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MEDICARE DRUG COVERAGE: SENATE GENERIC REIMBURSEMENT FORMULA DISCOURAGES SUBSTITUTION, SEN. METZENBAUM ARGUES: BILL PASSES SENATE 86-11 OCT. 27

Executive Summary

Sen. Metzenbaum (D-Ohio) is supporting the House-passed version of legislation to provide outpatient drug coverage under Medicare. Metzenbaum told the Senate he was concerned that the catastrophic care bill's provision for reimbursing multiple-source drugs would, in effect, discourage generic substitution. The bill includes a generic reimbursement formula based on the lower of 150% of current AWPs for the lowest price generics, or 150% of the lowest generics' AWPs indexed to Jan. 1, 1987. Increases in reimbursement will be tied to the medical component of the Consumer Price Index. The Medicare Catastrophic Care Bill passed the Senate Oct. 27 by an 86-11 vote. Before passing the bill (S 1127), the Senate adopted a drug benefit amendment by an 88-9 margin. Metzenbaum argues that under the Senate reimbursement provision a pharmacist would "almost always be reimbursed for filling a brandname prescription at his usual price." However, if a pharmacist substitutes a generic "he will be reimbursed at a rate substantially below his usual retail price." Consequently, the Ohio Democrat maintained, "a pharmacist will benefit every time he fills a prescription with a name brand drug, and in relative terms will lose every time he supplies the same drug in its generic form." The senator added that the American Association of Retired Persons and the National Council of Senior Citizens "are also concerned" with the new Senate language. In contrast, Metzenbaumontinued, "the House bill offers a reimbursement formula that does encourage generic substitution." The House measure would reimburse for multiple-source drugs at 50% of the brandname product. He urged that Senate conferees "look very closely at the House provision when this bill is conferenced." Metzenbaum may be the only senator overtly favoring the House bill. The Senate proponents of a Medicare drug benefit -- including the cosponsors, Sens. Heinz (R-Pa.), Mitchell (D-Ill.) -- appear to be solidly behind the newly minted Seante version of the drug program. The Senate provisions include a delayed phase-in and a separate trust fund intended to contain program costs. The broad bipartisan support for the Senate drug legislation may be important when the House-Senate conference on the bill begins. The House bill passed by a narrower margin of 302-127. Furthermore, among the prime movers on the drug part of the House catastrophic care measure, only California Democratic Reps. Waxman and Stark stand out strongly against some of the more moderate cost-containment features of the Senate bill. As of the end of October, the conference on the drug provisions could be developing into a tussle between a unified Senate group versus Waxman and Stark. Neither the House nor Senate has appointed its conferees, but they generally include the chairmen and ranking minority members of the committees and subcommittees with legislative jurisdiction. House conferees, therefore, are likely to include Reps. Dingell (D-Mich.), Lent (R-N.Y.), Waxman, Madigan (R-Ill.), Rostenkowski (D-Ill.), Duncan (R-Tenn.), Stark, and Gradison (R-Ohio). Senate managers could include Sens. Bentsen (D-Texas), Packwood (R-Ore.), Mitchell, and Durenberger. Sen. Heinz, the principal author of the Senate drug amendment, almost certainly will participate in the conference. Durenberger effectively represented some of the brandname drug industry's concerns about the bill during Senate consideration. The House-Senate conference is not expected to be scheduled before late November. Potential conferees are involved in other issues considered more pressing, including the Trade Bill conference, Senate budget reconciliation legislation, and the economic "budget summit." The Pharmaceutical Manufacturers Association is planning to lobby conferees to ensure that Senate provisions for delaying full implementation of a drug benefit and for establishing a separate drug trust fund under Medicare are preserved when the legislation goes to a House-Senate conference. One logical candidate in the House for PMA to approach is Dingell. Current PMA Chairman Larry Hoff (Upjohn) is from Dingell's home state. The brandname drug industry is expected to argue that the Senate drug provisions are more sensitive to cost considerations. On the other hand, groups like the Generic Pharmaceutical Industry Association and the American Association for Retired Persons are endorsing immediate implementation of the drug benefit. PMA decided on Oct. 23 to support the Senate Medicare drug provisions and urged passage of the drug benefit provision in an Oct. 26 letter to Senate Finance Committee members Bentsen, Mitchell, Heinz, and Durenberger. PMA President Mossinghoff wrote that his association's board and officers "support the [drug] amendment and will urge that it be enacted by Congress in its present form." Ironically, one change in the final Senate draft drug amendment, circulated on Oct. 23 ("The Pink Sheet" Oct. 26, p. 11), which helped gain PMA support, was a provision for reimbursing single-source drugs that was identical to the corresponding provision in the House bill. The Senate amendment now bases reimbursement for single-source products on the most recently published average wholesale prices. An Oct. 16 draft would have based single-source drug reimbursement on an index of AWPs published as of Jan. 1, 1987. Both House and Senate versions of the legislation provide that generic substitutes will be dispensed unless prescribers write a phrase like "brand medically necessary" in their own handwriting on prescription forms. A conference generally does not reconsider provisions on which both houses agree. PMA was unsuccessful in persuading Senate sponsors to change the procedure for physicians who wish to block generic substitution. The Senate-passed provision mandates that the prescriber write "an appropriate phrase (such as 'brand medically necessary')"; the Oct. 16 draft mandated "an appropriate phrase (such as 'dispense as written.')" The Senate-passed bill is like the Oct. 16 draft, but unlike previous drafts, in that it stipulates that the bill provides an incentive for generic substitution but not therapeutic substitution. The amendment defines "multiple-source drug" as bioequivalent products with "identical amounts of the same active drug" ingredients. Unlike the Oct. 16 draft, which provides that there must be at least two versions of a multiple-source product, the Senate measure is similar to the House-passed bill in that it requires at least three brands. Introducing the bill on the Senate floor, Heinz called it a compromise with "a broad consensus" of support "not only among colleagues on both sides of the aisle, but also from people like the PMA, the administration, and concerned advocacy groups like the AARP and others." Heinz also commended HHS Secretary Bowen, Office of Management & Budget's Joseph White, and the National Council of Senior Citizens. The senators who voted against the drug benefit provisions were Republican Sens. Armstrong (Colo.), Helms (N.C.), Humphrey (N.H.), Kassebaum (Kan.), McClure (Idaho), Nickles (Okla.), Roth (Del.), and Symms (Idaho) and Democrat Boren (Okla.). Democrats Dodd (Conn.), Gore (Tenn.), and Simon (Ill.), a cosponsor, did not vote.

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