Medicare Reform Advisor, February 1, 2005

Feb. 1, '05 Vol. 2, No. 5 Weekly news and analysis

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"It's safe to say that all the pharmacy benefit managers are going to get into the [drug benefit] game because of the involvement of their parent insurers" --Robert Atlas

READER FLASH: Correspondent Jan Simmons has a report in today's issue on the role of PBMs and formularies in the prescription drug benefit. See this week's "Study" below for the full story. Then in Part II running February 22 we'll have a prediction on the drugs that plans might cover in the antidepressant category under Part D. Make sure you renew your subscription today so you don't miss out (800-650-6787)!

'Donut hole' forces hospital to start drug cost reviews
To use subcommittee to look at reasonable costs

The so-called "donut" hole in the prescription drug benefit has hospitals worried about increasing bad debt, and the fallout could mean many institutions will be forced to choose cheaper medications. Many hospitals are already preparing. "People don't understand," says Suzanne Harriman, assistant vice president for patient financial services at Johnson Memorial Hospital in Stafford Springs, CT. "Patients who don't have secondary insurance or those who are self pay will be strapped if they hit that hole in coverage. Another copay or deductible will really hurt. People on multiple meds, for example, may develop pneumonia or congestive heart failure or have a diabetic reaction-there are some high deductibles here for those without secondary insurance."

Medicare's drug benefit will cause a gap in available coverage after a beneficiary reaches $2,250 in drug expenses. The gap runs from $2,251 up to $5,100 in drug expenses.

Hospitals will have to write off the bad debt if patients can't afford to pay. "That will reduce our bottom line. We'll be able to recoup some of that through our cost reporting, but that's it," says Harriman.

To prepare, Johnson Memorial has started a "product line" subcommittee-a group of pharmacy and therapeutic staff who will assess the most reasonable drugs to purchase and use based on patient needs and costs. "This is a lot like the way we do things with surgery instruments," Harriman says.

Sidebar: The government kicks in 75% of initial drug costs up to $2,250. Congresswoman Nancy Johnson (R-CT) says most people won't hit this mark, according to research from the House of Representative's health subcommittee. Johnson, who spoke on the issue at a town hall meeting in Farmington, CT, added that the reform-law offers help with more preventive health and chronic care benefits to keep people within the initial limit.

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Off label coverage widens for anti cancer drugs
On January 28, Medicare expanded coverage for additional off-label uses of new cancer drugs. Coverage will be limited to those drugs already approved for colorectal cancer, including oxaliplatin, irinotecan, bevacizumab, and cetuximab. Medicare contractors will pay providers for the four anticancer drugs only as part of selected clinical trials sponsored in part by the National Cancer Institute (NCI). Off-label uses mentioned in certain drug compendia will continue to be covered, and Medicare contractors will continue to have the authority to pay for off-label use of the drugs for patients not enrolled in these trials. The CMS policy will also ensure funding for certain routine costs of clinical items and services provided to patients enrolled in these trials. Funding for the drugs' services was not previously available.

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Average drug prices expected to drop under MMA
Current studies show that beneficiaries save money under the new Medicare drug benefit-even as they use more drugs, said CMS Deputy Administrator Leslie Norwalk, speaking January 27 at the National Academy of Social Insurance (NASI) meeting in Washington,

"A skeptic might think that beneficiaries are going to spend less . . . because the federal government will be spending more or because seniors will be using fewer drugs," Norwalk said. However, a new study from AARP "confirmed that neither of those scenarios are correct."

The study found that in 2006, out-of-pocket spending for beneficiaries will decrease by nearly one-third--from $1,325 to $890, Norwalk said. "The benefit won't cost massive amounts of new money, and with their new coverage, Medicare beneficiaries will actually use more drugs. That's because the plan is structured in a such way that the average price for drugs will fall significantly," she said.

Total drug spending for the Medicare population will decrease by 3% as a result of the drug benefit, she noted. According to the Congressional Budget Office, this "cost management" will increase to close to 25% over time. "This is a distinctive feature of the Medicare benefit. Under most insurance plans, prices rise because consumers aren't paying for what they get themselves [since] first dollar coverage is provided by insurance plans," she said. "It's a tribute to the steps we've taken to lower prices that they're actually going to fall under our benefit."

Report from Washington Correspondent Jan Simmons.

