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ever there was a political hot pota to, a Medicare drug benefit is it. For at least a dozen years now, there has been much debate — but little consensus — on how such a benefit for Medicare beneficiaries should be structured and financed. Senior cit izens, politicians, healthcare, and pharmaceu tical leaders all agree that there should be a prescription benefit for this population. The sticking points concern what that benefit should look like and who should pay for it. This spring, Congress once again tried to develop a law to address this issue after Presi dent Bush challenged political leaders in Jan uary to create a Medicare system modeled on DRUGSFORSENIORS If BY DENISE MYSHKO Will there ever be an outpatient prescription drug benefit for Medicare beneficiaries? That depends on whether Congress is able to address the political, logistical, and financial challenges of implementing Medicare reform. 26 J u l y 2 00 3 PharmaVOICE 27 PharmaVOICE J u l y 20 03 the healthcare benefit plan that federal employees have access to. As this issue went to press, no bill had been introduced in either chamber, although in early June, the Senate’s Finance Committee had offered a proposal that would allow seniors, beginning in 2006, access to outpa tient prescription drug coverage through a discount card or as part of a new, coordinated Medicare Advantage program. But the prescription drug benefit is just one issue that Congress is grappling with. The larger question is whether — and how — the Medicare program itself should be reformed. Medicare reform, if not enacted this year, will be a 2004 election issue, says NancyAnn DeParle, J.D., senior advisor to JPMorgan Part ners LLC and an adjunct professor at the Whar ton School of the University of Pennsylvania. Ms. DeParle, who served as administrator of the Health Care Financing Administration (what is now The Centers for Medicare and Medicaid Services) from 1997 to 2000 during the administration of President Bill Clinton, gave her remarks at a Medicare symposium in May. The symposium, held at the University of the Sciences in Philadelphia, was sponsored by a grant from AstraZeneca Pharmaceuticals. Medicare is facing several critical chal lenges. The number of elderly beneficiaries is expected to almost double during the next 30 years, and they are likely to outnumber wage earning taxpayers. Medicare currently has 41 million beneficiaries and had total expendi tures of $265.7 billion in 2002. Enrollment is expected to reach 77 million by 2031, when the baby boomer generation is fully enrolled. For the period 2004 through 2013, Con gressional Budget Office officials estimate that spending for prescription drugs for Medicare will total roughly $1.8 trillion, or nearly 50% of the projected $3.9 trillion in payments. The Medicare program was established in 1965 using the insurance models of the time. Since then, however, both the healthcare sys Take Center Stage t APRESCRIPTION DRUG BENEFIT IS ATTHETOPOFTHE LIST OF ISSUES FORTHOSE IN THE HOUSE,THE SENATE AND THEWHITE HOUSE.THEY FEEL EXPOSEDGOING INTOTHE NEXT ELECTION IF THEY DON’TTAKE CARE OFTHIS. Marc Scheineson s THE BIGGEST ISSUE ANDTHE BIGGEST CHALLENGE IS HOWTOPAY FORA PHARMACY BENEFIT. IF YOU LOOKATTHE COSTS,THERE IS A HUGEVARIANCEBETWEEN THOSEWHO SPENDA LOT OF MONEY ANDTHOSEWHO DON’T.ULTIMATELY, IT BEGS FOR REFORMBASEDONAN INSURANCE MODEL.BUTMOST FOLKSWHOAREN’T SPENDING A LOT DON’TWANT TO SPEND MONEY ON INSURANCE.AND THOSEWHOARE SPENDING ARE IN THEMINORITY. Greg Weishar t IF I WERETHEMEDICARE QUEEN, I WOULDHAVEA DRUG BENEFIT FOR MEDICARE RIGHT NOW. BUTTHAT IS NOT REALISTIC. CMSWILLNEED AT LEAST AYEARTOGEARUP.AND WHAT’S BUDGETEDNOW IS NOT ENOUGH. NancyAnn DeParle s I FEEL STRONGLY THAT DESIGNING A BENEFITTHATWILL COVER 80%OF JUST ABOUT EVERYTHINGWILL LEAVE A WHOLE LOT OFBENEFICIARIES WITHVERY SIGNIFICANT RESIDUAL EXPENSES.THIS MEANSTHATWEWILLHAVE DONEHALFOFTHE JOB,AND THE PEOPLEWHO LOSE OUT FROM THAT PIECEOFTHE DESIGNWILL BEVERYVOCAL. BruceVladeck MEDICARE reform 28 J u l y 2 00 3 PharmaVOICE MEDICARE reform tem and the practice of medicine in the Unit ed States