(brand name drugs) listed on the Federal Supply Schedule (FSS) is capped at the Federal Ceiling Price (FCP). That price is at least 24 percent less than the average price paid to a manufacturer (AMP) by wholesalers for drugs distributed to nonfederal purchasers (NFAMP). The NFAMP is not publicly available (GAO, 2000). The VA manages the FSS, another cost containing measure. The schedule specifies the quantities of and prices paid by the federal government for a wide range of medical goods including drugs. Competitive procedures are used to award contracts to companies to provide drugs at “the most favored customer price.”

Under the Medicaid program, state agencies are allowed to purchase drugs at a lower cost for the treatment of HIV/AIDS through a rebate program. Other entities, including ADAP, are eligible to purchase pharmaceuticals under the 340B Drug Discount Program. This program allows for these entities to purchase drugs directly from manufacturers though a centralized mechanism at a lower price or to obtain rebates under the state Medicaid rebate program. Twenty-two state ADAPs obtain drugs at the 340B discount price and 26 state ADAP programs take advantage of their states’ Medicaid unit rebates on a quarterly basis (Aldridge and Doyle, 2002).

In a report released in 2001, the Office of the Inspector General for the Department of Health and Human Services (OIG) estimated that state Medicaid programs in 1999 paid 33 percent more than the FCP for antiretroviral medications (DHHS, 2001). The OIG also estimated that Medicaid’s price for antiretroviral drugs was 10 percent higher than the FSS, and 5 to 15 percent higher than the price paid by state-administered ADAPs (depending on how the programs were organized). In its report, the OIG recommended that Medicaid be given access to the FCP for antiretroviral drugs (DHHS, 2001). In a separate report, the OIG has also recommended that ADAP also be given access to the FCP (DHHS, 2000). The Committee finds that the OIG analysis has merit and that it should apply with equal force to the new federal HIV program. By replacing and expanding upon both Medicaid and ADAP, the new federal HIV program would be this country’s single largest purchaser of the prescription drugs that make possible effective HAART therapy.

The Committee recognizes that pricing policy of public programs can affect the research and development investment decisions of pharmaceutical manufacturers, particularly when, as in this instance, the public program is a dominant purchaser. There is a risk that, if the new program purchases antiretroviral drugs at the FCP, manufacturers may be less willing to invest significant resources in research and development for HIV therapies because they project a reduction in potential revenues for new drugs in this class. There are also concerns that manufacturers will raise prices for other purchasers to offset revenue losses resulting from the lower reimbursement

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