Drug discounts do disappearing act Drug firms circumvent the law, raising -- not lowering -- prices.


WASHINGTON -- Congress recently passed a law requiring drug companies to give Medicaid the same deep discounts they give other big customers. But instead of reducing Medicaid drug prices, many companies are now raising the prices those other big customers must pay.

For two decades, Medicaid, the federal-state health program for poor people, has paid more for prescription drugs than other large purchasers, such as government and private health groups, which have negotiated discounts of 25 percent to 60 percent or more off the usual wholesale prices.

Until last year, the government did not demand such discounts because federal Medicare officials did not focus much on the cost of drugs, and drug companies argued that their prices were justified by the high costs of pharmaceutical research.

Under the law, which took effect on Jan. 1, drug makers must offer state Medicaid programs the lowest price available to any purchaser in the market.

Now drug companies are increasing prices to some of those other purchasers, including the Department of Veterans Affairs, prepaid health plans such as the giant Kaiser Permanente group, hospitals, family planning clinics and community health centers for migrant workers, homeless people and the indigent.

Health care experts say these added costs may soon trickle down to consumers in the form of higher medical costs and, ultimately, insurance premiums.

More than 16 million people, about two-thirds of all Medicaid recipients, get drugs through the Medicaid program each year. Medicaid spent $3.7 billion on drugs in 1989, or $280 million more than it spent for physician services.

In October, the Congressional Budget Office estimated that the Medicaid discounts would save $1.9 billion for the federal government and $1.4 billion for the states over five years.

Assuming that such savings would be achieved, Congress substantially expanded Medicaid benefits for pregnant women, children and frail elderly people.

Supporters of the 1990 legislation are furious. The chief sponsor, Sen. David Pryor, D-Ark., chairman of the Special Committee on Aging, said the price increases appeared to be "an attempt to circumvent the new Medicaid law," shift costs and nullify the savings envisioned by Congress.

Rep. Ron Wyden, D-Ore., acknowledged that the price increases were legal, but he added: "This is a very foolish move by drug companies. It will be seen as a transparent attempt to get around the intent of Congress."

The drug industry termed the legislation a violation of "free-market principles" and warned that it would disrupt the market.

A lobbyist for the drug industry said: "We are surprised that Senator Pryor is surprised. I don't know what else he would have expected.

"It's logical that companies would re-examine their prices if Congress passes a law saying that Medicaid, which accounts for about 10 percent of our revenues, must get the best price given to any pharmaceutical customer in the country."

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