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BREAKTHROUGH DRUG PRICE PROVISIONS IN CLINTON PLAN ARE "MODEST," PRYOR CLAIMS; BRIEFING FOR CONGRESSIONAL COLLEAGUES ATTEMPTS TO CUT OFF EXPECTED CRITICISMS

Executive Summary

The breakthrough drug price review proposal in the Clinton health plan is one of the weakest price control options that the Administration could have chosen, Sen. Pryor (D-Ark.) contends in a recent briefing paper on pharmaceutical provisions in the plan. In an options chart ranking six approaches to controlling breakthrough drug prices, Pryor ranks the Clinton proposal fifth down the list in terms of the strength of its requirements. A proposal with no price review for breakthrough drugs would have been weaker, the Pryor chart indicates. The four stronger approaches would have entailed review of all new drugs, not just breakthroughs; government-developed price guidelines; government- enforced price guidelines; and government price-setting authority. The Pryor briefing paper is clearly an attempt to cut off criticisms of the pharmaceutical components of the Clinton plan. The options analysis of new product pricing review is designed to make the Clinton proposal appear to be a moderate position. Pryor distributed the eight-page polemic to every member of Congress on Oct. 1. A headnote to the Pryor paper explains that the document is intended "to assist congressional staff in understanding the nature and purpose of the pharmaceutical-related provisions" of the proposal. "The President could have proposed stronger cost controls or restraints on new drug prices but instead opted for a modest form of cost restraint," the package states. The breakthrough drug committee is needed, Pryor reasons, because the reformed health care system relies on market competition for cost containment, but "new drugs that are advances or breakthroughs in treatment have little or no competition in the market for several years." Establishment of the committee would "provide for a review of certain new drug prices to assure consumers and pharmaceutical purchasers that they are reasonable." Pryor maintains that new drug prices will remain an "important" concern to consumers after they have pharmaceutical coverage "because they will still pay a percentage of the costs under some plans." As an example, the document notes that Gaucher's disease patients covered under the Clinton proposal's high-cost drug benefit option would "pay $28,000 a year," or 20% of the $140,000 cost for a year's supply of Genzyme's Ceredase. New drug prices "in the recent past have been and will continue to be potentially financially devastating for plans of all sizes...trying to manage their budgets," the analysis states. "Plans will have little bargaining power or leverage over manufacturers' charges for these new drugs, especially those drugs that have no close therapeutic competitors on the market." The Medicare cost controls in the Clinton proposal mirror approaches by other large purchasers, Pryor argues. Generic incentives, rebates and HHS authority to negotiate prices and exclude excessively priced drugs from coverage are the same types of controls used in the private sector, the briefing paper maintains. The paper states that such provisions would give Medicare, "the largest payer for prescription drugs in.the U.S.," the same cost containment tools" that other large drug purchasers have. Pryor points out that the Administration plan "does not contain any specific proposal to contain the cost of prescription medications during the period of transition to the new system." Because pharmaceutical coverage under managed competition "is not expected to be phased in for several years," Americans "may still be vulnerable" during the transition "to high out-of-pocket prescription drug costs and prescription drug inflation," the senator contends. The Pryor document asserts that the Clinton proposal contains no transitional price controls despite "evidence...that many actual drug prices at the consumer or retail level are still increasing much faster than the rate of inflation," the document states. Pryor has challenged all pharmaceutical companies to sign voluntary price agreements with HHS to limit drug price rises to the rate of inflation ("The Pink Sheet" Sept. 20, p. 17). The proposed drug benefit for the general, under-65 population provides coverage in a "low-cost option" and a "high-cost option," the package points out. The former requires no deductible and only a $5 copayment, whether a brandname or generic drug is dispensed. The high-cost plan requires a $250 deductible and a 20% copayment. Under both plans, the summary notes, drug payments by the individual "contribute to the annual out-of-pocket limit of $1,500 in medical costs per person and $3,000 per family." The prescription drug benefit established by the proposal under Medicare would provide coverage for the elderly after a $250 deductible is met, and stop out-of-pocket spending on pharmaceuticals after beneficiaries have reached a threshold of $1,000. The analysis notes that 