Section Review

The Hibernating Bear Awakes, But Medicare Patients Remain Without Adequate Prescription-Drug Coverage

During the months of the 2000 election campaigns, candidates declared "Prescription Drugs for Seniors." Yet, even now, we await some relief from the federal government for the approximately 10 million to 12 million Medicare enrollees who are without prescription drug coverage. Medicare currently "provides virtually no outpatient drug coverage" even though prescription drugs are both increasingly important clinically and increasingly expensive.1 A solution to this lack of coverage is becoming evermore desired in light of the fact that the number of people age 65 and older is expected to double by the year 2035.

In the wake of the Sept. 11 terrorist attacks, it was necessary for Congress to divert its attention from the prescription drug issue. In recent months, the prescription drug issue has returned to the front lines of the political battleground. Thus, hope for seniors appears to abound as this intense issue continues to gain momentum with drug plan proponents sending out alarms that prescription drug prices are increasing and current prescription coverage is decreasing.2

As our federal government officials continue to debate the issue with no definitive end in sight,3 states and private companies have marched forward during the federal government's hibernation on the issue and taken steps toward an interim response to the lack of prescription drug coverage among Medicare enrollees.4

I. Private companies introduce and expand drug discount programs

While many retail pharmacies have provided a 10 percent discount to seniors for many years,5 drug companies also have sought to provide affordable drugs to seniors. Most recently, seven major drug companies announced the Together Rx Card, which is offered at no cost to individuals with incomes less than $28,000 or couples with joint incomes less than $38,000. The pharmaceutical discount program was set to go into effect in June 2002, affording Medicare enrollees access to savings on more than 100 brand-name drugs, including drugs used to treat arthritis, depression, diabetes and high blood pressure.6

Skepticism remains, however, despite the drug companies' announcements that each of the seven companies will set at least a 15 percent discount and the discounts will likely range from 20 to 40 percent off the usual prices.7 Ron Pollack, executive director of Families USA, a non-profit national organization for health-care consumers, responded as follows to the Together Rx Card:

It is noteworthy that the companies indicated that each company will set its own discounts independently with a minimum discount of 15 percent off its list price to wholesalers. They also indicate that products offered are subject to change.

These caveats raise a cautionary flag that all seniors should understand. In effect, the drug companies are alerting us to a potential shell game in the pricing of drugs. Although discounts of 15 percent or more may be announced, those discounts will apply to company-established wholesale prices that the companies admit are likely to rise. Therefore, the real discounts received by seniors will be considerably smaller than 15 percent off the prices they pay today, and the drugs subject to those discounts are likely to change.8

On the other hand, government officials, such as Department of Health and Human Services Secretary Tommy Thompson have applauded the drug companies' efforts, indicating the program to be a "tremendous new initiative." Importantly, retail pharmacies, including Walgreens, Rite Aid and Target, have agreed to pass on the full discount to the patients.

The Together Rx Card program is not the only one of its kind. Eli Lilly & Co. and Pfizer, Inc., have announced similar programs.9 Moreover, Merck & Co. has expanded the convenience of its longstanding Patient Assistance Program, which provides many medicines free of charge to patients without coverage, who have individual incomes of less than $18,000 or annual household incomes of less than $24,000.10 Now, Merck provides home delivery of prescription drugs and no longer requires patients with chronic ailments to provide a new prescription every 90 days.11 Further, programs like these prompted the National Association of Chain Drug Stores to propose the PharmacyCare OneCard. All drug manufacturers and community pharmacies could participate in this "one card" program. Thus, seniors using this card would have access to multiple manufacturer discount and subsidy programs.

II. State initiatives to provide affordable prescription drugs for seniors

In addition to private companies, states are reacting to the need to provide seniors with prescription-drug discount programs. Approximately 32 states have established or authorized programs to provide assistance to seniors in covering the costs of prescription drugs.12 While most states have enacted legislation creating direct subsidy programs relying on state funds, other states offer discount-only programs.13 The programs generally operate as follows:

(1) enrollees in the program (who may or may not pay an enrollment fee) obtain a card entitling them to obtain discounts on prescription drugs at participating pharmacies; (2) discount rates may vary depending on the drug or the pharmacy from which it is purchased (e.g., mail-order pharmacies generally provide higher discounts than retail pharmacies); and (3) the cost of the discounts is absorbed by participating pharmacies, funded by rebates paid by participating manufacturers, or some combination of both. These programs are usually run by pharmacy benefit managers (PBMs).14

