The Importance of Health to Health Care Reform

“I am healthy and ready to go after health care reform.” That is how Henry Waxman, chairman of the House Energy & Commerce Committee and the prime mover of health care legislation in the House, answered the first question posed to him by Atlantic Media’s Political Director Ron Brownstein during a book-signing event hosted by the National Journal July 8. The question—“How is your health?”—was timely, after Waxman was hospitalized in California after fainting while at work in his district office.

Waxman certainly looked, as Brownstein put it, “tan, rested and ready” back in Washington, and there is no reason to doubt that he will indeed drive the reform debate through to completion. (We’ve written a lot more about what Waxman’s said that will entail, including his declaration that PhRMA’s deal with the Finance Committee doesn’t apply to him, and look for more in The RPM Report next week.)

Still, Waxman’s fainting spell is only the latest reminder of the role that the health of several key legislators has already played in the health care reform debate.

The prime example, of course, is the absence of Sen. Edward Kennedy (D-Mass.) from the day-to-day work on health care while undergoing treatment for brain cancer. It will never be possible to say for sure how Kennedy’s absence will end up changing what does or does not happen in the final legislation, but 18 months ago it would have been inconceivable that major health care expansion would happen without Kennedy playing a central role in cutting the final deals. He will not play that role in 2009.

Another senior Democrat, California Rep. Pete Stark was hospitalized with pneumonia earlier this year, forcing him to participate via telephone in the White House’s summit on health care in March. He joked then that his first-hand experience with the health care system would help shape his legislation. Stark is back on the job, but, for someone who has been one of the loudest voices in health policy on Capitol Hill for more than two decades, he has been surprisingly quiet thus far.

There are other cases where health issues have already shaped the reform debate. Indeed, Waxman’s central role was secured only after he launched a successful campaign to unseat Michigan Democrat John Dingell as chair of the Energy & Commerce Committee; Dingell’s perceived frailty was in issue in that fight.

A similar dynamic contributed to the departure of West Virginia’s Robert Byrd as chair of the Senate Appropriations Committee at the start of the year. That change makes it more feasible for the Democratic leadership in the Senate to hold the threat of using the budget reconciliation process to ram a bill through without fear of a filibuster. (Read more here.)

While that threat may prove to be a bluff, it does underscore the importance of every single vote in the Senate, and many reform advocates are already fretting about the challenge of ensuring that both Kennedy and Byrd can be present in the Senate chamber when the key votes are cast.

With 535 members and an average age of 57, its not surprising that there are health care emergencies in the House and Senate. Getting sick, after all, is a fact of life—the hard reality that makes health care reform such a potent political issue.

Still, the health issues of prominent Democratic leaders underscores the sense that the current debate may be their last chance to deliver legislation on an issue many of them have worked on for 30 years or more.

In Waxman’s case, there are other reminders. During the National Journal event, he twice cited former House Health Subcommittee Chair Paul Rogers as one of his heroes and mentors. Waxman was one of hundreds to attend Rogers’ funeral at the Washington National Cathedral last October.

We’re betting it didn’t take a fainting spell to remind Waxman that his time to shape health reform is limited.

Follow-On Blackjack: Place Your Exclusivity Bets

What will be the length of the brand exclusivity provided as part of a possible follow-on biologics pathway? At the moment, it looks like the generic camp is holding the low cards, but pharmaceutical firms should always watch their chips when Henry Waxman's at the table.

This week will see a lot of cards being shown; the Senate HELP committee mark-up that seemed like it would never end actually just voted on follow-on biologics and endorsed the 12 years of brand exclusivity offered by Sen. Orrin Hatch, R-Utah. Hatch apparently had a better hand than Sen. Ted Kennedy, D-Mass., who had endorsed 12 years last year but recently offered language starting with only nine, building up to 13.5 in exchange for additional studies, and Sen. Barbara Mikulski, D-Md., who had offered slightly lower numbers. They both ended up voting for Hatch's amendment.

On the other side of the Capitol, it feels like the Commerce Committee markup might never start. Brand firms feel that Chairman Waxman, D-Calif., who offers only a total of six years of exclusivity, is dealing from the bottom of the deck. Meanwhile, Rep. Anna Eshoo, D-Calif., is offering the brand jackpot of 14.5. President Obama, for his part, prefers lucky number seven.

