Legislation News & Report (TM) 

TheWeekInCongress.com (TM)

Managing America: Health

TheWeekInCongress.com (TM)

Week Ending January 12, 2006

H.R.4 To amend part D of title XVIII of the Social Security Act to require the Secretary of Health and Human Services to negotiate lower covered part D drug prices on behalf of Medicare beneficiaries.

Medicare Part D is the program now in its’ second year that aims to provide Medicare recipients with lower prices on prescription drugs. The entitlement is such that private health organizations can negotiate with pharmaceutical companies on the price they pay for the drugs thereby allowing for their profit and passing on savings to beneficiaries. Government, the Medicare Program, is not allowed to enter the negotiations on behalf of the taxpayers. Part D is enormously expensive, far exceeding administration estimates, to spend nearly a hundred billion more than anticipated.

This bill aims to lower the program cost to the taxpayer by authorizing the Secretary of Health and Human Services to negotiate directly with pharmaceutical manufacturers for lower prices on drugs covered in the program. The drugs would still be sold to the private health organizations but at the lower negotiated price. The private organizations are not prohibited from negotiating for even lower drug prices.

The Congressional Budget Office questions if this bill would have any impact on prescription drug prices. The bill does not require the Secretary to establish or require a particular formulary (a listing of drugs to negotiate) or system of distribution and pricing mechanisms that would add to the governments leverage in negotiations. The CBO concludes that the Secretary would be unable to negotiate more favorable prices to the many drugs covered under Part D than prices obtained by the private sector organizations running the program. Without a formulary, the CBO concludes, the Secretary would not be able to encourage the use of particular drugs by the beneficiaries and would then have no leverage with which to obtain significant discounts from the manufacturers. What the private companies can do with the ability to create a formulary is to direct consumers towards a particular drug thereby putting then in the negotiating driver’s seat.

CBO also warns that private health organizations have the motivating factor of risk of financial loss if they do not succeed in gaining lower prices and that the government does not have that risk. The government would, however, under the reporting provision in the bill have to be accountable to Congressional committees for efforts made.

Supporters hold that the VA negotiates drug prices and pays 58% less than Medicare for most common drugs prescribed to veterans. Supporters believe that negotiating for the over 40 million Part D beneficiaries is sufficient leverage to affect lower prices.

The Secretary will produce a report to Congress every six months describing the negotiations conducted and the prices and price discounts achieved.

Sponsor:  Rep. John Dingell (D-MI-15^th)

Vote: January 12, 2007-Passed House 255 to 170 (RC 23). A Motion to Recommit the bill with instructions failed 196 to 229 (RC 22).

Cost to the taxpayers: CBO calculates that the change would cost taxpayers about $5 million over five years.

## All Rights Reserved. © 2007 TheWeekInCongress.com(TM)

No reproduction, language translation or distribution without written permission from TheWeekInCongress.com.(TM)