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Democrats Draft Bill That Would Require HHS to Negotiate Lower Medicare Drug Prices

By John Reichard, CQ HealthBeat Editor

January 4, 2007 -- House Democrats are circulating a draft bill that would require the Health and Human Services (HHS) secretary to negotiate lower prices for drugs covered by the Medicare prescription drug benefit. Although the language requiring such negotiations sounds tough, analysts contacted Wednesday differed on whether it would actually lead to lower prices under the Medicare benefit. Democratic aides, however, insisted it would produce large savings.

A copy of the draft obtained by CQ HealthBeat states that "notwithstanding any other provision of law, the Secretary shall negotiate with pharmaceutical manufacturers the prices that may be charged for covered Part D drugs for Part D eligible individuals who are enrolled under a prescription drug plan or under an MA-PD plan." Part D is the section of the Medicare program that provides prescription drug benefits, whether through a prescription drug plan offered to beneficiaries in the traditional fee-for-service side of Medicare or through a Medicare Advantage Prescription Drug, or MA-PD, plan offered by a managed care plan in Medicare.

The draft also states that the requirement that the HHS secretary negotiate does not authorize that he or she "establish or require" a particular formulary. The draft also provides that existing prescription drug plans and MA-PDs can continue to operate formularies and are free to try to obtain bigger discounts than those negotiated by the HHS secretary.

It also would require the secretary to submit reports to Congress every six months on negotiations conducted to obtain lower prices and the discounts obtained through those negotiations.

Some analysts say that without a formulary or authority to charge different co-payments for drugs, the secretary won't have leverage to obtain discounts. Formularies can exclude drugs from coverage or provide coverage on less-favorable terms.

"The bill gives [Michael O.] Leavitt no new powers to negotiate drug prices," said Washington, D.C., health care consultant Alec Vachon, a former GOP staffer on the Senate Finance Committee. "It's straight out of 'Oliver Twist.' All Mike Leavitt can do is go to drug manufacturers and say, 'Please, Sir, may I have some more discounts?' If Pfizer says 'no,' what does he do then?"

It's widely expected that President Bush would veto legislation requiring HHS to negotiate drug prices, but Consumers Union lobbyist Bill Vaughan, formerly a Democratic staffer on the House Ways and Means Committee, doesn't rule out the possibility that the president would sign such a bill. "We are going to need massive savings in Medicare," he said. "The 75-year unfunded liability for the drug benefit is 10.4 trillion dollars."

When read the language of the draft in a telephone interview, Vaughan said he does not interpret the formulary language as precluding the HHS secretary from obtaining price breaks that plans would get if they charged lower co-pays or from publicizing a discount obtained through negotiations and telling beneficiaries what plan they could go to to get it. That would be an effective tactic for negotiating discounts and moving beneficiaries to the plans offering them, he said.

House Democratic aides said Thursday that the language would ensure large savings for Medicare beneficiaries and the Medicare program. Prescription drug plans could offer the discounts obtained by the secretary through their own formularies, the aides said. "We're not taking away the ability of PDPs to obtain better prices than those negotiated by the Secretary," one of the aides added. The lure of a market of some 40 million beneficiaries would be a powerful incentive to offer big price breaks, they said. Democrats plan to formally introduce the bill Friday. Changes in the draft are "unlikely," one of the aides said.

The House is scheduled to vote on the legislation Jan. 12.

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