It's enough to challenge even a seasoned card counter, so we thought we'd open the prognosticating up to you. Tell up how long you think the reward for innovation will end up being. If a health reform bill with FOBs does pass, we'll pick one of the winning entries at random to receive a framed, signed copy of this blog post. (Note: To receive the prize, winner will need to print this post, buy a frame, and forge the IVB signature.)



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image from flickr user waffler used under a creative commons license

Follow-On Biologics: 1984 All Over Again?

Orwellian resonances aside, the year 1984 is a turning point in the history of the biopharmaceutical industry. That is the year when the generic drug industry was born, thanks to a critical and unlikely compromise between Senate Republican Orrin Hatch and Democratic Rep. Henry Waxman.

Their landmark bill created an abbreviated approval process (championed by Waxman) in exchange for enhanced patent and data exclusivity protections for innovator companies (pushed by Hatch). So critical were those two lawmakers to the crafting of the legislation that the entire generic approval/patent restoration process in the US is now known simply as Waxman/Hatch (or Hatch/Waxman, depending on which party is in the ascendancy).

As 2009 gets under way, one key question for biopharma companies of all shapes and size is: can history repeat itself?

It sure looks like the stars are aligned for another historic compromise, this time over a regulatory system for abbreviated approval of biologic products coupled with some version of data exclusivity for innovators. And, as fate would have it, Henry Waxman and Orrin Hatch find themselves add odds over some key points.

Waxman, as chair of the Energy & Commerce Committee in the House, will be at the center of any legislative work on follow-on biologics this year. And he has already put a stake in the ground, offering legislation that gives innovators the same five year data exclusivity that pharmaceuticals get under the 1984 law.

Hatch is not in the same leadership position he held as a member of the Republican majority in 1984, but he is working closing with Senate Health Committee Chairman Edward Kennedy on FOB legislation. Hatch and Kennedy were among a group of senators that forged a compromise in 2007, one that would have granted 12 years of data exclusivity to innovators.

That compromise failed to reach enactment—in no small part because Waxman refused to sign on to push for action in the House.

As Congress gets back to work in 2009, it sure doesn’t sound like a compromise is close. As we reported in The Pink Sheet DAILY, Ann Witt—the key staffer to Waxman on FOBs—sure didn’t sound optimistic about getting a bill done this year when she spoke during a forum sponsored by the Jefferson School of Population Health yesterday.

Then today, Hatch himself addressed the Food & Drug Law Institute annual conference. Like Witt, he did not make any optimistic sounding assessments about the prospects for speedy enactment, saying only that “we are working on it.”

Instead, he highlighted his frustration with New York Democratic Sen. Chuck Schumer for, in effect, defecting back to Henry Waxman's camp in 2009.

"I have some very serious reservations about some of the bills that have been recently introduced," Hatch said. "Sen. Schumer’s bill mirrors Chairman Henry Waxman’s….I was surprised to see Sen. Schumer pushing for this new approach, especially since he was the one who really sealed the deal for 12 years of data exclusivity in the last Congress with us. He came along and realized it was an important thing to do. It is frustrating to me to see that we are so quick to wipe out the incentives for innovation."

This whole exclusivity question sure does get people fired up. Indeed, your humble blogger can testify that innovators and would-be follow-on companies seem very far apart on the question of exclusivity, having gotten an earful from both sides for suggesting during a presentation at the Jefferson School event that the whole question of how much exclusivity is less important than what the follow-on biologics marketplace will actually look like. (A webcast of the event is available here.)

Generic companies, in the words of Boston University Economics Professor Laurence Kotlikoff described industry’s “support” for follow-on biologics in exchange for 14 years of exclusivity protection as simply an effort to “kill biogenerics.” Away from the dais, representatives of innovator biotech companies suggested five years of exclusivity would kill innovation.

Still, as David Nash, Dean of the Jefferson School of Population Health, said in his closing summary of the event: Despite the “fireworks,” most observers can see that there “will be some kind of a compromise” on exclusivity.

And it sounds like Hatch at least is ready to try to make that happen. With Waxman due at the FDLI conference tomorrow, Hatch enlisted the audience to help: “When Congressman Waxman is here, you might encourage him to come on board.”

“Let me tell you something. Henry knows I’m serious. He knows I’m bipartisan. He knows I want this done. I care a great deal for him,” Hatch said. He joked about that unlikely turn of events: “We’ve been good friends for all these years, although he comes from Hollywood and you can’t be any more whacked out than that that group, but he for some reason comes through. He’s a very, very complicated but a very, very good, bright guy.”

