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SENATE MEDICARE DRUG BENEFIT BILL PROHIBITS FORMULARY EXCLUSION OF INDIVIDUAL DRUGS; HHS GIVEN DISCRETION TO ELIMINATE DRUG CATEGORIES TO CONTROL COSTS

Executive Summary

The Senate outpatient drug benefit bill would prevent the HHS Secretary from establishing a federal drug formulary by excluding individual drugs from government reimbursement. However, the Senate bill would encourage HHS to eliminate entire drug categories from coverage to control costs. Drawing a distinction between allowing HHS the authority to set up a product-specific payment list and deciding on covered drugs by broad therapeutic class is the Senate's way of resolving the formulary issue. The issue was also one of the contested points during House consideration of the bill. Advocates of increased generic drug use want to see a mandated formulary (or at least discretion for HHS to develop a product-specific formulary). Brandname marketing companies, in general, would prefer an across-the-board prohibition on formularies. The Senate version attempts to chart a course between those positions. In Oct. 27 floor debate on the drug benefit amendment to the Senate catastrophic care bill, Sen. Heinz (R-Pa.) described the bill as prohibiting the establishment of a product-specific formulary. "[The HHS Secretary] may not withold coverage of a specific drug. He must go by categories of drugs," Heinz pointed out. The Senate sponsor of the drug amendment noted that the bill uses 30 broad drug categories designated in the Veteran's Administration system of drug classification. Sen. Nickles (R-Olka.) asked Heinz whether HHS could decide to reimburse only generic drugs, Heinz stated: "That would . . . be doing indirectly what we specifically preclude, which is the establishment of a formulary. "We preclude the establishment of a formulary by indicating . . . that [HHS] may not exclude from coverage or limit payment for any specific covered outpatient drug or specific class of covered patient drug," Heinz said. HHS is given broad discretion to contain future costs, including removing broad classes of drugs to hold down costs. Senate Finance Committee Chairman Bentsen (D-Tex.) said, "We hope it will not be necessary to exclude drug classes from Medicare reimbursement other thanas a last resort.' Heinz acknowledged a "risk" remains that the government eventually resort to a system of drug price fixing. He said: ". . . none of us can guarantee, in spite of our very best efforts to put every possible safeguard into the program, that at some future point the Congress and therefore the administration might not come back with some attempt to directly control prices." The Senate bill is also distinguished from its House counterpart by an effort to isolate funding for the drug program from general Medicare funding. The Senate drug provision (part of S 1127) establishes a separate trust fund for financing outpatient prescription drug coverage. The Senate proposes to place the drug benefit in a stand-alone trust fund. The House bill did not provide for any new trust funds. The Senate bill also sets up a trust fund for catastrophic care which is independent of the general Medicare trust fund. The Administration has advocated the separate trust funds as a way to monitor the new programs and ensure that the benefits are self-financed and do not require dipping into general federal funds. However, HHS has said that the individual trust funds will be difficult to administer. If the drug benefit runs into financial difficulty, funds cannot be transferred into the drug account from other Medicare accounts. Drug premiums for the trust fund will be collected separately, beginning in 1990. Sen. Durenberger (R-Minn.) explained in floor discussion: "The whole purpose of having the separate accounts is to make sure you cannot to commingle funds." The drug trust fund has been designed with what is considered to be an adequate "contingency" to avoid the need to resort to financing changes like the recent substantial increase in the Medicare Part B premium, Durenberger pointed out. Durenberger said: "As I understand those who put the final touches to this amendment, they negotiated with the administration over the amount of a contingency which would go into that fund, and the effort here was to try to make that contingency adequate to make sure that in the fund each year was enough money in anticipation for benefits that would be drawn down." SENATE DEBATE EXPLAINS KEY POINTS OF DRUG COVERAGE PLAN The following quotes have been excerpted by "The Pink Sheet" from the October 27 floor debate on the catastrophic health care bill. The debate was recorded in the Congressional Record dated October 27. Minor editing changes have been made to clarify syntax. The short segments of the debate reproduced below have been arranged under topic headings to help explain quickly some of the major features and issues in the Senate drug coverage plan. SEPARATE DRUG TRUST FUND [Discussion between Sen. Durengerger (R-Minn.) and Sen. Nickles (R-Okla.)]. Durenberger: My understanding is that there are separate accounts. We started out with the notion of a trust fund. The was the suggestion made by the administration. As everyone around here well knows, we have an aversion to multiplicity in trust funds. So my understanding is that currently we have constructed in [the] catastrophic [care plan] a separate account . . . for the drug premium collections that go against the drug premium benefit. Nickles: Under the drug amendment provisions are these accounts able to be commingled? In other words, if the catastrophic drug amendment as proposed . . . is successful but it underestimates the cost -- the demand is very large for the program and the Secretary has not taken such steps as maybe he has the discretion to do -- can money be taken from the catastrophic hospitalization provision, and can it be taken from the Medicare trust funds to provide for the benefits? Is that allowable? Durenberger: No. The Senator asks a very appropriate question. This was addressed in the negotiation. No. You cannot. The whole purpose of having the separate accounts is to make sure you cannot commingle funds. One of the issues in that regard that we are all facing right now with regard to