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Medicare Part D: Can the new outpatient prescription drug benefit effectively manage costs?
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) will, for the first time in the 40 years of Medicare history, provide outpatient prescription drug benefits to seniors. Touted as a benefit especially for the very poor, AARP estimates that in 2006 more than 11 million low-income seniors will be helped by Medicare Part D, the new prescription drug benefit.1 This financial assistance, however, comes with a large price tag. Recent budget estimates suggest the prescription drug benefit will cost more than $1.2 trillion over the next ten years.2 In response to stern criticism about the skyrocketing costs of the program, Mark McClellan, administrator of the Centers for Medicare and Medicaid Services (CMS), suggested that predicted savings will offset part of the $1.2 trillion estimate, bringing the cost down to $724 billion.3 The current Administration anticipates that part of these savings will come from more effective bargaining by private plans that will administer the new program, as well as the creation of drug formularies and other cost savings tools used in the private sector.
Released by CMS on January 28, 2005, the final rule for the Medicare prescription drug benefit provides that all eligible seniors will have access to the medications they need through drug formularies and sufficient regulatory oversight. Additionally, the final rule projects an $8 billion savings to states in the first five years of the drug benefit as well as savings to beneficiaries through access to coordinated-care health plans offering lower cost-sharing. On January 1, 2006, Part D coverage begins for all beneficiaries enrolled in Medicare. It remains unclear whether the private sector structure will be a panacea for rising prescription drug costs and access issues.
HCFO grantee Jack Hoadley examined these new regulations in a recently released report funded by the Kaiser Family Foundation that discusses the MMA and the final rule. He suggests that since the law puts private prescription drug plans and Medicare Advantage plans at risk for the cost of the drug benefit, they will have a clear incentive to control the costs, both to protect their bottom line and to attract new enrollees through competitive premiums5. A tool commonly employed by the private sector that will be a prominent feature in the pharmacy plans is the development and use of drug formularies. Contracting with a pharmacy benefit manager (PBM), each new private plan will offer a defined list of drugs that will be covered based on beneficiary need and clinical effectiveness. Though the final MMA rule dictates specific mandates controlling these formularies (e.g., a requirement of coverage for drugs in selected classes such as mental health), the plans can design pricing tiers, cost sharing, and other incentives to encourage the use of certain drugs like generics. Though effective in the private sector, cost management tools may not function in the same way for Medicare, a public program designed to serve an older, sicker and poorer population than traditional employer-based insurance.6
A main concern of pricing tiers, copayments and cost sharing is the financial impact to beneficiaries. Research by HCFO grantees Haiden Huskamp and Richard Frank, Ph.D. shows that when prescription drug prices are shifted to enrollees, patients respond to high copayments and additional out-of-pocket expenses by discontinuing important medications7. Similarly, HCFO grantees Mark Doesher and Barry Saver found that unimpeded access to medications through a comprehensive prescription drug benefit is important for seniors with chronic conditions and may, in fact, lower overall health care costs.8
HCFO-funded research relevant to the Medicare legislation and prescription drug benefit:
Title: The Role of Benefit Design in Enrollment, Use and Spending in State Prescription Drug Assistance Programs for Seniors - Lessons for Medicare
Insitution: Brandeis University
Time: March, 2004 - February, 2006
Principal Investigator: Cindy Parks Thomas, Ph.D.
How does the design of a prescription drug benefit for seniors – either under Medicare or in individual states – affect drug use and costs? Building on evaluations currently underway for CMS, the researchers are comparing the SeniorCare prescription drug assistance programs in Illinois and Wisconsin to assess the impact of different key features, including enrollment approach and fees, and the use of a PBM or not. The scope of the CMS evaluations of the Medicaid 1115 waivers in each state does not permit direct comparison of the programs to assess the impact of the different design features. The researchers plan to: 1) compare enrollment selection between the two programs; 2) compare utilization and spending patterns for enrollees; 3) assess the impact of Illinois’ ‘soft cap’ and Wisconsin’s deductible on drug use and spending; and 4) compare patterns of use for specific diseases (COPD/asthma, congestive heart failure, diabetes, and arthritis) and drug therapeutic classes in each of the states.
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Title: Establishing the Value of Stable Prescription Coverage for Medicare Beneficiaries
Institution: University of Maryland, Baltimore
Time: February, 2004 - July, 2005
Principal Investigator: Bruce C. Stuart, Ph.D.