“I want this to be the Hatch/Waxman—or let’s make it Waxman/Hatch” of the biologics era, Hatch declared.

But, he added, “Henry’s going to have to come up. He was at zero, then he was at five.” President Obama’s budget proposes seven years of data exclusivity, Hatch added, indicating that too would be too low for him.

Is a compromise likely any time soon? It sure seems like the answer is no, that the two sides are--if anything--more entrenched than ever in their respective corners. But a compromise certainly didn't seem inevitable in 1984, a point that Hatch made in his opening comments to the FDLI conference.

"I can vouch for the fact that the negotiations on Hatch Waxman were, shall we say, trying at times," Hatch said. In fact, "who knows what would have happened had I not needed a root canal right in the middle of negotiations. I threatened to kill every doggone negotiator."

"Toward the end, the two leading negotiators, one for the generic industry one for the innovator industry, they jumped up and said, 'We’re outta here,' and they ran to the door, and they both arrived at the door at the same time and they got stuck in the door. It was one of the greatest days of my life."

Right now it sounds like both sides are heading to the door. Whether they actually get out the other side, we will have to wait and see...

The IN VIVO Blog Podcast: Sandoz's View On US Biosimilars Outcome

Yes, the IN VIVO Blog Podcast is a Wednesday thing. But sometimes there's just too much podcast for little old Wednesday, and this is one of those times. Welcome to a bonus podcast to kick off your weekend.

Did you read Melanie Senior's FOBs post on Monday? When you did, did you think 'I wonder what Melanie and Hannes Teissl sounded like when they talked about these pieces of biosimilars legislation?' Well, wonder no more, and click on the logo below to listen.

When it comes to that perma-hot topic, biosimilars, all eyes are on the US right now. There are various bills up before the House, most prominently Henry Waxman's pro-generic one, and Anna Eshoo's pro-brand one (plus, as from today, a bipartisan proposal that looks very Waxman-ish). As the debate rages on in Washington, our on-the-pulse podcaster asked Hannes Teissl, head of Biopharmaceuticals at biosimilar pioneers Sandoz, what flavor of legislation he thinks will appear.

Don't forget, you can access the podcast via iTunes also.

Following Up With Sid Wolfe (Part 2)

Washington is full of interesting connections.

Given how much people jump from job to job in DC, it’s only a bit of an overstatement to say that everybody has worked with everybody at some point in their careers.

So it should come as no surprise, perhaps, that Joshua Sharfstein, the incoming principal deputy commissioner of the Food & Drug Administration, used to work with a prominent policy figure in Washington who happens to be a staunch critic of the pharmaceutical industry.

No, we’re not talking about Rep. Henry Waxman, for whom Sharfstein worked early in his career. This is someone perhaps even less favorable to Big Pharma (if that could be possible): Public Citizen’s Health Research Group director Sidney Wolfe.

Sharfstein worked at Public Citizen as a researcher between April-August 1992—after completing his undergraduate degree from Harvard University and starting medical school. During his five months at Public Citizen, he contributed to a report on the capacity of the U.S. correction system’s ability to care for mentally ill. (One finding: states without adequate inpatient mental health facilities jailed mentally ill patients rather than providing appropriate treatment.)

In an interview, Wolfe recalled Sharfstein's stint at Public Citizen, but was careful not to give him too much praise. When asked of his impressions of the incoming FDA official, Wolfe spoke generally of the “extreme public health experience” of both Sharfstein and FDA commissioner-designate Margaret Hamburg. “I can’t remember the last commissioner with solid public health experience,” Wolfe said. (He discounted David Kessler, who as the former head of a hospital, Wolfe says, did not rise to the same level as health commissioner of a big city.)

After Public Citizen, Sharfstein went into his first year of medical school, and promptly did something rather Wolfeish: he led a student campaign urging his classmates to return free textbooks donated by pharmaceutical companies.

According to a story in the Harvard Crimson, Sharfstein set up a drop-box for students to return two textbooks donated by Sandoz, and wrote a letter to president Timothy Rothwell protesting their distribution. The protest didn’t seem to attract much support: few books were returned, and a few that were returned were stolen from the drop-box.

Wolfe and Sharfstein kept in touch, collaborating on a 1999 petition to then-HHS secretary Donna Shalala against Pfizer’s marketing practices for the antibiotic Zithromax. Wolfe and Sharfstein, who at the time was a pediatrics fellow at Boston Medical Center, accused Pfizer of launching a campaign to convince physicians to prescribe Zithromax over the “effective and inexpensive” antibiotic amoxicillin—against CDC guidelines.

