Pharmaceuticals

1. Pharmaceuticals Medicare Part D Amy Hager John Hance Ife Nelson Haichang Xin

2. Pharmaceuticals What this Presentation Includes: • Overview of Pharmaceuticals • Existing Legislation • Republican Views • Democratic (OUR) Views • Proposed Legislation

3. Pharmacology 101 The science of how substances interact with living organisms to produce a change in function

4. Pharmaceutical IndustryCurrent Structure • US Census: 723 pharmaceutical firms • > 100 employees: 263 • PhRMA members: 34 • Fortune 500: 11 • Research-orientated chemical firms • Biotechnology or biopharmaceutical firms • Generic firms

6. Pharmaceutical IndustryCurrent Structure • Research-orientated chemical firms • Biotechnology or biopharmaceutical firms • Generic firms • Acquisitions and Mergers

7. Pharmaceutical Industry Environmental Forces in the Past • Scientific discovery/technological change • Targeted drug design • Biotechnology • Economic trends • Health care inflation • Socio-political developments • Restructuring of health care delivery

8. Demands on Pharmaceutical Industry • Multiple constituencies • Patient-customers • Health care provider-customers • Payer-customers • Investors • Researchers • Regulators • Conflicting aims

9. Pharmaceutical Industry Enduring Characteristics • Intellectual Property Protection • Research & Development (R&D) • Profitability

10. Pharmaceutical Industry Enduring Characteristics • Intellectual Property Protection (IPP) • Role of patents • Market exclusivity • Legislative initiatives in response to market failures

12. Pharmaceutical Industry Enduring Characteristics • Research & Development (R&D) • Product life cycles • Blockbuster products • Marketing in place of innovation

13. Pharmaceutical Industry Enduring Characteristics • Profitability • Net profit as a percentage of revenue • Mean return on investment • “Virtuous rent seeking models”

14. Pharmaceutical Industry Enduring Characteristics • Profitability • Net profit as a percentage of revenue • Mean return on investment • “Virtuous rent seeking models” • Price sensitivity • Health care is a right • Prices not based on cost of production • Pricing: art vs. science

15. The Role of the FDA • Due to stringent regulations imposed by the FDA: Drug approval on average takes 12 to 15 years • Implications: Safer Drugs, but Inefficient and Lengthy Process Healthy Competition By: Michael Tanner and Michael Cannon

16. Tipping Points? • Escalating Criticism • Pressure points • Economic: pricing and price differentials • Science/technology: R&D investment • Socio-political: market prospects

17. Pharmaceutical Industry: Present Agenda • Repair social image • Juggle traditional and biotech medicines • Evolve as global organizations

18. Pharmaceuticals • Due to the rising costs of pharmaceuticals— Congress enacted Part D in January 2006 • Therefore, this presentation will focus on Part D

19. Medicare Part D • A federal program that subsidizes the cost of prescription drugs for Medicare beneficiaries • Enacted as part of MMA (2003) • Plan D started January 2006

20. HOW Part D Works • Plan D is administered by Private Insurance companies that are reimbursed by CMS (Centers of Medicare and Medicaid Services) • Medicare beneficiaries have to affirmatively choose and enroll in Part D

21. HOW Part D Works • As a beneficiary of Medicare Part D you have the option to enroll or not enroll • Once you enroll, you select a plan that meets your needs and then pay a monthly premium • The premium is paid to CMS- which in turn pays the private insurance companies • The premium can be deducted from your social security allowance • The premium varies by plan

22. Existing and Current Legislation in Congress

23. Universal Health Act of 2007 HR1521: Repeal of the Late Enrollment Penalty in Medicare Part D

24. Mr. Kagen (D-WI) Mr. Altmire (D-PA) Mr. Larson (D-CT) Mr. Braley (D-IA) Mr. Perlmutter (D-CO) Ms. Castor (D-FL) Mr. Gene Green (D-TX) Mr. Farr (D-CA) Mr. Cleaver (D-MO) Mr. Higgins (D-NY) Mr. McNulty (D-NY) Ms. Hirono (D-HI) Mr. Cohen (D-TN) Mr. Patrick J. Murphy (D-PA) Mr. Wexler (D-FL) Bill Sponsors

25. What does this bill intend to do? • To amend part D of title XVIII of the Social Security Act to REMOVE the Medicare prescription drug benefit late enrollment penalty. • FULL PREMIUM SUBSIDY- An income-related premium subsidy equal to up to 100% of the amount described by Medicare Part D • The amendments made by this Act shall be effective immediately and shall apply to monthly beneficiary premiums for months beginning after such date

26. REMEDY Act of 2007 HR1310: Relief and Elimination of the Medicare Enrollment Deadline Penalty

27. Sponsors • Mr. ALTMIRE (D-PA)

28. What would the Remedy Act do? • Amend part D of title XVIII of the Social Security Act to waive the late enrollment penalty under such part for 2006 and 2007 and to fully subsidize any such penalties subsequently imposed for part D subsidy-eligible individuals

29. What about those individuals who already paid penalties in 2006? • REBATES OF CERTAIN PENALTIES PREVIOUSLY COLLECTED: The Secretary of Health and Human Services shall establish a method for providing rebates of late enrollment penalties paid • This would include payments received for months BEFORE the date of the enactment of this Act for which a penalty does not apply under the amendment made by subsection (a) but for which a penalty was previously collected (RETROACTIVE) • The amount of any rebate returned for past late enrollment fees shall NOT be treated as income for purposes of determining the eligibility for or the amount of assistance for the Medicare Part D program • It also cannot determine the eligibility for, or the amount of assistance under any other Federal or federally assisted program that bases eligibility, or the amount of benefits, on need.

