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MEDICARE DRUG BILL: PHARMACEUTICAL PRICES WOULD BE REDUCED 10% UNDER HOUSE BILL BUT RAISED 2% UNDER THE SENATE VERSION, ACCORDING TO CBO ESTIMATES

Executive Summary

The drug benefit included in catastrophic care legislation would have the effect of reducing pharmaceutical reimbursements 10% below reasonable charges if the House measure were adopted by Congress, but it would raise prices 2% under the Senate version, according to estimates produced by the Congressional Budget Office on April 7. The report states that "reduction in reasonable charges for reimbursement" would be 10% under the House bill but -- 2% under the Senate bill. CBO explained that the House measure's formula for reimbursing multiple-source drugs at 50% of the brandname product's AWP provides a greater incentive for generic dispensing and, therefore, price competition. The Senate bill reimburses for multiple-source products at 150% of the least expensive generic product's AWP. Another factor in CBO's determination that the House bill will induce greater cost reductions is its provision for HHS "discretion on AWP amounts" for single-source products. The House measure authorizes the secretary to determine applicable average wholesale prices for single-source drugs, whereas the Senate version requires the use of published AWPs. On the other hand, due to its gradual implementation, the Senate bill would bring about a slower increase in the premium cost to enrollees. In 1992, for example, the monthly premium under the House bill would be $ 36.70, CBO reports. Under the Senate bill, it would be $ 33. Senate and House managers, or conferees, have scheduled another meeting of their conference for April 13. They are expected to complete "underbrush" issues on which House and Senate measures differ little or not at all. Staffers have already reached agreement on the provisions. The CBO estimates reflect important differences in the two bills, including the deductible ($ 500 in the House; $ 600 in the Senate) and the fact that the flat premium must pay for 75% of program costs under the House bill but only 50% of the costs under the Senate bill. However, estimates for neither measure account for revenues from the income-related supplemental premium. The Pharmaceutical Manufacturers Association disputed CBO's estimates. In an April 8 statement, PMA's Executive VP Robert Allnutt said "such a calculation would have to be based on a misinterpretation of both [House and Senate] bills." Allnutt contended that CBO interprets the House measure "as if the [HHS] has unlimited authority to decide at what price to reimburse pharmacy for single-source and multisource drugs. This is not what we and others thought the House bill meant when it was drafted and passed." Further, he maintained, if CBO assumes that "the Senate would force [HHS] to reimburse at unrealistically high prices, I don't think that is what the people who drafted the Senate bill intended." CBO provided cost estimates for fiscal 1988-1993. Because the House bill's deductible is lower, more enrollees qualify for the drug benefit under the House proposal than under the Senate plan. More enrollees are sooner reimbursed for prescription drugs under the House bill because it proposes to implement the benefit fully in 1990. In contrast, the Senate measure delays coverage until 1991, and implementation is gradual, with I.V.'s, chemotherapeutics, and immunosuppressives covered in the first year, diuretics and cardiovasculars added in 1992, and full coverage in 1994. Consequently, CBO estimated that the House bill would provide the benefit for 6.2 mil. enrollees in 1990, 6.4 mil. in 1991, 6.6 mil. in 1992, and 6.9 mil. in 1993. Under the Senate bill, CBO said, the benefit would be provided to 10,000 enrollees in 1991, 2.6 mil. in 1992, and 2.8 mil. in 1993, before full implementation.
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