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Should policy makers expect 90 percent of seniors to enroll in PDPs, or will 75 percent be enough? Will the program have to keep costs down to $400 billion a year, or will spending be linked to savings elsewhere?
In his first few days as secretary of the Department of Health and Human Services, Mike Leavitt made waves by announcing plans to revise Medicaid and ensure drug safety. But the "main event" of the year, he emphasized, will be the implementation of the Medicare Part D prescription drug coverage program. The White House has a great deal at stake in persuading insurers and pharmacy benefit managers (PBMs) to set up prescription drug plans (PDPs) in all 34 Part D regions-and in getting seniors to sign up for coverage. The industry has much to lose if the program fails to emerge as promised, so pharma companies plan to use their PR resources to help Medicare beneficiaries understand and join the program. Marketers already are discussing discounts and rebates with PDPs, which face tight deadlines for getting their packages in place.
The Part D application and bidding process begins this month. Plans have to submit Part D applications to the Centers for Medicare and Medicaid Services (CMS) by March 23 and file formularies next month. That gives CMS a month to review the proposals in order to launch a bidding process in June and award contracts in September. PDPs will start marketing their plans and enrolling seniors in October. For plans to establish formularies and calculate bids, they will need to know what deals manufacturers will offer.
The CMS Part D final regs, which were issued on January 21, spell out procedures for implementing this massive program. (See
, "Medicare Drug Benefit," February 2005.) But as the industry and healthcare community digest the regulations-more than 1,100 pages on the drug benefit alone-several thorny issues have emerged that will shape pharma participation in the program and its likely impact:
No more giveaways Manufacturers have been expanding programs that provide drugs to low-income patients at no or low cost, but companies will face new challenges in structuring these patient assistance programs to fit Part D. One key problem: Free drugs provided to seniors do not count as true out-of-pocket (TrOOP) costs-and TrOOP costs have to reach a certain level (about $3,600) for a beneficiary to qualify for catastrophic coverage. A possible solution lies in the fact that CMS regs permit state pharmacy assistance payments to count for TrOOP, an approach that marketers consider necessary to continue PA programs for seniors.
Pressure for formulary exemptions Beneficiaries may be hit twice if they have to pay for non-formulary drugs. Not only do they lose co-payments, but their outlays do not count as TrOOP for reaching the catastrophic floor. The policy puts a lot of pressure on patients and doctors to file for exceptions to gain coverage for non-listed medicines.
Setting tiers Plans have to tell beneficiaries which drugs they cover, but not necessarily which drugs fall into which co-payment tiers. CMS plans to issue marketing guidelines in April to clarify this and a host of disclosure and coverage issues.
Scrutinizing off-label coverage Off-label drug use, of course, is always a thorny issue, and CMS is trying to walk a fine line between supporting coverage of appropriate off-label uses and allowing PDPs to limit excessive prescribing. CMS acknowledges that physicians can prescribe drugs for off-label uses and says it will weigh whether plans erect barriers to off-label prescribing in evaluating a formulary program. But the Part D rules specify that PDP formularies don't have to cover off-label drug uses and don't have to establish classes where there is no FDA-approved drug. The pressure is on pharma companies to document the benefits of off-label uses to get them listed in appropriate formulary categories.
Fear of fraud In formulary negotiations, marketers often offer services to PBMs, but such arrangements with PDPs may raise anti-kickback charges. Pharma companies will have to carefully structure disease management, drug utilization review, and other services, particularly if such activities replace discounts and are too much above market value.
Ongoing review The U.S. Pharmacopeia wants CMS to assign it a formal role in evaluating its formulary guidelines over the next few years as new drugs enter the market and new information emerges about the safety and efficacy of existing therapies. A lot of manufacturers are unhappy with the USP guidelines and oppose their continued influence over the program, but CMS will need some independent body to provide ongoing review after the program is established.
The FDA connection CMS already conducts parallel reviews of some medical products covered by the traditional Medicare program. These reviews enable the agency to issue speedy decisions about coverage when FDA approves a new product for market. It is reasonable to expect that over the next few years CMS will play a much larger role in monitoring drug safety, marketing, and appropriate use. CMS data banks will provide a wealth of information on drug utilization and adverse events and may shape development of risk management plans for high-risk drugs. CMS coverage for seniors participating in clinical trials may shape research protocols.
All these issues will affect the overall cost of the Medicare Prescription Drug Benefit, which continues to generate outrage on all sides. When Congress approved the Medicare Modernization Act in December 2003, the administration insisted that the cost would be about $400 billion over 10 years. The CMS actuary quickly boosted the number to $534 billion, which raised an outcry. Those fairly high numbers applied to the 10-year period of 2004 to 2013, which includes two years before the program even starts.
Now fiscal conservatives and Democrats are up in arms over the latest soaring administration cost projections for Part D: a whopping $724 billion for 10 years, from 2006 to 2015, when more seniors are expected to be enrolled in the program. Conservatives want to cap program spending at $400 billion, while Democrats insist they can save money by bringing in cheap imports and establishing a centralized Medicare drug purchasing program, unhampered by the much-debated non-interference clause.
Of course, the Part D program won't be so expensive if seniors decide not to participate. All the current estimates assume that 90 percent of eligible Medicare beneficiaries will join the program, but most observers doubt that participation will be anywhere near that level. One hurdle in convincing seniors to sign up is considerable uncertainty about future co-pays and costs. CMS expects monthly premiums to average $35, but that's just a guess. And if CMS finds itself spending more on drugs than anticipated, the statute calls for adjusting Part D parameters, including benefit ceilings, the catastrophic floor, and levels for co-pays and deductibles.
A broad range of beneficiaries need to join the program for it to work, but it's not yet clear how to measure success or failure. Should policymakers expect 90 percent of seniors to enroll in PDPs-or will 75 percent be a reasonable expectation? Will the program have to keep spending down to $400 billion a year, or will someone figure out how to relate increased spending on drugs to broader measures of health care quality? One thing is certain: The more seniors in the program, the more it will cost. We can't have it both ways.
Ending Best Price One important but less noticed provision in the Medicare program exempts PDP rebate negotiations from the Medicaid best price policy. Now it looks like best price requirements may disappear completely.
The provision grew out of a business challenge posed by Medicaid: Companies were required to give Medicaid their best price, but if that price was revealed publicly, it would quickly be used by other customers to force down the prices they already paid. Instead, the government set up a rebate system based on Average Manufacturer's Price and the best price offered to any customer (with a few exemptions, such as the Veterans Administration). HMOs and hospitals have complained for years that best price essentially puts a floor on the prices they can negotiate. CMS administrator Mark McClellan evidently agrees and proposes to switch to a flat rebate formula. Pharma companies are not too upset because state Medicaid drug spending will drop considerably as low-income seniors switch to Medicare to receive drug coverage under Part D.
McClellan doesn't expect the switch from best price to curb Medicaid spending on drugs, but it should help reduce costs for the broader health care system. The task of lowering the Medicaid pharmacy budget will come through another reform initiative. This aims to restructure Medicaid pharmacy reimbursement to base payments on drug acquisition costs instead of wholesale prices, similar to changes made in how Medicare pays for drugs administered by doctors and hospitals. This reduction in "overpayments" to pharmacists, together with proposals to close loopholes that permit excessive payments to states and allow some wealthy seniors to qualify for assistance, are projected to cut Medicaid spending by $60 billion over 10 years.
Jill Wechsler is Pharmaceutical Executive's Washington correspondent.