THE EFFECT OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1980 ON COST ISSUES RELATED TO THE PROCUREMENT OF PHARMACEUTICALS

In 1990 the Omnibus Budget Reconciliation Act (OBRA \u2790) became law (P.L. 101-508). Language in this statute requires that drug manufacturers provide rebates to each state Medicaid program (See Appendix 3) for prescription drugs purchased through the program. Rebates are calculated by a formula, but in general are written to reduce drug acquisition costs of 15% below wholesale acquisition cost, that is, 15% below the prices paid by wholesalers to the manufacturers for drugs distributed to the retail class of trade. These discounts only apply to the prescription drug coverage portion of the Medicaid1 program. Though intended to secure low prices for prescription drugs purchased through the federal Medicaid program, it was hypothesized as a basis for this project that OBRA \u2790 mandated discounts would result in a cost shifting and increased prices paid by other market segments, and, that by reducing manufacturer profits, would reduce funding for manufacturer sponsored pharmaceutical research. To explore these hypotheses a population was defined and a structured, closed end, opinion questionnaire was devised. A list of qualified bidders for the State of Rhode Island annual drug bids was selected. This list comprised an entire universe of manufacturers who are involved in competitive bidding on the state contracts. The list of 89 vendors, though small in absolute terms, does cover the available pharmaceutical market as defined by the needs of those patients served by various facilities associated with the State of Rhode Island. Respondents at central bid addresses were asked to complete anonymous questionnaires. Questionnaire design concentrated on brevity, ease of answer, and on not inducing bias. The only incentive offered to completing the questionnaire was a copy of the results. It was found that opinions expressed in the questionnaire supported the hypothesis that OBRA \u2790 would add upward pressure to drug prices in general. Responses suggest that OBRA \u2790 will have the effect of decreasing manufacturer profit, increasing costs to buyers other than Medicaid, and decreasing respondent’s ability to offer low prices in competitive bids for both innovator and generic drugs. Within study limitations, modest support was found for the hypothesis that lower manufacturer profits meant less funding for research