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PBMs face unknown factors in new market
Part I of II (part II runs February 22)

As the deadline approaches for entities to submit their applications to seek contracts to sponsor Medicare prescription drug plans, pharmacy benefit managers (PBMs) are expected to play major roles. But how many will be stepping up to the plate right now is hard to determine because most appear to be "coy" about this issue, said Robert Atlas, an independent consultant and former president of the Lewin Group, at a meeting in Washington, DC, last week put on by the National Academy of Social Insurance. "But I think it's safe to say that all the PBMs are going to get into the game" because of the involvement of their parent insurers."

There will be several ways, Atlas said, that PBMs can "basically play" in Medicare under the new rules: work with employers and retiree plans that qualify for the drug subsidies; offer their own standalone plan (which Atlas said is probably unlikely in most instances because of the risk of adverse selection); work as a subcontractor to a standalone insurer (which is "traditional and comfortable for a PBM," Atlas said); operate in the "same backoffice way" as with the Medicare Advantage program; or become a fallback contractor.

But whatever role they play, PBMs will face a variety of risks, Atlas said. Topping that list is a lack of reliable history of beneficiary use of prescription drugs. The unknown factor is what the impact on utilization will be from those seniors who have not had drug coverage in the past and who had traditionally used fewer medications because of cost concerns. Also, the mix of products on the market is constantly changing-such as by popular prescription drugs moving to over-the-counter, which in turn affects demands and costs. Also, less control will be placed on prescribers of the medications.

Another major question is what type of drug formulary will be used. The model formulary guidelines developed by the United States Pharmacopeia (USP) "is simply something that is there as a kind of safe harbor" meaning that if a plan uses that system, "its classification system can't be challenged," said Jack Hoadley, a research professor at Georgetown University's Health Policy Institute in Washington.

But the plans are really in a strategic position on how to decide how to use that formulary, Hoadley said. They can choose to use a "fairly tight formulary" to manage costs more tightly--by excluding high-cost drugs or narrowing the field with a few drugs where they can negotiate better prices. Or plans have some incentive to go after market share-saying they're offering a wider choice of drugs for beneficiaries.

In the private sector, the use of closed formularies is relatively rare, Hoadley said. More than 90% of commercial plans now use either fully open formularies, where all drugs are covered, or tiered formularies, where all drugs are covered but financial incentives are used for choosing some drugs over others. On the other hand, about a third of the Medicare + Choice plans use closed formularies, where coverage was restricted, and Department of Veterans Affairs (VA) facilities also use closed formularies. So how the formularies will shake out--open or closed--within the new Medicare structure will remain to be seen, Hoadley said. "The reality is we really don't know."

But Barrett Toan, chairman and CEO of Express Scripts, a PBM, sees PBMs overall taking an active role in the process--despite criticism the industry has faced. It's because of "the success of the PBM industry"-through "squeezing profit margins" and "squeezing formularies to reduce unrestricted access"-that "we are getting that kind attention."

Toan said the current USP national definition of the formulary would be "more restrictive" than what his company uses today in the commercial market-even for those plans with the most restrictive formularies.

Report from Correspondent Jan Simmons.

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Dialysis program gets overhaul
Gerald Ford was president the last time the government updated the rules for providing dialysis services to a Medicare patient. But the government is set to overhaul the requirements in an effort to better regulate quality of care, as changes to the program requirements were released in a proposal on Friday. The rules will be published February 4. The changes give facilities more flexibility to meet individual patient care needs, but the updates add greater enforcement and penalties for failure to comply. Facilities must now do the following:

1. Create a quality assessment and performance improvement program focused on improving patient outcomes of care, including provisions to identify medical injuries and medical errors, patient satisfaction, and grievances
2. Notify patients with a 30-day notice prior to involuntary discharge
3. Maintain an internal patient grievance process
4. Comply with more comprehensive patient assessment requirements, including a patient's suitability for a transplantation referral and criteria to identify unstable patients
5. Meet new requirements for transplantation referral tracking
6. Meet new minimum federal qualifications for patient care technicians (PCT), such as professionally supervised on-the-job training and a written PCT training program with specified criteria, including patient sensitivity training
7. Collect and report data electronically as part of CMS' Clinical Performance Measures Project

CMS is looking for comments on the proposal before making it final in the spring. For example, it wants thoughts about how care and services should be provided to hemodialysis patients in nursing homes.

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Bryan Cote
Executive Editor
860-232-6367
E-mail address: bcote@hcpro.com