New Rules Require Drug Discounts : Consumers: A new federal law requires drug firms to give price breaks for Medicaid programs, preempting some earlier contracts with states.

All drug companies will be required to give the federal/state Medicaid program discounts on pharmaceuticals under a new law passed as part of last week’s federal budget package.

The measure may force drug firms to scramble to change some of the contracts they have negotiated in recent months that gave price breaks to individual state Medicaid programs.

Part of the motivation for the drug companies’ state-by-state initiative was to preempt just such a federal mandate.

Questions are raised about existing contracts because the federal measure specifies minimum discounts that the companies must provide. The discount would have to be at least 12.5%, but not more than 25%, in the first year beginning in January, 1991, according to the legislation. In later years, it would be 15%, but no greater than 50%.

Upjohn Co. will have to change some of its discounts, said spokesman John Butler. Unlike some of the other drug companies, Kalamazoo, Mich.-based Upjohn provides a standard $1.35 rebate on all Medicaid prescriptions in the states that accepted its offer. The federal law “would negate” the rebates unless the rebate equaled the minimum discount at least in the first year, Butler said.

The effect on other drug companies is unclear, in part because in negotiating the contracts with individual states, the companies required that the states not disclose the exact percentage discount.

California’s Medi-Cal program has negotiated discount contracts with nine drug companies under a law passed by the General Assembly. In reviewing the new federal provision, “It looks like we’re in good shape,” said Jim Parks, chief of Medi-Cal’s drug discount program. “We asked for special consideration for states that had initiatives already. It looks like we will be able to continue our program,” he added.

Still, the states that signed contracts will get “some additional benefits” as contracts are renegotiated to meet the minimum discounts, said Roy Walker, a spokesman for a unit of Merck & Co., which has negotiated with California and several other states. The Rahway, N.J.-based pharmaceuticals company is the world’s largest and made the first Medicaid discount offer last spring.

“We’re still trying to piece this together,” said a spokesman for G. D. Searle & Co., which has also signed contracts with California and other states.

Although drug companies were reluctant in the past to provide discounts to Medicaid programs--which account for about 10% of their business--they have sliced as much as several hundred percent off the average wholesale price to the Veterans Affairs hospitals, and some state and county hospitals.