Cutting Medicaid drug payments?
By Jerry Mazza
Online Journal Associate Editor

Dec 28, 2006, 01:27

The Bush Administration is proposing �sweeping reductions in payments to pharmacies� to save money for Medicaid, the health program for more than 50 million low-income (and poor) people. God help them, the pharmacies and beneficiaries . . .

The goal seems like all sunshine and good things to make sure Medicaid gets drug discounts like those provided to larger customers in the private sector, companies like Caremark Rx and Medco Health Solutions, who manage drug benefits for people whose health insurance comes through employers.

The states that share costs of Medicaid with the federal government come up with the final decisions on what pharmacies are paid, of course, according to federal limits. The proposed new rule would offer states new data in their calculations, redefining the �average manufacturer price� for brand name and generic drugs.

Consumers wouldn�t be affected directly by the proposed revamping. But federal bright lights said they hope consumers would ask for lower drug prices after checking the price list to be posted on a Web site. Shouldn�t that be the government�s job? If I�m poor and/or sick, I�m supposed to be checking my drug�s prices? Then what, get in my wheelchair and go picket Pfizer or the generic producer?

One of the bright lights, S. Lawrence Kocot, senior adviser to the administrator at the Centers for Medicare and Medicaid Services, said the new rule would carry out provisions of no less than the Deficit Reduction Act, signed by President Bush on Feb. 8, 2006. Well, I�ll be . . . Is that the out-of-control annual Bush deficit of between $400 and $500 billion, or the beyond-belief National debt, weighing in at close to $9 trillion?

The law, along with the proposed new rules, would limit payments to state Medicaid agencies for the cumulative costs of prescription drugs when a generic substitute is available. Fair enough. The officials claim the rule would save $8.4 billion over five years, a 5.6 percent reduction in total projected Medicaid spending on prescription drugs in that period. If the new rule is adopted, the administration claims the government would save $4.9 billion and the states some $3.5 billion. I look forward to reading those numbers.

Now, we�ll get into the fine print

The Department of Health and Human Services estimates that more than 90 percent of the savings would come from the pharmacies. Huh? The rest, 10 percent of savings, would come from Big Pharma. And the administration admitted to the fact that the new rule could cut revenues for many of the nation�s 18,000 small retail pharmacies.

In fact, they said they had no way to measure the impact precisely. But they did know the revenue reductions could (would) fall particularly hard on those pharmacies in low-income areas, containing high concentrations of Medicaid beneficiaries. Nice. So kick the neighborhood stores serving the underserved till they fold and there�s even less service.

The bright lights said pharmacies could �mitigate the effects� of lost revenue by buying lower-cost drugs, that is if pharmacies can find other generic drug companies ready, willing and able to lower their prices below the new federal limits. Does that sound real or reasonable? Well you, the public, will have 60 days to comment on this idiocy. And the idiots will weigh your comments and then pronounce �a final rule with the force of law.� Wow, and faster than a speeding bullet.

Meanwhile, Bruce Roberts, executive vice president of the trade group the National Community Pharmacists Association, commented, �The proposed rule would have the perverse effect of discouraging the use of generic drugs . . . The new limits on Medicaid reimbursement will be way below what drugstores typically pay for those drugs.� In other words, these mom and pop or smaller drugstores will have to eat the difference. But not Big Pharma. Or the chain stores.

Under a 1990 law, drug producers must give discounts to states that buy their drugs for poor people who receive Medicaid benefits. The discounts come in the form of rebates -- paid by companies every time their pills go to a Medicaid beneficiary.

For generic drugs, the rebate is 11 percent of the average price paid to the manufacturer. That is the average manufacturer price. For brand-name drugs, the basic rebate is at least 15.1 percent of the average price. And it could be more because Medicaid is supposed to be able to access the �best price� paid by any other buyer.

The curve ball is that each drug company calculates how much it owes Medicaid back for each of its drugs. And to whom are they accountable as to the validity of their calculations?

Well, the Government Accountability Office (GAO), an investigative arm of Congress, said that manufacturers calculated prices and rebates in quite different ways. Duh, why? Because they have not gotten �clear guidance� from the federal government. Well, why not? They are the ones trying to cut expenditures. Yet the GAO also said federal Medicaid officials rarely check the accuracy of these calculations. Of course, someone is probably pulling them out of a hat.

Medicaid has consistently bargained for lower prices

Also, the truth is that Medicaid has more consistently been able to deliver better prices on drugs than Medicare, even with its Plan D (fill in the blank for what D stands for). But then Medicare was not able to bargain with drug manufacturers. That�s a no-no. They might damage Big Pharma�s bottom line.

Medicaid could and did bargain with manufacturers, and got better deals for the poor, including veterans. So let�s kick them in the head and create even more obstacles and paperwork for them. And make it almost more tempting to get a bigger discount with the more expensive name-brand drugs.

By the way, the facts of this story come from the New York Times, some of whose writers live in my West Side building. They are more genteel folks than my Brooklyn street kid self. They won�t come right out and tell you this is baloney, messing with Medicaid and the 50 million people it serves, and messing specifically with the pharmacists who are on the frontlines in those communities serving the people everyday.

It�s still another way to slash and burn part of the only public retirement and healthcare system we have ever had in this country -- thanks first to FDR for Social Security, thanks second and third to JFK and LBJ for conceiving of and bringing to reality Medicare then Medicaid, which spun out of Social Security thinking.

And for 70 years, the life of Social Security, the Repuglicans have hated every dollar workers and employers paid into Social Security so benefits could be dispensed to America�s seniors, as they hated every dollar for services and drugs the 42-year old government-funded Medicare and Medicaid programs dispensed for America�s disabled and poor. A pox on the GOP, sick beast that it is.

Jerry Mazza is a freelance writer living in New York. Reach him at

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