In Washington, the governor, by executive order, implemented the AWARDS program, which began in March 2001.15 This program had no income barrier and was available to people over age 55. However, the Coalition for Affordable Prescriptions for Seniors succeeded in its lawsuit to halt the program. The state court struck down the program, finding the executive branch lacked authority to implement the program.16 New Hampshire, by its governor and executive council, launched a two-year pilot program in January 2000, Senior Prescription Drug Discount Program, for residents 65 or older.17 Under this program, no state funds are used and a PBM administers the program. Participating pharmacies permit cardholders to pay the lowest of the pharmacy's usual price, the pharmacy's sale price, or the pilot program discounted price.18 Although New Hampshire expected the program to produce up to 40 percent discounts, low reimbursement rates have led to a lack of pharmacy participation.19

Massachusetts enacted major expansions in eligibility to its subsidized discount program in 2001. Its Prescription Advantage Plan, a subsidized insurance program, has replaced Massachusetts' two previous programs: the Pharmacy Program, which ended April 1, 2001, and the Senior Pharmacy program, which concluded on October 1, 2001. The Executive Office of Elder Affairs administers the Prescription Advantage Plan, which affords individuals with an income less than $16,668 and married couples with joint incomes less than $22,452 prescription drug benefits without paying premiums and deductibles. Those who do not meet these income requirements pay premiums and co-payments, which are calculated based on the individual's or couple's annual income. The key benefit of this program, however, is that, once a resident has paid $2,000 or 10 percent of his/her gross annual household income (whichever is less) toward the deductible or co-payments, Massachusetts will pay the entire cost of the resident's remaining prescription drugs needed that year, excluding the premium payment.

As with many state initiatives, a PBM administers the Prescription Advantage Plan and negotiates rebates for the program, which are independent of the required Medicaid rebate. Further, the plan uses a three-level formulary: Generic Drugs, Select Brand-Name Drugs, and Additional Brand-Name Drugs, which require different co-payments. The legislature sought to soften the potential criticism of the formulary by mandating that drugs with no therapeutic substitute cannot be excluded from the formulary. On May 9, 2002, the House unanimously voted to provide $1.4 million more in funding for this program, which will permit premiums for medication to remain steady although the program's funding is still being cut by $4 million.20

Additionally, Massachusetts has twice adopted legislation to develop a program to aggregate the prescription-drug purchases of the individuals in its pharmaceutical assistance programs (a bulk purchasing program).21 As of yet, the executive branch has failed to implement such a program. Nonetheless, a study sponsored by the Massachusetts Biotechnology Council found that implementing a bulk-purchasing program for prescription drugs would substantially increase the costs of Massachusetts' Prescription Advantage program.22 The study indicates that those most likely to drop out of the Prescription Advantage program are those who pay the highest premiums.23 As a consequence, Massachusetts would have to come up with an estimated $5 to 40 million in additional subsidies to fund the insurance program.24 This study also predicted that the estimated 25 percent discounts would be difficult to achieve without restrictive formularies or government regulation of prices.25

III. The wheels continue to turn in the federal government

As for the federal government, proposals continue to circulate, but a bipartisan approach has yet to prevail. In fact, both the Democrats and the Republicans have been slow to generate even a consensus within their parties on the issue.

As of May 2002, the Republican party has failed to produce a bill. House Speaker Dennis Hastert has appointed members to his Prescription Drug Action Team, which will work with the Energy and Commerce and Ways and Means Committees and the House leadership to modernize the Medicare program. The hope is that this team will deliver a bill that can be voted on early this summer. The party also has established a budget blueprint to limit spending on the program to $350 billion over the next 10 years.26 This is a significant increase from the Republicans' 2000 bill, proposing $160 billion, and President Bush's proposed $190 billion benefit.

The House plan that will be introduced can be summarized as one that will likely fully subsidize drug costs for seniors with incomes up to 135 percent of the federal poverty level, partially subsidize seniors with incomes between 135 percent and 150 percent of that level, and provide catastrophic drug coverage for seniors' annual drug costs exceeding $5,000. In addition, unsubsidized seniors would pay a monthly premium of about $37 and a $250 deductible. It is opined that, when this bill is introduced, the House Republicans will likely bring the bill to the House floor without committee deliberations to avoid the often-difficult task of gaining agreement among the three committees that have jurisdiction over portions of Medicare legislation.27

Although full support from the Democratic leadership has not been tendered, Sens. Bob Graham and Zell Miller propose a $425 billion Medicare prescription drug benefit plan similar to Graham's proposal last year.28 Under this plan, seniors would pay a $25 monthly premium, and the government would pay for half the co-payments on drugs up to $4,000 annually. Thereafter, the government would cover all costs. In an effort to reduce drug costs, this program seeks to heavily rely upon formularies and pharmacy benefit managers.

