(Updates throughout with details, background and reaction)
By David Morgan
WASHINGTON, March 10 (Reuters) - The Obama administration, in an abrupt about-face, said on Monday it would drop proposed changes to Medicare drug coverage that met wide opposition on grounds they would harm health benefits for the elderly and disabled.
Late last week, more than 370 organizations representing insurers, drug makers, pharmacies, health providers and patients urged the Centers for Medicare and Medicaid Services (CMS) to withdraw changes it had proposed for Medicare Part D.
One of the federal government's most successful and cost-effective healthcare programs, Part D provides drug benefits for the elderly and disabled through private insurers to 36 million enrollees.
Critics said the changes, if adopted in coming months, could not only undermine Part D benefits but impact drug benefits available through Medicare Advantage, a program that allows Medicare beneficiaries to obtain their major medical coverage through private insurers.
"Given the complexities of these issues and stakeholder input, we do not plan to finalize these proposals at this time. We will engage in further stakeholder input before advancing some or all of the changes in these areas in future years," CMS Administrator Marilyn Tavenner advised in a letter sent on Monday to members of the Senate and House of Representatives.
The proposals were opposed by both Republicans and Democrats in Congress. The Republican Party had already begun to look for ways to leverage popular anger over the changes into campaign attacks on Democratic incumbents who could be vulnerable in November's election showdown for control of Congress.
Elated critics of the proposed changes said the government had effectively agreed to start over in the face of broad, bipartisan opposition.
"We applaud CMS administrator Tavenner for the agency's sound judgment on this issue," said Mary Grealy, president of the Healthcare Leadership Council, a coalition member that represents chief executives from the healthcare industry.
Others noted the move curtails a proposal to broaden pharmacy access and could hurt Medicare beneficiaries in rural areas and underserved neighborhoods who might have benefited from the change.
The new rules, proposed in January, called for ending a requirement that insurers offer coverage for all drugs classed as antidepressants and as immunosuppressants, which are used in transplants. CMS was contemplating a similar change for antipsychotics after 2015. In addition, the proposals had called for broadening the number of pharmacies covered by health plans while limiting the choice of Medicare Part D policies available in any given region.
"We are deeply disappointed in CMS' decision not to move forward at this time with the pharmacy choice provision," said B. Douglas Hoey, chief executive officer of the National Community Pharmacists Association.
"In many rural communities, independent community pharmacies are the only pharmacy provider and they are often excluded from preferred pharmacy arrangements," he said.
CMS officials had argued that the changes were needed to rein in healthcare spending and create clearer choices for consumers through greater competition and price transparency.
Senator Ron Wyden, Democratic chairman of the Senate Finance Committee, defended the agency's new position: "This is good news and shows that the administration shares our concerns about potential disruptions for seniors enrolled in the Medicare prescription drug program."
Republicans said the administrations "backpedaling" on prescription drugs was not enough to prevent further cuts to seniors' benefits under President Barack Obama's healthcare law.
"We remain concerned about the impact of Obamacare's looming cuts to Medicare Advantage, something that was not addressed in today's announcement," Senate Republican leader Mitch McConnell said in a statement issued by his office.
The law known as Obamacare calls for restraining cost growth in Medicare partly by reducing Medicare Advantage payments to insurers that for years have made the program more costly than traditional Medicare. Proposed Medicare Advantage reductions, which will not be finalized until next month, are already being portrayed as cuts to Medicare in political advertising.
Meanwhile, Tavenner said CMS would still move forward with Medicare Part D proposals designed to combat fraud, promote transparency and ensure access to care in natural disaster.
The $70 billion Part D program launched a decade ago under former President George W. Bush. Over 10 years, its costs of $346 billion have been 45 percent lower than initially projected. (Reporting by David Morgan; Editing by Chizu Nomiyama and Andrew Hay)