Forecasting Medicare: Price Controls in the Years Ahead - Pharmaceutical Executive

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Forecasting Medicare: Price Controls in the Years Ahead
Part D in 2010 will be under price and access pressure. Pharma should develop plans for the future by imagining best- and worst-case scenarios.


Pharmaceutical Executive


Rather than focusing on the worst possible outcome, it is more useful for pharma companies to develop a series of scenarios that describe how the world might look in the future, and then develop plans to compete in each environment. In this case, the potential scenarios range from the best possible outcome—MMA succeeding as planned—to draconian price controls under a single-payer model.

Scenario #1

MMA as Planned

This scenario assumes the successful implementation of Part D as outlined in the Medicare Modernization Act of 2003, and represents the best possible outcome for pharmaceutical manufacturers because price controls and spill-over from government to private payers is virtually non-existent.

This will happen only if:

  • There are approximately 15 million Medicare enrollees in MA-PDs, and the remaining enrollees are in PDPs
  • The cost of the program remains below $100 billion per year by 2010
  • The increases in cost are no greater than three to five percent per year.

There needs to be at least 15 million people enrolled in MA-PDs to achieve the goal of establishing a private-market solution for all Medicare services. This reduces the risk that pharmacy will go the way of hospital and physician reimbursement, and promotes a focus on outcomes and total health management—MA-PDs have incentives to manage the total health of the patient while PDPs do not.

This paradigm represents an open competitive market for pharmaceutical services in which consumers have choice—though it comes with a price tag. The number of plan options and sets of rules surrounding them cause confusion among consumers and Medicare recipients, resulting in a lower level of consumer satisfaction than traditional Part A or Part B Medicare—where there is only one benefit to figure out.

To date, it seems possible to reach the enrollment goals for MA-PDs. However, it's the cost projections that will be more difficult to meet, given that drug prices have exceeded five percent for the past 10 years.

Scenario #2

FEHBP Lite

In this scenario, the federal government alters the Medicare program to more closely match the Federal Employees Health Benefit Program (FEHBP). Under FEHBP, the federal government has established a standard benefit that private insurers are required to copy and bid competitively to provide health insurance for all federal employees. The federal government chooses insurers based upon a variety of factors, including cost, network, and quality. Applied to Medicare, all beneficiaries would have the same benefit, and all or part of the risk would be borne by the private companies. For pharma, the risks would be low because hospital, physician, and pharmaceutical costs all would be managed by the same entity (the insurer), and opportunities would exist to demonstrate the value of pharmaceutical care.

This scenario is likely to occur if:

  • The cost increases of Part D are high, but not astronomical (under 10 percent per year)
  • There are large numbers (greater than 10 million) of enrollees in MA-PDs, so the political risks of eliminating the programs are too great
  • PDPs are not viewed as significantly more cost effective.

Consumers and physicians would be reasonably supportive of this model because they would still have a level of choice. Given that there would be little variation in benefits or coverage, it would also reduce the confusion that's associated with the "MMA as Planned" scenario.

This scenario is only likely to occur if MMA is kept on track as planned, and is dependent upon the continued success of Part D. In all probability, this scenario would occur in combination with one of the following scenarios because some Medicare beneficiaries will not be willing to adopt MA-PDs.


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Source: Pharmaceutical Executive,
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