They also testified at the same FDA public hearing in 2008 over the safety of cough and cold medicines; Sharfstein petitioned FDA to relabel the products as not safe and effective for children under six years. At the public meeting, Sharfstein was the opening presenter, and Wolfe spoke during the open public hearing portion of the meeting.

We're not saying that makes them bosom buddies, but it does make for an interesting Washington connection.

There’ll be No Follow-On Biologics in the US at All...

...At least not if anything close to the Eshoo bill—one of two versions of biosimilar legislation currently before the House of Representatives—gets approved, according to Hannes Teissl, head of Sandoz’s Biopharmaceuticals unit.

Speaking to The IN VIVO Blog late last week, Teissl warned that if US biosimilar legislation, which he and many others expect will be enacted in some form or another this year, looks too much like the BIO-supported, innovator-friendly Eshoo bill, “biosimilars will not be a viable business” to pursue.

Not that he expects that to be the case: “I think we’ll see something much closer to the Waxman bill in the end,” he opines. Wishful thinking? The Waxman bill is, after all, by far the most generics-friendly: it doesn’t require biosimilar applicants to run clinical trials, has a broad, rather flexible definition of ‘comparability’, and mandates that comparable generics have the same name.

This last point on naming, along with Waxman’s position on interchangeability, are the two main advantages of the Waxman bill, according to Teissl. Europe took a while to resolve the issue of whether biosimilars could share the same International Non-proprietary Name (INN) but they now can, which goes a considerable way to proving generic makers’ case for scientific equivalence.

But not all the way. The main sticking point for biosimilars in Europe has been, and remains, interchangeability—whether a drug can formally be expected to produce the same clinical result as the reference product in any given patient. This is also closely linked to—but not the same as--substitutability, whether pharmacists may automatically substitute a branded drug with its cheaper generic equivalent, as in some countries they are mandated to do in the case of small molecules. The European regulator EMEA has passed the buck on both these issues, saying that individual member states should decide. Several, including France and Spain, have decided against allowing automatic substitution.

The Waxman bill doesn’t say biosimilars should be substitutable with their reference drug. But it includes in its wording “at least the potential for interchangeability,” opines Teissl. He sees it that FDA would “make a scientific statement that there is no clinically meaningful difference” between a biosimilar and its reference drug. (Eshoo’s bill would theoretically allow that too, but only after higher hurdles have been met.) Beyond that, it’s still up to individual states to decide whether to allow substitution, but Teissl reckons an FDA-stamp of biosimilarity will help.

And so, he adds, will Waxman’s decoupling the patent litigation process from the regulatory process. That will mean generics companies can launch at risk, which is critical to the viability of biosimilar businesses since patent litigation can drag on for years.

Teissl doesn’t underestimate the Eshoo-supporting innovator lobby but he thinks cost-savings will win in the end. “The US government wants these products, just as FDA wants more competition,” he says.

Let the Fights Begin: Card Looks Nasty for House Oversight Committee Ring in 2009

By the end of the presidential race, it was commonplace to hear the media bemoaning the nasty, brutish tone of the campaign. Headlines right up to election day highlighted the continued attacks and counterattacks by the campaigns.

The Obama-McCain discourse is going to look like civil banter in comparison to what may happen in the House Government Reform & Oversight Committee starting in January.

The committee is the fiefdom of California Democrat Henry Waxman. He has used it during the past two years to keep up a steady barrage of three or four hearings a week on the Bush Administration, investigating aggressively into issues from the conduct of the Iraq War to the financial bailout and looking closely at the efficiency of Part D in the health care area.

Some Washington watchers, itching for a big internecine fight to get the Democratic Congress started, hope that Waxman will take on his nemesis on the Energy & Commerce Committee and challenge long-time sitting chairman John Dingell (MI) for the leadership of that committee. That fight would come near the end of November. Waxman won’t challenge Dingell unless he is sure he has the votes.

If he stays at Oversight, however, things should get interesting and nasty. Waxman will lose the wide range of easy GOP bureaucratic targets with the change to the Obama Administration. But that turns him lose to hold tougher hearings on private sector witnesses from companies that he believes are getting overpaid by the government or taking advantage of government programs. He won’t beat up on the leadership of the Centers for Medicare & Medicare Services, for example. The new targets will be the execs of the companies running Part D plans or selling drugs to the plans.

