Washington Matters

The Medicare Drug Coverage Debate: Focus Turns to Changing the Plan

From Drug Benefit Trends®

Posted 02/03/2004
By Daniel B. Moskowitz

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 boost—of up to 25% in some areas—of 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 Medicare spending.

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: beneficiaries—except for the poorest—pick 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 to stay.

The new law's provisions on reimportation of US-made medications from other countries—not directly related to Medicare but nonetheless part of the measure—are also going to be the subject of continued debate. The law continues the total ban on purchases from all countries except Canada—reimportation 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 30-month holds.

  • 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 patent.

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 Association.

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 nations.

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 beneficiaries.

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 recipients.

Mr Moskowitz is a Washington, DC–based journalist who specializes in health care matters.

Drug Benefit Trends 16(1):11-12, 2004.
© 2004 Cliggott Publishing, Division of CMP Healthcare Media

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