Clinton Seeks Medicare Drug Coverage; Fight Looms (Update8)
Bloomberg News
June 29, 1999, 5:52 p.m. ET
Clinton Seeks Medicare Drug Coverage; Fight Looms (Update8)
(Adds Shah quote in 14th paragraph.)
Washington, June 29 (Bloomberg) -- President Bill Clinton
proposed a 10-year $118 billion plan designed to help the
nation's elderly and disabled pay for prescription drugs, using
private managers to bargain down prices.
''My plan will use competition and the best private sector
practices to secure Medicare,'' Clinton said today. His proposal
kicks off a battle in Congress ahead of next year's elections.
Drugmakers have said a Medicare prescription benefit could be a
step toward government price controls on prescription drugs.
The Pharmaceutical Research and Manufacturers of America,
which lobbies for major companies like Merck & Co., Pfizer Inc.
and Bristol Myers Squibb Co., has said it prefers having private
health insurers offer Medicare drug coverage. Expectations that
lawmakers will oppose Clinton's plan boosted the Standard &
Poor's index of drug stocks about 2.9 percent today.
''This is likely to be a political football,'' said Hemant
Shah, an independent pharmaceutical analyst.
Clinton's Medicare proposal seeks to do three things: make
the system more efficient and competitive, extend its solvency
until 2027 by using savings measures and spending $794 billion of
the federal budget surplus over the next decade, and update its
benefits.
''Many of the drugs we now routinely use for heart disease
and high blood pressure did not even exist in 1965, yet Medicare
does not cover prescription drugs,'' said Clinton.
'Dismal Swamp'
Clinton aides sought to tamp down concerns about price
controls. ''We have explicitly and categorically rejected price
controls,'' said Gene Sperling, chairman of Clinton's National
Economic Council. ''Presumably the drug companies are able to
make sales to Blue Cross/Blue Shield and others at a profit. We
just want to put Medicare on a level playing field.''
Analysts and congressional Republicans expressed skepticism
that Clinton's Medicare overhaul plan will be enacted.
The plan is likely to ''quickly roll into the dismal swamp''
as Congress focuses on issues such as Social Security reform and
tax cuts, said Ira Loss, senior vice president of Washington
Analysis, an equities research firm specializing in U.S.
regulations and legislation.
Republicans are smarting over the collapse earlier this year
of a blue-ribbon Medicare reform panel; the group, chaired by
Senator John Breaux, a Louisiana Democrat, disbanded after a
failing to muster enough votes to adopt a Medicare plan that
would have required health insurers to negotiate premiums with
the government. The Breaux commission also wanted to provide
prescription coverage, but only to the neediest recipients.
'Jerked the Rug'
''The president basically jerked the rug out from under that
bipartisan group,'' Senate Majority Leader Trent Lott said today.
''We will take a look at what he's proposed now, but we think we
have a good package that was recommended by the Medicare
commission, and we hope the Finance Committee would consider
that.''
Senator Phil Gramm, a Texas Republican, blasted Clinton's
plan as ''embedded'' with ''government price controls'' and
''rationing of pharmaceuticals.'' Costs would balloon in the
future and burden taxpayers, Gramm said. ''We're promising
something that clearly people can't deliver.''
Others said common ground is possible. ''This should not be
politics as usual,'' said Representative Bill Thomas, a
California Republican. ''Republicans want to include
prescriptions in Medicare. If the president truly wants
competition, the Republicans find that a truly receptive
solution.''
Inevitable?
The prescription drug benefit ''is going to be the single
most important issue'' facing pharmaceutical stocks for two
years, analyst Shah said. ''Any time you see an indication that
the bill is going to die, the stocks are going to go up.''
Pfizer shares rose 3 13/16 to 104 7/8, Merck's rose 1 7/16
to 71 1/2 and Schering-Plough Corp.'s climbed 1 to 49 11/16.
Yet eventually ''some sort of a Medicare drug benefit
passage is inevitable,'' Shah said.
Seniors on Medicare currently pay about $600 a year, on
average, for prescription medication, Clinton aides said. Under
his plan, Medicare recipients would have the option to pay $24 to
$44 a month to get the U.S. government to reimburse them up to
$2,500 for their prescriptions.
They would also see an average discount of about 10 percent
on what they have been paying for the drugs as Medicare moves to
take advantage of volume discounts from drug companies, said
Chris Jennings, Clinton's deputy domestic policy adviser.
Bulk Rates
Currently, insurance companies use prescription benefit
managers, or PBMs, to negotiate bulk rates and other discounts on
drugs with pharmaceutical companies. Clinton envisions the same
thing, on a smaller scale, for Medicare. The Health Care
Financing Administration, the part of the Department of Health
and Human Services that runs Medicare, wouldn't seek to negotiate
Medicare-wide discounts, Sperling said.
Managed care providers and hospitals would also see
competition heat up under the Clinton plan by setting defined
Medicare benefits which fee-for-service or managed care
operations could compete to provide. That competitive pricing
could save the U.S. government $25 billion over 10 years,
according to White House figures.
Many seniors joined managed care operations because they
cover prescription drugs. Under Clinton's plan, fee-for-service
providers and health maintenance organizations would be free to
offer comparable services at competitive prices and Medicare
beneficiaries could choose their plan.
Clinton's plan also would give beneficiaries 75 cents of
every dollar they save in choosing lower cost plans that offer
the same basic Medicare benefits but don't necessarily provide
extra benefits.
'Mixed Bag'
The other 25 cents of those savings would go back to the
federal government providing an estimated $8 billion in savings
over 10 years, starting in 2003.
The plan would be a ''mixed bag'' for health maintenance
organizations, said Barbara Dreyfuss, a health analyst for
Prudential Securities. Drug coverage now is ''the single largest
item that attracts people'' to stay in managed care, she said.
Yet managed care companies that have pharmacy benefit managers
''obviously could get into Medicare drug benefits'' and boost
profits, Dreyfuss said.
Merck, the largest U.S. drugmaker, and Rite Aid Corp., the
No. 3 drugstore chain, run their own pharmacy benefit units.
Express Scripts Inc. is one of the largest independent pharmacy
benefit managers.
Medicare expansion is part of a larger battle over how to
spend the $3.7 trillion budget surplus anticipated over the next
15 years. Clinton wants to pay off the national debt by 2015 and
use money saved in interest payments to bolster Medicare and
Social Security.
Clinton also is trying to re-energize his domestic agenda
after an impeachment vote in the House of Representatives and
more recently, the war in Yugoslavia.
Republicans control both houses of Congress, and they favor
tax cuts. How big they will be, and who will receive them, will
likely color any debate on Social Security or Medicare ahead of
the 2000 congressional and presidential elections. And
Republicans likely won't hand Clinton a domestic policy victory
before next year's presidential elections, analysts say.
Even so, both parties have a stake in easing pressures on
the Medicare system before the first of about 77 million baby
boomers become eligible for coverage.
If Congress and the administration fail to act, Medicare
costs would grow to 28 percent of the federal budget by 2030 from
12 percent now, according to estimates by a special congressional
commission on Medicare.
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