Congress to consider changes to Medicare Part D drug plans

Key Points

Even though the Medicare prescription drug benefit has provided access to medications at less-than-anticipated cost to the government-and lower out-of-pocket spending for seniors-many Democrats and consumer advocates want to overhaul the program. Critics contend that the federal government can negotiate prices with pharmaceutical companies that are lower than those obtained by private insurers operating prescription drug plans (PDPs). Some reformers charge that the program is too complex and confusing for elderly beneficiaries, pointing particularly to the infamous "donut hole" that is affecting more Medicare patients than anticipated.

Leading the charge for reform is Rep. Henry Waxman (D–Calif). At a July health policy conference sponsored by CBI, Waxman described Part D as "a serious mistake that is not working well." Waxman said that seniors are happy because they had no drug coverage at all before Part D, but he pointed out that it's difficult for beneficiaries to shop around for the best plan because they don't know which drugs are covered and because co-pays and premiums change each year.

Although polls show that many seniors are pleased with the drug benefit, beneficiary enthusiasm may wane as costs go up. The average monthly premium for PDPs will increase 24% to $37 next year, according to an analysis by Avalere Health released last month. Although officials at the Centers for Medicare and Medicaid Services (CMS) say that premiums still are lower than originally expected, the higher cost may prompt more seniors to scrutinize coverage options this fall.

Waxman's prime target is pharmaceutical companies, which he claims are raking in big profits from Part D, in part because manufacturers no longer have to pay rebates to state Medicaid programs for drugs delivered to low-income seniors now covered by the Medicare drug benefit. As chairman of the House Oversight and Government Reform Committee, Waxman unveiled a study at a July hearing citing a $3.7 billion windfall for pharmaceutical manufacturers in 2006 and 2007, the result of higher prices paid for drugs provided to "dual eligible" beneficiaries. Top "winners" are Johnson & Johnson, which Waxman says earned more than $500 million in additional profits on its antipsychotic medication risperidone (Risperdal), and Bristol-Myers Squibb, which gained $400 million on Medicare coverage for its stroke medication clopidogrel (Plavix).

Another target of many reformers is the coverage gap in the Part D benefit, which affected one-fourth (26%) of Part D enrollees in 2007, according to an analysis issued in August by the Kaiser Family Foundation (KFF). Approximately 3.4 million Medicare beneficiaries, largely those with chronic health problems, had to pay the full cost of their medications for at least part of the year. A significant number of elderly patients consequently stopped taking prescribed medications, and some switched to other drugs.

Moreover, industry patient assistance programs (PAPs) appear to provide minimal help to low-income seniors struggling to meet Part D premiums and co-pays, data provided by the Government Accountability Office (GAO) indicate. A GAO report issued last month suggests that many PAPs are not open to Part D enrollees and that the diversity of these support programs creates confusion.

A top goal for Democrats is to repeal the "non-interference" clause governing Part D, which prevents Medicare from negotiating prices and discounts directly for covered drugs. Many opponents of such a move, among them insurers, pharmacy benefit managers (PBMs), and pharmaceutical companies, claim that centralized price negotiations will not reduce spending and might actually increase prices if manufacturers fear they have to give all players their deepest discounts.

Nevertheless, both presidential candidates have promised to allow government drug-price negotiating, and Congress is likely to support such a move. Few legislators understand the nuances of the policy, commented former Rep. James Greenwood, now president of the Biotechnology Industry Organization (BIO). He told reporters at a briefing last month that members of Congress assume that either Medicare negotiates prices or drug companies charge whatever they want; they fail to realize, Greenwood said, that every drug under Part D is subject to "very tough negotiations" between the private parties.

BROADER PROTECTION

Drug plan sponsors and formulary committees can also have trouble negotiating low prices, constrained by the Medicare policy that requires coverage of certain "protected classes" of drugs. CMS requires PDPs to include on all Part D formularies "all or substantially all" drugs in 6 protected classes (antipsychotics, antidepressants, antiretrovirals, immunosuppressants, anticonvulsants, and antineoplastics).

Medicare legislation approved by Congress in July further strengthened that policy. The measure codified the status of current protected classes and established a process for extending this status to additional medications when their formulary exclusion could have "major or life-threatening clinical consequences." The Bush administration protested that such a move would "effectively end meaningful price negotiations" between drug plans and manufacturers and ultimately increase program costs and beneficiary premiums. However, many patient groups and providers praised the measure as a way to ensure coverage of important medications for seniors.

Congress approved this broad Medicare reform package just in time to cancel a scheduled 10% cut in Medicare fees for physicians and to provide a host of Medicare program changes sought by beneficiaries and providers alike. The Medicare Improvements Act expands coverage of preventive services, cuts some co-payments and coverage caps, increases assistance for low-income seniors, and boosts support for hospitals and providers in rural areas. One provision encourages electronic prescribing by physicians as an important step toward the implementation of more efficient electronic health information systems.

Biopharmaceutical companies won a delay in the adoption of stricter payment caps on radiopharmaceuticals but now face a new bundled payment system for dialysis services and drugs that aims to prevent overuse of medications and other products. Generic drug makers, PBMs, and pharmacists won a delay in the adoption of an average manufacturer price reimbursement formula for Medicaid programs, which would have cut pharmacy reimbursement for dispensing generic drugs. Many PBMs, however, were unhappy about a pharmacy-backed "prompt pay" provision that requires Part D plans to reimburse pharmacies within 14 days.

Critics say that the main failure of the legislation is that it does little to revise Medicare's outmoded payment system for doctors. In fact, the legislation calls for a 20% cut in physician fees in 2010, setting the stage for another heated battle over Medicare rates and regulations in another year.

MORE COMPENDIA ON MEDICARE'S LIST

Insurers and formulary committees may have more leeway in approving coverage of certain off-label drug uses following Medicare's decision to recognize prescribing recommendations in several additional medical compendia. The policy applies to off-label use of cancer therapies administered by physicians under Medicare Part B. By granting official status to these reference publications, the CMS policy is expected to carry over to the Part D drug benefit, as well as to private plans and payors.

Medicare adopted a policy approximately 15 years ago that authorized reference to several compendia for determining coverage of cancer treatments, but only the American Hospital Formulary Service Drug Information still exists. Two others stopped publishing in recent years, whereas other compendia have gained credibility.

These developments prompted cancer advocacy groups, oncologists, and pharmaceutical companies to urge CMS to consider adding more publications to the agency's approved list. A lengthy review led to agency decisions in June and July to authorize 3 more compendia: the National Comprehensive Cancer Network (NCCN) Drugs & Biologics, Thomson Micromedex DrugDex, and Elsevier Gold Standard's Clinical Pharmacology. At the same time, CMS officially dropped the defunct American Medical Association Drug Evaluations and decided not to add Thomson's DrugPoints.

Expansion of the list of approved compendia gives formularies and health plans more leeway in making off-label coverage decisions, as there is considerable variation in evidence cited and treatment recommendations. However, the listing of a treatment in an approved compendium as an appropriate use does not necessarily guarantee Medicare coverage, CMS officials point out. These changes leave the door open to "coverability," however, and reduce the likelihood that payors will deny coverage solely because a use is not listed in labeling approved by FDA. The availability of more accepted references increases flexibility in coverage decisions, which should be helpful to all patients, payors, and pharmaceutical companies.

Ms Wechsler is a Washington-based reporter specializing in federal and state healthcare issues.