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REPS. WAXMAN AND STARK RAISE MEDICARE DRUG DEDUCTIBLES AND ADD "PAY-SA-YOU-GO" PROVISIONS TO WIN SUPPORT; BOTH PLANS CLEAR HOUSE HURDLES JUNE 16-17

Executive Summary

Rep. Waxman (D-Calif.) and Rep. Stark (D-Calif.) both increased the annual deductible levels in order to push their respective Medicare drug benefit proposals past separate House panels on June 16-17. Waxman unveiled two amendments during the House Enegy & Commerce Committee markup on June 17 in response to bipartisan concern that the drug benefits plan could generate cost overruns. One amendment raises the annual deductible that Medicare beneficiaries must meet before the benefits kicks in from $400 per patient to $500. The second amendment provides HHS with a pay-as-you-go provision if by 1990 the drug benefits plan is not paying for itself. Stark raised the annual deductible in his plan from $500 to $800 in order to get his plan through the House Ways & Means/Health subcommittee on June 16. Stark also amended his drug benefits proposal to allow, rather than to require, HHS to establish a Medicare drug formulary. Waxman's catastrophic health bill, with a drug benefits plan intact, was reported out of the full Energy & Commerce Committee on June 17 by a 30-12 vote. Although the vote split largely along party lines, several Republicans voted for the measure. In his third attempt, Stark pushed his drug benefits amendment through the Ways & Means Health subcommittee by a 7-4 vote, which was also divided along party lines. The Stark Medicare drug benefit plan is now headed toward a full Ways & Means Committee mark-up, tentatively scheduled for June 24. Once that hurdle is cleared, Hill staffers expect the two committees will work together to merge the bills before presenting the legislation to the House Rules Committee for a floor rule. Waxman's amendments were prompted by bipartisan concern expressed during the first day of a heated two-day mark-up session (June 16-17) that the drug benefits program would cause huge overruns. That concern was generated, in part, by a letter addressed to Energy & Commerce Committee Chairman Dingell (D-Mich.) from Health and Human Services Secretary Bowen and mailed to all the members of the committee on June 15. In his letter threatening a presidential veto (see story, p. 5), Bowen warned that based on HHS estimates the Waxman drug program as it emerged from subcomittee would cost nearly $9 bil., which is approximately $8 bil. more than estimated by the Congressional Budget Office (CBO). Three Democratic congressman, Rep. Slattery (D-Kansas), Rep. Synar (D-Okla.), and Rep. Cooper (D-Tenn.), apparently influenced Waxman's decision to amend the drug benefits program as it was crafted in his Health subcommittee. In separate opening statements on June 16 -- two of eleven opening statements on the legislation -- Slattery and Synar questioned the ability of the drug benefit plan to be self-funding. Synar suggested that with several states reporting average annual drug expenses per patient in the "$380-$400" range the $400 deductible level in the Waxman bill was "too low." Later during the first day of the mark-up, Cooper called up both a CBO analyst and a Healthcare Financing Administration representative to explain the $8 bil. discrepency between the two cost estimates of the drug plan. In comments after introducing the amendments en bloc on June 17, Waxman singled out the three Democratic congressman "for their willingness to be cooperative and give us suggestions . . . so that we can assure everyone this will be a pay-as-you-go bill." While discounting the HHS cost estimates, Waxman increased the deductible by $100 and added a provision that allows HHS after 1990 to increase the monthly premiums paid by Medicare recipients by up to 20%. If the premium increase still can not meet the program costs, the provision allows HHS to raise the annual deductible. Waxman also modified the premium increases for the drug plan over the first three years of operation: the monthly Part B premium increase would be $3.20 in 1989 (down from $3.60) and $4.90 in 1990 (down from $5.60). The Waxman plan retains its drug reimbursement provisions -- AWP plus $4.50 administrative fee for brandname drugs and 150% of the AWP of the lowest generic product plus the $4.50 fee -- as well as its rules for participating pharmacies. Under the Stark proposal, reimbursement for multisource drugs would be the lower of actual cost or a 50% discount from the brand name price. As in the Energy & Commerce/Health subcommittee, Waxman's chief opposition in the full committee markup came from Rep. Madigan (R-Ill.). Madigan again attempted to introduce a substitute amendment, which was further amended by Rep. Tauke (R-Iowa), to provide drug coverage to persons with incomes up to 200% of the poverty level through Medicaid. The amendment was defeated 26-16. Madigan also contended that the "pay-as-you-go" amendments added by Waxman were a "remedial action" necessary to address the bill's "shortcomings." Questioning the CBO's $1.1 bil. estimate of first year costs of the drug plan, Madigan asserted that "no one knows" the cost of the legislation and, as a result, seniors were getting a "pig in a poke." Commenting on the $800 deductible added to the Ways & Means bill, Stark said that the new level was arrived at arbitrarily. "It was almost like putting our heads on the desk and counting numbers until we got six hands in the air [a majority vote]," Stark remarked in a June 16 press briefing following the subcommittee vote. "I think that everybody realizes that all the numbers in these bills relate pretty linearly to what will happen with premiums and deductibles and that we may get changes as we go through the course of legislative compromise," he added. "But in our subcommittee, [$800] is the number that got six votes." CBO is estimating that the $300 increase in the deductible under the Stark amendment will cut in half the number of beneficiaries who will receive some reimbursement for drug purchases. At the $500 deductible level, CBO has estimated that 19% of Medicare beneficiaries under the Stark provisions would reach that threshold and begin receiving Medicare funding for drug purchases. Raising the deductible to $800 would put Rx drug reimbursement in reach of only 9% of Medicare beneficiaries, CBO estimates. Stark put the the number of Medicare beneficiaries eligible for the drug benefit with an $800 deductible at 1.8 mil., compared with 4.5 mil. with a deductible of $400. Like Waxman, Stark also added several "pay-as-you-go" provisions to allow for changes in the deductible and monthly premiums to convince skeptics that, as time goes by, the drug benefits program can be self-funding. As amended, the Stark amendment includes a $1 bil. cap on outlays for drugs beyond the CBO estimate for 1990. According to a brief summary of Stark's revised drug plan, HHS "would be required to report to Congress by May 1, 1991 if actual outlays for drugs during calendar year 1990 exceed the calendar year 1990 target." HHS would then be required to "recommend changes in policies (including an increase in the annual deductible" sufficient to reduce 1992 expenditures by the same amount of the 1990 cost overrun, plus inflation. HHS can also make premium increases "on a year-to-year basis."
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