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GPhA Letter to Senate Finance Committee Chairman Grassley on supplemental rebates

October 24, 2005

The Honorable Charles Grassley, Chairman
Committee on Finance
United States Senate
Washington, DC 20510

The Honorable Max Baucus, Ranking Member
Committee on Finance
United States Senate
Washington, DC 20510

Dear Mr. Chairman and Senator:

The Generic Pharmaceutical Association strongly opposes any increase in rebates above the current federal Medicaid standard of 11% on generic products. In setting rebates at the current level, Congress recognized that generic drug manufacturers’ business model differs dramatically from its brand counterparts. That continues to be true today. Increasing rebates could adversely impact Medicaid budgets and consumer access to affordable prescription medicines. The best way to maximize pharmaceutical cost savings is by increasing access to and utilization of affordable medicines, not by increasing rebates.

Because generic manufacturers operate in a different business model than that of the brand manufactures and face robust competition which drives prices down and leaves only thin profit margins, even the current federally mandated 11% rebate for generic drugs can result in some generic manufacturers selling some drugs at a financial loss on as many as half of the drugs provided to the Medicaid program.

In 2003, New Jersey enacted legislation requiring generic drug manufacturers to pay rebates of 15.1%. After several generic companies determined they could not afford to participate, New Jersey re-scored the provisions without the participation of those companies. The state’s calculations showed that the costs to the state drug program would increase by more than $18 million as a result of the increased rebates, so New Jersey officials dropped implementation of the new rebates.
In 2002, Missouri enacted legislation to increase rebates on generic manufacturers for its senior prescription program. Several generic companies dropped out of the program after determining they simply could not afford to pay the higher rebate level the state demanded. When Missouri officials recalculated the impact of the legislation, they found that the impact of the increased rebates was an $8.5 million increase in prescription drug costs in the first year alone.

We urge the Committee to reject any increase in rebates on generic drugs and to seek savings through increasing generic utilization. Generics account for more than half of all drugs used in the Medicaid program, but only 16 percent of the expenditures.

Sincerely,

Kathleen Jaeger
President and CEO