Coping with the Cost of Prescription Benefits

In June, the House of Representatives approved a Medicare reform bill that provides a prescription drug benefit for seniors. The Senate tried to forge a compromise Medicare coverage plan, but in the end settled for other measures designed to make prescription drugs more affordable for all consumers. This includes a bill to revise patent laws to bring less expensive generic drugs to market more quickly, as well as policy changes to ease imports of cheaper medicines. Manufacturers vigorously oppose these initiatives as a threat to continued private sector investment in biomedical research. The Bush administration appears sympathetic to industrys stance. It has opposed a too-costly Medicare drug benefit and proposals that soften import controls and open the door to terrorists.

Congress moves on Medicare Rx
Any legislation to establish a Medicare drug benefit will be expensive. Even the relatively low-cost House Republican Medicare bill (H.R. 4954, passed by the House 27 June 2002) allots about $310 billion over eight years for a Medicare pharmacy benefit, plus another $30 billion to boost Medicare payments to hospitals, doctors, and HMOs. Some Senate proposals carry price tags double that amount. All these figures are likely to increase exponentially as the U.S. population ages and consumes more medicines to treat chronic conditions.

Pharmaceutical and biotech companies prefer the Republican approach that permits Medicare beneficiaries to purchase prescription drug coverage from private insurance companies, instead of establishing a new benefit program run by the Department of Health and Human Services (HHS). The House bill would limit government expenditures by imposing fairly high co-pays, premiums, and deductibles on Medicare beneficiaries up to a $3700 annual catastrophic limit. There are subsidies for low-income seniors. Additionally, HMOs and pharmacy-benefit managers that manage Medicare drug plans can establish formularies, tiered co-pays, and restrictive pharmacy networks to control costs.

Democrats rejected the House Republican bill as a scam because seniors would pay more than $4000 annually out of pocket for full coverage; Republicans countered that the Democrats approach could bankrupt the federal budget. The best outcome would be legislative gridlock, says Washington Post and Newsweek columnist Robert Samuelson. Although a Medicare drug benefit makes sense, current legislation offers no provisions to pay for it. Unless Congress curbs mounting long-term retirement costs by raising the Medicare eligibility age and reducing benefits for wealthier seniors, future workers will face huge tax increases, Samuelson observes. Until then, political paralysis is a better course.¹

Pushing generics
A more attractive alternative for many legislators is to approve other measures to curb rising drug prices. Such bills would help consumers pay for medicines and reduce potential government expenditures for a Medicare drug benefit. During debate over the House Medicare bill, members of both parties tried to add provisions to permit reimport of low-cost medicines from Canada and to revise generic drug patent policies. The House leadership blocked these issues from cluttering up their Medicare bill, but Senate Democrats moved forward.

In July, the Senate approved a generic drug competition bill that makes significant changes in the Hatch-Waxman Act of 1984. The measure aims to lower costs by preventing innovator firms from using patent policies and regulatory procedures to block new generic competition. A compromise version of the legislation (S. 812) limits 30-month patent extensions for brand-name manufacturers that file lawsuits against generic drug makers for alleged patent infringement, plus revises the 180-day exclusivity policy available to generics firms. A new and highly controversial provision would allow generics makers to file suit challenging inappropriate patents in FDAs Orange Bookbut not collect monetary damages. There also was heated debate over language giving FDA authority to revise bioequivalence standards for generics, which biotech companies feared would open the door to approval of nontraditional (biotech) generic products.

Even if Congress fails to revise generic drug policy this year, the FDA budget bill for 2003 may address some of these issues. The spending bill approved by House appropriators expands FDA resources to speed up approval of new generic therapies and calls for FDA to clarify criteria for Orange Book patent listingsinitiatives designed to reduce delays for bringing new generic drugs to market.

Opening up the borders
The Senate generic reform bill included a measure that loosens curbs on drug reimporting so that consumers may obtain low-cost foreign medicines more easily. Members of Congress, particularly those in border states, backed legislation allowing individuals, pharmacists, and wholesalers to reimport FDA-approved drugs from Canada. Congress approved a broad reimport bill two years ago, but FDA said it could not implement it and still ensure that imported drugs were safe and effective. Limiting reimport to Canadian products aims to address regulatory concerns, but FDA officials still protested that any import expansion will let a flood of unregulated and unsafe medical products into the United States. And fear of U.S. vulnerability to bioterrorism attack has further heightened these concerns.

FDA aired its objections at a July hearing before the Senate Special Committee on Aging. FDA senior associate commissioner Bill Hubbard strongly opposed reimport proposals, noting that the federal government already faces a massive task in checking for illegal drug imports at the nations ports and through the mail. Although members of Congress intended to provide drug price relief to consumers, Hubbard said that the proposed legislation would severely damage the FDA regulatory system. Panel chairman Senator John Breaux (Democrat, Louisiana) linked reimport proposals to the rising tide of drug counterfeiting. FDA has uncovered a growing number of phony products with faulty labeling, no active ingredient, or wrong ingredients.

