NAMD Submits Statement for the Hearing Record on Prescription Drug Shortages
Washington, DC -- NAMD submitted a statement for the record of the Senate Finance Committee hearing, "Drug Shortages: Why They Happen and What They Mean." The full text of the statement follows.
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Chairman Baucus, Ranking Member Hatch, and members of the Senate Finance Committee, thank you for this opportunity to submit a statement for the record regarding the December 7, 2011 hearing titled “Drug Shortages: Why They Happen and What They Mean.”
Medicaid
Medicaid is the nation's health care safety net. Jointly financed by the states and the federal government, Medicaid will spend more than $400 billion this year to provide health care to more than 60 million Americans. In 2009, Medicaid spent $25.4 billion in federal and state funds for prescription drugs, excluding managed care spending and specialty drugs covered under the program’s medical benefit. The program is administered by the states within a broad federal framework which leads to enormous variation across states in terms of who is covered, what services are provided, and how those services are delivered and paid for. Furthermore, within any given state, Medicaid's role is broad, varied, and complex. Medicaid funds more than 40 percent of all births, and the majority of all publicly financed long-term care in this country. It also provides most of the nation's funding for HIV/AIDS related treatments, mental health services, and others. It is therefore very difficult to talk simplistically about Medicaid (either nationally, or within a state), despite its incredible importance in the U.S. health care system.
NAMD is a newly formed organization created with the sole purpose of providing a home for the nation’s Medicaid Directors and we represent all 56 of the state, territorial and DC agency heads. Our two broad objectives are to give the Medicaid Directors a strong, unified voice on national and federal matters as well as helping develop a robust body of technical assistance and best practices for them to improve their own programs. While no two programs look exactly alike, the Directors are unified in their heartfelt desire to improve the health and health care of the growing number of Americans who rely on the program.
Medicaid Drug Rebate Program
The Medicaid Drug Rebate Program, created by the Omnibus Reconciliation Act of 1990 (OBRA '90) which added Section 1927 to the Social Security Act (the Act), became effective on January 1, 1991. The program was enacted out of concern for the cost to the Medicaid program for outpatient drugs. It affords state Medicaid programs the ability to reimburse pharmacies for drugs at market rates while allowing Medicaid to achieve net costs on par with those offered by pharmaceutical manufacturers to large purchasers. While not the only cause, the Medicaid Drug Rebate Program has helped generate significant savings for the states and the federal government that helps offset Medicaid prescription drug expenditures for outpatient prescription drugs.
The Medicaid Drug Rebate Program is a partnership between CMS, state Medicaid agencies, and participating drug manufacturers. Manufacturers who wish their products to be eligible for coverage by Medicaid must first sign a rebate agreement with CMS and also enter into agreements with two other federal programs – a pricing agreement for the Section 340B Drug Pricing Program and a master agreement with the Secretary of Veterans Affairs for the Federal Supply Schedule. It is worth emphasizing that the Medicaid Drug Rebate Program is a partnership in which manufacturers voluntarily and willingly participate.
According to information posted on the website of the Centers for Medicare and Medicaid Services (CMS), approximately 600 drug manufacturers currently participate in this program. While technically an optional benefit, all fifty states and the District of Columbia cover prescription drugs under the Medicaid Drug Rebate Program.
Addressing Drug Shortages
Medicaid Directors share your concern about the rise in the number of drug shortages over the last five years. State Medicaid agencies are particularly attuned to whether such shortages may impact the quality, efficiency and cost effectiveness of care that is delivered. According to the Food and Drug Administration’s October 31, 2011, report, “A Review of FDA’s Approach to Medical Product Shortages,” this increase was due at least in part to the FDA’s augmented efforts to encourage manufacturers to report shortages.
We concur with the witnesses’ statements during this hearing that the root causes of drug shortages are unique to each particular medication, multifactorial, and highly complex in nature. Overall, some of the most common reasons cited for shortages include the unavailability of raw ingredients, manufacturing quality issues and FDA enforcement actions that halt production, voluntary recalls, poor inventory ordering, industry consolidation, offshore production, a change in product formulation and even rumors of an impending shortage. In addition, witnesses at this and related hearings have indicated that some drug manufacturers report they have exited the business of making older, generic injectable drugs, which typically are not as profitable as newer, brand-name medicines.
We also strongly agree with the witnesses and other experts who have stated that the potential solutions must be appropriately targeted, based on sound data that any given solution would minimize shortages in the future, and demonstrate that they will not have an adverse impact on other facets of the health care marketplace, including the Medicaid program. Some proposals discussed by this and other congressional committees have suggested implicating the Medicaid Drug Rebate Program in the solution for addressing drug shortages, yet NAMD and our members are not aware of any credible data that would support such a policy.
In fact, we question the soundness of tying rebates, at least in part, to manufacturers exiting the business of making older, generic injectable drugs. These products, which typically are not as profitable as newer brand-name medicines, are commonly not even subject to Medicaid drug rebates as they are given in the hospital on the inpatient side. For the few that are subject to Medicaid drug rebates, the fact that they are generic should minimize the actual cost impact to the manufacturer since generics have a very low percentage Medicaid rebate (13 percent of average manufacturer price ). Therefore, if over 90 percent of an injectable is used on the inpatient side, an exemption from the Medicaid drug rebate would provide a 1 percent of AMP impact for the manufacturer. Given the minimal financial benefit for the generics to the manufacturer, this is likely to correlate to a minimal financial impact for the state provided the bill was specific to drugs that are in short supply due to halting of manufacturing because of low profit potential.
Medicaid Directors oppose establishing a partial or full exemption from the Medicaid Drug Rebate Program for manufacturers. The drug rebate program was created to address a specific problem and trend in the Medicaid program – to control public spending and ensure states receive discounts similar to those provided to private purchasers. Providing exceptions to the Medicaid Drug Rebate Program to help solve the drug shortage issue, even if temporary in nature, could be very detrimental and disruptive to Medicaid programs.
We respectfully request that the Committee consider several issues prior to advancing legislative solutions impacting Medicaid. For example, we ask that policymakers consider the administrative costs to CMS, states and manufacturers, to implement any Medicaid related proposal, including the ongoing costs for tracking and oversight of proposals for a “holiday” from the drug rebate program.
In addition, we believe policy solutions must consider that a promise to provide a product is not immediate and cannot be accomplished if the shortage is due to raw material issues. In fact, several of our state members informed NAMD that the shortages that affect their Medicaid programs are largely raw material shortages due to Drug Enforcement Agency (DEA) allocation.
Simply put, it is ill-conceived to seek solutions from a Medicaid policy that is successfully addressing the problems it was intended to mitigate.
Conclusion
In closing, we respectfully ask that Congress engage Medicaid Directors, through our association, in discussing their experience with drug shortages in order to fully assess these causes and solutions to this public health crisis. Working together we can craft appropriate solutions targeted to the actual problem and that do not create unforeseen consequences down the road.
