Senate Democrats

S. 3, the Medicare Fair Prescription Drug Price Act of 2007


The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the MMA) established an outpatient prescription drug benefit for Medicare beneficiaries known as Part D.  All 43 million Medicare beneficiaries have access to this drug benefit through private prescription drug plans approved by the federal government.  Under the MMA, drug prices are determined through negotiations between these private plans and drug manufacturers and pharmacies.  The MMA expressly prohibits Medicare from interfering in negotiations between private plans and drug manufacturers or pharmacies.  The MMA also prohibits Medicare from instituting a particular formulary or uniform price structure for reimbursement of prescription drugs covered under Part D.

The MMA also imposed restrictions on the use and disclosure of information submitted by plans to the Centers for Medicare and Medicaid Services (CMS), including the rebates and price discounts plans receive from drug manufacturers.  In essence, the MMA only allowed CMS to use the information to implement activities related to payment under Part D.  Current law does not allow any other parties, including Congressional support agencies or other researchers, to have access to the data.  While some of this data is currently available to the public (e.g., the prices of an individual drug as covered by each plan are available on the CMS website), data on the amount and type of price concessions obtained by plans are not available.


The Medicare Fair Prescription Drug Price Act of 2007, S.3, would amend the MMA to remove the first part of the “non-interference” provision, allowing the Secretary of the Department of Health and Human Services (referred to hereafter as “the Secretary”) to affect and negotiate prescription drug prices under Medicare Part D.  The bill would retain the existing prohibitions on the Secretary’s instituting a particular formulary or a price structure for drugs reimbursed under Part D. 

In addition, S.3 would modify the rules governing access to data collected by CMS from plans, allowing Congressional support agencies to access the data, subject to certain conditions.  The bill would also require the Secretary to establish a prioritized list of potential studies to compare the clinical effectiveness of drugs covered under Part D, as well as plans for implementing the studies.  Plans would be required to take into account the results of relevant comparative effectiveness studies when determining their Part D formularies, but no particular decision would be required as a result of these studies.

Major Provisions

Section 2 – Repeal of “Non-Interference” Prohibition

Repeal of prohibition.  This legislation would repeal the first part of the “non-interference” provision in the MMA.  Therefore, the Secretary would no longer be prohibited from negotiating prescription drug prices under Part D.  The bill would retain the existing prohibition against the Secretary’s instituting a particular formulary or a price structure for Part D drugs.  With the repeal of this part of the non-interference provision, the Secretary could engage in a wide range of activities within the scope of his/her authority to carry out the Part D program.  For example, the Secretary could directly participate in the negotiations between plans and drug manufacturers; set guidelines for plans for their negotiations with drug manufacturers; or use the power and influence of his/her position, including by making public appeals, to persuade manufacturers to lower drug prices.  This section includes a rule of construction stating that nothing in the bill would preclude plans from negotiating prices that are lower than those negotiated by the Secretary, and nothing would affect the Secretary’s authority to ensure that Medicare beneficiaries have appropriate access to covered Part D drugs, or limit access by Part D beneficiaries to community pharmacies.

Annual report on efforts to promote and ensure access to fair prices.  This section would also require the Secretary to submit an annual report to Congress on activities conducted to promote and ensure access to fair prices for Part D drugs.

Section 3 – Greater Transparency of Part D Prices and Information

Access of Congressional support agencies to data on prescription drug plans and Medicare Advantage plans.  Under S.3, data on Medicare drug plans that is already collected by CMS under the MMA would be made available to Congressional support agencies in order for these agencies to fulfill their duties.  Data would be made available to the following agencies:  the Congressional Budget Office (CBO), the Congressional Research Service (CRS), the Government Accountability Office (GAO), and the Medicare Payment Advisory Commission (MedPAC). 

The following Part D data would be made available to any of the Congressional support agencies upon request:  1) aggregate information on negotiated price concessions; 2) drug claims data; 3) the amount of reinsurance payments paid to plans; and 4) the amount of adjustments of payments to plans as a result of the risk corridors[1] established under the MMA.  In order to permit data analysis at the plan level, CBO would also be able to obtain non-aggregated data, as reported to CMS, on negotiated rebates, discounts, and other price concessions by drug, as well as by contract or plan. 

The bill would prohibit Congressional support agencies from disclosing the information to Congress or the public under the following circumstances:  1) where disclosure of the information by the Secretary would be prohibited under applicable federal law; 2) where the release of information would result in the disclosure of trade secrets; and 3) where sharing the information would permit the identification of a specific plan, pharmacy benefit manager, drug manufacturer, drug wholesaler, drug, or individual enrolled in a plan. 