But that is not where the biggest fireworks are likely to break out – between the chairman and a stream of beleagured corporate execs. The hostilities are likely to be most pronounced between Waxman and the ranking minority member.

The current ranking minority member of the committee Tom Davis (R-VA.) did not run for re-election. One of the next likely Republicans for the position by seniority, Christopher Shays of Connecticut, was defeated on Nov. 4 in the Democratic sweep of New England. Both of them have been civil adversaries to Waxman.

The first announced candidate on the Republican side to succeed Davis is Darrell Issa of California (San Diego and Riverside). The Issa-Waxman relationship is much more strained. Waxman and Issa are oil and water at best. A better analogy is probably chemicals that combust when they get near each other. The National Journal reports that Waxman threatened to have Issa forcibly removed from a hearing.

Issa announced his interest in the ranking member position in a November 5 statement. “This committee will need a strong voice,” Issa declared, “when hearings and investigations are one-sided, inappropriately partisan, or oblivious to government failures like Fannie Mae and Freddie Mac that embarrass the majority.”

Issa was one of the driving forces behind the recall vote against California Democratic Governor Gray Davis in 2003. Issa put $2 million behind the effort. He is a tough, sarcastic and acerbic partisan.

He displays a relish and willingness to take on Waxman. For example, during the June 2007 hearing on Avandia safety he attacked the proceeding as a review of the drug by unqualified people. Throwing Waxman’s words back at the chairman, Issa said: “As the Chairman said, rightfully, and I appreciate his saying it, none of us here is qualified to evaluate this drug.” He accused the hearing of treading “closely toward the hypocrisy that I believe this hearing begins to look like.”

As ranking member, Issa would take on Waxman at every turn. It could quickly develop into one of the roughest shows during the next Congress, with all the subtlety and productivity of professional wrestling.

Heroes and False Prophets of Vaccine Safety

Congressman Henry Waxman “is a hero on this debate.”

That sentiment has frequently been expressed by liberal-leaning organizations on a wide range of issues during Waxman’s long 34-year career in Congress.

The current praise comes, however, from a more unlikely source: the top pharmaceutical policy expert at the American Enterprise Institute. The issue: upholding the public’s confidence in childhood vaccinations in light of a purported (and still unproven) link to autism.

The California Democrat got that ringing endorsement on Oct. 10 from Jack Calfee, who typically addresses health care issues from a position almost diametrically opposed to Waxman. From the AEI perspective, Waxman is often the epitome of too much government regulation and too much the friend of liability lawyers.

But on vaccine safety, the representatives of two ideologies find themselves aligned. The confluence of views on vaccine safety between AEI and Waxman should bode well for a continued climate of support for vaccines from the federal government, but challenges still persist.

The chief challenge is the continuing political appeal of the groups seeking to link autism to vaccinations.

Calfee’s praise for Waxman came during a question and answer session at an October 10 AEI session on a new book on the science and politics of autism by Paul Offit, the chief of the vaccine education division at Children’s Hospital of Philadelphia.

Offit’s book, “Autism’s False Prophets,” recounts how the proponents of a link between childhood vaccines and autism have pressed the issue into common parlance. The book traces the origins and issues raised from the decade-old effort to describe a link.

Offit, who bravely accepts the challenge to counter the attempt to tie autism to vaccines, notes that there has been a long history stretching back over 200 years of people looking at vaccines as the source of diseases arising from unknown causes. “Vaccines have been blamed for many diseases for which there are no clear causes,” he told AEI, citing multiple sclerosis, epilepsy, diabetes and mental retardation.

“Autism, like those disorders, has no clear cause or cure.” In that context, Offit observes, “it was just a matter of time” until a link to autism was suggested.

During the AEI event, Stephen Cha, an aide to Waxman, noted that the congressman has also taken a public stand to keep attention focused on the weight of scientific studies refuting the link between autism and vaccines.

Waxman recently sent a summary of the major studies to other members of Congress recently to counter arguments at a briefing on autism sponsored by Rep. Carolyn Maloney (D-NY).

Maloney, a liberal Democrat from Manhattan, is the sponsor of a bill (HR 2832) to require the National Institutes of Health to conduct a comparative study of vaccinated and non-vaccinated populations as a way to examine the allegations of a link between thimerosol and autism.