How will future beneficiaries fare under the proposed Medicare prescription drug benefit programs? This research uses the Medicare Current Beneficiary Survey (MCBS) for 1997 - 2001 to identify gaps in pharmaceutical coverage for Medicare beneficiaries. The researchers (1) characterize beneficiaries who experienced gaps in coverage; (2) identify factors that contribute to lapses in coverage; (3) assess the impact of coverage gaps on drug utilization patterns and spending; and (4) determine whether coverage gaps adversely affect treatment patterns for beneficiaries with selected chronic cardiovascular conditions.
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Title: State Experience with Pharmaceutical Assistance Programs
Institution: Georgetown University
Time: January, 2004 - September, 2005
Principal Investigator: Jack F. Hoadley, Ph.D
What has been the state experience in implementing pharmaceutical assistance programs serving Medicare beneficiaries? Through a series of case studies the researchers will gather information on issues such as communicating with enrollees, administering eligibility and cost sharing, and managing drug costs. The objective of the project is to reveal best practices and lessons learned that are useful to policymakers considering a Medicare prescription drug benefit and those in states implementing or modifying pharmaceutical assistance programs.
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Title: Prescription Benefit Comprehensiveness and Costs of Care in Elderly Persons with Chronic Illness: The Medicare Enrollee Drug Study (MEDS)
Institution: University of Washington
Time: November 2000 - April 2003
Principal Investigator: Mark P. Doescher, M.D., MSPH
Is the cost of adding a prescription drug benefit to Medicare offset by a decrease in costs for other health care services? Researchers at the University of Washington examined this question by looking at the effects of prescription drugs on more resource-intensive care. Using a sample of enrollees in a Medicare HMO administered by the Group Health Cooperative of Puget Sound, they tested the following hypotheses: 1) as pharmaceutical benefit comprehensiveness increases, Medicare enrollees will engender higher outpatient pharmacy costs, but lower costs for other outpatient and inpatient services; and 2) the effects of increasing prescription drug benefits generosity will be amplified for low-income individuals. This project informs the current debate about Medicare prescription benefits on the possible cost off-setting that could be associated with improving pharmaceutical coverage for the elderly.
The researchers found that unimpeded access to medications through a comprehensive prescription drug benefit is important for seniors with chronic conditions and may, in fact, lower overall health care costs.9
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Title: Capped Prescription Benefits and Medicare Managed Care
Institution: University of Arizona Health Services Center
Time: August 1999 - July 2000
Principal Investigator: Brenda Motheral, Ph.D.
What is the impact of capped prescription drug benefits on the drug-taking behavior of beneficiaries ages 65 or older enrolled in Medicare HMO plans? The elderly represent only 12 percent of the population, yet they incur 35 to 40 percent of all prescription costs. The dichotomy between the high utilization of prescription drugs by the elderly and the absence of a prescription benefit under traditional Medicare has motivated enrollment in Medicare risk plans that offer a prescription benefit. However, a high percentage of these HMOs that offer prescription drug benefits cap them in order to protect against financial risk. Hypothesizing that individuals reaching the limit on their cap may opt not to purchase or take the prescribed amounts of medications, leading to increased health costs for preventable conditions, the researchers evaluated changes in the amount of the cap on compliance with and utilization of prescribed medications among Medicare risk HMO enrollees. They also examined the effect of reaching the cap on disenrollment from the plan. The objective of this study was to provide public policymakers and plan administrators with better information about the impact of limiting prescription drug benefits as they seek to contain costs without negatively affecting the quality of care.
The researchers found that the exhaustion of drug benefits was associated with a significant increase in the likelihood of disenrollment of Medicare beneficiaries. This finding arouses concern that Medicare beneficiaries must change plans to have financial access to medications, which can lead to discontinuity in care and diversion of resources from care to administrative matters.10
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Title: Changes in Drug Payment and Management Strategies in Physician Organization
Institution: University of California, San Francisco
Time: September 1999 - December 2001
Principal Investigator: Helene Levens Lipton, Ph.D.
