House Adopts Medicare Rx Benefit

Vote pressures Senate to act, while legislators weigh health impact of new Homeland Security Office.
Aug 01, 2002

The House leadership collected just enough votes in late June to approve a Medicare reform bill that provides some coverage of pharmaceuticals for seniors. Democrats rebuked the measure as a scam and a fraud; some conservatives complained that it opened the door to a costly new entitlement. Ergo, the bill may be the best compromise one could expect, but it probably won't lead to consensus legislation. With Congress unlikely to agree on a plan by fall, policymakers may have to start over again next year.

The Republican-backed bill (HR 4954) allots $320 billion over eight years for the pharmacy benefit, and another $30 billion to boost Medicare payments to hospitals, doctors, and HMOs. The measure allows Medicare beneficiaries to purchase a prescription drug plan (PDP) from insurance companies for a likely $33 monthly premium. Plans will carry a $250 annual deductible and cover 80 percent of annual prescription drug purchases up to $1,000, 50 percent of purchases up to $2,000, and all costs above a $3,700 catastrophic limit.

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Thus, the program pays nothing to beneficiaries caught in the "doughnut hole" between expenditures of $2,000 and $3,700. But there are subsidies for low-income seniors, and beneficiaries enrolled in Medicare+Choice plans may have to pay less out of pocket, because the program reimburses HMOs for pharmacy costs.

Pharmacy benefit managers (PBMs) that offer PDPs through insurers may establish formularies, tiered co-pays, and restrictive pharmacy networks to control costs. But the plans also must inform beneficiaries about such restrictions as well as grievance procedures, any discounts the PDP receives, and other features. Plans also must implement drug use and electronic prescription information programs.

Avoiding Controversy Until final passage, it looked like dissension in Republican ranks might kill the whole package. Some legislators wanted to include provisions that permit import of low-cost medicines and revise generic drug patent policies, but House leaders kept such contentious amendments out of the final bill.

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Insurers softened their opposition after legislators boosted reinsurance provisions, calling for government to subsidize 67 percent of premium costs through reinsurance to dispel insurers' fears of adverse selection.

Pharmacists gained a $600 million grant to support patient counseling programs, electronic prescribing, drug use review, and information technology. Yet, that failed to appease retail pharmacists, who oppose a "PBM-run" benefit program that permits PDPs to establish restricted pharmacy networks and endorses a Medicare discount card plan.

State officials applauded a provision offering $3 billion in grants to support state pharmacy programs for low-income seniors. The American Medical Association liked the 2 percent payment update for doctors, and health industry groups praised the measure's "realistic price tag" that would not bankrupt Medicare.

Plusses for Pharma Besides adopting a private insurance approach for providing a pharmacy benefit, the bill omitted several provisions unfriendly to pharma. In addition to blocking reimportation and generic drug proposals, the bill's authors cancelled an item authorizing Congress' General Accounting Office to study the impact of direct-to-consumer advertising on pharmaceutical use and cost. And they dropped another proposed GAO study of Medicaid prescription drug pricing.

At the same time, the bill retains a "best price exclusion" provision stating that pharma prices negotiated by plan sponsors will not count toward the Medicaid best price. Some companies back the change to prevent a downward price spiral, but the revision also eliminates their rationale for limiting discounts to Medicare purchasers.

A new Medicaid commission will request further GAO studies on pharmacy costs and prices as it analyzes factors boosting Medicaid costs and recommends program changes. The bill also establishes a Medicare Benefits Administration to manage the new pharmacy benefit and the troubled Medicare+Choice program. The bill mandates that GAO study the legislation's overall impact, including program implementation, the number of eligible seniors participating, and the impact of the reinsurance approach.

Costly Alternatives Senate Democrats have backed a much more generous and costly program. Democrats want a pharmacy benefit administered by the federal government, with lower monthly premiums (about $25), no deductible, and flat co-pays on three-tier plans. The federal government bears the risk, eliminating the need for subsidies to insurers. That approach follows the traditional fee-for-service Med-icare program and is likely to end up regulating the prices it pays for medicines as it does for hospital stays, doctor visits, and medical supplies.

Even if Republicans and Democrats fail to adopt any Medicare pharmacy benefit this year, Congress now is more likely to tackle the issue in the near future. That the House leadership was able to collect enough votes to approve this package in the face of strong opposition from all sides speaks to the political importance of providing some kind of pharmaceutical benefit for the elderly.

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