According to blog reports, the Maloney hearing drew representatives from 59 House offices and 30 Senate offices, including Barack Obama’s office.

The high attendance at the Maloney event demonstrates the persistent political attention to the issue. It even raised its head during the presidential campaign earlier in the spring, pushing Obama, John McCain, and even traditional supporters of vaccines like Hillary Clinton to speak out for caution.

Offit suggests that some of the skepticism about vaccine safety arises ironically from well-intentioned but maladroit efforts to reassure the public.

Offit’s account of the problems generated for vaccines by responding to safety questions too rapidly holds a lesson and warning for other segments of the drug industry and for drug regulators as they head further into the age of post-marketing surveillance reports from a wide variety of sources.

“The precipitous and frightening removal” of thimerosol from vaccines for young children rapidly within three years of the first charges of danger from the preservative actually fed concerns about vaccine safety, Offit told AEI. The effort to get the ingredient out rapidly was led by the American Academy of Pediatrics and “to a lesser extent” by the Centers for Disease Control & Prevention.

By handling the removal “in the manner that it was done,” it scared parents, Offit maintains. Because of the rush parents reasonably “would ask why would one take this ethyl-mercury containing preservative out of vaccines in such a precipitous manner if it wasn’t harmful.”

Offit notes that the “American Academy of Pediatrics put themselves in a position to try to communicate something that was virtually impossible to communicate: ‘yes we are taking it out, but there is not a problem.’”

The academy was put in the awkward position of trying to explain why it had urged action if it felt that vaccines were safe. “If you look at the way that they describe” the push to get thimerosol removed, Offit said, “they say that there is no evidence that thimerosol-containing vaccines are harmful, but to make safe vaccines even safer we’re going to take it out.”

“If it had not been shown to be harmful, how does taking it out make it any safer?,” Offit asks. “It doesn’t; it only makes it perceived to be safer.”

If there is a lesson from the autism debate, the right responses to safety concerns for vaccines (and drugs) in the future are going to take fortitude, careful judgment—and more heroes.

Waxman With A Zinger!

There's clearly no love lost between House Oversight and Government Reforms Committee Chairman Henry Waxman (D-Calif) and North Carolina Republican Patrick McHenry.

But Waxman outclevered the more junior Republican this afternoon at the Medicare Part D hearing. During friendly questioning of Acting CMS Administrator Kerry Weems, McHenry was making the point that no way could you trust the government to negotiate better prices for drugs under Part D compared to the private sector.

"There are some shortcomings to the program, it's a government program, that's what government does very well, right? Inefficiency is what government does very well," McHenry said of the Part D program.

Weems answered the eventual question on negotiating savings.

Waxman waited until the end of Weems' testimony and then hit the audience with this one-liner:

"Thank you, Mr. McHenry. Mr. Weems, thank you very much for your participation, I know you're anxious to get back to the work that government bureaucracies do so poorly, according to our friends on the other side of the aisle, but I salute you for the work that you do," Waxman said with a smile.

Zinger Zam!

Chairman Waxman will be here all week, folks.

Taking Apart Part D: A Preview of 2009

That was fast.

House Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) didn't wait long to call out specific pharmaceutical companies at a major hearing on the Medicare Part D drug program.

Early in his opening statement, Waxman cited Johnson & Johnson and Bristol-Myers Squibb for the windfall profits they have made off the Part D program due to the switch of dual-eligible Medicaid patients over to Medicare.

"Johnson and Johnson earned over $500 million in additional profits, much of it from just one drug, the anti-psychotic medication Risperdal. Bristol Myers earned a windfall of almost $400 million, thanks to higher prices for the stroke medication Plavix," Waxman alleged.

He continued: "This is an enormous giveaway. And it has absolutely no justification. The drug companies are making the same drugs. They are being used by the same beneficiaries. Yet because the drugs are being bought through Medicare Part D instead of Medicaid, the prices paid by the taxpayers have ballooned by billions of dollars."

This was after he said the government was paying 30% more for the 6 million dual eligibles under Medicare than they paid under Medicaid.

Ranking Virginia Republican Tom Davis quickly noted that there are many drugs not available under Medicaid because of more stringent pharmacy rules. Gerard Anderson, director of the Center for Hospital Finance and Management, Bloomberg School of Public Health, Johns Hopkins University, disagreed, saying the Medicaid formulary is quite open, with a wide breadth of offerings. Davis didn't let up, pointing out that you can't fill as many prescriptions at the pharmacy under Medicaid.