have changed dramatically. It’s important to note that the Medicare program was designed as a social insurance program, not as a welfare program, says Samuel O. Thier, M.D., chairman of the Com monwealth Fund, professor of Medicine and Health Care Policy at Harvard University Medical School. “Medicare was started by peo ple who believed that it would be the first step in incremental change in developing broader coverage for the population as a whole,” Dr. Thier said at the symposium. “That incremen tal system never came to be.” Medicare reform is contentious and often a very personal issue for many. “Medicare impacts a lot of people,” says Judy Waltz, partner in the health law department and cochair of the compliance payment depart ment, at Foley & Lardner. “It’s a huge part of the economy. And Medicare is such a compli cated system. In fact, Medicare’s rules are more complicated than the Internal Revenue Code.” Making changes to the Medicare program is difficult for a number of reasons, but the pri mary challenge is cost. “There is a huge variance between those who spend a lot of money and those who don’t,” says Greg Weishar, president and CEO of PharmaCare Management Services Inc., a pharmacy benefit manager. “It begs for reform based on an insurance model. But most people who aren’t spending a lot for drugs don’t want to spend money on insurance.” Another challenge is one of philosophy, says Marc Scheineson, a partner in the law firm of Reed Smith and former associate commis sioner at the Food and Drug Administration. “Democrats want a broader program and aren’t as concerned about the costs,” he says. “The Republicans want a narrower program focusing on where the need is greatest — on the poor communities. Republicans don’t want to pay for a drug benefit for Bill Gates.” Another problem is that there is not a lot of incentive to compromise, says Robert A. Free man, senior director of public policy at AstraZeneca Pharmaceuticals. “All legislation requires compromise,” he says. “And when everybody’s second choice is the status quo, it is very difficult to effect a compromise.” Special interest groups make reform even more complicated, says Matthew Keith, a con sultant pharmacist and former director of pharmacy benefits at the Texas Department of Criminal Justice. “The impact from special interest groups is so huge that, a lot of the time, logic and common sense don’t seem to play a predominant role.” Why a Drug Plan? Many Medicare beneficiaries receive cover age for outpatient prescription drugs through other sources, but that coverage varies widely. In 2000, 75% of the Medicare population — or roughly 30 million individuals — had some form of insurance coverage for the cost of prescription drugs for at least part of the year, according to an analysis by the CBO. The number of beneficiaries receiving cov erage through these options, though, is expected to decline. Fewer employers are offer ing retiree health plans, where almost 30% of those beneficiaries obtained drug coverage. In addition, Medicare+Choice participation is declining. In 1997, legislation changed the payment formula with the best of intentions. Most urban plans had reimbursement growth capped at 2% for five consecutive years, as costs grew by as much as 10% a year. The results: plans have dropped out and enrollment has dropped to 11% of beneficiaries. There has been much support for restruc turing Medicare to look more like the benefits program offered to federal employees. “A marketbased plan would provide a wide choice of competing national feeforser vice or regional plans,” says Nancy Pekarek, a spokeswoman for GlaxoSmithKline. “In a marketbased system, this competition will provide the highest quality at the lowest cost. It also will encourage the pharmaceutical com panies to continue to look for innovation.” A marketbased system that uses PBMs can address some of the logistical challenges, agrees Tom Mahowald, VP of public affairs at Express Scripts. “Any program should enable Medicare spending — measured as a share of the economy — is projected to nearly quadrupleby2075,growing to more than9%of the gross domestic product (GDP) from its current level of 2.5%,according to the Congressional Bud get Office’s (CBO’s) latest projections of drug spending for the Medicare population. Part of the challenge facing Medicare stems from thedemographic trends that are making the countryas awholeolder.For the period from2010 to 2030 — when the babyboomer generation will retire — the number of workingage individ uals is projected to grow by about 10 million and the population of those 65 and older will increase by 30 million. CBO’s projections of Medicare spending for the next 10 years were updated in March 2003. CBO officials project that gross outlays for Medi care benefits will total $271 billion in 2003 and $3.9 trillion during the 2004 to 2013 period. As a share of the economy, those Medicare outlays are projected to rise from 2.5% in 2003 to 2.9% in 2013. These pressures will intensify as longevity continues to increase and health costs continue to grow. To accommodate such growth in spending, either taxes would need to rise dra matically, spending on other federal programs would have to be cut severely, or federal borrow ing would soar. CBO also projected the cost of Medicare as a share of GDP out to 2075 to show how much of the country’s production of goods and services would be needed to pay for the program as it is currently structured.CBO currently estimates that Medicare’s costs as a percentage of GDP will rise from 2.5% in 2003 to 9.2% in 2075. The hospital trust fund, Part A, is projected to be exhausted by 2026, according to CMS officials. And by the end of the 75year projected period, scheduled taxes would be sufficient to cover less than onethird of projected expenses. Source: Congressional Budget Office, Washington, D.C. For more information, visit cbo.gov. FORTHE PERIOD 2004 THROUGH 2013,CBO OFFICIALS ESTIMATE THAT SPENDING FOR PRESCRIPTION DRUGS FORTHEMEDICARE POPULATIONWILL TOTAL ROUGHLY $1.8 TRILLION,OR NEARLY50% OFTHE PROJECTED $3.9TRILLION IN MEDICARE PAYMENTS. Medicare’s NotSoRosy Future MEDICARE reform 29 PharmaVOICE J u l y 2 00 3 PBMs to use the tools that we currently employ with all of our other clients to ensure that we can deliver a costeffective benefit and one that is going to promote the greatest level of safety possible,” he says. ADesign for Benefits Recent proposals have adopted the private sector approach of using PBMs to process drug claims. But Mr. Scheineson says there is con cern about relying too much on private plans. “If the costs escalate, private plans could pull out of the system as they’ve done for the Medi care+Choice program,” he says. A question also remains about how much control PBMs will have and whether they will be able to use costcontrol mechanisms, such as tiered formularies, pharmacy networks, and prior authorization, says Gail R. Wilensky, Ph.D., the John. M. Olin senior fellow at Pro ject HOPE. She served as administrator of HCFA from 1989 to 1993 during the admin istration of President George H.W. Bush. “Some of the questions that are unclear are whether PBMs will be allowed to do the kind of channeling of patients that goes on regular ly in the private sector,” Dr. Wilensky said at the Medicare symposium. “It is not clear whether an entity will have a lot of its own power and control or whether it will be oper ating at the direction of CMS.” TheNewest Plans Under the plan proposed in June by the Senate’s Finance Committee, beneficiaries would have a $275 deductible and a 50% costsharing from $276 to $3,450. Individuals with incomes below poverty level would receive additional assistance. Medicare Advantage would replace the current Medicare+Choice program and would rely on HMOs, PPOs, and other coordinated plans to offer integrated benefits. Plans would be allowed to have formularies. Beneficiaries choosing to remain in traditional feeforser vice Medicare would be offered drug coverage on a voluntary basis. In January, President Bush announced a bud get plan that would include $400 billion during 10 years to reform and strengthen Medicare. This proposal would allow seniors to choose from three options: traditional Medicare, where seniors would have access to a discount