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Baucus Scores a Big Win for Big Pharma


Sen. Max Baucus (D-Mont.) (WDCpix)

In a major victory for the pharmaceutical industry, the Senate Finance Committee on Thursday shot down legislation to provide seniors full coverage through the controversial coverage gap in Medicare’s prescription drug benefit.

The proposal, sponsored by Sen. Bill Nelson (D-Fla.), would have closed Medicare’s so-called “doughnut hole,” which forces millions of seniors each year to pay the full cost of their prescriptions after annual expenses have reached a certain threshold. The Congressional Budget Office estimated this week that the proposal would save the government $106 billion over 10 years — enough to close the gap in coverage under Part D with $50 billion left over, according to Nelson.


Illustration by: Matt Mahurin

But Nelson’s proposal also would have gutted an $80 billion agreement cut earlier this year between the pharmaceutical industry and Democratic leaders in the White House and Senate — including Finance Chairman Max Baucus (D-Mont.) — who want Big Pharma’s weight behind their health reform efforts this year. As one term of that bargain, those Democratic leaders vowed to withhold support for a proposal allowing states to negotiate drug prices for the nation’s lowest-income seniors — the very mechanism that would have paid to close the doughnut hole under Nelson’s amendment.

The committee tally was 10 to 13, with three Democrats – Sens. Baucus, Robert Menendez (N.J.) and Tom Carper (Del.) — voting with all panel Republicans against the provision. Both New Jersey and Delaware are home to large pharmaceutical companies.

Weighing in just before the vote, Baucus said that, “although the goal is good,” breaking the deal with the drug industry to pay for it is “inappropriate.”

“We have to find some other time, some other way [to close the doughnut hole],” Baucus said. “The White House did reach an agreement.”

That argument, however, didn’t sit well with many Democrats on the panel, who earlier in the week had lined up in enthusiastic support of Nelson’s proposal. At a time when lawmakers are scrounging around for savings in the health system to cover the uninsured, many argued, the opportunity to save $106 billion in federal drug costs shouldn’t be missed.

“This is not about an agreement made with the White House,” said Sen. Debbie Stabenow (D-Mich.).

Controversy has swirled around Medicare’s doughnut hole since its inception six years ago. As it stands, Medicare patients opting into the prescription drug benefit, called Part D, pay 25 percent of drug costs until the tab hits $2,700. Then, between $2,700 and $6,154, they’re forced to pay the full cost for those drugs, after which they pay just 5 percent. As a result, many seniors faced with the doughnut hole move to generics, cut pills in half to save money, or skip medications altogether. More than 3 million seniors hit the gap each year.

Under the Baucus bill, drug companies would pick up 50 percent of the tab for Medicare patients caught in the doughnut hole — a central part of the deal struck in June with the Pharmaceutical Research and Manufacturers of America, the name-brand drug lobby.

Nelson’s amendment, though, aimed to fill the entire hole. That part wasn’t controversial. The funding mechanism, which would shift drug coverage for the lowest-income seniors from Medicare to Medicaid, was. But to see how it works, you have to go back a few years.

When Part D went into effect in 2006, more than 6 million low-income seniors and people with disabilities who were getting their drugs through Medicaid were moved into Medicare Part D plans. Because they qualify for benefits under both programs, they’re called dual eligibles. The pact was a good one for the drug makers. That’s because states buying drugs for Medicaid patients may use their bulk-purchasing powers to negotiate lower drug prices. The government savings achieved come in the form of Medicaid “rebates.” But the federal government under Part D is prohibited from doing the same to get better prices for Medicare patients. As a result, the government currently pays about 30 percent more for dual eligibles’ drugs under Medicare than it would under Medicaid, according to a 2008 study from the House Oversight and Government Reform Committee.

And dual eligibles, who represent the poorest and sickest folks in the country, use a lot of medications. In the years before their shift to Part D, dual eligibles ate up nearly 50 percent of state drug costs under Medicaid, according to the Kaiser Family Foundation.

Nelson’s amendment would shift drug coverage for dual eligibles, who now number close to 8 million, back into Medicaid. Importantly, the proposal would not affect the drug coverage of dual eligibles, but simply change which federal program would pick up the tab.

“Why shouldn’t a Medicare recipient get the same drug prices as a Medicaid recipient?” Nelson asked Thursday. “That’s the philosophical question.”

But Republicans argued that it’s naive to think that the pharmaceutical companies would simply absorb the new costs. Rather, they said, the burden would be pushed to working class patients. “It would drive up everybody else’s prices,” said Sen. Charles Grassley (Iowa), senior Republican on the finance panel. “Middle class people are going to end up paying for this.”

Tapping a more ideological vein, Sen. John Ensign (R-Nev.) said the Nelson proposal is “basically a tax on the pharmaceutical companies.”

The issue hasn’t been overlooked by Rep. Henry Waxman (D-Calif.), the chairman of the House Energy and Commerce Committee, who included Nelson’s provision in the sweeping health reform bill working its way through the House. Three committees have already approved that bill, which hasn’t yet come to the floor.

Theoretically then, the issue isn’t dead. Indeed, House and Senate lawmakers have a long way to go before any health reforms become law. That process will necessarily include a meeting between House and Senate leaders to iron out the differences between the two chambers’ bills — a meeting where Waxman will surely be pushing to include the Medicaid rebate language in the final compromise.

But Carper warned Thursday that the provision, by killing the deal between PhRMA and Democrats, would kill the reform effort altogether.

“That,” Carper said, ”would be a great tragedy.”

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