Medicare Law Might Limit Drug Discounts for Insurers

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http://www.nytimes.com/2003/12/24/business/24drug.html?th

 

December 24, 2003Medicare Law Might Limit Drug Discounts for InsurersBy GARDINER

HARRIS

 

WASHINGTON, Dec. 23 - Two provisions buried deep in the nearly 700-page Medicare

drug law may limit the discounts that insurers and pharmacy benefit managers can

get from drug makers - and, therefore, how far the new drug benefit for the

elderly will stretch, executives say.

 

One provision allows doctors to prescribe for their Medicare patients whatever

drug they deem " medically necessary, " even if that drug is not on an insurer's

list of preferred drugs. Other language in the measure, which President Bush

signed into law on Dec. 8, requires that companies providing a drug benefit make

at least two comparable drugs available in every treatment category.

 

Both provisions, industry executives say, could limit the negotiating power of

companies that use preferred drug lists, known as formularies, to win discounts

from drug makers. Without significant drug discounts, monthly premiums for the

benefit could soar above the expected $35 a month, said Terry Latanich, a senior

vice president of Medco Health Solutions, one of the nation's largest pharmacy

benefit managers.

 

" If premiums escalate, people will drop out, and the private sector may not be

able to sustain this program, " he said. Healthy people would be the likeliest to

opt out, according to Mr. Latanich, and insurers might be unwilling to offer

coverage that would appeal only to patients sure to make heavy use of it.

 

The impact of the legislative language is likely to depend on regulations being

written by the Centers for Medicare and Medicaid Services that will not be

completed for a year. Peter Ashkenaz, a spokesman for the agency, said that the

provision allowing doctors to prescribe any drug was meant to come into play in

an appeal process and should not undercut providers' formularies.

 

Industry officials say that doctors might be quick to use a simple appeal

mechanism but would be unlikely to complete a lot of paperwork to win the

freedom to prescribe the drugs of their choice.

 

Critics of the law have already attacked its explicit prohibition against the

federal government negotiating directly with drug makers for lower prices.

Senator Charles E. Schumer, Democrat of New York, said that he was not surprised

that as people dig through the law's language, more provisions benefiting the

drug industry are being uncovered.

 

" Every time the authors of this legislation had to choose between low prices and

drug company profits, they chose the drug industry's profits, " he said.

 

A spokesman for the Pharmaceutical Research and Manufacturers of America, the

drug industry's trade association, said that officials who could comment on the

legislation were home for Christmas and unavailable.

 

The two provisions address the conflict between guaranteeing patients access to

needed drugs and limiting choices enough to give insurers and benefit managers

bargaining power with drug makers.

 

The drug industry has long argued that patients should have access to any drug

that their doctors would prescribe. Managed care providers say that some limits,

particularly in therapeutic classes that have several nearly identical drugs, do

not harm care and can lead to great savings.

 

Phil Blando, a spokesman for the Pharmaceutical Care Management Association, a

trade group for pharmacy managers, said concerns about the two provisions were

common in the industry. " If physicians are allowed to override formularies at

will, that will lead to added costs for the Medicare program and could endanger

its affordability, " he said. Still, most pharmacy executives favor the new law,

because of its heavy reliance on their companies.

 

The potential significance of letting doctors define specific drugs as

" medically necessary " is illustrated by Oregon's Medicaid program for its poor

and disabled residents.

 

The state was hoping to win steep discounts from drug makers after it put into

effect a preferred drug list for Medicaid patients. But the Oregon Legislature

passed a law this year that allows Oregon doctors to bypass Medicaid's formulary

whenever they deem a drug medically necessary simply by writing " dispense as

written " on prescriptions.

 

" We don't have the ability to control drug costs, because the state doesn't have

the ability to establish a formulary, " said Jim Edge, Oregon's assistant state

Medicaid director. As a result, he added, the state may lose more than $50

million in annual discounts on its Medicaid drug bill of more than $250 million.

 

It is not clear which legislators were responsible for inserting the provisions

in the Medicare law. Officials of the Senate and House committees that

shepherded the legislation through Congress said that people who could pinpoint

the backers of the language were on vacation and unavailable to comment. Similar

language has been part of various pieces of Medicare legislation for years and

has been popular with Democrats, who often embrace rules that guarantee patients

access to the widest array of drugs possible. Patient advocacy groups have also

pushed for open-access rules.

 

John Rother, policy director for AARP, said the group's membership was evenly

split between those favoring the broadest access to drugs and those who simply

want cheaper medicine. AARP's support for the Medicare legislation is widely

credited with assuring its passage.

 

" As with any ambitious piece of social legislation, " Mr. Rother said, " there

will be a lot of unintended consequences and a continuing effort to change and

fine-tune the legislation as we go forward. "

 

He acknowledged that the two provisions could threaten the ability of pharmacy

managers to deliver the discounts needed for the program to succeed, but

expressed confidence that the details could be worked out.

 

" It may be difficult, though, " Mr. Rother said.

 

Ron Pollack, executive director of Families USA, a health care consumer advocacy

group, said he expected that any drug discounts obtained under the new law would

be minimal, because so many companies in so many regions of the country would

try to deliver the benefits.

 

" The way it's constructed, and the reason the pharmaceutical companies like this

arrangement, is that it's an extremely balkanized system, " Mr. Pollack said.

" Nobody's going to have enough market share that a drug manufacturer is going to

want to bargain much. "

 

Copyright 2003 The New York Times Company |

 

 

 

 

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