30. Medicare Prescription Drug Benefits Gap Elimination Act of 2007 (Introduced in House) H.R.1277

31. Sponsors • G.K. Butterfield (D-NC) • Albert Russell Wynn (D-MD) • Anthony D. Weiner (D-NY) • Gregory Meeks (D-NY) • Walter B. Jones (R-NC) • Robert Brady (D-PA) • Donna M. Christensen (D-VI) • Al Green (D-TX) • Brad Miller (D-NC)

32. Bill supported actions • To direct the Secretary of Health and Human Services to investigate how to eliminate the gap in benefits between standard coverage and catastrophic coverage under the Medicare prescription drug program • The Secretary shall conduct a study to investigate HOW to eliminate the gap in benefits for covered part D drugs under the Medicare prescription drug program after a part D eligible individual's costs exceed the initial coverage limit, and before the individual obtains protection against high out-of-pocket expenditures • Not later than 6 months after the date of enactment of this Act, the Secretary shall submit a report to Congress on the findings from the study conducted and shall include recommendations for legislation based on those findings.

33. To amend part D of title XVIII of the Social Security Act to authorize the Secretary of Health and Human Services to negotiate prices for part D covered drugs for Medicare beneficiaries. H.R.118

34. Sponsors • Jo Ann Davis (R-VA)

35. What does the bill propose? • The Secretary would be authorized to negotiate with drug manufacturers and pharmacies prices charged to PDP sponsors and MA organizations for covered part D drugs provided under this title.

36. Is this bill truly Republican? • It is interesting that a republican representative would propose legislation for government control given Republican ideals of small government and market competition… • However, this bill seemingly maintains its Republican nature by allowing government to negotiate for PDPs and MAs, thus maintaining the competitive entities • The republicans have DISGUISED to the public their true intentions by attempting to look like us!?

37. Republican views on Part D • The theory behind Part D is that market forces and competition among drug plans, overseen by government, can achieve better results than a government-run program • The multitude of plans allows seniors to pick one that best meets their needs, companies that do not meet the needs of a significant portion of the population will be forced out due to inefficiency, and those that do meet needs will remain competitive and beneficial • The laws of supply and demand will dictate a fair and low price for prescription drugs • Both the non-partisan Congressional Budget Office and Medicare actuaries have said they doubt the government could negotiate lower costs than the private sector • The public would be best served if the new Congress conducts in-depth oversight to gather the facts, rather than rushing through legislation to fix something that isn't necessarily broken

38. Republican goals for Part D • Maintain market forces • Create tax breaks and incentives for enrollment in the program • Maintain enrollment penalties to prevent adverse selection • Maintain the status quo, Part D is functional and coherent • If it’s not broke, don’t fix it!

39. Democratic goals for Part D • Expanded public programs aimed at covering more low-income individuals, particularly children • Defeat of additional tax breaks for health savings accounts, which we see as tax breaks for the wealthy. • Elimination of the "doughnut hole" in Medicare Part D which leaves beneficiaries at risk of not being able to meet financial needs and as a result potentially not being able to buy needed drugs • Authorizing the government to negotiate lower drug prices for Medicare beneficiaries. • "If you've got 43 million Medicare beneficiaries, they should get some kind of reasonable discount"

40. Not explicitly stated, but important Democratic Goals for Part D • Remove the PDP insurers from the equation and negotiate directly with the pharmaceutical industry to lower prices • Improve Medicare funding sources to supply the elderly with needed care • Allow the global market to drive down American prescription drugs prices (importation of prescription drugs?) • Kill Republican ideas before they kill America!

41. Proposed LegislationMedicare Part E

42. Medicare Part D • Medicare Part D was drafted by a Republican Congress— it takes a superior party (i.e. Democrats) to fix this faulty piece of legislation!

43. Criticisms of Part D • Donut Hole • Enrollment Window • Federal government is NOT permitted to negotiate for more favorable rates on prescription drugs *** Our Proposed Legislation addresses these 3 Criticisms***

44. Proposed Legislation • Medicare Part E DOWN with D and Up with E Part E Includes: • More Donut: Less Hole • Ability to enroll at any time • YES Government can Negotiate for your drugs • NO reason to go to Canada for your drugs

45. Criticisms of Part D • Donut Hole The donut hole refers to the coverage gap within Part D Beneficiaries pay 25% of their prescription drug costs. However, once they meet a deductible of $2,400— they are required to pay 100% of the prescription until catastrophic coverage ($3,850) has been reached

46. Eliminating the Donut Hole • The solution to the Donut Hole is to extend the initial coverage limit from $2,400 to $3,500 OR • Those who need more than $2,400 in prescription drugs can have an extended coverage limit and as a result will pay higher premiums

47. Enrollment Window • Beneficiaries of Part D have a 6 month window to enroll. If you enroll after the 6 month period- you are penalized with a 1% increase in the premium price per month or you can wait and enroll in the next Annual Enrollment Period. • Additionally, once you choose a plan, you are locked in until the next enrollment period

48. Solving the Problem of the Enrollment Window • Make Medicare Part D more flexible and eliminate the 1% increase in premium costs for late enrollment! • As Simple as That— Yes!!!

49. Solving the Problem of Negotiation • Private Sector Negotiates with Pharmaceuticals • Government cannot negotiate even though it is the buyer • SOLUTION: Allow government to negotiate with Pharmaceuticals!!!

50. Solving the Problem of Negotiation • Allow government to negotiate with Pharmaceuticals!!! • However, it is argued by the CBO (Congressional Budget Office) that even with government negotiations— this does not mean that drug prices will become substantially lower • CBO says Public Negotiation is NO better than Private Negotiation