CBO is predicting only minor savings to the Medicare prescription drug program through Waxman/Hatch reforms contained in the Senate and House versions of the Medicare bill in light of previous reforms announced by FDA.

Savings to the Medicare Rx program through each bill's generic drug provisions would account for less than a quarter of a percent of the total program's $400 bil. 10-year budget.

Under the Senate bill's (S 1) provisions, CBO estimates $650 mil. in savings over the 10 years of the program (2004-2013), which is reflected in CBO's overall cost estimate for the bill of $461 bil. over 10 years. CBO's score of S 1 drops to $421 bil. when PBM transparency requirements are excluded (see ¹ Also see "Medicare PBM Restrictions Would Lead To Higher Premiums, CBO Says" - Pink Sheet, 28 July, 2003. ).

Under the House bill (HR 1), Waxman/Hatch reforms would save $700 mil., which is reflected in the $405 bil. cost estimate for the bill, CBO said.

One reason CBO is scoring the savings from increased generic drug availability so low is that the bills' Waxman/Hatch provisions overlap with reforms already initiated by FDA. The agency issued its final rule changing how Waxman/Hatch is implemented June 17 (² [A#00650240007], p. 13).

"CBO has incorporated the effect of the FDA rule into projections of spending and revenues under current law," ³ CBO's cost estimate report says. "The estimated savings under S 1 and HR 1 are for provisions that reach beyond the effect of FDA's final rule."

The Medicare bills' Waxman/Hatch reforms will have a larger impact on the overall U.S. healthcare system; CBO estimates both bills would lower total drug spending in the U.S. by about $7 bil. in the 2004 to 2013 period. Of that total, savings for existing mandatory federal programs are estimated to be $750 mil. under S 1 and $800 mil. under HR 1.

Savings to programs subject to appropriation, such as veterans health care, the Department of Defense and the Federal Employees Health Benefits Program, would be $200 mil. over 10 years under both bills.

Proposed reforms to the average wholesale price reimbursement formula used for physician-administered drugs under Part B will save significantly more, CBO says.

While the House and Senate proposals are different, the estimated savings are similar.

The House plan to replace the current 95% of AWP formula with a choice of competitive bidding or 112% of average sales price would reduce Medicare spending by $13 bil. from 2004-2013, CBO says (⁴ Also see "AWP Reform: House Bill Offers Choice Of “Average Sales Price” Or Bids" - Pink Sheet, 23 June, 2003., p. 22). The Senate proposal to reimburse Part B drugs at 85% of AWP would reduce Medicare spending by $14 bil. (⁵ Also see "Senate AWP Plan Directs HHS To Determine “Market Price” For Chemotherapy" - Pink Sheet, 16 June, 2003., p. 7).

The Medicare conference committee is scheduled to begin focusing on the differences in the AWP provisions Aug. 18 under a schedule agreed to by the nine Senate and eight House conferees.

A unanimous vote July 24 approved what House Ways & Means Committee Chairman Bill Thomas (R-Calif.) characterized as a tentative agreement to a "thematic approach" towards reconciling the two bills. The conference chairman added that the schedule "will be revised almost on a daily basis" as staff begin work on each subsequent theme.

The schedule calls for beginning discussions on a prescription drug discount card July 25. Those discussions will continue the week of July 28, along with the final drafting of the Waxman/Hatch reform provisions.

Consideration of the drug benefit itself will wait until the first week in August. The CBO score highlights a number of differences in the Rx benefits offered under the two bills.

"The estimated aggregate costs of the prescription drug benefits under the acts differ by only $7 bil. over 10 years, though this small difference reflects several large differences between the acts that have offsetting effects on costs," the cost report says. The House drug benefit would cost $415 bil., and the Senate benefit would cost $422 bil., CBO found.

Major differences include the drug coverage that would be provided to Medicaid dual-eligibles under the House bill, the low-income subsidy provisions in S 1 and additional federal payments to states under S 1.

Differences in design of the drug benefit "would only have a small net effect on the government's cost," CBO says. For example, "HR 1 would provide more coverage of beneficiaries' initial drug costs, but would have a larger range of drug spending for which coverage is not provided."

In a comparative analysis of the two plans, CBO determined that "beneficiaries with the standard coverage would have lower out-of-pocket costs under HR 1 if their total drug use in 2006 is relatively low (less than about $3,000) or very high (more than about $5,500), and would have lower out-of-pocket costs under S 1 in between."

"Approximately 65% of Part B enrollees would have total drug use of $3,000 or less in 2006 and about 15% would have total drug use of $5,500 or more."

Because S 1 has a smaller gap between the initial coverage limit and the catastrophic threshold, "beneficiaries would likely face less variability in their out-of-pocket liabilities from year to year."

Prescription drug reimportation will also be taken up at the beginning of August. Although the House voted in favor of reimportation legislation that would not require HHS' certification to go forward, many of the conferees oppose it.

Conference committee member meetings are slated to restart after the summer district work period, beginning with the benefit structure, low-income assistance and co-pays in the first week of September.

During the week of Sept. 8, the conference committee will attempt to resolve outstanding drug and provider issues, as well as the controversial Health Savings Accounts included in the House bill. CBO says HSAs would cost the government $174 bil. in lost tax revenue over 10 years.

The ambitious timeline's current form would put Congress on track to complete a compromise by the end of September, the timeframe agreed upon during a July 23 meeting between conferees and President Bush.

The first step towards meeting that target was completed July 24 when the conference announced an agreement on regulatory and contracting reform.

FDA Generic Rx Reforms Contribute To Medicare Budget Squeeze

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