Analysis: Changing the Medicare drug deal

By ELLEN BECK, United Press International

WASHINGTON, Dec. 2 (UPI) -- The Medicare prescription drug bill Congress passed last month is not yet law, but already change is in the air -- especially among Democrats, who grew so upset with the legislation they voted against an issue they once championed.

President Bush is expected to sign the $395-billion Medicare bill into law next Monday, giving Republicans and his re-election campaign a major domestic policy victory.


Democrats dislike many provisions of the bill, but three top issues include:

-- closing the coverage gap, within which seniors pay all drug costs;

-- removing a prohibition against the government negotiating discounted prices with pharmaceutical companies, and

-- allowing the reimportation of drugs sold to Canada.

The problem Democrats face is gaining the political clout they need to make changes.

On Tuesday, a group of Florida House Democrats said they would introduce an amendment to allow the secretary of Health and Human Services to negotiate discounts with drugmakers -- as is done by the Department of Defense, the Veterans Affairs Department and state Medicaid programs.


"It's bizarre, inexplicably, that the legislation prevents that from happening," said Rep. Peter Deutsch, D-Fla., who admitted during a news conference that, so far, no Republicans -- even the 20 who joined Democrats in voting against the Medicare bill -- have given their support.

The Bush administration's view -- backed by a Republican majority in both the House and Senate -- is it amounts to price fixing and would hurt pharmaceutical companies.

Conservative analyst John Calfee, of the American Enterprise Institute, argued during a Kaiser Foundation-sponsored discussion on the subject Tuesday the government's attempt at negotiating prices "has not worked very well at all" in the area of vaccines.

U.S. government negotiations with pharmaceutical companies generally have discouraged drug manufacturers from producing vaccines, which has affected the supply and utilization of these medicines.

"Price controls -- that will be the next big debate in healthcare," Calfee said, "whether or not we're going to have formal means for controlling prices."

Deutsch argued negotiations have worked well for the VA. Zocor, a cholesterol-reducing drug manufactured by Merck, costs the VA 66 cents and retails for $3.77 per pill. Plavix, manufactured by Bristol-Meyers Squibb in the United States and given to prevent heart attack and stroke, costs the VA $2.01, but sells on the consumer market for $3.63. He said VA prices also are better than seniors could get from Canadian pharmacies.


Drug reimportation remains a hot issue despite language in the Medicare bill that all but ensures it will not happen anytime soon. U.S. pharmaceutical companies sell brand-name drugs to Canada for less than in the United States. Seniors who purchase drugs from Canadian pharmacies -- even paying the extra profit margin -- still pay less than if they bought the same drug at their local U.S. pharmacy.

A reimportation bill has passed the House but is stalled in the Senate. The Medicare drug legislation would permit reimportation only if deemed safe by HHS, a ruling the agency has said it will not make.

Tom McGinnis, director of pharmacy affairs at the Food and Drug Administration, told the Kaiser panel it is a mistake to think drugs coming from Canada actually are made in the United States because pharmaceutical companies might use production facilities for Canadian distribution in other countries that do not fall under FDA regulation for safety and quality.

"A lot of these products are just not the same product made by a U.S. pharmacy and it's hard to tell -- it's hard for us to tell," McGinnis said.

John Rother, director of policy and strategy for the seniors group AARP -- which supported the legislation -- said he expects Congress to act on the reimportation issue next year "because the public has basically made up its mind" and wants approval.


Rother said safeguards and regulations could be established to ensure reimported medications meet FDA standards.

"I am reasonably confident that if we decide we want to do this we could," he said.

Calfee predicted drug reimportation will mean Canadian prices will go up because of supply and demand. Canadian companies will be faced with shortages trying to meet Canadian and U.S. demand for drugs and U.S. pharmaceutical companies are unlikely to come to their rescue by sending larger product shipments, he said, thereby in effect cutting back their own, more profitable U.S. markets.

American seniors will be at the mercy of those U.S. markets under the Medicare drug bill because of a large gap in coverage, within which beneficiaries pay 100 percent of drug costs -- even while still paying the Medicare drug plan premiums.

The legislation calls for a $250 annual deductible and about a $35-per-month premium. The government pays 75 percent of all drug costs up to $2,250. From that point seniors pay all drug costs until their out-of-pocket spending hits $3,600 -- a total cost of $5,100, which includes gap spending, deductible and 25-percent cost sharing. After that, catastrophic coverage begins and seniors pay only about 5 percent of costs for the remainder of the year.


Rother said increasing the Medicare drug benefit to make it equal the benefits of many employer-sponsored private plans could cost an additional $250 billion beyond what the legislation allows.

"Given our current budget, clearly there was no political support for going beyond the $400 billion provided," he said. One of AARP's goals, he added, was to close the coverage gap, possibly by using some type of tax breaks or other mechanisms to free up additional resources.

The best hope for amending the Medicare drug law might be after 2004 elections if Democrats make some significant gains -- including the White House -- to shore up political support and find additional funding for what already is the largest increase in history to the second-largest healthcare entitlement program in the United States.


Ellen Beck covers healthcare policy for UPI Science News. E-mail [email protected]

Latest Headlines