President's plan closes doughnut hole, bans "pay for delay"

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Barack Obama
Barack Obama

President Obama's proposed healthcare reform fix would close the Medicare Part D “doughnut hole,” crack down on “pay-for-delay” deals on generics and hike fees on branded drugs.

Obama's plan, unveiled today, is based on the Senate healthcare reform bill but is the result of negotiations between House and Senate Democratic leaders trying to reconcile differences over the stalled legislation.

Where the Senate plan would provide a 50% discount for certain drugs in the Medicare prescription drug benefit's “doughnut hole,” paid for by the pharmaceutical industry's commitment to make $90 billion in cost reductions, the President's plan, like the House bill, phases out the coverage gap completely.

Currently, Medicare stops paying for prescriptions after the plan and the beneficiary have spent $2,830 on prescription drugs and resumes paying after out-of-pocket spending hits $4,550. The Obama plan points out that the gap “leaves seniors paying the full cost of expensive medicines, causing many to skip doses or not fill prescriptions at all, harming their health and raising other types of health costs.”

That should sweeten the deal for seniors, who are wary of plans to trim Medicare spending.

The proposal would allow the FTC to block so-called “pay-for-delay” deals in which pharmas pay generics makers to put off the launch of generic challengers to their drugs.

“Specifically, it makes anti-competitive and unlawful any agreement in which a generic drug manufacturer receives anything of value from a brand-name drug manufacturer that contains a provision in which the generic drug manufacturer agrees to limit or forgo research, development, marketing, manufacturing or sales of the generic drug,” says the proposal. “This presumption can only be overcome if the parties to such an agreement demonstrate by clear and convincing evidence that the pro-competitive benefits of the agreement outweigh the anti-competitive effects of the agreement. The proposal also requires the chief executive officer of the branded pharmaceutical company to certify to the accuracy and completeness of any agreements required to be filed with the FTC.”

Noting that closing the doughnut hole and imposing an insurance mandate would broaden pharmas' customer base, the plan demands an additional $10 billion from drug companies over 10 years over the $23 billion assessment in the Senate bill but delays the implementation of those fees until 2011. In addition, the $20 billion that the House and Senate bills would extract from the medical device industry in fees would be switched to an equivalent excise tax to take effect in 2013. Both the pharma fees and the device industry excise tax would be administered by the IRS.

The proposal will be the centerpiece of Thursday's televised healthcare summit, as well as a likely blueprint for efforts to reconcile the House and Senate bills through a process allowing Senate Democrats to make an end run around the filibuster.

In a statement, PhRMA reaffirmed its support for "smart" healthcare reform but took no position on the proposed changes.

“We will be carefully reviewing the proposal and look forward to hearing the discussions at Thursday's White House summit on healthcare reform,” said the group.

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