Omnibus Budget Reconciliation Act of 1990, manufacturers must enter into rebate agreements with the Secretary of Health and Human Service and pay quarterly rebates to state Medicaid agencies. The amount of the rebate received by the State is calculated as the greater of 15.1 percent of the AMP or AMP per unit, or the difference between the AMP and the manufacturer’s “Best Price” for brand-name drugs. The “Best Price” is the lowest price the manufacturers charge “best customers” other than Medicaid (e.g., wholesalers, retailers, non-profits, FSS, etc.). For generic drugs, state agencies are given a rebate of 11 percent of the AMP (DHHS, 2001).

Certain entities are eligible to purchase pharmaceuticals under the 340B Drug Discount Program, including ADAP programs. 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. The 340B discount is roughly the AMP minus the Medicaid rebate amount. Twenty-two state ADAP programs that directly purchase pharmaceuticals through a centralized purchaser obtain drugs at the 340B discount price. Twenty-six state ADAP programs take advantage of their states’ Medicaid unit rebates on a quarterly basis (Aldridge and Doyle, 2002). ADAP programs that use this method do not purchase drugs but reimburse retail pharmacies for prescriptions filled (DHHS, 2001).

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 ADAP programs (depending on how the ADAP 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 recommended that ADAP programs 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. As discussed earlier in this chapter, while the new federal program would be demonstrably cost effective, it would nonetheless impose a net new burden on the federal treasury. The incremental cost of providing antiretroviral therapy alone would be in the range of $2.65 billion over the next 10 years. At this projected level of expenditure, simple fiscal prudence requires that the new program use mechanisms currently in use by other federal purchasers to