care; enhanced Medicare, which would provide mul tiple choices of healthcare plans; or Medicare advantage, where seniors would also have the option of enrolling in lowcost and highcover age managedcare plans. “The corrosiveness of the social effect from doing a poor benefit almost negates the bene fits that some people would get,” says Bruce C. Vladeck, Ph.D., professor of health policy and senior VP of policy at Mount Sinai Medi cal Center. He served at HCFA administrator from 1993 to 1997 under President Clinton. “That is what $400 billion over 10 years will buy. Or it could buy a benefit targeted at a small fraction of the Medicare population.” “The president’s initial proposal was rou tinely considered to be going nowhere,” Ms. Waltz says. “It is unclear whether the revisions will find any more support. There is no con sensus that this is the way to go. The big fear is that CMS will make itself into one big phar macy benefit manager. If that happens, it could be a real crap shoot in terms of whether a pharmaceutical company could get reimburse ment for a particular drug.” F PharmaVoice welcomes commentsabout this article.Email us at email@example.com. Experts on this topic NANCYANNDEPARLE,J.D.Senior advisor to JPMorgan Partners LLC and an adjunct professor at the Wharton School of the University of Pennsylvania, Philadelphia; The Wharton School is recognized for its academic strengths across every major discipline. Ms.DeParle served as HCFA administrator from 1997 to 2000 under President Bill Clinton.For more information, visit wharton.upenn.edu. ROBERTA.FREEMAN.Senior director of public policy,AstraZeneca Pharmaceuticals, Wilmington,Del.; AstraZeneca is an international healthcare business engaged in the research,development,manufacture,and marketing of prescription pharmaceuticals and the supply of healthcare services.For more information,visit astrazenecaus.com. MATTHEWKEITH.Consultant pharmacist, Chugiak,Alaska;Mr.Keith is a pharmacist and former director of pharmacy benefits,at theTexas Department of Criminal Justice. TOMMAHOWALD.VPofpublic affairs, Express Scripts,Bloomington,Minn.; Express Scripts is one of the largest pharmacy benefit management companies in North Vladeck served at HCFA administrator from 1993 to 1997 under President Bill Clinton. For more information, visit mountsinaihos pital.org. JUDYWALTZ.Partner,health law departmentand cochair of the compliance payment department, Foley & Lardner,San Francisco;Foley &Lardner is a provider of legal counsel to global companies.For more information,visit foleylardner.com. GREGWEISHAR.President and CEO, PharmaCare Management Services Inc., Lincoln,R.I.;PharmaCare is a pharmacy benefit management company serving more than 15 million lives. For more information, visit pharmacare.com. GAIL R.WILENSKY,PH.D. John.M.Olin senior fellow, Project HOPE,Millwood,N.J.; Project HOPE’s — Health Opportunities for People Everywhere — mission is to achieve sustainable advances in healthcare around the world.Dr.Wilensky served as the administrator of the Health Care Financing Administration from 1989 to 1993 under President George H.W.Bush.For more information,visit projecthope.org. America.For more information,visit expressscripts.com. NANCYPEKAREK.Spokeswoman, GlaxoSmithKline, Philadelphia; GSK is one of the world’s leading researchbased pharmaceutical and healthcare companies.For more information,visit gsk.com. MARC SCHEINESON.Partner,Reed Smith, Washington,D.C.,and former associate commissioner at the Food and Drug Administration, Rockville, Md.;Reed Smith,with headquarters in Pittsburgh, is an international law firm.For more information,visit reedsmith.com. SAMUEL O.THIER,M.D.Chairman of the Commonwealth Fund,professor of Medicine and Health Care Policy at Harvard University Medical School, Boston; Harvard Medical School is one of the world’s preeminent institutions in medical education and research. For more information, visit med.harvard.edu. BRUCE C.VLADECK,PH.D.Professor of health policy and senior VP of policy at Mount Sinai Medical Center, NewYork;Mount Sinai Medical Center is one of the country’s oldest and largest voluntary teaching hospitals.Dr.