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Generics, PhRMA Tussle Over Medicaid Provision

Generic pharmaceutical companies this week unexpectedly spotted what they describe as a poison pill in the Senate Finance Committee’s budget reconciliation package — and now the industry’s lobbyists are feverishly looking for a legislative cure.

Buried inside the maze of spending cuts included in the chairman’s mark of the package, which won panel approval on Oct. 25, was an increase in the percentage that both generic companies and name-brand drugmakers pay to participate in the Medicaid program.

In order to provide their medicines to Medicaid customers, all drug companies have to sign up with the Centers for Medicare and Medicaid Services and agree to pay a percentage of their drugs’ costs back to the government. Currently, generics pay 11 percent of the wholesale price of their pills, while name-brand makers pay 15.1 percent.

But the Finance Committee’s package would raise both to 17 percent — a move that generic manufacturers say could drive them out of the Medicaid system, which would in turn promote higher drug prices.

Not surprisingly, generics lobbyists are quick to point the finger to their rival, the big pharmaceutical companies. Several sources in the generic industry said that name-brand companies such as Pfizer have pushed for the past four years for such parity in the states. (A Pfizer spokeswoman did not return a call for comment.)

Kathleen Jaeger, chief executive of the Generic Pharmaceutical Association, said the issue came up the night before the Senate Finance Committee markup earlier this week.

“We had not heard that the generic rebate issue” was under consideration, she said. “We had heard that brand industry rebates were being considered.”

She added: “We think, unfortunately, it’s the brand industry pushing this alleged fairness.” Jaeger’s group last year reported spending $560,000 on federal lobbying, compared to the more than $15 million spent last year by the Pharmaceutical Research and Manufacturers of America.

A PhRMA spokesman said that his organization wants any increases to be “fair and equitable” for both brand-name and generic drugs.

In an e-mail, PhRMA’s Ken Johnson wrote: “If a legislative increase in the drug rebate were to occur, it should be fair and equitable across generic and brand-name medicines. But as the Congressional Budget Office has found, increasing Medicaid rebates could discourage and reduce future research and development of new life-saving medicines that low-income Americans rely on to lead healthier, longer lives.”

But PhRMA has not taken an official position on the legislation. An e-mail from a PhRMA spokeswoman said her group is “still reviewing various reconciliation proposals and their impact on patient care.”

But generics industry officials agree that the name-brand drugmakers could absorb a hike in the rebate much better than their own industry could.

Jake Hansen, vice president for government affairs at Barr Pharmaceuticals, a generic drugmaker, said that even the 11 percent rebate on generics sometimes makes companies like his lose money on its products to Medicaid recipients.

If the rebate for generics is raised to 17 percent, Hansen said, the industry will “have to make some hard decisions about [whether we can afford] to participate in the Medicaid program.”

“If they drive companies out — if we decided we weren’t going to participate in Medicaid anymore — then states would have to pay for the branded product,” Hansen added.

In addition, companies that do not leave Medicaid altogether might stop manufacturing some products, thus decreasing competition and also leading to higher pill prices, he said.

“The costs would not only go up for Medicaid but for every consumer,” Hansen said.

Jill Kozeny, a Finance Committee spokeswoman, said the debate is not about generics and brand-name drugs.

“The Finance Committee title for the reconciliation bill works to reduce the cost of prescription drugs for state and federal taxpayers,” she said. “The reimbursement rate set by the legislation for multiple-source drugs gives an advantage to generic drugs. The requirement in the legislation for states to set dispensing fees gives an advantage to generic drugs. The rebate increase itself simply provides parity with the rebate policy on branded drugs.”

Advocates for the generic drug industry also said they fear that, under a 17 percent rebate for both generic and brand names in Medicaid, officials could carry that same model over to the Medicare system, which is about to launch its prescription drug benefit next year.

The rebate percentages are generally higher for name-brand drugs, which can sell for $1 or more per pill, than for generic tablets, which often go for pennies.

Increasing the rebate to 17 percent for brand-name drugs, according to industry estimates, would amount to about $1.1 billion in new federal revenue, while the increase to 17 percent for generic drugs would likely net government coffers about $300 million in new money.

Hansen said his company has sent word out to its lobbyists to gear up.

“We’re trying to make sure we get everybody up to speed on the Hill,” he said. “We’re definitely going around making sure all the Republican members of the Finance Committee understand what our concerns are.” And Barr, for one, is getting its message out to Members from the states where it has facilities including Virginia, Ohio, New York and New Jersey.

Lobbyists in the generics industry said the increase to the generic rebate may have been included in the bill as an offset for another program, which was intended to sweeten the pot for wavering lawmakers.

Charlie Sewell, vice president of government affairs for the National Community Pharmacists Association, said that even though the rebate increase for generics wouldn’t specifically harm his members’ bottom line, his group has teamed up with the generic makers to lobby against the increase, in addition to several other Medicaid-related measures that would directly hit pharmacists.

Medicaid prescriptions account for about 25 percent of community pharmacists’ business, he said, and in some rural areas it accounts for more than 50 percent.

Name-brand medicines, on average, go for about $115, while the average generic prescription costs about $21 — so Sewell said that every generic his members dispense saves the government an average of $94.

“What they’re doing is making it difficult for generics to stay in business and creating a perverse interest in having pharmacies dispense more brand name” drugs, Sewell said. “Generics are the one way to save money.”

On the Senate’s version of Medicaid cuts, especially those related to pharmacies, the community pharmacists have teamed up with the National Association of Chain Drug Stores and is looking at establishing a coalition effort that would include consumer groups, unions and health organizations, Sewell said.

“What passed in the Senate was an absolute disaster from our perspective,” said Sewell, adding that his group and the possible new coalition would fight the Medicaid cuts in conference committee or, if needed, even on the floor.

“We’re going to spend what’s necessary,” he said. “For our small community pharmacists, this is a matter of life or death.”