The House health care reform bill passed by the Energy and Commerce Committee directs HHS to negotiate drug prices directly with manufacturers for the Medicare Part D program, but it does not authorize HHS to establish a national formulary.

That leaves the provision vulnerable to being stripped out as the bill proceeds through Congress -on the basis that it may not reduce costs.

The provision was part of an amendment sponsored by Jan Schakowsky, D-Ill., that was added to the bill during Energy and Commerce markup (¹ Also see "House Energy And Commerce Adds Pharma Provisions To Health Reform Bill" - Pink Sheet, 3 August, 2009.). The committee passed the bill July 31.

The provision is not included in the health care reform bills passed earlier by the Ways and Means and Education and Labor Committees. Though largely similar, the bills have some differences that must be reconciled before a combined bill goes to the House floor for a vote.

The Congressional Budget Office, in past estimates, has consistently concluded that savings generated from direct government price negotiation under Part D would be negligible unless HHS could bring some bargaining leverage to the table.

In a 2007 analysis, then CBO Director (now OMB Director) Peter Orszag wrote: "Negotiation is likely to be effective only if it is accompanied by some sort of pressure on drug manufacturers to secure price concessions."

Specifically, "the authority to establish a formulary, set prices administratively, or take regulatory actions against firms failing to offer price reductions could give the [HHS secretary] the ability to obtain significant discounts."

He added that "in the absence of such authority, the Secretary's ability to issue credible threats or take other actions in an effort to obtain significant discounts would be limited."

Orszag's comments responded to then-pending Senate legislation that would have required HHS to negotiate prices in some cases but that, like the Schakowsky amendment, would have prohibited use of a national formulary.

- Cathy Kelly ( ² c.kelly@elsevier.com )

Part D Price Negotiation Provision In House Reform Bill Missing Its Teeth?

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