Democratic Sen. Bill Nelson of Florida may have made a tactical error in bringing up an amendment to mandate drug rebates under Medicare Part D during the Senate Finance Committee's markup of health reform legislation.

The amendment was defeated 13-10 on Sept. 24, with committee Chairman Max Baucus, D-Mont., and Sens. Robert Menendez, D-N.J. and Thomas Carper, D-Del. joining the Republicans on the panel in opposing it.

The amendment would require drug firms to provide Medicaid-level rebates for drugs provided to Part D beneficiaries also eligible for Medicaid. It would use the revenue generated to phase out the coverage gap in Medicare Part D.

By demonstrating that the proposal can be defeated with the backing of Democrats, the setback may ultimately weaken chances that the provision will be added to the legislation at a later date. Nonetheless, the amendment does have the support of Senate Majority Leader Harry Reid, D-Nev., according to Nelson, who said he plans to reintroduce the amendment once the bill reaches the Senate floor.

The rebate provisions are included in health reform legislation pending in the House and are strongly endorsed by Energy and Commerce Committee Chairman Henry Waxman, D-Calif., (¹ Also see "House Health Reform Bill Nets $48 Bil. From Pharma - CBO" - Pink Sheet, 27 July, 2009.).

But the defeat in the Finance Committee also shows that Baucus opposes the idea as strongly as Waxman favors it, which could limit Waxman's options for cutting a deal to keep the provisions in the bill, should it reach the House-Senate conference process.

Prior to the Finance Committee vote on the amendment, Baucus warned Nelson against risking the panel's rejection. He also asserted his opposition to mandated rebates under Part D.

"Frankly, I wish the senator had not pushed this amendment because it's not going to pass," he said. Although Baucus said he favors eliminating the gap, he objected to the means of funding it.

"I want to close the donut hole as much as everybody here but I think the way it's being closed [in the amendment] is inappropriate and we have to find - at some other time - some other way to close it."

Defending The Donut Hole Deal

Baucus also alluded to the deal he helped broker between the White House and the Pharmaceutical Research and Manufacturers of America, in which the industry agreed to contribute $80 billion toward reducing health care costs (² Also see "Pharma's Reform Bounce: How Big A Boost Will $80 Bil. Buy" - Pink Sheet, 21 September, 2009.).

The largest piece of the industry's contribution, about $35 billion, would be dedicated to funding a 50 percent discount program on branded drugs for seniors in the coverage gap.

"The White House reached an agreement, and I'm a little concerned about additional costs that are being passed on" above the $80 billion, Baucus said. He indicated that $80 billion is a fair contribution for pharma.

Sen. Carper took up that point, noting that the figure is based on the percentage of overall U.S. medical costs that drugs represent. Relative to the $150 million hospitals are contributing to reform, he said pharma's $80 billion seems equitable.

Carper reminded the committee that tapping the pharmaceutical industry for additional funding may have the "unintended consequences" of higher prices or lower investment in medical research.

Keeping Pharma On Board

Furthermore, he suggested, "it may well undermine our ability to pass comprehensive health reform through this committee and in this Congress."

Republicans on the committee warned that setting higher rebates may ultimately result in higher premiums for some seniors.

CBO endorsed that view in a recent analysis, concluding higher rebates may lead to premiums that are 20 percent higher by 2019 than they would be under current law (³ Also see "Part D Mandated Rebates: CBO Weighs In On Likely Premium Increases" - Pink Sheet, 7 September, 2009.).

However, CBO also said the increase could be more than offset by the lower cost-sharing that would result from proposals to provide discounts on drugs in the coverage gap and ultimately, eliminate the gap altogether.

Committee Democrats who favored the amendment felt that tying the new rebates to closing the gap made it a slam dunk. "Whatever side you're on ... if you're a conservative and you want to save money, you should be for this," said. Sen. Chuck Schumer, D-N.Y. "If you're a liberal and you want to close the donut hole ... you should be for this."

Schumer, and Democratic Sens. Jay Rockefeller, W.Va, Debbie Stabenow, Mich., and John Kerry, Mass., co-sponsored the amendment.

The proposal would have more than doubled PhRMA's $80 billion commitment and raised nearly twice what would be needed to close the donut hole, based on Congressional Budget Office estimates.

According to Nelson, CBO projects that by requiring drug firms to provide Part D plans with rebates that match Medicaid levels, Medicare could save $106 billion over 10 years. Under the health reform bill, Medicaid rebates for branded drugs would increase from 15.1 percent to 23.1 percent.

The details of the CBO estimate have not been released. An earlier projection by the budget office scored the savings from the House's dual-eligible rebate proposal at $29.7 billion over 10 years.

Of the $106 billion, $56 billion would be needed to close the gap, Nelson said, leaving $50 billion for deficit reduction or other budgetary needs.

The amendment's defeat is an important victory for the pharmaceutical industry and validation of PhRMA's strategy of stepping up with an offer to contribute $80 billion toward reducing health care costs and, at the same time, gaining Baucus as an ally.

In a written statement, PhRMA Senior VP Ken Johnson said, "The idea that you squeeze more and more out of our industry without consequences is seriously flawed and short sighted. Squeeze too hard and you run the risk of catastrophic job losses in a fragile economy and driving critically important research and development overseas."

"If our contribution to health care reform exceeds $80 billion, as some critics today suggest, you reach a point where you risk sacrificing someone's job for someone else's health insurance."

There are other pending amendments to the Finance bill that seek to raise additional revenue from pharma for health care reform. Nelson has one that would impose an excise tax on patent settlements between brand and generic companies. The committee will resume markup of the bill on Sept. 29.

- Cathy Kelly ( ⁴ c.kelly@elsevier.com )

Part D Rebates: Defeat In Finance Committee May Set Key Precedent

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