Congress moves to curb Medicare drug spending

February 1, 2007

The new House leadership delivered on one of its prime campaign promises last month by pushing through legislation requiring the Health and Human Services (HHS) secretary to negotiate directly with pharmaceutical companies on prices for medications covered by the Medicare drug benefit. The bill (HR 4) repeals the so-called "non-interference" clause in the Medicare Modernization Act (MMA) and replaces it with a provision requiring the secretary to negotiate prices that manufacturers may charge prescription drug plans (PDPs) and Medicare Advantage drug plans (MA-PDs).

At the same time, Senate leaders signaled growing support for similar legislation. At a hearing on prescription drug price negotiation in January, Sen. Max Baucus (D-Mont.), the new chairman of the Senate Finance Committee, backed Congressional action to "strike the non-interference clause." Sen. Baucus has been a leading Democratic advocate of the Medicare drug benefit and is in a pivotal position to influence Senate action in this area. Sen. Baucus noted that most beneficiaries are "basically satisfied" with Part D, but acknowledged the need to "get better prices for seniors."

TARGETED APPROACH

Sen. Baucus indicated interest in legislation that similarly would target government negotiating to "certain unique drugs" where the market fails to provide seniors with affordable medicines. He noted the need for more information about drug effectiveness and a better understanding of drug pricing in the Medicare market in order to develop appropriately targeted legislation. Senate leaders hope this approach will avoid a threatened filibuster by Senate Republicans of any drug price negotiating requirement, as well as a veto by President Bush, who says he will oppose any legislation that permits government interference with market competition.

LIMITED CLOUT

The trick will be to provide enough leeway to influence drug prices to satisfy House Democrats. All sides acknowledged that the House bill provides HHS with very limited clout for negotiating prices because it prohibits establishing a central formulary or any actions that would limit access to covered Part D drugs. House leaders also dropped proposals to establish a federal "fall back" drug plan operated by HHS, largely to avoid all-out opposition from pharma companies.

Sponsors of the legislation maintain that even without the ability to keep a high-priced drug off Medicare formularies, public awareness of price differences would pressure drug makers to lower their rates. HHS will have to report to Congress on these activities every six months as a way to make drug pricing information more visible.

But insurers and drug benefit managers maintain that without the ability to drop a product from a formulary, federal negotiating authority is meaningless. The Congressional Budget Office stated that the House bill would have a "negligible effect on federal spending" because of its limited leverage for obtaining discounts. An added concern is that any policy requiring stiff discounts for Medicare drugs will boost prices paid by other public and private health insurers.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.