the increase in the Part B premium may be why the Senator raises the issue, and [it] is, what kind of contingency do we build into the separate trust fund?. . . . The effort here was to try to make that contingency adequate to make sure that in the fund each year was enough money in anticipation for benefits that would be drawn down. PROHIBITION OF A FORMULARY [Discussion between Sen. Heinz (R-Pa.) and Sen. Nickles (R-Okla.)] Heinz: . . . the Secretary may not establish what is called a formulary. To the extent he chooses to exclude drugs, and he would if the costs of the program exceeded the so-called premium cap, he would have to either eliminate or withhold inclusion of medically defined categories of drugs. There are are some two dozen of these categories. Nickles: . . . The Secretary would have discretion to determine which drugs would come under the program? Heinz: He may not withhold coverage of specific drugs. He must go by categories of drugs, as established, I believe it is, by the Veteran's Administration medial classification system. Nickles: He could exclude entire categories of drugs then? Heinz: That is right. For example, he could decide to exclude the category of antiviral drugs. That is one of some two dozen categories under this established classification system. We chose that system because it does exist, it seems to work well. There was broad consensus, both among the manufacturers and the administration, that it would work and would not prejudice anybody. [EDITORS' NOTE: Technically, the class of products cited by Sen. Heinz is not listed in the categories used.] Nickles: . . . Could the Secretary determine that he would pay for generic drugs but would not pay a higher price? Heinz: No. That classification is explicitly not one that is covered under the . . . classification system. That would also, I might add, be doing indirectly what we specifically preclude, which is the establishment of a formulary. We preclude the establishment of a formulary by indicating . . . that he may not exclude from coverage or limit payment for any specific covered outpatient drug or specific class of covered patient drug. SELECTION OF DRUG CLASSES [Sen. Bentsen (D-Tex.)] Bentsen: The Secretary may eliminate one or more major classes of drugs, but not individual drugs, from reimbursement if the Secretary estimates that the monthly catastrophic drug benefit premium would have to rise above the ceiling established in this amendment to provide sufficient funds for all classes of outpatient prescription drugs. By classes of drugs, we mean the major classifications found in the most recently issued version of the Veteran's Administration medication classification system. However, we hope that it will not be necessary to exclude drug classes from Medicare reimbursement other than as a last resort. [Veteran's Administration Medication Classification] 1. Antidotes, deterrents, and poison control. 2. Antihistamines 3. Antimicrobials 4. Antineoplastics 5. Antiparasitic agents 6. Antiseptics/disinfectants 7. Autonomic agents 8. Blood products/modifiers/volume expanders 9. Central nervouos system medications 10. Cardiovascular agents 11. Dermatological agents 12. Diagnostic agents 13. Gastric medications 14. Genito-urinary medications 15. Hormones, synthetics/modifiers 16. Immunological agents 17. Investigational drugs/devices 18. Irrigational/renal dialysis solutions 19. Musculoskeletal agents 20. Nasal and throat, topic 21. Ophthalmic agents 22. Dental and oral agents, topic 23. Optic agents 24. Pharmaceutical aids/reagents 25. Respiratory tract agents 26. Rectal, local 27. Therapeutic nutrients/solutions 28. Vitamins 29. Prosthetics/supplies/devices 30. Miscellaneous agents POTENTIAL FOR DRUG PRICE CONTROLS [Sen. Symms (R-Idaho) and Sen. Heinz (R-Pa.)] Symms: . . . What I am wondering is are we going to end up, 10 or 15 years from now, in the same situation we are in today with Federal involvement and the Federal Government pying for the medical procedures programs? . . . Is there any way we will not end up in the future that some high-priced pharmaceutical product for someone who is in a very bad health situation will be prescribed for them but the Government will not pay enough to give them enough hedicine to treat them, so they will just have to ration it out and say you can only get three-quarters of a dose or whatever it is per patient? Heinz: . . . the question is, are we likely to repeat with prescription drugs the kind of experience we have had with hospital coverage under Medicare which started with a cost reimbursement system, the so-called prospective method, and has ended up with a Government fixed price for each diagnosis. To be honest with the Senator, although I think our amendment is structured in a way that the Medicare Program never was to control costs . . . none of us can guarantee, in spite of our very best efforts to put every possible safeguard into the program, that at some future point the Congress and there fore the administration might not come back with some attempt to directly control prices. That is always a risk when the Government is involved in the financing of a program, and it is not the answer that we seek. But to be honest with the Senator, the history of government in this country and every other is that the governments are sorely tempted to do what the Senator says. COST OF THE PROGRAM [Sen. Heinz (R-Pa.)] Mr. President, the CBO [Congressional Budget Office] estimates that the entire package contained in this amendment would cost $145 mil. in 1990, $740 mil. in 1991, and $1.4 bil. in 1992. The cost will be divided between Medicare Part B, so-called flat premium, and the new supplemental premium that is linked to income. CBO projects a flat increase of 60 cents a month in 1990, $1.40 in 1991, $2.20 in 1992, and $3.80 in 1993. PROCEDURES & FURTHER STUDIES [Sen. Durenberger (R-Minn.)] There are built into this amendment a variety of studies that have to be conducted by the Secretary of Health and Human Services. There are built into it a variety of other protections that require utilization controls that can be put into place by the Secretary to make sure that the benefit is not overutilized or that the cost of the benefit gets out of control.

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