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Executive Summary

Health care reform legislation proposed by the incoming Clinton Administration will include national prescription drug coverage, HHS Secretary-designate Donna Shalala affirmed at a Jan. 15 hearing before the Senate Labor & Human Resources Committee. Asked by Sen. Pell (D-R.I.) how prescription drug prices can be controlled and reduced, Shalala responded that Clinton "has indicated in part of his discussion of national health reform that prescription drugs ought to be included as part of that package." Shalala said administration officials will be "working with the drug companies" as they "think through" ways for drugs to be provided and paid for. "While we don't have a proposal on the table, I think these conversations have to be continued," she added. The Jan. 15 hearing was a courtesy to the Senate committee which, although it has jurisdiction over FDA and other health issues under HHS purview, does not vote on the secretary's nomination. The Finance Committee, which has responsibility for Medicare and Medicaid issues in the Senate, held a formal confirmation hearing Jan. 14. Referring to voluntary commitments made to Clinton's transition team by several major manufacturers to restrain price increases below the rate of general inflation, Shalala noted that the industry "made some preliminary forays in terms of what they're willing to do to hold drug prices down." However, she added, drug prices "have been going up awfully fast in the past years." Sen. Metzenbaum (D-Ohio) told Shalala that Canada has experienced drug price increases of only 4% because that country "has solved the tying" pricing to patent rights. Metzenbaum used a high estimate of 11% for annual U.S. price increases and maintained that the industry has 15% profit levels. Shalala did not respond to the idea of linking patent rights to price restraint, a concept espoused by Arkansas Sen. Pryor (D). She merely reiterated that prescription drug coverage "must" be considered "as part of our reform effort," adding that it "would be unfortunate" to produce a health package "without making it comprehensive and dealing with one of the [key] cost elements to real people." The HHS secretary-designate also made clear that health care reform legislation proposed by the Clinton Administration will include global spending limits. Committee Chairman Kennedy (D-Mass.), calling health care his "top priority," asked whether "cost control and universal coverage [should] be part of a health reform strategy" to be incorporated in comprehensive legislation." Shalala replied: "Absolutely." Kennedy noted that "there are a number of approaches to controlling costs," including "managed competition, national expenditure targets, rate regulation [and] regulation of insurance company premiums." He asked whether the secretary-designate had "reached any conclusions" about the best approach for the cost control component of health care reform legislation. Shalala pointed out that "the President-elect has outlined a managed competition plan which has a global budget on top of it." Such a strategy entails an attempt "to marry two items, in some sense," she said. The result will be "a uniquely American plan that builds on the private and public sector programs that we currently have." She explained that such a program holds "insurers accountable for cost and quality [and] pools consumers and business and regional groups to act as powerful bargaining agents that people have a choice of health plans in a comprehensive benefits package." Furthermore, she continued, "on top of that" structure, the incoming administration's tentative proposal would place "a national budget of some kind to make sure that, rather than getting into the details of regulation, we have some commitment on numbers -- not targets, but an actual budget." The details of the plan "are being worked through now," Shalala said. Committee Ranking Republican Kassebaum (Kan.) predicted "rough sailing" for any health care reform proposals that depend too heavily on regulatory controls. "I firmly believe health care reform must be both tough on rising costs and comprehensive in expansion of access to the uninsured," Kassebaum said. However, she added, "it is important to keep in mind that any reform proposals too heavily reliant on regulatory control or binding mandates will face rough sailing with a majority of Americans." Kassebaum also mentioned her "strong interest in reforming the Orphan Drug Act." Sen. Metzenbaum (D-Ohio) chimed in: "Amen."

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