Medicare Rx Price Controls Are Serious Threat In 106th Congress - Holcombe

The pharmaceutical industry should be prepared for serious legislative debate in Congress over proposals to address the prices paid by seniors for medicine, former House Commerce Committee Democratic Senior Health Policy Advisor Kay Holcombe told a Drug Information Association conference on drug pricing in Washington, D.C. April 15.

While a comprehensive drug benefit program will likely take longer to develop than is possible in the 106th Congress, there is a threat that legislators will pass a more simplified Medicare price-control bill before the end of the session, Holcombe told DIA. Holcombe is exec VP of Policy Directions and is a consultant to the pharmaceutical industry.

"I think if deliberations actually hinge on a desire to do the best policy, and accomplish the best end, it will take longer to do this than probably we have left in this Congress," Holcombe said. "A real Medicare drug benefit is going to be expensive, and it's going to be complicated to structure into the program."

"However, if politics continues to dominate this debate, I could foresee" Capitol Hill turning to "something that perhaps could be something on the order of a simple price control bill in the end of this year or this Congress."

"Simply put, members will be boxed in," Holcombe warned. "They will not want to go home without taking care of this. They will not want to go home and say to seniors, 'I was against this,' or 'I stopped it from happening.' It will become a crisis vote at that point."

Holcombe's emphasis on the momentum behind price control proposals echoes the advice of Medicare Commission Co-chair Sen. Breaux (D-La.), who has recommended that industry take a "positive, can-do attitude" toward discussing a drug benefit during upcoming Medicare hearings.

In comments to the Pharmaceutical Research & Manufacturers of America annual meeting, Breaux suggested that PhRMA show its readiness to "work with Congress to devise a strong, solid prescription drug program" ("The Pink Sheet" April 5, p. 23).

PhRMA supports adding a drug benefit to Medicare as part of a more comprehensive reform of the program following a "premium-support" model. The association has also indicated support for "interim steps" towards that goal.

Holcombe, however, emphasized the importance of facing price control proposals head on.

The issue of drug prices for seniors "is a nearly perfect political issue," Holcombe said. "It is absolutely, plainly simple: seniors can't afford to buy their drugs because drug companies charge too much. There's a real easy answer to that...Tell the drug companies they can't charge that much anymore, and then our grandmothers can afford to eat."

Democratic House members have been releasing studies of prescription drug prices paid by seniors in their home districts, Holcombe observed. The first study covered 20 Congressional districts and was tied to the introduction of the "Prescription Drug Fairness for Seniors Act" in 1998.

"Members are begging, by the way, to have these studies done in their district so they can talk more about this and they can find examples that they can have nice press conferences about," Holcombe said.

"This story is being personalized repeatedly with names and places and tales of woe."

The "Prescription Drug Fairness for Seniors Act" was re-introduced by Rep. Allen (D-Maine) in the 106th Congress as HR 664. Sen. Kennedy (D-Mass.) has introduced a companion bill in the Senate.

PhRMA notes that the Allen bill has thus far failed to attract the support of even a majority of the House Democrats. HR 664 has about 100 co-sponsors. PhRMA's position is that, in addition to the potential harm of price controls, the bill fails to address the fundamental problem of the lack of drug coverage for seniors.

Holcombe, however, urged the industry to make sure it has a viable alternative to the FSS bill to discuss on Capitol Hill.

"The argument that controlling the prices of individual prescriptions is not providing drug coverage in the Medicare program" only prompts legislators to ask, "'How would you propose to solve this problem?'" Holcombe said. "'And by the way, don't tell me that it can be solved by putting all Medicare beneficiaries in HMOs, because we aren't going to do that.'"

Legislators point out that "we tried HMOs [in Medicare] and they're telling us, 'We don't like the Medicare program all that much'...because they can't afford to provide the drug benefit," Holcombe said.

Legislators are also hearing from hospitals and employers about "skyrocketing" drug costs, Holcombe observed.

The Allen bill may also have some practical advantages in its favor, Holcombe noted.

The Congressional Budget Office "might score this bill as a savings to the government, because if prices go down on prescriptions for Medicare beneficiaries, Medicaid at a minimum is going to save money - a lot of money - because the fastest rising component of the Medicaid program is its expenditures on prescription drugs."

Supporters of the FSS approach are unlikely to be deterred by the possibility that drug prices would rise for other purchasers if pharmaceutical companies have to extend discounts to Medicare, Holcombe said.

"There is a certain belief among some members of Congress that...if prices go up other places to solve this problem, then so be it."

"Even members who are traditionally supportive of the pharmaceutical industry" may find the political logic of the Allen bill difficult to resist, Holcombe suggested.

"Reasonable people think that everyone ought to be able to get a discount the size of the best discount that is given to a private purchaser," Holcombe said. "One of the reasons the Allen bill" relies on FSS prices "is because those are the only prices that are accessible. People can't find out what other people pay for drugs."

"I do think that there are reasonable people - and people who I have heard say this - [who believe] that if a private purchaser is getting 20% off your average wholesale price, then let's give it to the Medicare beneficiaries," Holcombe said.

Holcombe warned that some members of Congress may not be receptive to the industry's claims that price controls would hurt investments in R&D.

"The answer to the pharmaceutical industry is simply to say, 'Hey, you can afford this. You can deal with this. You can live with this. You can adjust. You want to sell your products. People want to buy them. You'll figure out how to do it,'" she said.

Some members of Congress may feel that PhRMA has used the R&D argument too often, she suggested.

In some cases, Holcombe said, the response to PhRMA's argument is, "Don't tell us you're going to cut your R&D. You told us that when we gave you the Medicaid rebate, and your R&D went up right after that. You told us that when we gave you the VA discount, and your R&D went up right after that too....You always tell us that, and it never happens."

The brand name industry is attempting to gather data to bolster its position that price controls hurt research spending.

During the PhRMA annual meeting, for example, association Chairman Gordon Binder (Amgen) cited the lower rate of R&D growth in Europe compared to the U.S. as evidence of the negative impact of price controls ("The Pink Sheet" April 5, p. 27).

Holcombe was asked what the industry should support as an alternative to the Allen bill. "I don't know what the right answer is," she replied, "but I think...that the pharmaceutical industry needs to propose something."

"If what we're talking about is trying to take care of the problem of people who have no coverage and assuming or ensuring that coverage that currently is there stays there, you could do something in Medigap, you could do something through setting up PBM-type geographically placed purchasing clubs, there is a variety of things you could do," Holcombe said.

"The industry is thinking about what it ought to be proposing, and I think that is a good thing," she added.

A technical difficulty for the pharmaceutical industry in the Medicare debate may be the majority staffing of the Commerce Committee.

The chief health aide, Howard Cohen, left the committee at the start of the year and has not yet been replaced. The absence of a single health policy point person on the majority staff could give the Democrat staff more room to seize the initiative in setting the agenda for the committee.