HHS Price-Setting Regs Could Be Authorized Under Democratic Medicare Plan

House Democrats are considering whether legislation to create a PBM-administered Medicare prescription drug benefit should allow HHS to issue rules ensuring that the Medicare program receives drugs at the same prices as other large group purchasers.

An outline of one possible House Democrat plan suggests that consideration be given to allowing HHS to issue regulations "to ensure that manufacturers make prescriptions available for Medicare beneficiaries at prices that are substantially equivalent to the favored prices paid by other large purchasers."

HHS would be directed to implement regulations if pharmacy benefit managers administering the drug benefit fail to "meet the goals" of using group purchasing power to provide prescription drugs to Medicare beneficiaries at a discounted rate.

An assessment of the need for regulations would be based on analysis by the General Accounting Office.

Under the proposed plan, "the GAO shall monitor the ability of the benefit providers to achieve these prices, provide quality service, reduce errors and ensure access, especially to those in rural and hard-to-serve areas. Two years after implementation, the GAO shall report on whether benefit providers have been able to achieve the contract goals."

The plan outline acknowledges that a provision granting HHS the authority to act to ensure access to discounts is controversial.

An alternative approach would be to "leave the entire section out and just state that Congress will act if providers are failing."

Pharmaceutical pricing would be addressed less directly through a provision for future studies.

"The GAO, Agency for Healthcare Quality & Research and Institute of Medicine will undertake various studies on ways to encourage more pharmaceutical research, to identify the full range and value of taxpayer support for pharmaceutical R&D, to determine the cost and patient care quality impact of pharmaceutical sales and outreach efforts, and to compare U.S. and developed nation drug prices and principal reasons for large differences in price, if any."

The pricing provisions in the draft plan reflect the challenge for the Democratic Caucus in crafting a Medicare drug benefit bill that can be supported by the party's price hawks as well as by moderate Democrats that are wary of actions that will be perceived as interfering with free market pricing.

House Democrats had previously been backing the combination of a pricing bill introduced by Rep. Allen (D-Maine) and a Medicare reform plan introduced by Rep. Stark (D-Calif.) as the solution to the Medicare drug benefit issue.

However, discharge petitions for the two bills have not attracted enough signatures to force floor consideration, with many moderate Democrats joining House Republicans in refusing to sign the petitions.

The plan outline circulating on Capitol Hill is said to be one of several proposals being considered by House Democratic leadership. A bill is expected to be introduced the week of May 8 that will be similar to the "Part D" prescription drug benefit plan proposed by the Clinton Administration.

The next formal action by the House on a Medicare drug benefit will be a May 11 hearing by Rep. Thomas' (R-Calif.) Ways & Means/Health Subcommittee.

The hearing will focus on President Clinton's Medicare Rx proposal, but it will provide a ready forum for Republican commentary on the Democratic plan. Witnesses will include Administration and Congressional Budget Office officials.

The House Republican leadership, which unveiled a drug benefit plan in outline April 12, plans to introduce a fleshed-out version of the plan within the next two weeks.

The pricing provisions in the draft Democratic plan will draw opposition from the brand name pharmaceutical companies.

However, the move by Democrats in the House towards uniting behind a Medicare benefit can be viewed as a positive development for brand name companies if it means less emphasis on stand-alone pricing bills (¹ (Also see "Rep. Allen Pricing Focus Shifts From FSS To Medicare Rx Plans" - Pink Sheet, 8 May, 2000.)).

The question of whether to grant HHS the authority to issue pricing regulations is one of three issues identified as unsettled in the draft proposal.

The Democrats are also discussing the best approach to a catastrophic drug benefit. The draft proposal suggests full coverage for drug purchases by beneficiaries whose out-of-pocket costs exceed $3,000 per year. The catastrophic provision would be implemented in 2002.

The specific figures were chosen in part to ensure parity with the House Republican plan, the outline indicates.

"This is the date and number the Republicans were using (but as they see how much it costs, they may start avoiding the numbers)," the outline states, "and we assume Democrats would want to at least match whatever numbers the Republicans use."

Republicans might shy away from specifying the $3,000 coverage level in their plan because it would drive the cost of the drug benefit "noticeably above" the $40 bil. allotted for a Medicare drug plan in the FY 2001 budget resolution, the outline notes.

Democrats are also considering including the catastrophic coverage provision without specifying a dollar amount for the benefit level, similar to what President Clinton has done in his revised proposal.

The outline maintains that, while the addition of the catastrophic coverage pushes the plan above the $40 bil. proposed in the GOP budget resolution, "the program fits into the President's budget numbers and does not add to the budget deficit."

President Clinton's fiscal 2001 budget request calls for $432 bil. over 10 years for modernization of the Medicare program, with $38.1 bil. over five years to provide the drug benefit. The request also included $35 bil. over 10 years for the unspecified catastrophic coverage plan (² (Also see "Clinton Adds $35 Bil. Reserve To Permit Talks On Catastrophic Drug Benefit" - Pink Sheet, 14 Feb, 2000.)).

Another unresolved issue in the Democratic plan is whether to create a "private sector advisory board," similar to the Social Security Advisory Board, to address the pharmaceutical benefit.

"HHS strongly opposes [this], perhaps fearing that Republicans will try to turn it from a strictly advisory panel to a Board that would run the program," the outline states. "But some Democrats may support the proposal because it shows a willingness to consult/use private sector."

HHS' concerns about the advisory board could be eased, the outline notes, "by making it temporary, [and] avoiding the use of the word Board." The board is referred to as a "private sector pharmaceutical advisory panel" later in the proposal outline.

The Justice Department has sided with HHS on the issue of a private-sector Medicare oversight board, suggesting that such an arrangement would be unconstitutional (³ (Also see "HCFA Claim To Medicare Oversight Helped By Congressional Testimony, DoJ" - Pink Sheet, 8 May, 2000.)).

The proposal would also expand the Medicare Payment Advisory Commission from 17 to 19 members to allow for the appointment of two "experts in the pharmaceutical delivery area."

The basic concept of the Democratic plan follows President Clinton's pharmacy benefit management administered "Part D" program closely.

Medicare would pay for half of all prescription drug costs up to $2,000 when the plan is implemented in 2002, increasing to $5,000 in 2009. Low-income seniors up to 150% of the federal poverty level would also be granted subsidies for drug purchases through the Medicaid program.

"Certain Rx benefits are covered through states for Medicare beneficiaries between 100%-150% of poverty....Federal matching rate for this group is 100%," the proposal states.

"For those between 100%-135% of poverty, Medicaid pays the premium and coinsurance up to the annual limit. For those between 135%-150%, the Medicaid subsidy is phased out on a linear scale."

Elements of a separate legislative effort that would provide coverage for self-administered injectables like Immunex' arthritis therapy Enbrel are included in the Democratic proposal.

While the full drug benefit outlined in the plan would not be in effect until 2002, beginning Jan. 1, 2001 the program would provide coverage "of self-administered drugs that, when used as a replacement for covered drugs, result in overall cost savings to the program."

Rep. Dunn (R-Wash.) has introduced legislation that would provide coverage for self-injectable therapies that are prescribed in lieu of a physician-administered product for the same indication (⁴ (Also see "Immunex Novantrone For MS May Cost $5,107 Per Year, Lewin Study Finds" - Pink Sheet, 20 Mar, 2000.)).