Senate Finance Committee Introduces Latest Legislative Proposal for Healthcare Reform

The Senate Finance Committee through its chairman, Max Baucus (D-MT), introduced on Sept. 16, 2009, a bill, “America’s Healthy Future Act of 2009,” representing the latest Congressional proposal for healthcare reform. The 10-year, $856-billion proposal is scheduled to go before the full Senate Finance Committee next week.

“The cost of America’s broken healthcare system has stretched families, businesses, and the economy too far too long,” said Baucus in a press statement. “For too many, quality, affordable healthcare is simply out of reach…The Finance Committee has carefully worked through the details of healthcare reform to ensure this package works for patients, healthcare providers, and for our economy.”

The proposal includes an annual flat fee of $2.3 billion on the pharmaceutical manufacturing sector, beginning in 2010. The fee, which is not tax-deductible, would be assessed on domestic manufacturers, foreign manufacturers, and importers of drugs and biologics. The fee would be allocated based on relative market share of an entity’s total “covered domestic sales” of branded prescription drugs made to or funded by “specified government programs,” which include Medicare, Medicaid, Veterans Administration, and Tricare, according to the proposal. Branded prescription drugs would include single-source or innovator multiple-source drugs, but would exclude orphan drugs.

Entities with branded pharmaceutical sales of less than $5 million would not be subject to a fee. In determining each covered entity’s relative market share, covered domestic sales would be taken into account as follows:

• 10% of sales over $5 million and up to $125 million

• 40% of sales over $125 million and up to $225 million

• 75% of sales over $225 million and up to $400 million

• 100% of sales over $400 million.

The fee assessed will be determined by the covered entity’s market share in the preceding calendar year.

The proposal also addresses the so-called “donut hole” or coverage gaps for prescription drugs under Medicare. Under the proposal, instead of paying 100% of their drug costs in the gap, Medicare-Part D beneficiaries with low-to-moderate incomes will receive a 50% discount on the price of brand-name drugs covered by their plan. The discount program would apply to Medicare beneficiaries who enroll in Part D, do not qualify for the low-income subsidy, are not enrolled in an employee-sponsored retiree drug plan, and do not have annual income that exceeds the specified income thresholds as determined by current law, which is $85,000 for singles and $170,000 for couples in 2009. If approved, the measure would take effect July 1, 2010. The proposal would also allow 100% of the negotiated prices of discounted drugs (excluding dispensing fees) to count toward the annual out-of-pocket threshold that is used to define the coverage gap each year.

Under the proposal, drugs sold and marketed in the United States by a manufacturer would not be covered under Medicare Part D unless the manufacturer agrees to participate in the discount program. Manufacturers would be required to sign an agreement with the Secretary of Health and Human Services (HHS) in order to participate in the program and have their drugs covered under Part D. These conditions of coverage do not apply if the Secretary determines that the drug’s availability is essential to the health of beneficiaries or if there are extenuating circumstances in the period of July 1, 2010 to Sept. 30, 2010. Manufacturers that participate in the Part D drug-discount program would also be required to be audited for compliance by a third-party administrator. Manufacturers that do not comply would be subject to fines and penalties.

Earlier this year, The Pharmaceutical Research and Manufacturers of America (PhRMA) made a policy commitment of $80 billion over 10 years to address the coverage gap for prescription drugs under Medicare. As of press time, PhRMA had issued the following statement on the legislative proposal: “We are currently reviewing the Senate Finance Committee healthcare reform proposal, but we continue to believe that all Americans should have access to high-quality, affordable healthcare coverage and services,” said PhRMA Vice-President Ken Johnson in a Sept. 16, 2009 statement. “If done in a smart way, healthcare reform will benefit patients, the economy, and the future of America."

The proposal also would guarantee prescription-drug benefits to all Medicaid beneficiaries, effective Jan. 1, 2014. It would remove smoking-cessation drugs, barbiturates, and benzodiazepines from Medicaid’s excluded list, effective Jan. 1, 2014. It would also increase the flat-rebate percentage, subject to certain conditions, used to calculate Medicaid’s basic rebate for outpatient brand-name prescription drugs from 15.1% to 23.1%. The proposal would also increase the rebate under Medicaid for noninnovator, multiple source drugs to 13% of the average manufacturer price. Additionally, the proposal would treat new formulations of existing brand-name drugs as if they were the original product for purposes of calculating Medicaid’s additional drug rebate.