LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
May 4, 2001
TO: Honorable Mike Moncrief, Chair, Senate Committee on
Health & Human Services
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB915 by Gray (Relating to bulk purchasing of
prescription drugs by certain state agencies.), As
Engrossed
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB915, As Engrossed: positive impact of $13,266,521 through the *
* biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
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General Revenue-Related Funds, Five-Year Net Impact:
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* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $4,288,015 *
* 2003 8,978,506 *
* 2004 9,319,667 *
* 2005 9,675,671 *
* 2006 10,044,032 *
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All Funds, Five-Year Impact:
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*Fiscal Probable Probable Probable Probable *
* Year Savings/(Cost) Savings/(Cost) Revenue Savings/(Cost) *
* from General from GR Match Gain/(Loss) from Vendor *
* Revenue Fund for Medicaid from GR Match Drug Rebates *
* 0001 0758 for Medicaid (State Share) *
* 0758 0706 *
* 2002 $249,000 $(148,000) $5,233,769 $(1,046,754) *
* 2003 294,000 0 10,855,632 (2,171,126) *
* 2004 338,000 0 11,227,084 (2,245,417) *
* 2005 389,000 0 11,608,339 (2,321,668) *
* 2006 442,000 0 12,002,540 (2,400,508) *
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*Fiscal Probable Savings/(Cost) from Probable Savings/(Cost) from *
* Year Federal Funds - Federal Federal Funds - Federal *
* (Medicaid) (Medicaid) *
* 0555 0555 *
* 2002 $(148,000) $7,916,405 *
* 2003 0 16,337,835 *
* 2004 0 16,889,831 *
* 2005 0 17,463,384 *
* 2006 0 18,056,413 *
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Technology Impact
Sections 2 & 3: One-time automation costs at the Department of Health
(TDH) are assumed to include 1,000 hours at $76 per hour. One-time
automation costs at the Department of Human Services (DHS) are assumed
to include 2,000 hours at $110 per hour. The federal share of
automation expenses would be 50%.
Fiscal Analysis
Section 1 would create the "Interagency Council on Pharmaceuticals Bulk
Purchasing." The council would be composed of one officer or employee
from each of the following agencies: Department of Health (TDH),
Department of Mental Health and Mental Retardation (MHMR), Correctional
Managed Health Care Committee, Employees Retirement System (ERS), Teacher
Retirement System (TRS), and an officer from any other agency that
purchases pharmaceuticals.
The council would develop procedures that member agencies would have to
follow in purchasing pharmaceuticals. A member agency could elect not to
follow the council's procedures provided the agency secured a lower
price for pharmaceuticals and reported certain required information to
the council. The council would be required to use existing networks, to
investigate any and all options for better purchasing power, and make
recommendations regarding other options.
Section 2 would require a person who manufactures a drug that is sold in
the State to file annually with TDH the average manufacturer price for
the drug and the price that each wholesaler in the State pays the
manufacturer to purchase the drug. The bill would allow TDH and the
Office of the Attorney General to investigate the manufacturer to
determine the accuracy of information.
Section 3 would require wholesale drug distributors to file annually with
TDH information showing the purchase price the distributor pays for each
drug the distributor sells in this state. The bill would allow TDH and
the Office of the Attorney General to investigate the distributor to
determine the accuracy of information.
Methodology
Section 1
It is assumed that staffing support and operating expenses related to the
council would be provided using the existing resources of member
agencies. Reimbursement for travel expenses incurred by a member while
conducting business of the council could be provided subject to
authorization in the General Appropriations Act.
TDH estimates a General Revenue savings on prescriptions purchased
through the South Texas Hospital and the Texas Center for Infectious
Disease, based on securing a 60% discount from the Average Wholesale
Price through negotiations with pharmaceutical manufacturers and/or
wholesale distributors. Savings would total $249,000 in FY 2002,
$294,000 in FY 2003, $338,000 in FY 2004, $389,000 in FY 2005, and
$442,000 in FY 2006. TDH did not estimate savings for the Medicaid
Vendor Drug program or any other TDH program providing prescription drug
benefits.
Sections 2 & 3
TDH estimates the savings that would result from the reporting of the
purchase price would be included in the savings that would result from
the reporting of the average manufacturer price. Since the savings
would not be additive, the larger impact--associated with the reporting
of the average manufacturer price--is detailed below:
It is assumed the availability of detailed price and cost information
would allow the Medicaid Vendor Drug program (operated by TDH) to
negotiate a 2% discount off of the current pricing structure, effective
March 2001. The unadjusted average cost (price) per prescription paid by
the program in FY 2001 is assumed to be $47.33. No increases are
assumed for future years. The estimated number of annual Medicaid
prescriptions totals 27,784,015 in FY 2002, 28,727,517 in FY 2003,
29,703,059 in FY 2004, 30,711,729 in FY 2005, and 31,754,651 in FY 2006.
Savings would accrue to federal funds and State General Revenue Match
for Medicaid. The federal share would total 60.20% in FY 2002, 60.08% in
FY 2003, and 60.07% in each subsequent year.
Approximately 20% of the General Revenue for the Vendor Drug program is
provided through manufacturer rebates. A reduction in General Revenue
costs would in turn reduce revenue (Vendor Drug Rebates). This reduction
would partially offset the savings identified above.
All Sections:
MHMR, TDCJ, and TRS estimate no significant fiscal impact. ERS indicated
the bill could have a favorable impact, but was unable to estimate the
savings, if any, that might be realized.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies: 323 Teacher Retirement System, 327 Employees
Retirement System, 501 Texas Department of Health,
655 TX Dept. of Mental Health & Mental
Retardation, 696 Texas Department of Criminal
Justice
LBB Staff: JK, HD, PP