After years of discussion, seniors now have a law
incorporating a prescription drug benefit in the Medicare
program. The shape of that measure is a decided victory for
health insurers and pharmaceutical manufacturers. Now the
question is how many of the provisions in the statute will
actually go into effect. It's a certainty that many members of
Congress will use the session beginning this month [January]
to try to amend the law they just passed.
Some provisions are likely to remain unscathed, starting
with an immediate boostof up to 25% in some areasof payments
to plans participating in the Medicare+Choice program, a
change sure to make Medicare+Choice more attractive to managed
care companies. Medicare payment for drugs administered in
doctors' offices also will change, with the program dropping
the controversial "average wholesale price" formula and
instead paying on the basis of the "average sales price" plus
a yet-to-be-determined add-on. Employers who offer a drug
benefit plan to their retirees that is at least as good as
Medicare's will get a tax-free payment from the federal
government for 28% of the cost of that program. Nonetheless,
the Congressional Budget Office estimates that almost a third
of the 12 million retirees getting better drug coverage from
their former employer will lose that benefit because of incen
tives that may encourage employers to drop coverage
altogether, scale back benefits, or replace existing benefits
with wraparound coverage.
The overall law is the kind of compromise that leaves all
sides a bit dissatisfied. Conservatives are unhappy that the
measure does not provide a larger role for private insurers to
challenge the government-run program. The new law calls for a
test of the idea of forcing Medicare recipients to choose
between private plans and the government's fee-for-service
program through direct price competition, but that test would
be limited to 6 markets, run for 6 years, and not begin until
2010. Look for moves to make the experiment bigger and sooner.
Conservatives also would like stricter controls on overall
The Democrats' biggest effort to change the Medicare law
will be centered on the pharmaceutical industry's big win: a
prohibition on the government's using the buying clout of the
huge pool of Medicare recipients to negotiate preferential
prices from drug manufacturers. Democratic members of Congress
are readying an amendment that would remove the prohibition
and encourage the US Department of Health and Human Services
(HHS) to bargain over drug prices, much as the Department of
Veterans Affairs does. The change will be staunchly opposed by
the Bush Administration, which views the practice as a kind of
price-fixing that would discourage treatment innovation.
The basic structure of the drug benefit is clumsy:
beneficiariesexcept for the poorestpick up the first $250 of
annual drug outlays, then the government pays 75% of the next
$2000, then the beneficiaries pay all of the next $1350, then
Medicare pays 75% of any additional costs. The benefit will be
provided by private insurers. The Democrats will try to
liberalize those reimbursement levels before the benefit
begins in 2006, but the core "doughnut hole" pattern is likely
The new law's provisions on reimportation of US-made
medications from other countriesnot directly related to
Medicare but nonetheless part of the measureare also going to
be the subject of continued debate. The law continues the
total ban on purchases from all countries except
Canadareimportation from Canada is authorized only if the HHS
certifies that it is safe to allow US residents to make such
purchases. An HHS okay is highly unlikely, and an amendment to
remove that requirement will be hotly debated this year.
There's not much debate about Washington's efforts to hold
drug prices down by encouraging more competition from
generics. One part of the Medicare measure that is not
targeted for amendment is a provision that would do just that.
In 3 ways, Congress has changed the ground rules to make it
easier for generics to be sold once the patent on the basic
brand-name drug has run out. These changes are:
Drug patent holders can use the claim that later
patents still protect a drug for only one 30-month
delay on generics, rather than having a string of
Generic drug companies that file on the same day
will all be given the 180-day exclusivity that until
now was given to only 1 firm.
An alteration in the rules on declaratory judgments
lets generic drugmakers get a quicker ruling on
whether their product infringes a valid
Together, those actions have the effect of "eliminating
some of the most serious barriers to generic competition,"
says Kathleen Jaeger, president of the Generic Pharmaceutical
Paving the Way for Pediatric Drug Testing
The FDA has been trying to force pharmaceutical
manufacturers to test their drugs on children, rather than
leave it up to physicians to guess proper dosage and frequency
for younger patients. But a US District Court judge in 2002
struck down the FDA rule, finding that the agency did not have
the authority to issue such a demand. On December 3, President
Bush signed into law a measure (S 650) unequivocally giving
the FDA power to require pediatric testing. The agency is
poised to make rapid use of the new authority.
The pharmaceutical industry did not oppose the legislation,
but companies are already pushing the FDA to make liberal use
of the provision, which lets regulators exempt drugs from
pediatric testing when such testing is impractical or when it
is unlikely that a medication will be widely used for young
patients. The new law expires after 5 years.
In Other Legislative and Regulatory News . . .
The Centers for Medicare and Medicaid Services picked
the 3 companies that will pilot a disease management
program for Medicare beneficiaries with diabetes or chronic
heart problems in Louisiana, Texas, Arizona, and California.
CorSolutions (which will use Express Scripts, Inc, for the
pharmacy benefit part of the test), Diabetex/ XLHealth (teamed
with PBM Plus), and HeartPartners (with Prescription
Solutions) all guarantee cost savings for the government.
Patients would be able to claim as deductible medical
expenses their outlays on OTC drugs under legislation (HR
3596) introduced by Reps Louise Slaughter (D, NY) and James
(Jim) DeMint (R, SC).
US trade negotiators are pressuring Australia to loosen
its drug price controls and pay US pharmaceutical
manufacturers higher prices for medications Australia buys for
its government health plans. Washington hopes a deal with
Australia could be a model for trade talks with other
State efforts to slash Medicaid drug costs have paid
off. The HHS Office of Inspector General found that a
variety of strategies cut outlays in every state program, with
Washington State topping the list with $21.7 million in annual
savings. Six states imposed formularies in their Medicaid
programs, and 16 required prior authorization for at least
some prescriptions. Seventeen states decreased the amount they
pay pharmacies to fill prescriptions for Medicaid
Curbs on the California AIDS Drug Assistance Program
were proposed by Gov Arnold Schwarzenegger as part of his plan
to slash $2 billion in spending this fiscal year. Applicants
would be put on a waiting list and admitted to the program
only as spaces open up.
Also in California, opponents of the new state law
mandating that all but the smallest employers provide their
workers with health insurance announced in early December
that they had gathered enough signatures to put the question
of repealing the law on the ballot for the state's primary
election in March. The law technically took effect January 1
but has its first compliance deadline in 2006.
Massachusetts health care advocates are moving to amend
the state constitution to guarantee "comprehensive,
affordable, and equitably financed health insurance coverage"
for all state residents. On December 3, backers of the measure
filed the necessary signatures to have the proposal put on a
state wide ballot, probably in 2006. If the referendum passes,
it would have to be endorsed by at least 25% of 2 consecutive
legislatures before going into effect.
Illinois Gov Rod R. Blagojevich ordered a review of the
formulary used by 12 state-sponsored health plans with the
goal of removing drugs made by companies that try to undercut
US buyers from getting less expensive drugs from Canada by
limiting their supplies to Canadian outlets. Products of
AstraZeneca, GlaxoSmithKline, Lilly, Pfizer, and Wyeth are the
first to be targeted.
New Mexico is creating a massive drug-buying pool to
cover all 635,000 state residents who get health care coverage
from any public entity. Later, the pool may also purchase
medications for the state's 400,000 Medicaid