Stephen Schondelmeyer, head of the Department of Pharmaceutical Care and Health Systems, University of Minnesota, waded into the numbers. States spent $43 billion in Medicaid spending in 2005. That number was cut almost in half in 2006 to $21 billion after the duals were switched to Medicare, so money was switched out of the state system, according to Schondelmeyer.

He noted that 18% to 19% of that Medicaid spending came back to states in the form of rebates. But the numbers are actually quite higher, he said. Individual states can negotiate further rebates under a supplemental law and many states are successful in getting larger rebates. Schondelmeyer cited rebates of 20%-21% between 2000-2003; 24% in 2004; and 28.8% in 2005. The University of Minnesota researcher said the Centers for Medicare and Medicaid Services has not released data for 2006 and 2007, but he estimates the rebates come in at 30% to 31%. A report released by Waxman late last year showed Part D was generating rebates of about 8%. A new report by the majority staff released today shows Part D rebates for 2007 had gone up to 14%, but still well below what the states can secure. To read the report, click here. There's a lot more to delve into.

In other words, even at 14%, states are able to negotiate more than double the rebates the government is getting under Part D.

Anderson made three major recommendations: 1) Greater Part D price transparency; 2) Drug pricing data should be readily available and accessible; and 3) All government agencies should be paying the same price for drugs.

Hmmmm. The drug and insurance industries aren't faring too well in the first part of this hearing. So what's the take home message? Expect even more of these types of hearings in 2009 and get to know the names of the witnesses who are testifying today. To see the list, click here. It's almost identical to the witness list at a Senate Finance Committee and prior House Oversight hearings in early 2007. In other words, these are the experts who Democratic lawmakers will be calling upon for advice and guidance when crafting policy.

Headline Risk: Drug Prices on Capitol Hill

Do you want to know how big the drug pricing issue will be for the rest of this year and into 2008?

Just watch the headlines and level of outrage over the next few days in twelve congressional districts following yesterday's release of Chairman Henry Waxman’s House Oversight and Government Reform Committee report on Part D prices.

Waxman rounded up a dozen representatives to sign onto the report, “Private Medicare Drug Plans: High Expenses and Low Rebates Increase the Costs of Medicare Drug Coverage” (see table). The 12 Democrats cover a geographical region from Maryland to Minnesota and Iowa, Tennessee to Vermont.

If the report can break through and dominate local news in those reasons, expect Waxman to move forward with an effort to bring the drug pricing and Part D programs back into the political spotlight, with a hearing or further request for information from Part D plans. Waxman’s oversight committee staff extracted the pricing information for the October 15 study from private plans by threatening to subpoena the information last spring. A hearing on the report was scheduled for Thursday, October 11 but was postponed.

Dennis Kucinich, one of the Part D report co-sponsors and a politician with national recognition as one of the pack of presidential candidates chasing Senators Clinton and Obama and former Senator Edwards, headlined the release of the report: “Private Medicare Drug Insurers Are Driving Costs Through The Roof.”

The biggest political vulnerabilities for the Part D plans are charges that the administrative cost of the private system is exceeding a government-administered program and that the plans are not offering seniors savings on drug costs during the coverage gap (donut hole).

Using private data and bidding information provided by 12 large Part D companies (representing 318 drug and Medicare Advantage plans), Waxman calculated that each Medicare beneficiary pays $180 a year to cover overhead and profits to administer the program: $107 for administration; $30 for sales and marketing; $43 for profits. Spread over the entire Part D beneficiary population of 24.1 million, that creates an administrative cost estimate of $4.3 billion.

The donut hole pricing may be especially timely as a political issue as the fall season marks the point at which many beneficiaries move out of the federal subsidized drug costs and into the 100% patient-pay coverage gap. The report notes that the Medicare Modernization Act called for beneficiaries to get the plans discounted prices for drugs in the coverage gap.

“Despite the requirements of the law,” the Waxman report charges, eleven of the 12 insurers which provided information to Waxman “will not pass the drug rebates they receive in 2007 through to beneficiaries in the form of lower prices at the pharmacy counter.”

Waxman estimates that the rebates on donut hole out-of-pocket expenditures by beneficiaries will contribute $1 billion in profits to the plans. The report notes that plans say that the rebate dollars are used to reduce premiums, but the report notes that several plans “conceded” that they retain a portion of rebate payments as profits.

The full report can be found here.