House Passes Drug-Price Bill

House passage Friday of legislation taking a swipe at drug companies is just the first front in the new Democratic Congress's battle with the health-care industry. The next target: insurers, who will face demands for cuts in their Medicare subsidies.

On a 255-to-170 vote, the House passed legislation that would require the government to negotiate prescription prices with the pharmaceutical industry. Currently, private insurers handle the negotiations for Medicare and the government is barred from getting involved, an arrangement that critics say leads to higher prices than if the government used its clout. Twenty-four Republicans joined the Democratic majority in backing the measure, but its prospects are less certain in the closely divided Senate, and President Bush has threatened a veto.

The price-negotiation bill is just the new Congress's first maneuver on health care, after many Democrats promised on the campaign trail to lower drug costs in Medicare, the federal health program for the elderly and disabled. Beyond that, key Democrats are attacking another big change Republicans brought to Medicare while they controlled Congress. As part of 2003 Medicare drug-benefit legislation, lawmakers seeking to inject more private-sector involvement in the program dramatically increased federal payments to private insurance plans operating in the Medicare Advantage arm of the program.

In Medicare Advantage, private insurers provide seniors a full range of medical benefits as an alternative to the government-run program. Seniors automatically become eligible for Medicare when they turn 65, but then have the choice to sign up instead for coverage through a private Medicare Advantage plan.

Democrats say the payment increases in the legislation -- projected to be worth as much as $46 billion over the decade beginning in 2004 -- are a waste of taxpayer money, and they view Medicare Advantage as an attempt by Republicans to privatize the traditional program. Now, some Democrats want to reduce payments to the private plans, and budgetary concerns are heightening the pressure on the payments to insurers.

The State Children's Health Insurance Program, a federal block grant, will soon need to be reauthorized, and many Democrats would like to expand it. Congress is also likely to boost Medicare payments to doctors. At a time when Democrats are aiming to be fiscally responsible, such spending would likely have to be offset.

"There are precious few areas where we can save money. Medicare Advantage is a prime target to pick up a few dollars," says Rep. Pete Stark, the California Democrat who heads the House Ways and Means panel's health subcommittee. In the Senate, a Democratic aide predicts Medicare Advantage money will become "the standard pay-for" in lawmakers' legislative proposals.

Following a lobbying and advertising blitz by drug companies to block the Democratic attacks, health insurers are preparing their own counterattack. America's Health Insurance Plans, the industry's Washington-based trade group, is telling lawmakers that cuts in insurer subsidies would be tantamount to cuts in benefits for constituents, and it has readied maps to show the growth of Medicare Advantage plans throughout the country, compared to relatively sparse numbers before government payments increased.

It will tap the Coalition for Medicare Choices, a group for Medicare Advantage beneficiaries that AHIP started and funds, to bring satisfied customers to Congress. And AHIP will highlight research showing that a large portion of Medicare Advantage beneficiaries are minorities or have low incomes -- populations shown to suffer disproportionately from chronic health problems that plans say they can manage better than the government.

Of about 44 million Medicare beneficiaries, 7.6 million, or 17%, were in Medicare Advantage plans as of December 2006. That compares with about 6.1 million, or 14%, who were enrolled in the plans in December 2005.

"This is the ultimate in constituency politics," says Karen Ignagni, AHIP'S president and chief executive.

Beyond their philosophical complaints, many Democrats say Medicare Advantage wastes government money. Former House Democratic aide Brian Biles has done a study concluding that, on average, the government is spending $922 more each year for every beneficiary in Medicare Advantage, compared to what would have been spent if the person had remained in regular Medicare.

In 2005, the "overpayment," as Democrats call it, totaled $5.2 billion, according to a November 2006 report by Mr. Biles and others for the Commonwealth Fund, a private, nonprofit foundation that supports health research. An independent panel that advises Congress on Medicare also documented the payment differential. "It's a problem because it causes us to waste a lot of taxpayer money," Mr. Stark says. "I see no reason to do it."

AHIP disagrees with the methodology used in the study, and it points to Medicare data showing that Medicare Advantage beneficiaries save an average of $82 a month, in reduced out-of-pocket costs and extra benefits, compared to people in the traditional program. Insurers say the program has also succeeded in extending and expanding Medicare Advantage to rural areas, where it was lacking. And that means they can count on rural-state legislators to battle the Democratic attacks.

"We wanted equity in those plans. . . . We've got it now," says Iowa Republican Sen. Charles Grassley. "People in Iowa ought to have the same choices as those in New York, Miami and Los Angeles."

High Court Eases Way For Patent Challenges

The Supreme Court continued to reassert its oversight of patent law yesterday with a ruling that weakens intellectual-property protections by making it easier for legal challenges to patents.

The 8-1 decision put the justices on the side of those who have complained that existing rules stifle innovation, and it is their latest rebuke to the specialized panel that hears patent appeals, the U.S. Court of Appeals for the Federal Circuit, for rulings skewing property rights in favor of patent holders. The high court this term has also heard a separate case appealing obstacles imposed by the Federal Circuit against challenges to a patent on grounds that the invention is "obvious." A decision on that is pending.

Yesterday's opinion, by Justice Antonin Scalia, reversed the Federal Circuit's rule that if a company pays royalties for a patent, it forfeits the right to challenge the patent's validity. That has deterred companies from filing challenges because they would be at risk for treble damages for infringement if the patent were found to be valid.