As an interim effort, 11 congressmen sponsored the Immediate Helping Hand Prescription Drug Assistance Act,29 which, if passed, would provide $48 billion to state programs helping seniors afford prescription drug coverage. Pursuant to this Act, the federal government would distribute block grants to states to expand their existing assistance programs or establish new state programs. While the House Energy and Commerce Committee's Subcommittee on Health is currently considering this bill, its sponsors are encouraging their colleagues to act quickly. Rep. C.L. "Butch" Otter from Idaho emphasized "that any further delay in providing this help is unacceptable."30

IV. Some factors affecting the debate

Undoubtedly, everyone is in agreement that seniors must be provided affordable prescription drugs. However, how to achieve this goal is highly in dispute. As evidenced above, the proposals for addressing this issue vary in approach, and with each approach comes criticisms.

For instance, drug stores adamantly opposed President Bush's proposal last year out of fear that it would decrease drug stores' profits. They believed this proposal would have caused a shift to mail-order drugs, which drug stores claim would have forced 20 percent of drug stores out of business.31 In fact, the National Association of Chain Drug Stores successfully blocked President Bush's Medicare prescription drug discount card proposal last year when the U.S. District Court issued an injunction in September 2001, reasoning that the White House had no statutory authority to establish the program and failed to implement the program through the normal rulemaking procedures.32

Another aspect of the debate centers on the use of pharmacy benefit managers to administer a prescription-drug benefit program. Some claim that PBMs are necessary because they reduce costs through drug utilization review, disease management, prior authorization, therapeutic substitution and formularies.33 A Kaiser Family Foundation study also found that PBMs could reduce the cost of a Medicare prescription drug benefit because of the industry's experience in such management and cost containment.34

Despite the potential upside of PBMs reducing costs, using PBMs to administer a Medicare prescription drug benefit has limits that may outweigh any cost-savings.35 Currently, PBMs privately determine which drugs are therapeutically equivalent in developing formularies.36 Such private determination would be impossible for Medicare, which requires openly determined policies.37

The pharmaceutical industry also has expressed valid concerns regarding the proposals. It opposes legislative approaches that structure private competition by using PBMs.38 Moreover, concern exists over whether such an approach will provide high-quality coverage, which includes affording seniors choices. Notably, the Pharmaceutical Research and Manufactures of America contends that, in order to guarantee high-quality coverage, health-care costs should be controlled through choice and competition in the private sector.39 Additionally, quality care requires that physicians remain able to prescribe all medically necessary prescription drugs.40

Another source of contention remains in determining whether the program should include income requirements. Even current state programs, such as the Prescription Advantage Plan in Massachusetts, have been criticized as helping only the low-income residents and not those in the middle-income brackets, who are also in need of help.41

V. Conclusion

The good news is the federal government is placing its attention on reforming Medicare's deficient coverage of prescription drugs. The bad news is the lack of a bipartisan, viable solution that addresses both the financial and quality health care challenges. Fortunately, states and private companies are lending assistance in the interim. As we know from our Medicare history, thoughtful consideration is necessary to modernize Medicare by providing not only an effective solution, but one that will survive the long term.

End notes

1. Statement of David M. Walker, Comptroller General of the United States, Testimony before the Committee on Ways and Means, House of Representatives, Financial Outlook Poses Challenges for Sustaining Program and Adding Drug Coverage, at 5, April 17, 2002; see also Allan Rubin & Harold Rubin, Medicare and Prescription Drug Costs - Part I , (visited April 12, 2002). (The National Institute for Health Care Management, a nonprofit, nonpartisan group released a study of the cost of prescription drugs in 2001, which found that spending on prescription drugs topped $154 billion in 2001 and the average cost of a prescription at a pharmacy rose nearly 10%.)[back]

2. "When it comes to prescription drugs, the elderly face a double whammy. Costs are going up, and coverage is going down. Even before the recession, private retiree health coverage was collapsing. Now a wave of corporate bankruptcies is leaving more and more retirees out in the cold. Only a Medicare prescription drug benefit can provide the safe, solid, affordable coverage senior citizens need." Statement of Senator Edward M. Kennedy on the Need for a Medicare Prescription Drug Benefit, February 27, 2002.[back]

3. Fandango, Roll Call, April 11, 2002 (contending that the Democrats will reject the Republicans' prescription drug plan proposal with no efforts being made to compromise).[back]

4. New Pharmaceutical Alliance Offers Savings to Limited Income Seniors on More Than 150 Medicines Through One Free Card; Abbott Laboratories, AstraZeneca, Aventis Pharmaceuticals, Bristol-Myers Squibb Company, GlaxoSmithKline, Johnson & Johnson, and Novartis Unveil Consumer-Friendly RX Savings Card, PR Newswire, Financial News, April 11, 2002 (Executives from the seven drug companies stated, "The program is being provided until a much-needed Medicare prescription drug benefit is enacted and implemented.").[back]

