Proposals by US Senate Finance Committee chairman Max Baucus to allow the federal government to negotiate prices with manufacturers for medicines supplied through the Medicare prescription drug benefit would produce “negligible” savings, the Congressional Budget Office (CBO) has concluded.

Nevertheless, Sen Baucus was upbeat ahead of a Finance Committee business meeting held late on Thursday (May 12) to discuss his proposals, and which approved it on a 13-8 vote. “We’re going to untie the [Health and Human Services] Secretary’s hands to help seniors,” he said.

Sen Baucus’ bill (S 3) would remove the Medicare Modernization Act (MMA)’s outright ban on the HHS Secretary from “interfering” in Medicare drug price negotiations. It would however only “allow” him to do so - not make it a specific requirement, as the House version (H 4) - which passed in January on a bipartisan vote of 255 to 170 - does.

S 3 also seeks to make Medicare drug pricing more transparent. It would not publicise the specific price breaks negotiated by drug plans with manufacturers, but would give Congressional support agencies - such as the CBO, the Congressional Research Service (CRS) and the Government Accountability Office (GAO) – access to data on the rebates, discounts and other price concessions that are negotiated.

It would also require the CBO, in particular, to use this data to inform Congress and HHS on how drug plans are performing in areas including the degree to which market competition is affecting Medicare drug prices, comparisons of Medicare and Medicaid discounts, whether discounts cause drugs to be used more or less in Medicaid, and whether the Secretary’s efforts to negotiate Medicare drug prices end up affecting prices outside the benefit.

Cost-effectiveness would be checked

The bill also includes provisions to determine which drugs are most effective for seniors, for example, by requiring:

– the HHS Secretary to develop a prioritised list of comparative effectiveness studies, particularly for Medicare’s most widely-purchased medicines, which would compare drugs with other medicines or other products and services;

– the Secretary to form and publicly consult with an advisory committee of doctors, drug plans, manufacturers, etc, to develop the list of priority studies; and

– drug plans to use comparative effectiveness research in developing their formularies, to improve the cost-effectiveness of drugs purchased through Medicare.

Sen Baucus said his bill will “help to highlight places where drug prices may be out of whack, and then let the Secretary go to work. Adding these tools into the drug benefit will make a difference for seniors for decades to come.”

However, a review of his bill, conducted by the CBO at the request of Finance Committee staff and ahead of the vote, has concluded that simply modifying the MMA “noninterference” provision would have a negligible effect on federal spending. “Without the authority to establish a formulary or other tools to reduce drug prices, we believe that the Secretary would not obtain significant discounts from drug manufacturers across a broad range of drugs,” says CBO director Peter Orszag.

He has responded in a similar vein to a more detailed request for analysis from Democrat Ron Wyden who, with Republican Olympia Snowe, has introduced legislation which would require the HHS Secretary to negotiate Medicare prices for certain drugs.

“Negotiation is likely to be effective only if it is accompanied by some source of pressure on drug manufacturers to secure price concessions,” Mr Orszag replied to Sen Wyden. “The authority to establish a formulary, set prices administratively or take other regulatory actions against firms failing to offer price reductions could give the Secretary the ability to obtain significant discounts in negotiations with drug manufacturers.” Without it, the Secretary’s ability to issue credible threats or take other actions to obtain significant discounts would be “limited,” he writes.

Mr Orszag also points out that the current HHS Secretary, Mike Leavitt, has indicated that he would not pursue drug price negotiation even if given the authority to do so, and it is difficult to predict what actions future HHS Secretaries might or might not take. “Simply put, it may be difficult through legislation to force a Secretary to pursue negotiations aggressively if he or she is reluctant to do so,” Mr Orszag tells Sen Wyden.

The CBO’s conclusions have been welcomed by the Finance Committee’s ranking member, Chuck Grassley (Republican). In January, the CBO and Centers for Medicare and Medicaid Services (CSM) had reported that HR 4 would not save taxpayers’ money, and the CBO has now blown “another hole in all the political pandering that’s going on with this issue,” he said.

“Having the government set Medicare drug prices would block access to drugs that a senior might need, make it harder to get medicine at the local pharmacy and result in higher drug prices for younger people and workers who don’t have Medicare coverage,” said Sen Grassley.

Rethink needed on negotiations

The Pharmaceutical Research and Manufacturers of (PhRMA) America agrees. The CBO’s assessment “is not breaking news,” said PhRMA senior vice president Ken Johnson; the Office “has repeatedly expressed to Congress that the government probably could not negotiate lower costs than those already negotiated by powerful private-sector purchasers.” Mr Johnson urged legislators “to rethink their position on government negotiation and the impact it could have on seniors’ access to new cutting-edge medicines."

Ahead of the Finance panel vote, Senate Majority Leader Harry Reid (Democrat) said he expected the full chamber to debate the bill next week. Some observers are forecasting a stormy passage there, but the powerful seniors’ advocacy group, the AARP, which has lobbying heavily for the bill and for H 4, applauded the Finance Committee members “who stood with nearly 90% of voting-age Americans who support giving Medicare the power to bargain for lower-price drugs.” AARP members “want to know where their Senators stand on this important issue,” added the group’s chief executive, Bill Novelli.