How do changes in payment methods for drug costs affect drug use management, and what are the potential effects of these changes on quality and costs of care? Researchers at the University of California, San Francisco conducted a series of case studies examining changes in payment methods for prescription drugs. They: 1) described drug risk-sharing arrangements between HMOs and physician organizations; and 2) developed and refined hypotheses and generated preliminary findings about the relationships between physician organization risk bearing for drug costs, adoption of innovations in managing drug utilization, and the potential effects of these on quality and costs of care. The investigators analyzed whether HMOs retain control of some core pharmacy functions, including rebate contracting with drug manufacturers and formulary management, and if so, whether retention of such functions serves as an impediment to drug management innovation or as a barrier to changing physicians' prescribing practices. They also examined whether physician organization risk bearing for drug costs leads to a preoccupation with interventions designed primarily to decrease drug budgets. The objective of this study was to better inform private and public policymakers as they strive to set appropriate standards for and monitor the effects of various strategies to pay for and manage drug costs.
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Title: The Impact of Pharmaceutical Formularies on Prescription Drug and Health Care Costs and Utilization
Institution: Harvard University
Time: May 2001 - April 2004
Principal Investigator: Richard G. Frank, Ph.D.
What are the effects of a health plan instituting a three-tiered co-payment (TTCP) financing mechanism on prescription drug spending, total health care spending, and patients' compliance with treatment protocols and quality of care? The study, conducted by researchers at Harvard University in conjunction with Merck-Medco, involved an analysis of Merck-Medco administrative, medical and pharmaceutical claims, and encounter data. The researchers investigated the effects of the three-tier co-payments on drug use and costs for both drugs and other health care services as well as the effects of the three-tier formulary on patterns of care for patients diagnosed with depression, congestive heart failure, and hypercholesterolemia. This study informs public and private policymakers - particularly those involved in designing proposals for adding a prescription drug benefit to Medicare - on the range of implications a three-tier copay strategy for prescription drug cost containment may have for patients, plans, and the market.
The researchers found that when prescription drug prices are shifted to enrollees, patients respond to high copayments and additional out-of-pocket expenses by discontinuing important medications.11
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1 aarp.org/health/medicare/drug_coverage/Articles/a2003-11-25-lowincome.html 2 "Medicare Drug Benefit May Cost $1.2 Trillion," Washington Post, February 9, 2005. washingtonpost.com/ac2/wp-dyn/A9328-2005Feb8?language=printer
3 "Officials Defend Cost of Medicare Drug Benefit," Washington Post, February 17, 2005. washingtonpost.com/ac2/wp-dyn/A30590-2005Feb16?language=printer
4 "Medicare Fact Sheet: Final Rules Implementing the New Medicare Law: A New Prescription Drug Benefit for All Medicare Beneficiaries, Improvements to Medicare Health Plans and Establishing Options for Retirees," Centers for Medicare & Medicaid Services, January 21, 2005. cms.hhs.gov/medicarereform/pdbma/fs-pdbmafinalrules.pdf
5 "The Effects of Formularies and Other Cost Management Tools on Access to Medications: An Analysis of the MMA and the Final Rule," Jack Hoadley, Health Policy Institute, Georgetown University for the Kaiser Family Foundation, March 2005. kff.org/medicare/7299.cfm
6 Policy Workshop on Drug Formularies and Medicare, The Kaiser Family Foundation, March 14, 2005, Washington D.C., kff.org/medicare/med031405pkg.cfm
7 "The Effect of Incentive-Based Formularies on Prescription-Drug Utilization and Spending". Huskamp H, Deverka P, Epstein A, Epstein R, and McGuigan K, Frank R. The New England Journal of Medicine, 349(23), December 2003.
8 "Prescripton Drug Coverage, Health, and Medication Acquisition Among Seniors with One or More Chroic Conditions". Jackson JE, Doescher MP, Saver BG, and Fishman P. Medical Care, 42(11), November 2004.
9 "Prescripton Drug Coverage, Health, and Medication Acquisition Among Seniors with One or More Chroic Conditions". Jackson JE, Doescher MP, Saver BG, and Fishman P. Medical Care, 42(11), November 2004.
10 Cox ER, Motheral BR, Fairman K, " Exhaustion of prescription benefits and Medicare beneficiaries' disenrollment from managed care", Journal of the American Medical Association, 284(20), November 2000.
11 "The Effect of Incentive-Based Formularies on Prescription-Drug Utilization and Spending". Huskamp H, Deverka P, Epstein A, Epstein R, and McGuigan K, Frank R. The New England Journal of Medicine, 349(23), December 2003. |