5. Craig Fuller, Overview of Prescription Drug Discount Cards, Presentation delivered at the Alliance for Health Reform Briefing (Nov. 19, 2001).[back]

6. 7 Drug Companies Offer Discount Card to Elderly; Pharmaceuticals: Merck spurns trend, expands its own assistance program, LA Times, April 10, 2002.[back]

7. Id.[back]

8. Statement by Executive Director of Families USA in Response to Drug Companies' Together Rx Card Program, April 10, 2002.[back]

9. Eli Lilly announced its "Lilly Answers" program in March 2002, providing seniors with household incomes of less than $24,000 access to products for $12 a month per prescription. Jill Wechsler, Medicare Card Competition Heats Up, Managed Healthcare Executive, 10 (April 2002).[back]

10. 7 Drug Companies Offer Discount Card to Elderly; Pharmaceuticals: Merck spurns trend, expands its own assistance program, LA Times, April 10, 2002.[back]

11. Id.[back]

12. See (visited May 13, 2002).[back]

13. For example, New Hampshire and Iowa offer discount only programs. See (visited May 13, 2002).[back]

14. John Bentivoglio, Rosemary Maxwell, & Marc Stanislawczyck, State Controls on Drug Costs: An Out-Of-Control Experiment in Federalism?, Analysis & Perspective, BNA's Health Care Policy, Vol. 9, No. 40, 1551, 1556 (October 15, 2001).[back]

15. Executive Order 00-04 WAC 246-30 (August 29, 2000). [back]

16. Coalition for Affordable Prescriptions for Seniors v. State of Washington, Docket No. 01-2-00525-9 (May 25, 2001).[back]

17. Executive Council Minutes, November 10, 1999.[back]

18. John Bentivoglio, Rosemary Maxwell, & Marc Stanislawczyck, State Controls on Drug Costs: An Out-Of-Control Experiment in Federalism?, Analysis & Perspectiv, BNA's Health Care Policy, Vol. 9, No. 40, at 1551 (October 15, 2001).[back]

19. Craig Fuller, Overview of Prescription Drug Discount Cards, Presentation delivered at the Alliance for Health Reform Briefing (Nov. 19, 2001).[back]

20. Rick Klein, House Spurns Bills to Expand Gaming, The Boston Globe at B8 (May 10, 2002).[back]

21. Chapter 127 of 1999 § 271; H. 4900 § 11 (2001).[back]

22. Bulk Drug Purchase Plan Could Raise Cost of Subsidized Insurance Plan, Study Finds, BNA's Health Care Policy, Vol. 9, No. 36, at 1408 (Sept. 17, 2001).[back]

23. Id.[back]

24. Id.[back]

25. Id. at 1408-09.[back]

26. House GOP promotes seniors' drug plan - but lacks one, Sara Fritz, St. Petersburg Times, 7A, May 10, 2002.[back]

27. Id.[back]

28. Id.[back]

29. H.R. 3684 (107th Congress).[back]

30. Otter Promotes Prescription Drug Help, Congressional Press Release, May 10, 2002.[back]

31. Prescription Drug Card Would Close 20 Percent of Drugstores, Groups Say, BNA's Medicare Report, Vol. 12, No. 35, at 929 (August 31, 2001).[back]

32. National Association of Chain Drug Stores v. Thompson, No. 1:01CV01554 (D.D.C. September 6, 2001).[back]

33. A New Era for PBMs, Chains, Chain Drug Review, No. 8, Vol. 22, at RX 25 (May 1, 2000).[back]

34. Ellen Beck & Howard Fields, Kaiser Study Says PBMs Could Manage Medicare Drug Benefit, Medical Industry Today (Feb. 14, 2000).[back]

35. Id.[back]

36. Statement of William J. Scanlon, Director of Health Financing and Public Health Issues, Health, Education, and Human Services Division, Testimony before the Subcommittee on Health and Environment, Committee on Commerce, House of Representatives, Prescription Drugs: Increasing Medicare Beneficiary Access and Related Implications, at 14, February 16, 2000.[back]

37. Id.[back]

38. PhRMA Supports Expanding Drug Coverage for Seniors, Press Release (June 23, 1999).[back]

39. Helping Seniors and the Disabled Gain Prescription Drug Coverage through a Strengthened Medicare Program, PhRMA News Release, February 22, 2000.[back]

40. Id.[back]

41. Peter Schworm, Seniors Go Online to Save on Drugs Internet Can Locate Foreign Sources, The Boston Globe (Jan. 20, 2002).[back]

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