New Bill to Create Prescription Drug Benefit Through Original Medicare Comes As CMS Expansion of Off-Label Drugs for Cancer Treatment Draws Criticism

Yesterday, Congressional Democrats introduced legislation (HR 684, S 330) that would allow Original Medicare to establish one or more plans to compete with private plans under the Part D prescription drug benefit, according to CQ HealthBeat. The legislation would also require the Secretary of Health and Human Services to negotiate directly with pharmaceutical companies for the prices of medications under Part D.

Additionally, it would strengthen the ability of Medicare beneficiaries to appeal denials of coverage for medically necessary medications under all Medicare Part D plans.

The bill was sponsored by Senate Majority Whip Richard Durbin (D-Ill.) and Reps. Marion Berry (D-Ark.) and Jan Schakowsky (D-Ill.). According to Berry, the plans established by Medicare would have the ability to obtain discounts on medications that private plans could not match.

Rep. Schakowsky claimed:

"Under our bill, seniors and people with disabilities would finally be able to select a Medicare-operated drug plan that provides a guaranteed benefit without having to worry that their premiums will drastically increase or their access to needed drugs will drastically decrease each year."

Pharmaceutical Research and Manufacturers of America Senior Vice President Ken Johnson said that the group had begun to review the legislation and pledged to work with sponsors to help Medicare beneficiaries obtain medically necessary medications. Johnson added that:

"It's important to note, however, that the competitive market approach of the Medicare drug benefit is working well for patients and taxpayers."

Supporters of the bill disagree with this statement, including Medicare Rights Center, which has long advocated for the addition of a drug coverage option to Original Medicare. The organization claims, in its report The Best Medicine, that private prescription drug plans create higher costs, gaps in coverage, instability, and the danger of consumer confusion and marketing fraud.

Rep. Berry added that:

"If this works as we think it will, most of the private plans would drop out [of the Medicare prescription drug benefit]."

This comes as a Centers for Medicare and Medicaid ruling last fall allowing the coverage of drugs for off-label uses to treat cancer patients has begun to draw controversy. The New York Times reports that the new ruling changed the authority of drug compendiums.

Previously, Medicare representatives were supposed to consult compendiums and use their own discretion to interpret recommendations in determining coverage. Under the new ruling, the decision now is based only on the compendiums, "even when there is little clinical evidence behind a particular recommendation," according to The Times.

The problem with the new ruling, says The Times, is that there are possible conflicts of interest because "some of these new compendiums have close financial ties to the drug industry." Additionally, The Times reports that "it is hard to predict how much" Medicare spending on cancer drugs could increase as a result of the new rules because Medicare officials canceled a cost analysis of the changes.

It added:

"[The changes] seem almost certain to raise the federal drug bill," which could make it "more difficult for the new administration to rein in spending on unproven medical treatments."

Donut Holes: How Much is that Prescription in the Window?

The Wall Street Journal reports that the Center for Medicare and Medicaid Services (CMS) has “finalized a rule meant to curb an industry practice that has inflated drug costs for some patients with Medicare drug coverage.”

The new rule regards the way that one calculates the cost basis for Medicare prescription drug benefits for the purposes of reaching the initial cap on coverage. This initial cap on prescription benefit coverage can result in what CMS refers to as “the coverage gap” or what is often referred to as the Medicare Part D “doughnut hole.”

The Dallas Morning News has offered this explanation of “the doughnut hole”

Seniors with Medicare's standard drug benefit for 2008 pay the full price once their total drug expenses – both Medicare's costs and their own out-of-pocket deductibles and co-payments – reach $2,510.

They are then on their own for the next $3,216, until their total drug spending exceeds $5,726. At that point, catastrophic coverage kicks in, and Medicare pays 95 percent of their drug costs.
Some seniors are able to avoid the doughnut hole because they qualify for extra government help or buy extra insurance. But everyone else has to mind the gap, which lawmakers included in Medicare's drug benefit to hold the line on federal costs.

The WSJ Health Blog reports that in 2009, “The coverage gap will open up after beneficiaries and their drug plans have spent a total of $2,700 on medications…. Seniors are then on the hook for the next $4,350.”

In response to that expense, the Kaiser Foundation has shown that many seniors cease or diminish the use of their medications.

The new rule, which will go into effect on January 1, 2010, alters the price basis for how the initial cap amount is met (in 2007 the initial cap was $2,400, in 2008, $2510, in 2009 it will be $2,700, and in 2010, presumably, it will be somewhat higher than that).

WSJ explains that at present the cost of a Medicare beneficiary’s prescriptions for initial cap purposes are not calculated as the amount that was paid to the pharmacy which dispenses the drugs, but by the amount which insurers paid to pharmacy benefit managers (PBMs) who function as administrators of prescription plans and middlemen between insurers and pharmacies.

PBMs may “lock in” a drug price with insurers, and then often negotiate with pharmacies for a lower price. The PBMs then keep the brokered difference. According to WSJ, “the size of that difference is typically secret.” At present, the higher amount the insurers pay to the PBM is the amount that is used to calculate a Medicare beneficiary’s cap calculation. As such, the higher rate can get beneficiaries to the cap—and the subsequent coverage gap— quicker.

WSJ reports that "Under the new rule, plans can still use the lock-in approach. But the amount paid to the pharmacy -- not the higher price paid by the insurer -- will have to be what is used to determine patients' pace to the doughnut hole."

The New York Times reports that “President-elect Barack Obama said Wednesday that overhauling Social Security and Medicare would be “a central part” of his administration’s efforts to contain federal spending….”

At present, Medicare is itself unable to negotiate drug pricing. In Obama’s campaign health plan, he stated that he would

Allow Medicare to negotiate for cheaper drug pricing. The 2003 Medicare Prescription Drug Improvement and Modernization Act bans the government from negotiating down the prices of prescription drugs, even though the Department of Veterans Affairs' negotiation of prescription drug prices with drug companies has garnered significant savings for taxpayers. Barack Obama and Joe Biden will repeal the ban on direct negotiation with drug companies and use the resulting savings, which could be as high as $30 billion, to further invest in improving health care coverage and quality (footnotes omitted).