Changes in Drug Prices Paid by HMOs and Hospitals Since Enactment of Rebate Provisions

HRD-93-43: Published: Jan 15, 1993. Publicly Released: Jan 15, 1993.

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GAO reported on changes in drug prices charged to health maintenance organizations (HMO) and hospital group purchasing organizations (GPO) under rebate provisions of the Omnibus Budget Reconciliation Act of 1990, which required that drug manufacturers give state Medicaid programs rebates for outpatient drugs.

GAO found that: (1) prices for HMO outpatient drugs increased significantly the year after passage of the rebate provision, while GPO inpatient drug prices dropped slightly and GPO outpatient drug prices rose slightly; (2) the range of price changes varied widely before and after passage of the rebate provision; (3) the effect of price changes on HMO and GPO drug costs depended on the drugs' original costs and utilization; (4) HMO tended to have greater overall drug expenditure increases because they did not have inpatient drug costs to offset outpatient expenditures, and most of their drugs were not available in a generic form; (5) the average percentage discount both groups received rose slightly the year after the rebate provisions took effect, although the variance was wide; and (6) many manufacturers changed the duration of their contracts from 1 to 5 years to 1 year or less, and no longer offered fixed prices for the duration of the contract.

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