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SENATE REPUBLICANS WILL CALL FOR STUDY OF MEDICARE Rx OUTPATIENT COVERAGE, QUAYLE TELLS PMA ANNUAL MEETING: NO DATABASE ON COVERAGE COST EXISTS YET

Executive Summary

Senate Republicans appear ready to try to cool House activity on Medicare prescription drug outpatient coverage by requesting a study period on the potential size and cost of the program. Indiana Republican Dan Quayle, for example, declared the need for pre-legislation studies in a speech to the Pharmaceutical Manufacturers Association annual meeting on May 18. "I think at this particular juncture," Quayle contended, "the Senate's position will be that we ought to have a study." Noting that he could "support very enthusiastically" a proposal to study extension of Medicare benefits to outpatient drugs, Quayle said, "I don't think that we should go beyond that at this particular time." Quayle's view is represented in Sen. Bentsen's (D-Texas) draft catastrophic health care proposal, which calls for an Institute of Medicine study on "appropriate Rx coverage under Medicare." Quayle maintained that "we don't even have a database right now" on which to predict the effect of Medicare Rx coverage on government health care costs. Quayle's call for a study of the consequences of Medicare outpatient drug coverage reflects the official PMA approach to the subject. Quayle noted that PMA's policy affairs group discussed the outpatient coverage issue at the annual meeting. "I understand that you had a workshop on this and I think you are on the right track," Quayle said. At the annual meeting, PMA's board appointed a study group -- initially comprised of representatives of Bristol-Myers, Upjohn, Lilly and Pfizer -- to collect data on the cost of Rx coverage from such sources as the Business Roundtable and current drug third-party payers. PMA says that it supports "in concept" programs "insuring that all Americans have access to drug therapy." The association maintains, however, that "so much is unknown" about adding a drug benefit to Medicare that the association is "not in position at this point" to support any specific legislation. While urging caution on legislation to extend Medicare benefits to outpatient drug use, Quayle warned that the issue has become a hot Congressional health topic. "The most important, pressing issue for your industry," Quayle said, "will be in the area of cost containment and particularly the prescription drug reimbursement for Medicare and Medicaid." He pointed out that the House has taken the lead on the issue. Two important subcommittee chairmen, Stark (D-Calif., Ways & Means Health Subcommittee) and Waxman (D-Calif., Energy & Commerce Health Subcommittee), are working on outpatient coverage legislation. The Indiana Republican maintained that the political interest in the outpatient drug coverage issue corresponds to a change in the philosophical/political bent of the 100th Congress. From a deregulation, "creation of wealth," emphasis during the first six years of the Reagan Administration, the majority of Congress has shifted, Quayle maintained, to be "now far more appreciative and sensitive to the redistribution of wealth." Quayle equated cost containment measures (such as DRGs) with the emphasis on redistribution of wealth. New York State Senate Health Committee Chairman Tarky Lombardi, Jr. (R-Syracuse) advised the PMA annual meeting that the drug industry should work at the state level to try to devise government pharmaceutical assistance plans in lieu of a federal program. Lombardi concurred with Quayle that pharmaceutical assistance is "the federal program to really watch out for." Lombardi cautioned that a federal pharmaceutical assistance program could lead to a cost control plan. Pharmaceutical assistance would end up, Lombardi maintained, being a "cost-shifted program onto somebody -- and that someone else is either going to be industry, business or it could be the drug industry as providers." If a pharmaceutical assistance program is implemented at the federal level, the New York state senator said, "the cost will be so great that they will attempt to pay for it by shifting it to the providers." He forecast "tighter regulations or schemes to reduce costs" including generic substitution, therapeutic substitution, volume purchasing, contract pharmacy and competitive bidding. Noting the increased importance of price as government takes on more health funding commitments, Lombardi said, "I don't know that price is always the best thing to be dealing on; but, nevertheless, that is where we are going." He added, "It is my advice that if you are going to be doing that you are far better off to be working with each of the fifty states, trying to help them hold their individual programs, than allowing the federal government to come in with a master, national program that will" get out of control. "If it is going to be done," Lombardi said, "it should be done at the state level. In my estimation, every state can adjust to its own needs, its own resources, and its own elderly population." In his annual meeting report, PMA President Mossinghoff indicated that the association would prefer to fight a number of issues at the state level, including efforts on pharmaceutical assistance and product liability. Mossinghoff called the PMA state network one of the best national association efforts, behind only groups like the Chamber of Commerce. Lombardi pointed out, however, that the American Association of Retired Persons (AARP) is also becoming very aggressive at the state level. AARP is giving the drug coverage issue top treatment, Lombardi reported. The AARP representatives that he met with about the pharmaceutical assistance plan "were not the New York state local representatives," Lombardi said, "They came in from Washington." The New York senator attributed the degree of AARP's attention to the issue to the association's efforts in the mail order drug business. He maintained that AARP "wanted two things: generic substitution and the ability to dispense by mail." He felt that AARP "didn't really care about the rest of the details in the bill; they didn't want to talk about eligibility." AARP is "now setting up one of the biggest mail order pharmaceutical systems in our state and through their network they are going to be the big dispenser of drugs." Lombardi contended that AARP "will constantly be striving for the mail order distribution of pharmaceuticals." Lombardi also concurred with Quayle that enough study has not been performed for expanding government health care coverage to outpatient drugs. The New York program, Lombardi said, is estimated to cover 1.25 mil. eligible seniors. "The full-year cost," he said, "is conservatively estimated at $142 mil." He predicted that "it is going to be far greater than that." Lombardi forecast that "once the costs start coming home to roost on this program, the legislature and the governor are going to call again to reduce costs. . . . They are going to look at volume purchasing; they are going to look at getting the pharmacist to lower their dispensing rate; they are going to try to get everyone, perhaps, to buy from a single mail order dispensing house; they will try to develop one single source."
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