The decision is a victory for MedImmune Inc., a Gaithersburg, Md., pharmaceuticals company that derives about 80% of its revenue from the respiratory-tract drug at issue, Synagis. Under protest, MedImmune paid a royalty to Genentech Inc., of South San Francisco, Calif., to avoid a patent-infringement suit over a component antibody.

Under a 2004 Federal Circuit ruling, the act of paying a royalty precluded challenging the patent's validity. The Federal Circuit reasoned that since the license payment obviated an infringement suit, there was no controversy between the companies. In general, federal courts may only decide cases and controversies, not rule on theoretical disputes or issue advisory opinions.

Justice Scalia wrote that a party shouldn't have to "bet the farm" to challenge a patent. He cited several prior cases where the court allowed parties to challenge laws as unconstitutional without breaking them -- and thus exposing themselves to criminal punishment. Moreover, he wrote, the Supreme Court in 1943 had decided a similar patent case by ruling that "the fact that royalties were being paid did not" make the dispute "hypothetical or abstract."

The Bush administration supported MedImmune, contending that allowing challenges would help weed out invalid patents that stifle innovation. "Public policy strongly favors ridding the economy of invalid patents, which impede efficient licensing, hinder competition, and undermine incentives for innovation," the government said in a friend-of-the-court brief.

The implications could be greatest for the biotechnology industry, where huge profits can turn on a relatively small number of patents, according to Pamela Samuelson, co-director of the Center for Law and Technology at the University of California, Berkeley. Prof. Samuelson said the Supreme Court is telling the Federal Circuit to be "more balanced and less patent-owner friendly."

"Everybody knows there are a lot of weak patents out there," she said. "A lot of inventors take very substantial risks going out into a field of technology, and sometimes they get their foot blown off when some patent is out there like a land mine."

However, some predicted a chilling effect. "This decision allows companies that have taken out licenses to challenge the validity of a patent while also enjoying the benefits of that very same patent," said Charles Barquist, a patent litigator in Morrison & Foerster LLP's Los Angeles office. "MedImmune turns all fundamental assumptions about the stability and finality of a patent license completely on their head," he added in a statement late yesterday. "The Court has upset the risk/benefit calculation that underlies virtually every patent license."

Genentech issued as statement downplaying the significance of the ruling, saying the Supreme Court "only addressed the threshold jurisdictional issue of whether there need to be further proceedings to finally decide this case. It does not express an opinion concerning the merits of MedImmune's claims against Genentech . . ."

Indeed, MedImmune General Counsel William Bertrand said the victory won't have an immediate impact on his company's bottom line, as it has been paying royalties all along and the ruling doesn't nullify the patent at issue, but it does enable resumption of the challenge.

Eric Schmidt, a biotech analyst at Cowen and Co., sees modest potential impact on Genentech's future earnings from the decision. An adverse decision, should MedImmune prevail at trial, could have an impact of four cents a share on earnings, he said. Genentech receives royalties from licensees as well as paying some royalties to the City of Hope Hospital, in Duarte, Calif., under the patent, Mr. Schmidt said. The company's annual income from all royalties is approaching $1 billion a year.

MedImmune's Synagis, which racked up $1.24 billion in 2005 sales, is an injectable product containing protective antibodies that help guard infants and young children against respiratory syncytial virus, or RSV, a common childhood infection responsible for about 125,000 hospitalizations a year in the U.S. alone, a spokeswoman said.

US Bipartisan Bill To Allow Drug Imports Unveiled

Republican and Democratic lawmakers of both houses of Congress teamed up Wednesday to announce a bill to allow the importation of federally approved drugs into the U.S. from foreign countries.

The bill is the eighth attempt in as many years to reverse a law passed in 1987 which banned the import of drugs approved by the Food and Drug Administration into the U.S. from other countries.

The Pharmaceutical Market Access and Drug Safety Act has been sponsored by Sens. Byron Dorgan, D-ND, and Olympia Snow, R-ME, and Reps. Jo Ann Emerson, R-MO, and Rahn Emanuel, D-IL, in the House of Representatives.

All four expressed confidence that the proposed law would be successful in votes in both chambers. The Democratic leadership in both the Senate and the House have committed themselves to allowing the bill to be voted on the floor, although not to a particular timetable.

At a press conference in the Senate media gallery, Dorgan pointed to the fact that drugs in Canada and in European countries are commonly much cheaper than the same drugs are in the U.S.

Dorgan held up two jars of the popular cholesterol fighting medicine Lipitor, manufactured by drug major Pfizer Inc. (PFE). The medication in both was made in Ireland and then exported to the U.S. and Canada, where it was priced 65% cheaper than in the U.S.

"We want to put downward pressure on the price of prescription drugs," said Dorgan. "Currently, the big drug manufacturers can monopoly price their medicines here, and as a result, American consumers pay the highest prices in the world for prescription drugs."

The legislation would allow individuals to directly order medication from outside the U.S. when using a Canadian pharmacy that is registered with the FDA. It would also allow U.S. licensed pharmacists and wholesalers to import FDA-approved medications from a number of major industrialized nations.

President George W. Bush has spoken out against similar attempts by Congress in the past. Were the bill to pass both chambers successfully, the White House would be left facing the politically unpopular decision to invoke a veto.

The move has the backing of the powerful lobby group, the AARP.

"It's an embarrassment that the very same medications Americans pay top dollar for in the U.S. cost so much less in Canada and Europe. Americans are getting a raw deal," said Bill Novelli, AARP chief executive, in a statement.