In fact, Medicaid reimbursement to HIV/AIDS providers historically has been so low that in many states access to care for Medicaid beneficiaries with HIV/AIDS is the same as for those who are uninsured (Shapiro et al., 1999). Such access barriers are incompatible with the Committee’s objective of reducing morbidity, mortality, and disability among low-income individuals with HIV. While reimbursement levels will not in and of themselves guarantee widespread participation by qualified providers, they are an important determinant. Perhaps the best illustration of this is the contrast between Medicare and Medicaid. Physician participation in Medicare, which sets reimbursement rates higher than those in most states, has been consistently higher than in Medicaid, resulting in better patient access to care and easier patient referrals (MedPAC, 2003). This is not to say that Medicare rates for every covered item or service are always optimal. However, a public program that relies on Medicare payment principles and rates is much more likely to succeed in attracting sufficient qualified providers than is a program that pays providers less.

Recommendation 6.5: To ensure that the new program is a prudent purchaser of drugs used in the treatment of HIV/AIDS, Congress should implement measures that lower the cost of these drugs such as applying the Federal Ceiling Price or the Federal Supply Schedule price currently used by some major federal programs. Implementation of this recommendation would lead to an estimated discount off of Medicaid antiretroviral prices of 9 percent to 25 percent, as discussed below.

Drug manufacturers sell the same product at different prices to different purchasers. The price established for the different segments of purchasers depends on the price sensitivity of each group or the extent to which the group would change the amount of a product it buys if the price increases or decreases. Under current law, the price drug manufacturers can charge the Department of Veterans Affairs (VA), the Department of Defense (DOD), the Public Health Service (PHS), and the Coast Guard for products (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 off 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. Under this Medicaid Drug Rebate Program, established by the

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