WASHINGTON -- Backing off from mandatory price controls on drugs, the White House health care reform task force is recommending a more politically acceptable plan that would pressure pharmaceutical companies to limit price increases to the rate of inflation.
Companies would have to sign agreements to limit increases to the Consumer Price Index for all products -- which rose 2.9 percent last year, about half the 5.7 percent rate for drugs -- or face harsh sanctions, such as loss of access to the lucrative
government market for drugs, said a task force staff member.
Last year, the government spent an estimated $6.2 billion for drugs for the Medicaid program and billions more for Medicare, the Public Health Service and federal military and civilian workers. Without this business, drug companies could suffer a devastating financial loss.
These agreements would remain in effect for at least three years, until the president's health reform program took effect and created keener competition in the health care marketplace through the establishment of large insurance purchasing organizations. Those organizations would help restrain prices by driving hard bargains with doctors, hospitals and drug sellers.
Forcing companies to limit price increases to the rate of inflation is not as severe as some proposals the administration once talked about, such as a price freeze or a rollback of prices. But it is more politically palatable to lawmakers who oppose government interference in the market, said the task force source, who asked not to be identified.
The plan was developed by pharmaceutical policy experts working for the task force on health reform headed by Hillary Rodham Clinton. Though it has been embraced by task force adviser Ira Magaziner, sources said, it has not yet been approved by Mrs. Clinton or President Clinton, who is hoping to announce his health reform program in the next several weeks.
Controlling drug prices is essential to Mr. Clinton's health reform plan. Politically, it would help build support for reform by addressing one of the public's loudest complaints. Senior citizens, who buy a lot of medicine and typically pay for it themselves, are particularly angry about drug prices, which rose 50 percent over five years.
"You have to see some moderation of prices relatively quickly," said the task force source, noting that it might take several years to phase in the benefits of health reform for all Americans. "If you don't have anything to show before '96" -- a presidential election year -- "politically you've got a problem."
Mr. Clinton, who during his campaign for president assailed the drug companies for profiteering, continued the attack after the election, terming drug prices "shocking" in a speech Feb. 12.
People could begin to reap the benefits of the drug price plan this year, even before an overall health reform program is passed. The task force source said he expected the president to urge drug companies to sign the agreements before legislation is enacted, which some drug firms might do to gain public goodwill.
The president also needs to limit price increases because he is committed to including prescription drugs in a package of insurance benefits that all Americans would receive through their job, or the government.
Elderly people would be among the first to benefit under the president's program, sources said. Medicare, which doesn't pay for drugs now, would begin to do so, with senior citizens paying part of the cost: a $250 annual deductible for drugs, and 20 percent of each prescription, one source said.
But a congressional source familiar with the task force's work predicted that the plan would be "much more generous" and not require such a large payment by the elderly. It is not clear what prescription benefit nonelderly would receive under the
Drug company officials had no comment yesterday on the price control plan, saying they would wait until the president made something public. But they are likely to oppose it, even while being relieved that the administration did not recommend tougher steps.
The task force source noted that while the public might support a tougher approach, Congress would not. The administration has made a similar calculation in deciding this week to scale back its program to provide free immunization for all children regardless of family income.
Trying to head off government action, 16 drug companies, representing 65 percent of the market, have proposed to voluntarily limit average prices to the Consumer Price Index. But that would permit the companies to sharply raise the prices of some popular drugs, as long as the increases are offset by lower prices for other drugs.
The administration plan would prohibit companies from increasing the price of any individual drug beyond the inflation rate.
"We're hoping to forestall price controls," said David Emerick, a spokesman for the Pharmaceutical Manufacturers Association. "We believe that our voluntary actions are a very strong indication that we mean business, that we mean what we say."
The largest company, Merck & Co., has gone a step further than most other drug firms, by recently offering to sign a contract with the government to hold individual drug price increases to 1 percent more than the Consumer Price Index. A Merck spokesman declined to comment on the task force plan.
One important issue still to be resolved by task force planners and the president is what to do about new drugs that have no price history.
The task force source said the administration is considering establishing a pharmaceuticals board with authority to solicit information about drugs from the manufacturers but with no authority to set prices.
Drug companies argue that presidential and public rage about rising prices is misplaced. Prescription drugs account for just 8 percent of national health care spending. Moreover, price increases have moderated, easing each year since 1989, when the producer price index for drugs -- reflecting their wholesale price -- rose 9.5 percent.