STATEMENT
Of the Honorable Nydia M. Velázquez, Chairwoman
United States House of Representatives, Committee on Small Business
Full Committee Hearing: “Medicaid Drug Reimbursements: Are CMS Cuts Bad Medicine for Small Businesses and Beneficiaries”
Wednesday, July 18, 2007, 10:00am

The matter we discuss today stems from the legacy of the last Congress.  In February 2006, President Bush signed the Deficit Reduction Act which directed the Centers for Medicare and Medicaid Services to recalculate the way it reimburses pharmacies for providing generic prescription drugs to Medicaid beneficiaries.  While evidence indicates that the old formula used by CMS resulted in some level of overpayment, the new formula clearly cuts too far.

On July 6th, the Centers for Medicare and Medicaid Services released a final rule which radically changed the old formula and could prove devastating to pharmacies and Medicaid recipients.

The new formula significantly reduces the reimbursements to the point where GAO has determined pharmacies will be paid back for only 64% of their costs of acquiring generic prescription drugs.  That represents a 36% shortfall! 

I have major concerns with the impact this rule could have on small businesses offering prescription drug coverage.  These pharmacies have low profit margins and small retailers will be hit particularly hard.  They tend to serve a higher proportion of Medicaid beneficiaries and get more of their revenue from prescription drugs.   As a result of this change, many could be forced to close their doors.

This will not only hurt pharmacies, but it will affect overall access to care for Medicaid recipients.   If these businesses close or drop out of the program, drug coverage will be reduced.

Medicaid is a critical component of our national health care system serving over 50 million.  Without it, the vast majority of these people would join the ranks of the 46 million uninsured Americans.

 

What doesn’t make sense to me is that while the intent of this new formula is to save money, it in fact encourages the use of more expensive brand name drugs.  The average Medicaid generic prescription is $20, while the average brand prescription is $120.  While this may be good for pharmaceutical companies, costs will be increased for the federal government and the states. 

I believe the HHS Inspector General’s report is a good starting point for us when we examine possible solutions to this problem. The IG recommends that CMS should find a better way to reflect the actual costs of these drugs.  

The IG’s recommendation would remove outliers in drug prices that do not reflect the realities of the marketplace.  It also provides an opportunity for pharmacies to alert the states and CMS when they can demonstrate their inability to acquire drugs at prices at or below reimbursement levels.

Tellingly, the IG says new Federal reimbursement limits should be monitored closely.  Their report noted that such cuts could lead to access problems for Medicaid beneficiaries.  These findings are also supported by the General Accounting Office.

As the rule is written, it threatens the ability of thousands of small pharmacies to keep operating.  While the previous reimbursement formula may have overpaid pharmacies for generic drugs, the new one will make the issue worse.  Our government should not be eliminating one problem, only to create another.   

The GAO and HHS have shown there are better ways to ensure pharmacies are adequately paid for these generic drugs.  Unfortunately, CMS is prepared to move forward despite these objections.   Today’s hearing will hopefully shine some light on why the CMS should reconsider the rule.

I look forward to today’s testimony and thank the witnesses for their participation.