The abundance of plans and options is generating a dogfight to sign up beneficiaries, along with predictions of a future shake-out
as smaller and more costly plans drop out. The survivors will gain market leverage and exert increasing pressure on manufacturers
to negotiate lower prices and higher discounts. Just how the pharma market changes will be determined by the answers to a
number of key questions:
Will healthy beneficiaries sign up? CMS officials currently say they expect 28 million seniors to enroll in drug plans—a reduced estimate intended to lower expectations.
Initially the risk pool may include a disproportionate number of high-cost patients because Medicare will automatically enroll
low-income "dual eligibles" and patients in nursing homes and state assistance programs. The real challenge is to sign up
some 15 million seniors who are too well-off to qualify for subsidies and have been paying for drugs out of pocket. Plans
are doing their part by offering low-cost options designed to attract healthy beneficiaries willing to pay now for insurance
against future pharmacy costs.
Will plans keep costs down? Relying on private plans to provide a major Medicare benefit through negotiated prices is a "big experiment," says John Rother
of AARP. CMS was happy to announce in September that the average PDP premium would be only $32 a month; some plans have premiums
under $5, and MA-PDs are promoting zero-premium options. Other plans feature low or no deductibles, flat co-pays, and schemes
to fill in the "doughnut hole," but these options tend to carry premiums of $50 to $60 a month.
But beneficiaries can get bargains only if pharma marketers offer low prices. Insurers and plans negotiated drug prices and
discounts months ago, and the word is that manufacturers offered higher-than-expected rebates to get drugs on formularies
in competitive classes, according to Marc Benoff of IMS Health's Cambridge Pharma Consultancy. Negotiations also have covered
such techniques as tier placement, inclusion in-step therapies, and prior authorization.
The transparency of rebate and discount numbers is a big issue. Plans have to post co-pays and costs to beneficiaries, but
CMS has promised that actual rebate and discount figures will be confidential. Tier placement and other plan features may
reveal a good deal about pharma deals, and CMS is likely to be under pressure to make more information public, even though
CMS officials acknowledge that companies are more likely to provide discounts if price information remains proprietary.
How will formularies evolve? CMS spent the last six months reviewing proposed plan benefits and bids to ensure that they meet requirements for access,
that formularies list all medically necessary drugs, and that tiering and utilization-management strategies don't discriminate
against high-cost patients. Most of the formularies are fairly robust, says Babette Edgar, director of CMS's formulary review
group. Indeed, many are identical to formularies already in use by commercial plans and PBMs.
As plans look to achieve profitability and sustainability, and more generous plans exit the market, Benoff expects formularies
to become more controlled and to limit choices and options. Medicare permits plans to change categories and classes only at
the beginning of the plan year and requires advance notification of drug additions, deletions, and tier changes. In addition,
CMS may revise its model formulary and mandatory coverage requirements.
Will Medicare Rx rescue pharma's fallen image? With all eyes on the costs and benefits of the Medicare Rx program, government agencies will be giving ever-closer scrutiny
to payment and rebate arrangements between pharmacy plans and manufacturers. Medicare's marketing guidelines require plans
to spell out what drugs are covered and how much beneficiaries have to pay for different types of medicines. Any arrangements
that smack of hidden incentives or special deals to induce product coverage will be fodder for federal and state investigators,
who expect lots of enforcement action to arise from this high-cost, highly complex program.
A key issue for pharma, says AARP's Rother, is whether prices will come down enough under the Medicare drug benefit to reduce
the political pressure on issues like importation. Medicare may benefit as the drug utilization data it collects provides
useful information on comparative costs and effectiveness—and contributes to post-market assessment of drug safety. Marketers
may privately support more price transparency to reveal what plans really pay for drugs, but the end result may be a de facto national formulary with uniformly low prices on most drugs.
The promised trade-off for pharma companies is that reduced rates and profits will be offset by a major market expansion,
but some analysts say that federal price controls may look more attractive than negotiated rates in a few years.
Jill Wechsler is Pharm Exec's Washington correspondent. She can be reached at email@example.com