WASHINGTON -- The health care reform plan drafted by Rep.Fortney "Pete" Stark, D-Calif., gained political and economicmomentum late Friday when preliminary budget analyses fromStark's staff and the Congressional Budget Office (CBO)concluded that the plan would not increase the federal deficit.Even though Stark's victory is only one small step on the longlegislative road of health care reform, it may be an ominousdefeat for biotechnology companies, which have fought againstdrug price controls.

Stark's plan, currently under consideration by the HealthSubcommittee of the House Ways and Means Committee,provides for universal coverage of all uninsured Americans andextends prescription drug coverage to Medicare recipients --two core reform elements that many believed would be fiscallyirreconcilable. His bill is able to balance the scales by offeringbenefits that are less generous than those of President Clinton'splan.

Stark's bill also contains some of the most far-reaching drugprice cost-containment measures seen yet. Reading the detailsshould send a chill down the spines of biotechnology executiveswho previously thought Clinton's plan was their worstnightmare.

For example, Stark's plan sets a maximum overall budget fordrug expenditures as well as maximum rates of payment forevery individual drug. According to Chuck Ludlam, vicepresident of government affairs at the Biotechnology IndustryOrganization (BIO), this goes far beyond the Clintonadministration's proposal to review prices of breakthroughdrugs, into a realm where the prices of all drugs could basicallybe set by the government.

As in Clinton's plan, the Stark plan includes a requiredmanufacturer's rebate for drugs reimbursed by Medicare. Theamount of the base rebate would be the greater of either 17percent of the average manufacturer's retail price or thedifference between the average manufacturer's retail price andthe average manufacturer's non-retail price. If manufacturersrefuse to provide information on the average retail and non-retail prices, the secretary of the Department of Health andHuman Services (HHS) would be empowered to imposefinancial penalties.

Under Stark's plan, if the HHS secretary were to rule that thelaunch price of a new drug is excessive, the secretary wouldhave the option of negotiating a rebate directly with themanufacturer instead of using the base rebate amount.

Parameters used to determine the appropriateness of new drugprices would include: prices of other drugs in the sametherapeutic class; cost-effectiveness; prices charged for thedrug in other countries; projected prescription volume,economies of scale, product stability, manufacturingrequirements, research costs and product availability; costinformation supplied by the manufacturer; and the value ofany federal assistance provided through direct grants or taxsubsidies.

"This is how bad it can get," said Ludlam of Stark's plan. "Andthe fact that this bill pays for itself and achieves universalcoverage gives Stark major credibility."

Achieving a deficit-neutral rating from CBO is a critical step inthe legislative process. President Clinton's health security actsuffered a serious blow earlier this year when CBO estimatedthat the plan would add $74 billion to the deficit over six years.

Ludlam called CBO the "judge, jury and executioner" ofproposed legislation. Under the current budget act, Congressmay not adopt any bill that adds to the federal deficit unlessthe act is waived by a "super" (two-thirds) majority in bothhouses -- a highly unlikely scenario.

In the zero-sum game of budgeting, every item musteventually fall into simple categories. Unfortunately for thebiotechnology industry, those measures that it most abhors --required rebates for Medicare drugs, price review boards anddrug expenditure caps -- all come under the headings of"savings" or "cost-containment." Items in these two categorieswill be very popular as legislators juggle the various elementsof health care plans to achieve deficit neutrality.

Stark's plan still does not have the votes necessary in the 11-member health subcommittee to advance to the full 38-member Ways and Means Committee. In addition, two otherHouse committees and two Senate committees have directjurisdiction over health care and will likely revise any bill thatsurvives the subcommittee process.

It's a virtual certainty that the final health care reform packagesubmitted to the president by Congress will be hammered outin a late-stage conference among House and Senate members.In such a conference, the reform bills from each chamberwould be reconciled in a session of intense deal-making.

Ludlam said Stark's political star is rising with the positive CBOestimates and that Stark will likely be a major player at thecrucial conference stage of the process. A spokesman for Starksaid the congressman is "strongly committed to addressing theproblem of prescription drug prices" and won't be bargainingwith that chip any time soon.

-- Lisa Piercey Washington Editor

(c) 1997 American Health Consultants. All rights reserved.