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Executive Summary

The House/Senate conference on legislation to extend Medicare coverage to catastrophic care, including outpatient prescription drugs, is scheduled to begin March 16. Conferees are targeting Jan. 1, 1989 as the "working implementation date" for the program. The first session will be organizational, according to the staff. Much of the meeting will be set aside for opening statements by the conferees. The actual conference negotiations are expected to last several weeks as the legislators work out a compromise between HR 2470 and S 1127. Aides to the conferees have been meeting almost weekly since February to discuss minor issues and provisions that are similar in the House and Senate bills. House Ways & Means Committee Chairman Rostenkowski (D-Ill.) is expected to chair the conference committee. Senate conferees reportedly plan to present an initial offer to House conferees on several of the minor issues during the March 16 meeting. Key issues regarding the prescription drug benefit include the deductible, the manner in which the deductible will be adjusted in future years, the implementation schedule for the benefit, and the formula for reimbursing multiple-source drugs. The conferees must determine whether to set the annual deductible at $500, as in HR 2470, or $600, as in S 1127. They must resolve how to increase it if medicare funds are insufficient to meet the demand for new services. The House bill would tie increases to the Consumer Price Index for urban areas; the Senate version would tie increases to actual drug program expenditures for the preceding year. The Senate formula would presumably lead to higher annual increases in the deductible. Conferees also must resolve the bill's different implementation schemes. Whereas the House measure would provide coverage of all outpatient prescription drugs immediately upon the effective date (1989), the Senate legislation phases in coverage -- providing home-use I.V. products in 1990, cardiovascular drugs in 1991, and remaining drugs in 1993. Another key difference is the formula for reimbursing multiple-source products. HR 2470 bases generic reimbursement on 50% of the brandname product's AWP; S 1127 bases it on 150% of the least expensive generic product's AWP. The rationale for the House formula is that payments equivalent to half the brandname price would provide pharmacists with greater margins, and therefore incentives, for generic substitution. Recent data indicate that the 150%-of-lowest formula would cost about $110 mil. more than the 50%-of-AWP approach. A number of consumer protection provisions that do not appear in either the House or Senate measure may be added in the conference, according to staff. One proposal would provide a national toll-free telephone line to answer enrollees' questions about the new benefits.

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