The federal-state Medicaid program paid $474 million more for prescriptions in 1989 than it would have paid under drug prices charged to Canadian government health programs, according to a study by Health and Human Services Inspector General Richard P. Kusserow.
The report, which has not been released, compared prices paid by Medicaid in the five states with the largest drug outlays with prices paid in typical Canadian provincial drug programs.
It concluded that on a national basis, Medicaid would have saved $474 million of its $3.6 billion prescription drug outlays if Canadian prices had been in effect here. The report said the Canadian provinces obtain the lower prices by negotiating directly with the drug companies after determining how much was charged in seven other industrial nations. The Medicaid program could achieve similar savings by refusing to allow use of high-priced drugs for which there is a cheaper therapeutic equivalent and using similar negotiating strategies, the report said.
The report is almost certain to spur the campaign by Sen. David Pryor (D-Ark.) and Reps. Ron Wyden (D-Ore.) and Jim Cooper (D-Tenn.) to compel drug companies to cut the prices to Medicaid.
Pryor is sponsoring a bill to force drug manufacturers to bid competitively against each other in each state to determine who will give Medicaid the lowest price on drugs found to be medically equivalent for a given condition. The low-bidder's drug would then become the only one normally permitted for that condition for the length of the contract. The Office of Management and Budget has a similar proposal.
"The government needs to be able to say to drug companies -- we'll buy your competitor's product if you don't drop your price. That approach saves millions of dollars. The manufacturers know it, I know it, and this report confirms it," Pryor said yesterday.
Pryor, Wyden and Cooper have introduced another measure requiring drug companies to charge Medicaid no more for any prescription drug than it charges its lowest-paying customer in the country.
"This means that if Medicaid in a state is paying $10 for a prescription but the same company is selling it to a hospital elsewhere for $7, the company must rebate Medicaid $3," Wyden said.
He added, "The report shows that no savvy purchaser of medicine would be paying the prices Medicaid is paying. For more than a decade drug company overcharges have been gobbling up revenue that could have been used to meet the health needs of the low income."
Some state Medicaid programs use price-cutting requirements, and some drug companies, like Merck, have offered discounts under certain conditions.
But Medicaid-Medicare Administrator Gail Wilensky told a Senate Finance subcommittee hearing yesterday, "Medicaid continues to pay substantially more for drugs than many hospitals and health maintenance organizations and other federal agencies. . . . "
In an interview, Gerald Mossinghoff, president of the Pharmaceutical Manufacturers Association, said, "Until recently Canadian prices have been low because of government patent policy, but discovery of new drugs there has been negligible as a result; the government did not not protect drug firms against the huge costs of research and development of new drugs."
In testimony at the Senate hearing, he strongly opposed the Pryor and OMB forced-bidding proposals. He said they make the false assumption that "different drugs having unique chemical structures are somehow therapeutically interchangeable among patients who have vastly different medical profiles."
He also opposed the Pryor-Wyden-Cooper proposal, arguing that it violated free-market principles and penalized a company for its generosity in giving the Veterans Affairs Department a deep discount by making it then give it to Medicaid as well.