57% of all drug expenditures are paid out of pocket, but the elderly pay 64% of their costs out of pocket. The proposal is designed to allow "older Americans who opt to stay in the current Medicare fee-for-service program," rather than join a managed care plan, to receive "the same prescription drug coverage as individuals in the high-cost option plan," the document notes. Without such a provision, it maintains, Medicare enrollees would have to leave their fee-for-service program and "join a managed care plan to obtain their drug benefits." Pharmaceutical buying group provisions in the proposal would "minimize cost shifting" in the managed competition system by ensuring that community pharmacies and hospital pharmacies "have equal access to any price discounts or price concessions that manufacturers offer in the marketplace," the analysis states. "Manufacturers have traditionally negotiated lower pharmaceutical prices with buyers because of the 'class of trade' to which the buyer belonged, rather than the amount of drugs" purchased, the paper asserts. Consequently, "community pharmacy buying groups have paid much higher prices for drugs, even though they can purchase volume that is equal to or greater than groups that buy for hospitals and HMOs." The proposal corrects this inequity by providing that manufacturers can no longer offer "preferential pricing or discounts based solely on the 'class of trade or purchaser,'" the document states. Pryor's support for a level playing field for different classes of trade in the pharmaceutical field appears to run counter to a recent Justice Department determination on a different type of pricing in the health care field. On Sept. 7, the Justice Department determined that a proposal by Blue Cross of Western Pennsylvania requiring one-price hospital charges to large insurers and small managed care companies would raise costs to patients. In an advisory letter to the Pennsylvania Insurance Department, Assistant Attorney General for Antitrust Anne Bingaman said the "fair payment rate limitation" proposal by Blue Cross of Western Pennsylvania "would likely raise costs for acute-care hospital services and health care insurance." Bingaman advised the state to "disapprove" BCWP's proposal on the grounds that it would undermine preferred provider contracts negotiated by smaller health benefit manager companies. The Clinton Administration proposal's equal access provision for pharmaceuticals, which is backed by community pharmacists, essentially calls for a manufacturer single-price policy for pharmaceuticals. Furthermore, in response to prescription drug plan managers" establishment of restrictive provider networks and to the Federal Trade Commission staff letters supporting them, pharmacists have argued that patients should be free to obtain services from any pharmacy willing to accept payment terms offered by the management company. Blue Cross proposed the payment limit after it found that a number of managed care plans with fewer patients were making lower payments to hospitals. "In some circumstances" payment limit provisions, which guarantee that a large purchaser like Blue Cross receives the best rate a hospital or other seller offers, "are not anticompetitive," Bingaman acknowledged. However, when a managed care plan negotiates a low rate based on restricted provider networks, and a large purchaser, which offers its beneficiaries freedom of choice, requires of the hospital "a guarantee of the best rate given to any other purchaser, anticompetitive results can occur." Specifically, Bingaman wrote, "the cost to hospitals of making price concessions to BCWP's competitors would increase [under the proposal] because the same price concessions would have to be granted to BCWP." Savings to Blue Cross from the proposal probably would not benefit health plan purchasers, she continued, and hospitals would have to raise charges to both Blue Cross and its competitors. Consequently, she said, BCWP competitors" health plan prices would rise and "enable BCNW to increase its health plan prices." BCWP argued that its proposal would limit the cost shifting, incurred in the higher rates it pays to hospitals, which compensate for discounts offered to BCWP competitors. "The [Antitrust] Division disagrees with BCWP's assumption that hospital costs are fixed, so that if one payer pays less, then the rest of the payers will be charged the difference," the letter states. "Selective contracting results in some cost shifting, but it also leads to lower costs and prices for hospital services." The department acknowledged that selective contracting "under a one-price policy [gives] hospitals some incentive to become more efficient." However, the letter maintains, "this incentive is dulled significantly when a payer with a large share of the market, such as BCWP in this case, is willing to pay on the basis of costs." Cost reimbursement "is widely viewed as a major culprit in the dramatic rise in health care costs of the 1970s and 1980s," Bingaman noted.
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