COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.: 1114-02
Bill No.: Perfected SCS for SB 307
Subject: Drugs and Controlled Substances; Elderly; Health Care; Health Department; Health, Public; Pharmacy
Type: Original
Date: May 5, 2003
FISCAL SUMMARY
| FUND AFFECTED | FY 2004 | FY 2005 | FY 2006 |
| Senior Rx Fund | $5,200,000 | $6,200,000 | $6,500,000 |
| Total Estimated
Net Effect on General Revenue Fund |
$5,200,000 | $6,200,000 | $6,500,000 |
| FUND AFFECTED | FY 2004 | FY 2005 | FY 2006 |
| Total Estimated
Net Effect on Other State Funds |
$0 | $0 | $0 |
Numbers within parentheses: ( ) indicate costs or losses.
This fiscal note contains 5 pages.
| FUND AFFECTED | FY 2004 | FY 2005 | FY 2006 |
| Total Estimated
Net Effect on All Federal Funds |
$0 | $0 | $0 |
| FUND AFFECTED | FY 2004 | FY 2005 | FY 2006 |
| Local Government | $0 | $0 | $0 |
ASSUMPTION
Officials from the Department of Social Services assume this proposal would not fiscally impact their agency.
Official from the Secretary of State Office (SOS) state this proposal modifies the rebate amounts given for prescription drugs under the Senior Rx Program and could result in the Department of Health and Senior Services promulgating more rules. These rules would be published in the Missouri Register and the Code of State Regulations. Based on experience with other divisions, the rules, regulations and forms issued by the Department of Health and Senior Services could require as many as eight (8) pages in the Code of State Regulations. For any given rule, roughly half again as many pages are published in the Missouri Register as in the Code because cost statements, fiscal notes and the like are not repeated in Code. These costs are estimated. The estimated cost of a page in the Missouri Register is $23. The estimated cost of a page in the Code is $27. The actual cost could be more or less than the numbers given. The impact of this legislation in future years is unknown and depends upon the frequency and length of rules filed, amended, rescinded or withdrawn. SOS officials estimate total costs for FY 04 to be $492 [(8 pages x $27) + (12 pages x $23)].
Oversight assumes the SOS could absorb the costs of printing and distributing regulations ASSUMPTION (continued)
related to this proposal. If multiple bills pass which require the printing and distribution of regulations at substantial costs, the SOS could request funding through the appropriation process. Any decisions to raise fees to defray costs would likely be made in subsequent fiscal years.
Officials from the Department of Health (DOH) believe that this proposal, over time, will increase participation by generic drug manufacturers in the Missouri Senior Rx program. RSMO currently requires generic manufacturers to pay the program a 15% rebate on their drugs that are utilized by the program participants while the national trend (including the Missouri Medicaid program) is 11%.
William M. Mercer, Inc. provided the DOH with an estimated cost savings associated with a reduction in the generic rebate percentage. DOH states that the current rebate contracts with generic drug companies expire on either 5-31-03 or 6-30-03. DOH states many of the generic companies have notified the program they will withdraw from the program at the end of this contract period if the rebate percentage for generic companies is not reduced to 11%. Therefore, the assumption made by Mercer, Inc and DOH is that if the rebate reduction for generic companies is not passed, generic companies will withdraw from the program, thus making the program a brand name drug only program for FY 04 and beyond. DOH and Mercer also assume the primary factor driving the estimated savings in total program costs is the increase in the average cost of a prescription resulting from only brand name drugs being available. By removing the generic medications from the program, Mercer, Inc estimated the average cost of the prescription will increase from $74 to $88 in FY 04; from $80 to $95 in FY 05; and from $86 to $102 in FY 06.
DOH assumptions in calculating cost savings:
Population
--Estimates for the total number of seniors in Missouri were based on the 1990 and 2000 census projected forward through SFY06.
--The total senior population in Missouri grows by an average of 3% per year.
-Estimated enrollment is assumed to be 22,000 in SFY04; 28,325 in SFY05 and 31,160 in SFY06.
Claim Costs/Trends/Financial Analysis
--Discounts are legislated at 10.43% of AWP (Average wholesale price) for brand and 20% of AWP for generic drugs.
--Rebates are provided at 15% of AMP (Average manufacturer's price) for brand and generic drugs in SFY03.
ASSUMPTION (continued)
--Rebates are provided at 15% of AMP for brand drugs and 11% of AMP for generic drugs in SFY04, SFY05 and SFY06.
-Generic manufacturers will be willing to participate in the program if the rebate amount is reduced from 15% to 11%.
--There is a 6 month lag in rebate payments.
--Dispensing fee of $4.09 per prescription.
--Projected yearly number of scripts per person-40 scripts per participant per year in FY03 in total (of which the program benefits will cover 30 scripts per participant per year)
43 scripts per participant per year in FY04 in total (of which the program benefits will cover 34 scripts per participant per year).
-Number of scripts per participant per year is trended at 8% to SFY05 and 7.5% to SFY06.
--Projected average cost per script $69 in FY03 (before discounts & rebates); $74 in FY04 if the legislation passes and $88 if the legislation does not pass (before discounts & rebates).
--Average cost per script is trended at 8% to SFY05 and 7.5% to SFY06.
The DOH states the program savings will be $5,200,000 in FY 03; $6,200,000 in FY 04; and $6,500,000 in FY 05.
Oversight was not provided the Mercer, Inc assumptions since this information is proprietary information of Mercer, Inc. Oversight does not have the detail information to recalculate the saving and cannot validate the DOH response. Oversight is presenting the cost savings as provided by the DOH.
| FISCAL IMPACT - State Government | FY 2004 | FY 2005 | FY 2006 |
| SENIOR Rx FUND | |||
| Savings - Department of Health and Senior Services | |||
| Program Savings | $5,200,000 | $6,200,000 | $6,500,000 |
| ESTIMATED NET EFFECT ON SENIOR Rx FUND |
$5,200,000 |
$6,200,000 |
$6,500,000 |
| FISCAL IMPACT - Local Government | FY 2004 | FY 2005 | FY 2006 |
| $0 | $0 | $0 |
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.
DESCRIPTION
This proposal modifies the rebate amount for prescription drugs in the Missouri Senior Prescription Program. Current law requires pharmaceutical manufacturers participating in the Senior Prescription Program to pay a rebate of 15% on all prescription drugs. This proposal changes the rebate amount to 15% for all transaction occurring prior to July 1, 2003 for brand name drugs and 11% for all transaction occurring on or after July 1, 2003 for generic drugs.
This act contains an emergency clause.
This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.
SOURCES OF INFORMATION
Department of Health and Senior Services
Secretary of State
Department of Social Services
Mickey Wilson, CPA
Director
May 5, 2003