The House leadership collected just enough votes in late June to approve a Medicare reform bill that provides some coverage
of pharmaceuticals for seniors. Democrats rebuked the measure as a scam and a fraud; some conservatives complained that it
opened the door to a costly new entitlement. Ergo, the bill may be the best compromise one could expect, but it probably won't
lead to consensus legislation. With Congress unlikely to agree on a plan by fall, policymakers may have to start over again
The Republican-backed bill (HR 4954) allots $320 billion over eight years for the pharmacy benefit, and another $30 billion
to boost Medicare payments to hospitals, doctors, and HMOs. The measure allows Medicare beneficiaries to purchase a prescription
drug plan (PDP) from insurance companies for a likely $33 monthly premium. Plans will carry a $250 annual deductible and cover
80 percent of annual prescription drug purchases up to $1,000, 50 percent of purchases up to $2,000, and all costs above a
$3,700 catastrophic limit.
Thus, the program pays nothing to beneficiaries caught in the "doughnut hole" between expenditures of $2,000 and $3,700. But
there are subsidies for low-income seniors, and beneficiaries enrolled in Medicare+Choice plans may have to pay less out of
pocket, because the program reimburses HMOs for pharmacy costs.
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Pharmacy benefit managers (PBMs) that offer PDPs through insurers may establish formularies, tiered co-pays, and restrictive
pharmacy networks to control costs. But the plans also must inform beneficiaries about such restrictions as well as grievance
procedures, any discounts the PDP receives, and other features. Plans also must implement drug use and electronic prescription
Until final passage, it looked like dissension in Republican ranks might kill the whole package. Some legislators wanted to
include provisions that permit import of low-cost medicines and revise generic drug patent policies, but House leaders kept
such contentious amendments out of the final bill.
Insurers softened their opposition after legislators boosted reinsurance provisions, calling for government to subsidize 67
percent of premium costs through reinsurance to dispel insurers' fears of adverse selection.
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Pharmacists gained a $600 million grant to support patient counseling programs, electronic prescribing, drug use review, and
information technology. Yet, that failed to appease retail pharmacists, who oppose a "PBM-run" benefit program that permits
PDPs to establish restricted pharmacy networks and endorses a Medicare discount card plan.
State officials applauded a provision offering $3 billion in grants to support state pharmacy programs for low-income seniors.
The American Medical Association liked the 2 percent payment update for doctors, and health industry groups praised the measure's
"realistic price tag" that would not bankrupt Medicare.
Plusses for Pharma
Besides adopting a private insurance approach for providing a pharmacy benefit, the bill omitted several provisions unfriendly
to pharma. In addition to blocking reimportation and generic drug proposals, the bill's authors cancelled an item authorizing
Congress' General Accounting Office to study the impact of direct-to-consumer advertising on pharmaceutical use and cost.
And they dropped another proposed GAO study of Medicaid prescription drug pricing.
At the same time, the bill retains a "best price exclusion" provision stating that pharma prices negotiated by plan sponsors
will not count toward the Medicaid best price. Some companies back the change to prevent a downward price spiral, but the
revision also eliminates their rationale for limiting discounts to Medicare purchasers.
A new Medicaid commission will request further GAO studies on pharmacy costs and prices as it analyzes factors boosting Medicaid
costs and recommends program changes. The bill also establishes a Medicare Benefits Administration to manage the new pharmacy
benefit and the troubled Medicare+Choice program. The bill mandates that GAO study the legislation's overall impact, including
program implementation, the number of eligible seniors participating, and the impact of the reinsurance approach.
Senate Democrats have backed a much more generous and costly program. Democrats want a pharmacy benefit administered by the
federal government, with lower monthly premiums (about $25), no deductible, and flat co-pays on three-tier plans. The federal
government bears the risk, eliminating the need for subsidies to insurers. That approach follows the traditional fee-for-service
Med-icare program and is likely to end up regulating the prices it pays for medicines as it does for hospital stays, doctor
visits, and medical supplies.
Even if Republicans and Democrats fail to adopt any Medicare pharmacy benefit this year, Congress now is more likely to tackle
the issue in the near future. That the House leadership was able to collect enough votes to approve this package in the face
of strong opposition from all sides speaks to the political importance of providing some kind of pharmaceutical benefit for