[Editor's Note: What follows is a summary of the Medicare outpatientprescription drug benefit as detailed in the health care bill introducedby Senate Majority Leader George Mitchell (D-Maine) on Aug. 3 andseveral key criticisms of the program raised by biotechnology industrylobbyists. (For more news on health care reform, see the accompanyingarticle on this page.)]In Senate Majority Leader George Mitchell's (D-Maine) plan,Medicare would be expanded to include coverage of outpatientprescription drugs starting in 1999 for "medically accepted"indications. Beneficiaries would pay an out-of-pocket deductible to bedetermined by the Secretary of the Department of Health and HumanServices (HHS) each year. After the deductible, beneficiaries wouldpay 20 percent of drug costs until the out-of-pocket limit were reached.In 1999, the out-of-pocket limit would be $1,275 (the limit would beset each year thereafter by HHS). The new benefit would be deliveredvia three mechanisms: a fee-for-service plan, a prescription benefitsmanagement (PBM) option and a Health Maintenance Organization(HMO) option. Drug manufacturers would sign a flat 15 percent rebateagreement with the Department of Health and Human Services inexchange for no formulary (a restricted list of drugs) under the fee-for-service option. Rebates would not apply to the market-driven HMOand PBM options.Provision: Coverage of drugs currently covered by Medicare Part Bshifts into the new outpatient drug benefit program. This includes drugsadministered "incident to" a physician's services (such as kidneydialysis and oral cancer drugs). The shift would subject the drugs to thenew 15 percent manufacturers' rebate requirement.Biotechnology Industry Arguments: A briefing paper prepared by theBiotechnology Industry Organization (BIO) argued that the changewould disproportionately impact the biotech industry since biotechdrugs are usually administered by injection or infusion using aphysician's services. For example, the change in law would lowerprofits for Amgen Inc. U.S. sales of erythropoietin (EPO), Amgen'sdrug for end-stage renal dialysis, are currently 100 percent reimbursedby Medicare with no rebates. In 1993, Amgen's EPO sales in the U.S.totaled $500 million, about 36 percent of total revenues. "Any proposalthat has a substantial negative impact on an industry leader like Amgenwill have a negative impact on the entire industry," warned LisaRaines, vice president of government relations at Genzyme Corp.Provision: The Secretary of HHS will develop and update a list ofdrugs that are subject to "misuse or inappropriate use." (Manufacturerswould be allowed to appeal HHS's decision to include a drug on thelist.) The Secretary may require "advance approval" for prescribingany drug on the list. If the Medicare drug benefit program costsoutpace the overall rate of growth for other Medicare programs, theSecretary could require advance approval in additional cases. Forexample, in "cases where a more cost-effective therapeutically orgenerically equivalent drug is available."Biotechnology Industry Arguments: Gives the HHS Secretary authorityto deny coverage of certain drugs on cost-saving grounds. Wording onhow the Secretary would decide whether a drug were subject to misuseor inappropriate use is vague. Advance approval mechanism couldslow or impede sales of any drug that makes it onto the HHS list.Provision: A prescription drug payment review commission composedof 11 individuals appointed for three-year terms is established. Thecommission would include various health care experts as well as atleast one Medicare beneficiary, one pharmaceutical companyrepresentative and one biotechnology company representative.Commission would submit an annual report to Congress on thefollowing topics: implementation and operation of the drug benefit;review of the process of contracting drug benefit plans to HMOs andPBMs; the fiscal soundness of the program; and the "appropriateness,fairness and effectiveness of the rebate structure." In addition, thecommission could exempt small manufacturers from rebaterequirements "based on the manufacturer's sales and the historicpricing of the manufacturer's products."Biotechnology Industry Arguments: Biotechnology advocates aredivided over whether Mitchell's prescription drug review commissionposes a real threat to the industry. "It's substantially different than theWays and Means version and significantly less problematic," concededRaines. (The Ways and Means Committee's version of a prescriptiondrug payment review commission was deleted from the HouseDemocratic leadership bill on Wednesday.) Nevertheless, she said thatany commission raises "concerns." BIO president Carl Feldbaum haswarned that such a commission, even if described in "benignlanguage," could mutate into a means of imposing price controls ondrugs. "It discourages investment in the industry," he charged.Provision: HMOs and PBMs bid for patient contracts under the newMedicare drug benefit on a "risk basis." Since Medicare, underMitchell's bill, would pay out a pre-determined "average" premiumamount for each patient, the contractors would bear the risk for costoverruns (i.e., patients who consume more or more expensive drugsthan the average).Biotechnology Industry Arguments: Some worry that the risk woulddeter HMOs and PBMs from bidding for patient contracts, leavingdelivery of the new Medicare outpatient drug benefit largely in thehands of a fee-for-service, government-run program. Drugs delivered to patients via thefee-for-service option are automatically subject to 15 percent rebates.Biotechnology companies believe that they will be able to cut betterdeals with HMOs and PBMs because those buyers only need to extractan average 15 percent rebate from all manufacturers. For example, anHMO or PBM might demand a 30 percent rebate from a manufacturerof a "me-too" drug that has many market competitors while winningonly a zero, five or 10 percent rebate from a biotechnology companywith a one-of-a kind breakthrough drug. "We'd like to see the privatesector an active participant in delivering the Medicare drug benefit soany disincentive for that to happen is a negative," explained Raines.Provision: A "medically accepted indication" is defined in the Mitchellbill as 1) an FDA-approved indication; 2) an indication cited in 1 ormore of the following _ the American Hospital Formulary Service-Drug Information, the American Medical Association DrugEvaluations, the U.S. Pharmacopoeia-Drug Information and/or otherauthoritative compendia as identified by the HHS Secretary, "unlessthe Secretary has determined that the use is not medically appropriate."Biotechnology Industry Arguments: The final phrasing (in quotationmarks above) puts no definitions or restrictions on how the Secretarymay use his or her authority to determine which indications aremedically accepted. n
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