Hubbard blamed the recent surge in mail volume containing illegal drug imports partly on the growth in Internet drug sales. Many Web sites dispense expired, subpotent, contaminated, or counterfeit products. FDA has 90 Web sites under active review, and its Office of Criminal Investigations has initiated 296 Internet drug probes; there have been arrests, convictions, and multimillion-dollar fines.

Although personal import of unapproved drugs is a serious concern, FDA officials are more disturbed by the emergence of global operators bringing counterfeit, adulterated, and substandard products into the U.S. market. FDA opened 55 counterfeit drug cases over the past 4 years, which have led to 26 arrests and 20 convictions. But the trend is growing, Hubbard noted, with 16 new cases and 12 arrests so far this year. In May 2002, Serono Laboratories (Rockland, MA) detected counterfeit versions of Serostim (somatropin) that contained no active ingredient and had fake lot numbers. Vials of Neupogen (Amgen, Thousand Oaks, CA, filgrastim) appeared last year containing only saline solution and with erroneous lot numbers and incorrect expiration dates. Counterfeit versions of Amgens Epogen (epoetin alfa) had active ingredient levels 20 times lower than appropriate. Pfizer (New York, NY) has launched a major campaign to detect counterfeit Viagra all over the world.

FDA is upgrading its computer data systems to obtain better information on product imports and is looking at new technologies, such as x-ray devices, and other safeguards that may help law-enforcement officials deal with rising illegal import volume. The task will be that much harder if Congress liberalizes import rules.

States move in
With Congress slow to enact a Medicare drug benefit or curbs on drug prices, state health agencies have expanded pharmacy benefit programs for low-income consumers to fill the Rx benefit gap. Many states are approving new cost-cutting strategies that call for manufacturers to offer more discounts beyond Medicaid rebate requirements, actions that have prompted lawsuits from industry.

HHS approved a plan for Michigan last January that seeks to induce pharma companies to offer supplemental rebates by establishing a formulary identifying best-in-class treatments in each therapeutic category. Companies that refuse to lower prices to meet the lowest class price dont make the preferred list and require prior authorization for doctors to prescribe the medicine. Most physicians wont bother, which would help the state save a projected $800,000 a week and $50 million annually.

Manufacturers claim the Michigan program violates Medicaid policy because its new formulary excludes hundreds of drugs from manufacturers that already have entered into Medicaid rebate agreements with HHS. The program will restrict patient access to the most innovative, life-saving drugs and biologics, BIO president Carl Feldbaum wrote Michigan governor John Engler last year. PhRMA filed a lawsuit in June to block implementation of the program, largely because 11 more states have adopted similar policies, and others say they will do so.

Supreme Court to weigh in
Debate over whether a state may impose such prior authorization restrictions on Medicaid patients in order to extend pharmacy coverage to non-Medicaid beneficiaries is a key issue in the Michigan suit and in another case involving a Maine pharmacy plan that the Supreme Court has agreed to review next term. The state approved its Maine Rx plan two years ago, but PhRMA legal action has blocked implementation. Manufacturers oppose the states demand that they pay additional rebates in order to avoid Medicaid-like prior authorization restrictions on their products. A Federal District Court agreed with industry that the program violates Medicaid policy, but a Federal Court of Appeals overturned it in May 2001. PhRMA appealed to the Supreme Court, which decided to hear the case despite opposition from the Bush administration. The Senate approved a measure in July that allows states to adopt rebates and other cost-cutting provisions. If the bill becomes final, it could affect these and other legal battles involving pharma prices and patents.

References
1. Robert Samuelson, Pray for Gridlock, Washington Post (10 July 2002).

SIDEBAR: Bush Backs Competitive Pharmaceutical Market as Key to Innovation

As the debate on a Medicare drug benefit and other cost-control proposals was heating up on Capitol Hill in July, president George Bush unveiled a report from HHS documenting the importance of new drug and biotech R&D in improving the health of the elderly, titled Securing the Benefits of Medical Innovation for Seniors: The Role of Prescription Drugs and Drug Coverage, (aspe.hhs.gov/ health/reports/medicalinnovation/). The study credits strong government support for biomedical research plus reliance on private health insurance coverageas opposed to government price controlsfor giving Americans access to most new medical products. The open U.S. market has encouraged private sector investment in R&D that has spurred medical innovation.

The report cites numerous examples of restrictions on patient access to newer drugs in countries that rely on government controls to keep down drug prices and reimbursement. In many cases, foreign authorities delay or deny regulatory approvals or insurance coverage for new therapies largely to limit spending. The study presents a long list of newer treatments for osteoporosis, cancer, asthma, arthritis, high cholesterol, and heart disease that are available in the United States but not in all other countries. The main message is that government control of prescription drug pricingas proposed in Democratic Medicare drug benefit billscould deny the elderly access to important medical innovations likely to enhance their lives.