Compromise Medicare reform bill would aid PBMs, manufacturers of injectables

Drug Cost Management Report, Nov 21, 2003

It looks like final passage of a Medicare reform bill may be imminent, now that the current compromise legislation has gained some key endorsements. AARP and other prominent groups such as the American Medical Association are in favor of the current version from the House/Senate conference committee. The bill would create new markets for the drug and PBM industries, but not provide new means of cost control.

PBMs and the drug industry are pleased with the bill because it calls for the drug benefit to be administered by PBMs. This opens up a large new market for PBMs, and privatization is not expected to result in drastically reduced drug prices that might have occurred under a government-controlled purchasing plan. Rep. Marion Berry (DArk.), the only licensed pharmacist in Congress, criticized the bill for not allowing direct negotiation of drug prices between the government and manufacturers.

Medco Health Solutions issued a statement in support of the compromise legislation, calling a Medicare prescription drug benefit "an investment in America's seniors." And AARP launched a $7 million advertising campaign in support of the bill.

The long-awaited drug benefit, however, is quite a bit less than seniors had hoped for, and AARP admits it is far from perfect. Starting in 2006, 75% of drug costs would be covered up to a limit of $2,200 per year. The second tier of the benefit is no benefit--until the beneficiary has spent $3,600 out of pocket. After that point, catastrophic coverage kicks in, under which Medicare would pay 95% of all Rx expenses. Premiums would average $35 a month and annual deductibles would average $275.

Beneficiaries could sign up for a stand-alone drug plan or get drug coverage via a private health plan. Subsidies of $12 billion would go to private health plans to help them develop senior drug benefits.

For the 2004-2005 interim period, a discount card would be offered that is expected to reduce drug costs by about 15%. And an additional $600 subsidy would be available for low-income seniors.

The bill creates incentives for employers to continue to provide drug coverage to retirees. For all payers, the bill has language designed to speed generic drug approvals. And for manufacturers, the bill maintains prohibitions on importing drugs from Canada--unless FDA changes its mind about the safety of that strategy.

The bill also provides for reimbursement for certain biotech injectable drugs like cancer chemotherapy and injectables for rheumatoid arthritis. In particular, the Wall Street Journal reports, Johnson & Johnson's Remicade, Genentech's and Biogen's Rituxan, and Amgen's Neupogen would get increased outpatient reimbursement.

New wellness benefits created in the bill would increase physician visits and diagnostic screenings such as for diabetes. These factors could increase prescribing for many drugs such as cholesterol, hypertension and diabetes therapies.

Key Senate Democrats including Edward Kennedy (Mass.) and Tom Daschle (S.D.) have expressed reservations about the plan, and the AFL-CIO opposes the bill as offering inadequate drug coverage. The $400 billion price tag over the next 10 years is of great concern to many Republicans, and members of both parties are concerned about the long-term sustainability of the benefit. But Congress has felt pressured to create a Medicare drug benefit, and observers think it unlikely that there will be any more obstacles to passage.