Sept. 24 (Bloomberg) -- Senate Finance Committee Chairman Max Baucus fended off challenges from both parties to his proposals to overhaul the U.S. health-care system as his panel undertook its third day of debate.

Baucus joined with two other members of his party to Help defeat a proposal by fellow Democrat and Florida Senator Bill Nelson that would have required drugmakers to provide $106 billion in rebates over 10 years. The proposal would have torpedoed an earlier deal Baucus reached with the industry.

“This might undermine our ability to pass comprehensive health-care reform this Congress,” said Senator Thomas Carper, a Delaware Democrat. He and Democratic Senator Bob Menendez of New Jersey, whose state is home to drugmakers including Merck & Co. of Whitehouse Station and Johnson & Johnson of New Brunswick, voted against the amendment with Baucus, of Montana, and all of the panel’s Republicans.

Yesterday, Democrats came together to defeat a Republican amendment that would have killed a commission empowered to propose cuts in payments from Medicare, the U.S. program for the elderly. Democrats said spiraling costs and the looming insolvency of Medicare made tough decisions necessary.

Baucus’s early victories in preserving the framework of his plan may bode well for final passage by the committee and lessen the chance that medical industries would organize to defeat it.

Orszag Praise

Baucus’s bill has already won praise from the Obama administration. Earlier this week, White House budget chief Peter Orszag said it “significantly expands coverage while doing so in a way that is not only deficit-neutral” but “deficit-reducing.”

Finance panel members proposed hundreds of amendments to the plan released by Baucus last week. The committee is the last of five panels to produce legislation that would expand coverage for tens of millions of Americans and rein in health- care costs, President Barack Obama’s top domestic priority.

Baucus has faced criticism from Democrats for wooing Republicans, most of whom have attacked his proposal. Senator Olympia Snowe of Maine, the Republican most likely to support the measure, says she wants to amend the plan to make insurance more affordable for Americans.

Senator John Cornyn, a Texas Republican on the panel, today told reporters the plan “spends too much money, borrows too much money and cuts too much out of Medicare benefits.”

Panel Amendments

Baucus’s staff estimated that his proposal, after changes earlier this week, would cost $900 billion over 10 years and reduce the deficit by $23 billion. Finance committee members, 13 Democrats and 10 Republicans, began debating amendments to alter the measure on Sept. 22.

The committee yesterday accepted an amendment by Senator Charles Schumer, a New York Democrat, that would encourage the use of biosimilar drugs, which are copies of expensive drugs made from living organisms. Biotechnology medicines are made by companies including Amgen Inc. of Thousand Oaks, California, and Cambridge, Massachusetts-based Biogen Idec Inc.

The amendment would reward physicians or hospitals who dispense biosimilar drugs sold through Medicare, reimbursing them at the average price of the biosimilar product plus 6 percent of the price of the original brand drug as a bonus.

The panel also approved a Carper provision to encourage states to return the federal share of any Medicare overpayment.

Nelson’s Amendment

The Nelson amendment debated today was designed to eliminate a gap in Medicare prescription drug coverage for seniors. The $80 billion agreement Baucus reached with the pharmaceutical industry in June would cover a portion of that “doughnut hole.”

Schumer, the No. 3 Senate Democrat, argued in favor of the rebates Nelson proposed and said he doesn’t believe the industry argument that higher costs would cut into research and development for better drugs.

“We don’t represent their stockholders,” he said. “We represent our stockholders -- the U.S. taxpayers.” He said he would push for the amendment before the full Senate.

Pharmaceutical Research and Manufacturers of America, the leading trade group for drugmakers, issued a statement warning that the proposal would cost jobs and hurt innovation.

“The idea that you can squeeze more and more out of our industry without consequences is seriously flawed and short- sighted,” said Ken Johnson, senior vice president of the Washington-based group.

Sidestepping Controversy

Baucus’s plan had already sidestepped one potential Republican assault by calling for nonprofit cooperatives rather than a federally backed insurance plan to compete against private insurers such as Indianapolis-based WellPoint Inc. The government program, or “public option,” is favored by many Democrats as the best way to tamp down costs.

All three House committees have a public option in their versions of legislation now being melded together. The debate in that chamber now is whether to require the new program to negotiate rates with providers, as private insurers do, rather than pegging them to the lower levels paid by Medicare.

The Blue Dog Coalition of fiscally conservative Democrats is pushing the requirement for negotiated rates. House Speaker Nancy Pelosi, a California Democrat, today said pegging the rates to Medicare is the best way to cut costs.

“Where else would we go to bend the curve and pay for the legislation?” she told reporters today.

Trigger as ‘Excuse’

Pelosi also voiced opposition to triggering the implementation of the public option on whether the market for health-care coverage becomes more competitive. That proposal has been pushed in the Senate by Snowe.

Many House Democrats regard “a trigger as an excuse for not doing anything,” Pelosi said.

After the Senate finance panel finishes its work, leaders have to merge its measure with one produced by the health committee and bring it to a floor vote. The House and Senate will then work together on a compromise requiring new votes in each chamber before final legislation can be sent to Obama.

The job for Democratic leaders in the Senate got easier today as Massachusetts Governor Deval Patrick appointed Democrat Paul G. Kirk Jr. to fill the Senate seat of the late Edward Kennedy, who championed universal health care. The appointment will give Democrats control of 60 votes in the Senate, enough to overcome Republican stalling tactics.

Kirk today praised Kennedy and said he would be “a voice and a vote for his causes.”

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.netKristin Jensen in Washington at kjensen@bloomberg.net

Last Updated: September 24, 2009 17:13 EDT