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MEDICARE DRUG BENEFIT PHASE-IN OF CO-PAY LEVELS MAY BE CONSIDERED AS AN ALTERNATIVE TO SENATE BILL's PHASE-IN BY THERAPEUTIC CATEGORY -- REP. GRADISON

Executive Summary

A phase-in of beneficiary co-pay levels might be considered during the catastrophic health care bill conference as an alternative to the Senate bill's phase-in by therapeutic category, Rep. Gradison (R-Ohio) noted at a seminar sponsored by Ohio State University on April 11. Gradison reported that he has "been discussing" with Rep. Stark (D-Calif.) and other House members "the notion of having total coverage right off, but varying the co-payment so that the cost of the program won't be different from what we expected it to be with the gradual phase-in" by therapeutic category. Both the House and Senate bills provide enrollees reimbursement for 80% of outpatient pharmaceutical expenditures after an annual deductible is reached; however, the Senate bill would be gradually phased-in by therapeutic category with full coverage not occurring until 1993, whereas the House bill would immediately cover all participating individuals. Gradison predicted that the "final version [of the legislation] must be fairly close to the Senate version if it is to be acceptable to the Administration." Gradison acknowledged that some type of phase-in of coverage would likely be contained in the final bill. Gradison suggested, however, that the Senate's phase-in by therapeutic category might be politically problematic for Congress. "There are problems with the phase-in," he observed. "In particular, it will not be easy to explain to somebody who is elderly, who has very heavy expenses for an outpatient prescription drug that isn't to be phased in until the second or third year, why they are being called upon to pay the premium, but aren't really entitled to the benefits." In a separate presentation to the conference, Pharmaceutical Manufacturers Association VP-Government Relations Geoffrey Littlehale asserted that while a co-payment phase-in would help alleviate concerns over adequate funding for the program, the co-payment approach would not deal with the problem of administrative overload. "The immediate downside to [the copayment phase-in] that we see is that you are still processing on Day One all those hundreds of millions of prescriptions," Littlehale said. Consequently, a gradual reduction of an initially high copayment is "not really" a phase-in, he maintained. "The amount of money that goes out gets phased in, but the actual logistics of running the program are not phased in." Littlehale also declared that the final legislation would phase in coverage. He also pointed out that while the co-pay phase-in would be administratively difficult, the Senate phase-in would be "politically awkward." Under the Senate plan, Littlehale said, "Congress has to say: 'Well you've got the right disease this year so we're paying for your drugs.' It is a very awkward and ungraceful political answer to the problem -- members don't like that. They want to be able to say: 'Whatever you've got we are going to pay for it as soon as possible.'" Littlehale noted that another option that had been discussed -- coverage for all drugs, but with an initial high deductible that gradually would be reduced -- is "no longer a viable option." The PMA exec identified a phase-in approach that results in a "fiscally sound" out-patient drug benefit as the most important element of the pending legislation to the association. If the program goes into deficit because of an immediate, full-benefit load, Littlehale warned that Congress might institute formularies, which are not currently proposed under the bills, to recoup losses. "None of [PMA's concerns with the legislation] are as important to us as the fiscal soundness of this program," Littlehale said. A phase-in of the program "gives the secretary and those following this some real world experience with how much money is going into the program . . . in premiums and how much is really going out in benefits," he continued. "Then, when you do put the full benefit in effect, you're doing it at a premium level sufficient to support the program at a benefit level that is sufficiently controlled so that the thing doesn't just snowball and go immediately into a fiscal catastrophe." "If the program is in deficit in the first year," Littlehale added, "they are going to change the law and there are going to be formularies. We don't want the price of our products set by the federal government and we're not crazy about the notion of negotiating with the federal government." Addressing the issue of price restrictions, economist Ronald Hansen, PhD, Ohio State University, suggested that brand name companies could, in certain circumstances, be forced to negotiate the price of a single source drug with the government. "If a company is putting out a brand new product . . . that is primarily aimed at the Medicare population, then there are going to be some very interesting questions about what price they're going to charge," Hansen said. "I would not be surprised, if [an expensive] new single source product that comes out that is intended for Medicare patients, to see some interest on the part of Congress or the administration to negotiate the price of that pharmaceutical." Hansen added: "It would only be a limited number of drugs, but there will be some drugs for which the Medicare program could potentially be the major source, and certainly individuals on the Hill . . . must talk about putting price controls on [those] pharmaceuticals. I think its a very distinct possibility."

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