August 7, 2009 – Some drug industry executives breathed a sigh of relief when Senate Finance Committee Chairman Max Baucus (D-Mont.) and the Obama administration announced in June that they had reached an agreement with brand-name drug manufacturers to provide $80 billion toward health reform.
Rep. Henry Waxman |
Compared with other players in the health care sector, it looked at the time as if drug makers might weather health reform relatively unscathed. Turns out, however, that Rep. Henry Waxman (D-Calif.), chairman of the powerful House Energy and Commerce Committee, had different plans.
After mentioning recently that he did not consider himself or the House of Representatives locked into the deal with industry, Mr. Waxman demonstrated his independence by adding a number of provisions to the recently passed health reform bill certain to raise blood pressure levels in drug company board rooms. One is the expansion of the Medicaid rebate program to so called “dual eligibles”- six million Medicare Part D beneficiaries who are also eligible for Medicaid.
“Dual eligible” rebates costly for industry
As expected, the drug industry is not sitting quietly as Rep. Waxman broadens manufacturer rebate obligations. Pharmaceutical Research and Manufacturers of America (PhRMA) Chief Executive Billy Tauzin has said the proposal would “not only break the deal … [but also] break the bank for us.”
An estimated $63 billion in additional savings over 10 years could accrue from mandating that manufacturers pay rebates on drugs used by dual eligibles. Those drugs were subject to rebates when such patients were receiving their medications through Medicaid, but the rebates were lost when dual eligibles were moved to the Medicare Part D prescription drug program in 2006.
Waxman’s staff reported in July 2008 that Part D plans were paying, on average, 30 percent more for drugs than Medicaid did in 2006 and 2007. According to that report, rebates received by Part D plans from manufacturers averaged 7 percent in the first two years of the Part D program, while Medicaid rebates averaged 33 percent. (See Monitor Aug. 2008)
Government gets say in Part D prices
Another controversial amendment authorizing the government to negotiate with drug manufacturers over Part D prices was added late in the Energy and Commerce Committee considerations. There was speculation it was added to appease progressive Democrats upset with concessions made to the fiscally conservative Blue Dogs.
Meanwhile, a once-contentious proposal now included in the health reform bill that Chairman Waxman shepherded out of his committee appears to have been defused. PhRMA will reportedly refrain from blocking an increase in the Medicaid rebate that manufacturers pay on brand-name drugs from 15.1 percent to 22.1 percent.
The rebate increase would also likely result in an increase in the discount percentage under the 340B program, since the programs have similar discount formulas. In the past, PhRMA has opposed a rebate increase and has been successful in stopping repeated attempts by lawmakers to tinker with the rebate percentage. (See Monitor Feb. 2009)
Rebates on Medicaid managed care drugs
Still another provision in the bill that would affect drug makers is an expansion of Medicaid rebates to Medicaid managed care plans. That change, contained in legislation introduced by Sen. Jeff Bingaman (D–N.M.) and Rep. Bart Stupak (D-Mich.), could produce an additional $11 billion in federal savings over 10 years. It’s unclear whether PhRMA will oppose this part of the bill.
A provision in the Bingaman-Stupak bill that would have exempted 340B drugs from such rebates was not included in the House health reform bill. This could be problematic for 340B providers, because the prohibition against duplicate discounts would prevent them from getting a 340B discount on any drug subject to rebates.