PHARMA/POLICY: Medicaid gets screwed over on best price, Ignagni fibbing again.

A little while ago I sat through a webcast starring my favorite factually challenged health plan lobbyist. Karen Ignagni said this about the costs of pharmaceuticals for Medicaid that are now bought instead by the private plans working under Part D:

"I’m hearing shock from (state) Medicaid directors that we’re getting better prices than they are"

At the time I postulated this

Ignagni is either lying here
(or massively overstating the truth from a few anecdotes), or going to
find a few men in sharp suits from the rich part of K street funded by
big Pharma coming down to see her carrying baseball bats.

You see, Medicaid plans get from pharma manufacturers
what’s known as “best price”. In other words if they give a better
price to another customer, they also have to give that price to
Medicaid. Medicaid is still of course buying its drugs for its
non-Medicare dual eligible population. The drug companies know this, so
I doubt that what she’s saying is true. But if it is true that
Ignagni’s health plan members are getting a better price than the
states are, then the states can go back to the pharma manufacturers to
get a better rebate — oh, and also prosecute Pharma companies for fraud
over not giving them best price, as has happened many times.

And today writing in the New York Times Milt Freudenheim has picked on the issue, which he calls  a Windfall From Shifts to Medicare. So was Ignagni telling the truth? Were the prices that Medicaid is now paying for its drugs via Part D lower than they were paying under the best price regime? Well take a wild guess.

Under that program, as it turns out, the prices paid by insurers, and eventually the taxpayer, for the medications given to those transferred are likely to be higher than what was paid under the federal-state Medicaid programs for the poor.

McLellan is also quoting the line that Part D is getting better prices, but the article has a raft of evidence suggesting that the drug companies think they’re doing better, and the states are being asked to return more under the "clawbacks"–the amount they are being billed as they no longer have to provide drugs for the dual eligibles–than if they’d maintained their own programs. Several states are suing the Feds about that.

Meanwhile, I still think that they ought to be able to go to the drug companies and get "best price" for the rest of their Medicaid drugs (unless someone can tell me they have an exemption under the law). Which I guess in the end may make this a wash, if the drug companies have to provide even cheaper Medicaid drugs.

But for now it’s just more evidence that Part D is a windfall for drug companies and health plans, and that AHIP’s President has been caught being extremely economical with the truth. Not exactly news, I know.

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3 replies »

  1. I was just on the Consumer Health World blog & they actually got newt Gingrich to post about his plan for reforming Medicaid. I think he might be on the right track with his vision for the diabled (poor, elderly, etc).

  2. There are a number of misperceptions in your statement that need correcting. First and foremost, there is a missing link in your argument–the retail pharmacy. State Medicaid programs pay the retailer for a drug and then get a rebate from the manufacturer. While the manufacturer rebates may or may not be higher for the Medicaid programs, Part D plans have done a substantially better job of wringing savings out of the retailer. Thus, the net price of the drug, taking into account both the manufacturer rebate and the negotiated retail discount could indeed be lower than the price given to Medicaid programs.
    Additionally, while Medicaid gets best price, Part D is exempt from setting best price. That’s one of the reasons that Part D plans are getting higher rebates under Part D than they have gotten for commercial business.
    Importantly, the overall result may be that plans may end up with higher rebates for their commercial business. The rational is that in the past drug companies were hesitant to break “best price” since it would force them to then match that price for all Medicaid business nationally. Since Medicaid was roughly 15% of all sales, this “penalty” could be significant. Now, since the duals have shifted to Medicare for their drug benefit, Medicaid is probably around 5% of drug industru sales. Thus, if a pharmaceutical company breaks best price, the resulting penalty is small. PBMs and HPs know this and will use it as leverage to increase their commercial rebates.
    One other note about this supposed windfall. Certainly, some companies that were heavily dependent on Medicaid sales will experience some modest upside; conversely, many new enrollees in Part D come from the cash world where they payed full price. Now, pharma comapnies pay rebates for drugs purchased by these patients. This mitigates the windfall to some degree. Finally,HP and PBMs are just beginning to take advantage of their increased negotiating power which will likely rein in net drug costs over the next few years.

  3. How can we expect to get anything close to the truth from the same inusurers, let alone this “secrecy is everything” administration, benefiting from Part D. This is one big taxpayer scam designed to turn tax dollars into Republican campaign donations. The irony is the Bush Admin. thinks that exporting this corrupt, “politics for money” democracy will free oppressed people around the world.