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Executive Summary

Beneficiaries would be likely to select health plans with broad prescription coverage and avoid those with highly restrictive formularies under health reform, HHS Secretary Shalala predicted at a joint Oct. 5 hearing before the House Energy & Commerce/Health and Consumer Protection Subcommittees. The HHS secretary maintained that the preference for inclusive drug coverage plans would act as a built-in deterrent against plans that decide not to allow new treatments to reach their beneficiaries. Calling President Clinton's proposal a "patient-oriented system," Shalala said "consumers themselves" would work with providers to ensure the "sensitivity and responsiveness" of their plans. Under the proposal, patients would have "flexibility," choice and "the power to switch" plans, she said, adding that health professionals will continue to decide the "appropriateness" of therapies. Shalala relied on the competition theme from the Clinton plan to reply to a question from Rep. Upton (R-Mich.) about the possibility of "unfair" rationing from a national health system modeled on HMOs. As an example of HMO rationing, Upton cited reports that Warner-Lambert's Alzheimer's drug Cognex is not covered by Kaiser Permanente of Northern California and Group Health Cooperative of Puget Sound ("The Pink Sheet" Sept. 27, T&G-14). Upton also asked whether the proposal's provision authorizing HHS to deny coverage of high-priced products under Medicare would inhibit R&D of drug products for the elderly. Shalala replied: "We obviously don't have any intention of reducing [either] the investment of [the pharmaceutical industry] in research or [government's] investment in research." However, she added, as "the largest purchaser of drugs," the government requires certain tools to negotiate prices "that ought to be below the retail price." The Pharmaceutical Manufacturers Association has attacked the Medicare right to refuse coverage as a form of "blacklisting." Health Subcommittee Chairman Waxman (D-Calif.) predicted that his panel would schedule a markup of health care reform legislation in January. Calling the Oct. 5 session the first of "an extensive series of hearings," Waxman said he and Consumer Protection Subcommittee Chair Collins (D-Ill.) "will be holding hearings throughout the fall in order to prepare members for markup on the President's proposal in January." Shalala, who testified about the Administration's health care proposal before House and Senate committees throughout the week, told an Oct. 7 hearing before the House Education & Labor Committee that HHS will contract for prescription drug claims services to manage the Medicare prescription drug benefit established under the Clinton Administration's health care reform proposal. Asserting that the final draft of the proposed legislation "will be very specific about how many people we think that we need or don't need and, in some cases, how much it will cost," Shalala said the plan to contract out for management of the Medicare drug benefit is an example that the proposal would not require "a new government bureaucracy." The secretary predicted that when she returns to Capitol Hill to discuss the final draft she will "not [have] to ask for a huge new number of government employees" to administer the Medicare drug benefit. Instead, the proposal will "suggest that we contract out that service because it can best be provided by a series of contractors as opposed to a new government bureaucracy." Similarly, Shalala maintained, "I do not think we're talking about a huge bureaucracy with the National Health Board." HHS estimates "that we're talking about as little as 100 people who would staff that [seven-member] board," she said. The board's primary responsibilities would be to recommend changes in the standard benefits package, to set overall health spending targets and to oversee state implementation of health alliances. "This is a relatively minor oversight group," she maintained. Shalala testified that health alliances under the Clinton plan would not establish restrictive provider networks. Appearing at an Oct. 5 hearing of the House Ways & Means Committee, the secretary said: "I think [health care providers] have the right to participate [in health alliances] if they meet the standards of the state." Noting that the health care proposal is predicated on "competition," the secretary said the plan must provide opportunity for providers" to compete in the reformed system. Shalala was replying to a question by Rep. Brewster (D-Okla.), a pharmacist, as to whether health alliances established under the plan would be able to restrict the participation of any licensed provider, including a pharmacy. When he heard the secretary's reply, Brewster commented: "That's what I was hoping you would say....I'm truly pleased to hear your discussion of willing providers." Rep. Cooper (D-Tenn.) introduced his legislation, the "Managed Competition Act of 1993," on Oct. 6; a similar managed competition measure is expected to be introduced in the Senate within the next two weeks by Sen. Breaux (D-La.). The bipartisan bill, which would be financed through a tax cap and a slowing of Medicare spending, now has 46 cosponsors in the House. The bill describes itself as a "market-based approach" that "guarantees access" -- though not necessarily coverage -- to "high-quality, affordable health care" without the need for "heavy-handed government controls." Endorsed by the Jackson Hole Group and introduced with the support of 27 Democrats and 19 Republicans, the legislation will cost the federal government an estimated $40 bil. over five years. The bill's supporters calculate the total cost of the legislation at $25 bil. per year, with $16 bil. coming from a tax cap on the amount employers could deduct for providing health insurance to workers. That ceiling would be set at the level of the lowest-cost accountable health plan in a given health plan purchasing cooperative (HPPC). According to congressional staffers, the cost of an individual policy would be about $2,100, compared to an estimate of $1,800 for the Administration's standard benefits plan. In other provisions of the bipartisan managed competition bill, the legislation would use a "federal risk-adjustment procedure" to "pay more to [accountable health plans] which have enrolled high-risk individuals and will reduce payment to AHPs which have enrolled low-risk individuals," the summary states. An independent Health Care Standards Commission would develop the risk adjustment factors, establish and update the standards for health benefits package, and create a framework of standards for AHP-issued quality "report cards." Malpractice reforms in the Cooper bill include limiting non-economic damages, while a National Health Board would oversee development of standard claims forms and electronic data transmission. The Cooper managed competition legislation is viewed favorably by many business and provider groups, including the National Federation of Independent Business and the Federation of American Health Systems. However, Families USA Executive Director Ron Pollack said after an Oct. 5 videoconference sponsored by Coopers & Lybrand that the bill, while a 11 constructive response," will not "guarantee that people won't lose coverage." In fact, he said, "if you're working, it doesn't guarantee you'll have coverage to begin with." Conceding that the Cooper bill is likely to present serious competition in Congress to the Administration's legislation, Pollack said that the "pure" managed competition proposal "lays out parameters of what a potential compromise might look for." He predicted that "there will probably be some serious negotiation between the Clinton bill, which provides security and protection for everybody, and this bill, which aspires to it, but fails to reach it." Asked to comment on the Cooper bill during a same-day White House press briefing on the effect of health reform on employment, Treasury Secretary Bentsen said that the plan "certainly contributes to the debate in a meaningful way, but it has some serious problems...It does not have universal coverage... and you're going to see cost-shifting take place, and you'll see small business bear the brunt of it...Universal coverage is essential." Bentsen continued: "Another [problem] is that they don't have the benefits defined. That is done later by some national board. It's important that you know what you're getting before you vote on it, what kind of coverage you're going to have. I would say the third problem with it is...the tax cap. What you would see is a lot of the major companies that have full coverage would be cutting back."

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