutory exceptions, in the 
     United States in any pricing structure, in the same quarter 
     for which the AMP is computed.
       The rebate for generic drugs is 11 percent of AMP.
       Under current law Medicaid states cannot collect rebates 
     from managed care organizations in the Medicaid Drug Rebate 
     Program.
     Proposal
       The Commission recommends providing Medicaid managed care 
     health plans access to the existing pharmaceutical 
     manufacturer rebate program currently available to other 
     Medicaid health plans. States should have the option of 
     collecting these rebates directly or allowing plans to access 
     them in exchange for lower capitation payments.
     Estimated savings
       $2 Billion over 5 years (CMS Office of the Actuary)


Change the Start Date of Penalty Period for Persons Transferring Assets 
                        for Medicaid Eligibility

     Current law
       States determine financial eligibility for Medicaid 
     coverage of nursing home care using a combination of state 
     and federal statutes and regulations. Personal income and 
     assets must be below specified levels before eligibility can 
     be established. Personal resources are sorted into two 
     categories: those considered countable (those that must be 
     spent down before eligibility criteria is met) and those 
     considered non-countable (those that applicants can keep and 
     still meet the eligibility criteria such as real estate that 
     is the beneficiary's primary residence). Some assets held in 
     trust, annuities, and promissory notes are also not counted. 
     If it is determined that the applicant has excess countable 
     assets, these must spent before they can become eligible. 
     Personal income is applied to the cost of care after a 
     personal needs allowance and a community spouse allowance is 
     deducted.
       Federal law requires states to review the assets of 
     Medicaid applicants for a period of 36 months prior to 
     application or 60 months if a trust is involved. This period 
     is known as the ``look back period.'' Financial eligibility 
     screeners look for transfers from personal assets made during 
     the look back period that appear to have been made for the 
     purpose of obtaining Medicaid eligibility. Transfers made 
     before the look back period are not reviewed.
       Applicants are prohibited from transferring resources 
     during the look back period for less than fair market value. 
     Some transfers of resources are allowed, such as transfers 
     between spouses. If a state eligibility screener finds a non-
     allowed transfer, current law (OBRA 1993) requires the state 
     to impose a ``penalty period'' during which Medicaid will not 
     pay for long-term care. The length of the penalty period is 
     calculated by dividing the amount transferred by the monthly 
     private pay rate of nursing homes in the state. The penalty 
     period starts from the date of the transfer. Using the date 
     of the transfer as the start date provides an opportunity for 
     applicants to preserve assets because some or all of the 
     penalty period may occur while the applicant was not paying 
     privately for long-term care.
       We oppose the Senate provision that provides for mandatory 
     dispensing fee guidelines. States welcome more research in 
     dispensing fees throughout the U.S. health care system. 
     Currently, there is very little information for states to use 
     when considering appropriate dispensing fees. New reference 
     information would be helpful; but mandatory guidelines should 
     not be imposed on states.
       The effective date for any dispensing fee provisions should 
     be the date 6 months after the close of the first regular 
     state legislative session. A state may need extra time to 
     implement a pharmacy reimbursement system to determine 
     appropriate dispensing fees and make changes to separate out 
     the dispensing fee from the reimbursement in their systems.
       Governors should maintain flexibility to establish 
     dispensing fees to maintain access to both pharmacies that 
     may provide specialty services as well as those that serve 
     beneficiaries in rural and underserved areas. Limiting such 
     pharmacies by arbitrary federal statutory definitions or 
     regulation will not help states to manage their pharmacy 
     programs. New federal mandates on how to consider dispensing 
     fees for such pharmacists are unnecessary and burdensome.
     Preferred drug list restriction
       NGA opposes House provision
       The House provision (Sec. 3105) that would limit states' 
     current ability to include mental health drugs on a state's 
     preferred drug list should be dropped from the final bill. 
     This provision would be very costly--far beyond the $120 
     million estimated by the Congressional Budget Office--and 
     would undermine states current ability to use common-sense 
     tools that are used throughout the health care system to 
     manage expensive mental health drugs. For example, Texas 
     estimates the provisions federal impact from its state would 
     be a cost of $50 million over 5-years and California alone 
     estimates $250 million cost to the federal government over 
     the 5-year budget window.
     Tiered Co-pays for prescription drugs
       NGA supports House provision with modification
       The House provision that would allow states to use tiered 
     co-pays to encourage use of more affordable drugs should be 
     maintained in the final package; however, the provision that 
     limits this flexibility and otherwise links Medicaid program 
     administration to TRICARE-approved formularies should be 
     dropped.
     Rebates
       NGA supports some Senate provisions, one with modification
       The Senate provision that would increase minimum rebates on 
     brand name drugs should be maintained in the final bill.
       The Senate provision that extends rebates to managed care 
     organizations that care for Medicaid beneficiaries should be 
     maintained in the final bill.
       Regarding the requirement in both the House and Senate bill 
     for states to collect rebates on physician administered 
     drugs, the provision in the House bill that provides for a 
     hardship waiver for those states that require additional time 
     to implement the reporting system required to collect these 
     rebates should be maintained in the final bill.
                                 ______