The Congressional support agencies would be required to maintain reasonable safeguards to protect against the unauthorized disclosure of data.  The agencies would be permitted to disclose the data to another agency or entity only if:  1) that agency or entity were under a subcontract with the Congressional support agency; and 2) the subcontractor were subject to the same conditions and restrictions as the Congressional support agency with respect to the maintenance and disclosure of the data.  Data provided to Congressional support agencies under this provision would be exempt from disclosure under the Freedom of Information Act

Study on market competition and reports on limitations of data for studying the prescription drug program.  S.3 would also require the CBO to study the effect of market competition on prices for Part D drugs.  In particular, CBO would examine discounts and other price concessions received by plans; the relationship between price concessions and drug utilization; and the extent to which negotiation efforts made by the Secretary, as permitted under this legislation, would impact payers in the non-Medicare markets.  The CBO would also be required to compare discounts and price concessions under Part D with those obtained under the Medicaid program for covered outpatient drugs.  A report of this study would be submitted to Congress within one year of enactment. 

This section would also require GAO and MedPAC to study the limitations of the Part D data collected by CMS and made available under this legislation in evaluating drug prices under the Medicare Part D program.  Reports of these studies would be submitted to Congress within 180 days of enactment.

Disclosure of drug claims data to the state agency responsible for administering the state Medicaid program.  Upon the request of a state agency with responsibility for administering the Medicaid program, the Secretary would be required to disclose to the agency drug claims data for individuals who are eligible for both Medicare and Medicaid.  State agencies receiving this data would be subject to the same conditions and restrictions as the Congressional support agencies with respect to the maintenance and disclosure of the data.

Public disclosure of data by the Secretary.  S.3 would also require the Secretary to make public data on the actual prices charged by each plan for each drug covered under Part D.  The data would reflect the prices posted on the CMS website, and would be available in electronic form, in a manner that permits linkage of the data to other Medicare plan and public prescription drug plan data files.  This data could be used by researchers and consumer groups to compare systematically actual prices charged to Medicare beneficiaries who have signed up for the Part D benefit.    

Dissemination of retail drug prices.  Pharmacies that dispense a covered Part D drug would be required to inform a beneficiary of the price charged for the drug at the time of purchase. 

Section 4 – Prioritizing Studies of Comparative Clinical Effectiveness

of Part D Drugs

S.3 would instruct the Secretary to develop a prioritized list of comparative clinical effectiveness studies, which would include the comparison of one Part D drug to any drug, biological product, item, or service covered under the Medicare program.  The list would specify the items and services to be evaluated and the general methodology to be used to conduct each study.  In addition, the Secretary would be instructed to identify the studies deemed most critical to advancing value-based purchasing of covered Part D drugs. 

This section would require the Secretary to establish an advisory committee to provide advice on setting priorities for the comparative clinical effectiveness studies across all agencies within the Department of Health and Human Services.  Any advice provided to the Secretary by this advisory committee would be made publicly available.  Within one year of enactment, the Secretary would be required to submit a report to Congress that would include the prioritized list of studies, plans for implementation of the studies, and a summary of the factors the Secretary took into account in developing the list.  This report would also be made publicly available. 

This section contains a rule of construction stating that nothing in the section would limit the authority of the Secretary to prioritize comparative effectiveness research needs for procedures, devices, diagnostics, or other medical interventions, or to conduct any study the Secretary deems to be appropriate.  The section also authorizes the appropriation of such funds as are necessary to carry out the activities described above.    

Section 5 – Authorizing Consideration of Comparative Clinical Effectiveness Studies in Developing and Reviewing Formularies Under Part D

S.3 would require Medicare plans to consider the results of relevant comparative clinical effectiveness studies in determining their formularies.  The studies would be considered in conjunction with the other information already required to be evaluated under current law:  peer-reviewed medical literature and the relative safety and efficacy of the drugs. 

Section 6 – Sense of the Senate Regarding the Standard Used to Determine Eligibility for Premium and Cost-Sharing Subsidies Under Part D

S.3 expresses the sense of the Senate that Congress should revisit the standard used to determine the eligibility of individuals for premium and cost-sharing subsidies under the Medicare Part D prescription drug program.

Section 7 – Sense of the Senate Regarding Pharmacy Issues Under Part D

S.3 expresses the sense of the Senate that Congress should address issues related to the difficulties encountered by pharmacies in providing services under the Medicare Part D prescription drug program. 

Legislative History

On April 13, 2007, the Senate Finance Committee ordered S.3, the Medicare Fair Prescription Drug Price Act of 2007, to be reported to the full Senate by a 13-8 vote. 

  Possible Amendments

The DPC will distribute information on possible amendments as it becomes available.

Administration Position

The Bush Administration has issued a Statement of Administration Policy indicating that it strongly opposes Senate Passage of S.3, and that if S.3 were presented to the President, he would veto the legislation. 

[1] Under the MMA’s risk-corridor provisions, prescription drug plans whose costs are somewhat higher than expected receive an increasing share of those costs covered by additional federal payments, while plans with actual benefit costs that are below expected levels essentially have to reimburse Medicare for a corresponding share of the savings.