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MEDICARE Rx DRUG BENEFIT FIVE-YEAR COST IS $72 BIL., HEALTH CARE REFORM DRAFT STATES; NATIONAL HEALTH BOARD’s "BREAKTHROUGH DRUG COMMITTEE" TO REVIEW PRICES

Executive Summary

Outpatient prescription drug coverage that would be established under Medicare by the Clinton Administration's health care reform plan will cost $82 bil. over the period 1996-2000, according to a Sept. 7 "working group draft" of the proposal. The plan estimates that Medicare drug spending would be $10 bil. in 1996, $14 bil. in 1997, $15 bil. in 1998, $16 bil. in 1999 and $17 bil. in 2000. However, overall Medicare expenditures would decrease by $111 bil. over the five-year period due to $124 bil. in program cuts and an offset of $59 bil. for beneficiaries who remain employed, the draft indicates. The $124 bil. in savings due to Medicare spending caps, together with a portion of the $105 bil. the Administration proposes to collect in "sin taxes," will fund an $80 bil. long- term care benefit as well as the $72 bil. for outpatient pharmaceuticals. The document states that sin tax revenues also will pay for health care insurance "subsidies for low-income firms and workers" and for deficit reduction. The proposed legislation, tentatively titled the "American Health Security Act," authorizes HHS to deny Medicare coverage of pharmaceuticals considered by the secretary to be "inappropriate" or "not cost effective." HHS "has the discretion not to cover certain pharmaceutical products," such as "fertility drugs, medications used to treat anorexia and drugs used for cosmetic purposes," the document continues. Covered drugs include home I.V. drugs, benzodiazepines and barbiturates, the draft states. The department also "has the authority to establish maximum quantities per prescription or limit the number of refills in order to discourage waste" of pharmaceuticals covered under the program, the draft states. The proposal also permits HHS "to require physicians or pharmacists to obtain approval before prescribing or dispensing certain medications, based on evidence that they are subject to clinical misuse or inappropriate use or because [HHS] determines that they are not cost effective." The department's explicit authority to limit use under Medicare of drugs considered "not cost effective" is in addition to previous reports that it will have the power to deny coverage based on "excessively" high prices ("The Pink Sheet" Sept. 6, p. 8). The proposal authorizes HHS "to negotiate a special rebate with the manufacturer" of any drugs "the secretary has determined are excessively or inappropriately priced." The department would determine an excessive price "based on such factors as the prices of other drugs in the same therapeutic class, cost information supplied by the manufacturer to the secretary, prices of the drug in other comparable countries, and other relevant factors," the draft states. HHS can exclude excessively priced drugs from Medicare if the "manufacturer refuses to negotiate or the secretary is unable to negotiate a price that the secretary determines to be reasonable," the draft states. Pharmaceutical manufacturers will sign rebate agreements with HHS "as a condition of participation in Medicare and Medicaid," the document continues. Manufacturers currently pay Medicaid rebates only. Medicaid beneficiaries represent approximately 10%- 15% of the pharmaceutical marketplace. Adding the Medicare population would boost to 40%-50% the portion of drug sales for which manufacturers would pay rebates. Under the plan, rebates would be "paid to the secretary on a quarterly basis." When drugs are dispensed to patients eligible for both Medicare and Medicaid, "Medicare will be the recipient of the rebate," the draft states. Brandname manufacturers would "pay a rebate to Medicare for each drug based on the difference between the [average manufacturers price] to the retail class of trade and the weighted average of the prices of the drug in the non-retail market, or 15% of the AMP, whichever is greater." Brandname drugs also are subject to an "additional rebate" if prices increase "at a higher rate than inflation," the document states. "The baseline indexed price is the [AMP] from April through June 1993." Unlike the Medicaid rebate program, the Medicare program would not require rebates to be paid by generic drug manufacturers. Medicare would establish a drug use review (DUR) program that "parallels the program established in OBRA 1990 for Medicaid," the document states. "Participating pharmacists are required to offer counseling to Medicare customers on the use of medications" under the draft plan. The dispensing fee for participating pharmacists, who must "accept assignment on all prescriptions," is $5 indexed to the CPI. "Nonparticipating pharmacists receive $2 less per prescription." The draft also requires HHS to establish "a national system of electronic claims management as the primary method for determining eligibility, processing and adjudicating claims, and providing information to the pharmacist about the patient's drug use under the Medicare drug program." "Breakthrough" pharmaceuticals and products developed with the aid of the National Institutes of Health sold to the general population under the reformed health care system are subject to federal price scrutiny, although not price control or denial of coverage, through a "Breakthrough Drug Committee." The proposed health care system establishes a National Health Board, which will appoint the committee to "encourage reasonable pricing of breakthrough drugs" by making "public declarations regarding the reasonableness of launch prices." Although the committee would focus on "new drugs that represent a breakthrough or significant advance over existing therapies," it could also "address all drugs subject to a 'reasonable price' clause in a contract" with NIH, the draft states. "The committee could investigate drug prices only in those cases where available evidence suggests that the price may be unreasonable," the document stipulates. "The committee could make an initial determination about the reasonableness of a drug price based on a comparison of prices for therapeutically similar drugs in the U.S. and seven other industrialized countries." If the product's U.S. launch price "exceeds what the committee thinks to be reasonable, based on the information available, or if there is insufficient data, the committee would have the authority to obtain information from the company about the drug's price," the document continues. "The committee could then issue a report regarding the reasonableness of the drug price," the proposal states; however, "the committee would have no authority to set or control prices." The draft adds that "National Health Board decisions related to benefits, standards of performance and accountability apply to health plans operating through both regional and corporate alliances." Another limitation on manufacturer pricing policy appears under the heading "equal access for purchasers to pharmaceutical discounts." Drug manufacturers "would have to offer discounts to all purchasers of pharmaceuticals on equal terms," the document states, "as a condition of participation under Medicare and Medicaid." The draft is careful to stipulate that the equal access "provision would not prohibit pharmaceutical manufacturers from offering differential discounts to purchasers in return for differential economic advantages realized by the manufacturer, such as volume buying, prompt payment, prompt delivery or other mechanisms that can influence physician prescribing behavior." However, the document continues, "pharmaceutical manufacturers would be precluded from providing discounts to purchasers based solely on the class of trade to which the purchaser belongs" unless the purchaser is a government program.
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