August 26th, 2009

Reports the New York Times:

As the health care debate focuses on whether cost cuts are looming in Medicare coverage, Representative Henry A. Waxman is on a crusade to save Medicare billions of dollars — in a way that he says would end up helping the elderly.

That is because the money would come from the drug industry, which is why Mr. Waxman may have a fight on his hands.

Drug makers contend they have already worked out a 10-year, $80 billion cost-savings deal with the White House and crucial Senate gatekeepers on the trillion-dollar health care overhaul. The industry says that trying to add Mr. Waxman’s provision could scuttle that agreement.

“You not only break the deal, but you break the bank for us,” said Billy Tauzin, chief executive of the drug industry’s trade group, the Pharmaceutical Research and Manufacturers of America, known as PhRMA.

At issue is a multibillion-dollar “windfall” that Mr. Waxman contends the drug industry received when drug benefits were added to Medicare coverage in 2006. Mr. Waxman, Democrat of California, is chairman of the House Energy and Commerce Committee and is central to the House’s legislative efforts on health care.

When drug coverage was added to Medicare, under the so-called Part D program, about 6.4 million low-income elderly or disabled people were shifted into the program from the government’s Medicaid program for the poor. Such people, entitled to Medicare and Medicaid, are known as dual eligibles in health policy-speak.

Before that shift, because Medicaid administrators have the legal authority to negotiate prices with drug makers, those 6.4 million dual eligibles had their drugs paid for by the government at deeply discounted prices.

But under the Part D program, by law, Medicare is not allowed to negotiate drug prices. And so, when the dual eligibles were added to Medicare’s drug rolls, the government suddenly started paying higher prices for their drugs — 30 percent higher, on average, according to an analysis by Mr. Waxman’s committee.

Read much more at the NYT.