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Executive Summary

Specific recommendations on FDA policy or drug industry issues are missing from the Heritage Foundation's proposed blueprint for the Reagan Administration's second term. Portions of the Heritage Foundation's Mandate for Leadership II, scheduled for full release on Dec. 7, began circulating in Washington the week of Nov. 19. Shortly after President Reagan won his initial victory in 1980, the Heritage Foundation released its first Mandate for Leadership, which contained several specific recommendations on FDA/drug industry issues. The group said that FDA should streamline its drug approval process, and urged that the govt. try to increase pharmaceutical industry competition through a mechanism for the approval of post-1962 generic drugs. Since the first report, FDA has proposed revisions to its approval process through the NDA/IND reg drafts, while the post-1962 drug approval recommendation has been implemented through the Waxman/Hatch legislation enacted in the fall. With the two main FDA/drug industry recommendations from 1980 either completed or pending, the Heritage Foundation's recommendations on health policy center on macro-economic proposals. The chapter on health issues was written by Ronald Docksai, staff director for Sen. Hatch's (R-Utah) Labor & Human Resources Cmte. HHS-related recommendations focus on the policies for the containment of health care costs. As in its 1980 Mandate, the conservative policy research group called for more shifting of responsibility for govt. programs from federal to state authority -- the "New Federalism" concept introduced by the President in 1981. The foundation also recommended greater use of "block grants" for a variety of programs under general categories that can be administered by states using a lump sum of federal money. "Price Control" Approach Such As DRGs Should Be Modified To Stress "Market-Oriented" Cost Containment Methods The 1984 Mandate also recommends use of an income-related voucher system under the Medicaid program to encourage beneficiaries to "shop around" for cost-effective health care and thereby help control costs. Although "the Administration has had some success in encouraging states to reduce Medicaid expenditures, more could be done to provide such incentives to program patients and providers," the Heritage Foundation maintained. Income-related vouchers would provide "recipients with a fixed amount of money that could be used only to purchase approved health insurance coverage" and would "encourage participants to 'shop around' and select cost-effective providers." Vouchers should be income related so as not to discourage recipients from increasing their income levels, the Mandate explains. "Under current Medicaid guidelines, beneficiaries can lose complete eligibility if their earnings rise above a certain level. This discourages them from increasing their income. Relating the amount of the subsidy to a beneficiary's income level could alleviate this problem by providing the very poor with protection but by gradually reducing benefits as income increases," the foundation said. In his second term the President should make it a "top priority" to push for legislative and regulatory proposals to foster greater competition in the health care market, the 1984 Mandate recommends. "The link between cost containment and health care competition cannot be overstated," the volume asserts. "To convey the sense of urgency required to make this a top priority for the Administration, the HHS Secty. [Heckler] should ask for the full and active participation of the President in promoting an administration offensive on behalf of the regulatory and legislative package to implement this strategy." The Administration "must stress market-oriented reforms that encourage people to economize on routine services, yet secure adequate protection for serious illness," the Heritage Foundation continued. "This means the new prospective payment (or diagnostically related group) must be modified since it is a price control mechanism, which still does not address the underlying problem of the health care industry -- that third parties insulate the patient from the true cost of health care." Legislation to provide incentives for greater use of private sector insurance and investment programs for long-term care should also be proposed, the foundation continued. Legislation is needed to "encourage private market functioning in innovative financing mechanisms through insurance and pensions, such as allowing tax deductions for disability insurance, retirement health care, and similar requirements," the Mandate states. "A restructuring of federal programs would also help private markets to function by enabling people to be aware of the limited amount that the public sector will be able to provide." For example, a voucher system for Medicare, as well as Medicaid, "should again be proposed to allow beneficiaries to select among a variety of alternative delivery plans to enroll in the one they feel offers the best care for the amount spent," the volume explains. Such a reform "would maximize consumer choice and enhance participant cost-consciousness [and] would be a real step toward a decentralized, market-oriented health care system for the aged." The foundation also maintained that "in the long run, Individual Retirement Accounts (IRAs) could be used to allow individuals to save for the purchase of old-age health insurance." The current Medicare program would have to be restructured to finance "only catastrophic protection," the Mandate explains. "This approach largely would eliminate the govt.'s involvement in most day-to-day health care decisions, while insuring that no person would go bankrupt due to a major illness."

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