House passes bill requiring Medicare drug price bargaining

Washington -- The House on Jan. 12 approved legislation that would require the federal government to negotiate lower prices for Medicare drugs. The move was welcomed by many physicians and seniors but decried by Republican congressional leaders and the Bush administration.

The Medicare Prescription Drug Price Negotiation Act of 2007 passed by a vote of 255-170 and moved to the Senate, which may take up the bill as is or consider its own proposal. The House measure instructs the Health and Human Services Dept. secretary to bargain directly with drug manufacturers to secure deeper medication discounts for Medicare's seniors and disabled people.

Currently, this job is left to pharmaceutical benefit managers, which are private-sector firms that administer the drug benefit for health plans. The law that established Medicare Part D specifically barred the federal government from interfering in that process.

The House bill would remove that prohibition and require the HHS chief to report back to Congress every six months on the progress of negotiations. If the legislation is enacted before the end of the session, the first discounts and rebates could start showing up in the 2008 plan year.

The American Medical Association is one of a number of organizations, including the AARP, that supports direct negotiation. Both groups said the federal government's bargaining clout would drive down drug prices, resulting in lower costs for Medicare and for the seniors who pay a portion of the total bill for their medications.

Fears of drug rationing

Others are convinced that increasing government involvement in Medicare Part D would do much more harm than good.

The bill's opponents said the government does not negotiate prices in Medicare -- it sets them. This would add a dangerous element to the drug benefit, they said. Pharmaceutical companies might begin rationing drugs. If drugmakers are prompted to lower prices for the Medicare population, they might raise prices for non-Medicare populations, according to benefit managers, health plans and many Republicans.

"Under the cloak of negotiation, the reality is that federal price controls could have an extremely pernicious effect on the price and availability of current pharmaceuticals and those products that may be available to treat future patients," said Rep. Michael Burgess, MD (R, Texas).

Some opponents said the only way the government could achieve better discounts is to threaten not to pay for certain expensive drugs unless companies slashed their prices. If drugmakers did not agree to the terms, Medicare beneficiaries would be unable to get government help in paying for those medications no matter what plan they chose. Physician groups, including the AMA, have strongly argued against a set government formulary for Medicare Part D.

The House-passed bill would prohibit the establishment of a government formulary. Therefore, if drug companies did not like the terms of the negotiations, they could walk away from the table at any time and continue to sell at the prices agreed upon with the benefit managers.

"The inability to drive market share via the establishment of a formulary or development of a preferred tier significantly undermines the effectiveness of this negotiation," said Paul Spitalnic, an actuary with the Centers for Medicare & Medicaid Services. "Manufacturers would have little to gain by offering rebates that aren't linked to a preferred position of their products, and we assume that they will be unwilling to do so."

In part because of this probability, the Congressional Budget Office has said that enacting the measure and launching negotiations would have a negligible effect on drug prices.

A dedicated opposition

The legislation faces a much tougher fight in the Senate, where at least one influential Democrat has shown discomfort over the scope of the House proposal. "I see nothing that warrants heavy-handed intervention in this market," said Senate Finance Committee Chair Max Baucus (D, Mont.). "We should proceed cautiously with any legislation."

Baucus has suggested rather than requiring the HHS chief to negotiate lower drug prices, lawmakers should simply remove language that prohibits the secretary from doing so and leave the negotiation option up to him. "I do not buy the argument that the sky will fall on the prescription drug market if we remove this clause," Baucus said.

His Republican counterpart on the Finance panel, ranking member Charles Grassley (R, Iowa), has been more forceful in his opposition to government negotiation. He has hinted that he will seek to keep open the debate on the House bill if it comes to the Senate floor, a move that would require Democratic leaders either to secure 60 votes in favor of moving to final approval or pull the measure from the floor.

The opposition to the direct negotiation option has been fierce. House Democratic leaders scuttled an earlier, more extensive strategy to establish at least one government-run Medicare plan that would feature federally negotiated prices and compete with private plans for enrollees.

Senate Assistant Majority Leader Richard Durbin (D, Ill.) also has floated such a plan, but it remains unclear if it has enough supporters to warrant consideration.

Even if proponents are able to overcome these hurdles in the upper chamber, that could be as far as the legislation would go. President Bush has vowed to veto the House bill if it makes it to his desk, and Congress is unlikely to be able to override it.