By Lisa Seachrist

Washington Editor

WASHINGTON - Rep. Tom Allen (D-Maine) introduced a bill that would provide drugs to pharmacies at the federal schedule rate for Medicare recipients.

Saying the bill will reduce the prices of prescription drugs by over 40 percent for America's senior citizens, Allen and his 65 Democratic co-sponsors unveiled Wednesday afternoon the Prescription Drug Fairness for Seniors Act, H.R. 664.

In introducing the measure, which is quite similar to a bill he introduced in the last Congress, Allen highlighted the fact that there is a vast difference between the prices that pharmaceutical companies charge their "favored" customers, such as health maintenance organizations, large hospitals and the federal government, and the prices they charge retail pharmacies.

The pharmaceutical and biotechnology industries vigorously oppose Allen's measure, warning that the bill is the equivalent of a price control that will stymie innovation and, in the end, hurt the group it intends to help.

"This legislation is just miserably wrong-headed," said Carl Feldbaum, president of the Biotechnology Industry Organization. "This is just the first salvo in a series of price-control battles. This bill appears to be slightly spruced up from last year, with the usual title meaning exactly the opposite."

Federal Rate Would Set Medicare Prices Under Bill

The Allen bill allows pharmacies to purchase prescription drugs for Medicare beneficiaries at the same prices available to the federal government under the federal supply schedule rate, which uses either a mandatory 24 percent rebate or negotiated deep discounts. Veteran's Administration hospitals, military hospitals and U.S. Public Health Service clinics receive medicines under this schedule.

Allen maintains that, because his proposal doesn't require a new pharmaceutical distribution system or federal bureaucracy, it is a streamlined method to provide seniors access to better prices for medicines.

Feldbaum, however, points out that nowhere in the legislation does the bill stipulate that pharmacies actually must pass the discount on to Medicare beneficiaries. As a result, he fears that a black market could develop for pharmaceuticals, with no benefit to seniors.

"That is a loophole you could drive a train through," Feldbaum said.

Jeff Trewhitt, media spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA), said the provision would put 40 percent of all prescription drugs under the federal supply schedule rate. Trewhitt noted that such a measure fails to recognize the high price of drug research and development costs, because of which a single drug can cost up to a billion dollars to develop.

"It is going to be difficult to sustain innovation with 40 percent of prescription drugs under price controls," Trewhitt said. "The answer to the Medicare problem is coverage, not price controls."

He said 65 percent of senior citizens on Medicare have supplemental insurance that provides a drug benefit, and the 35 percent who can't afford supplemental insurance most likely will not be able to afford the reduced price of the drugs under the Allen bill, either.

Instead of price controls, Trewhitt said PhRMA would be more likely to support measures that look to the private prescription plans as a means of providing drug benefits to low-income seniors. In addition, Trewhitt takes issue with the timing of the bill, when the National Bipartisan Commission on the Future of Medicare has yet to make its report.

"Congress is looking into the future of Medicare, and a potential drug benefit," Trewhitt said. "Why can't he wait for the thoughtful examination of the issue, before introducing his bill?"

Feldbaum noted that there are likely to be a large number of proposals for providing a Medicare drug benefit during this Congress, especially after March, when the commission releases its report.

"The first test for any Medicare legislation is that it should not deter biotech drug development," Feldbaum said. "We aren't standing back on this issue. This bill is not a 'Paul Revere' moment, but we are taking it very seriously."