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).

e-Prescriptions Increase as Medicare Incentive is About to Take Effect

The AP reports that in “December 2007, 35,000 doctors were writing at least some paperless prescriptions, according to SureScripts-RxHub, which tracks the drugstore network.
The 2008 count isn't finished yet, but SureScripts estimates that number has doubled to more than 70,000. Moreover, the volume of prescriptions filled electronically grew about 15 percent a month since August, faster than the 5 percent to 8 percent monthly increase seen earlier in the year — presumably as doctors geared up for the Medicare incentive.” Read more here.

Medicare for all?

Two recent articles worth noting have asked the question above, and both have answered it “yes.” The writers are Saul Friedman, columnist for Newsday, and Dr. Oliver Fein, associate dean and professor of clinical medicine and public health at Weill Cornell Medical College in New York and president of Physicians for a National Health Program. Both men see expansion of the Medicare program as a viable solution to the nation’s health care ills. And they are not alone. Congress has before it a proposal for "Medicare for All" (HR676), introduced in February 2007 by Rep. John Conyers Jr., (D-Mich.). The bill is said to have (including Rep. Conyers) “94 co-sponsors…it also has the endorsement of most labor unions, thousands of doctors, nurses and health care professionals.” The Conyers proposal, also backed by the Physicians for a National Plan, would gradually provide Medicare for everyone who wants it and would pay a premium.


The plan seems to have received little mention in the media. According to Friedman, “It would absorb such programs as Medicaid, SCHIP and be paid for by taxes and premiums. It could relieve auto manufacturers and other businesses of paying for health insurance for employees and retirees. Its sponsors say it would save $300 billion a year in administrative costs, for it would deny insurance companies a role.”

And that may be the rub. Friedman states “Getting over that hurdle may be why HR 676 has gotten so little publicity, even from alleged friends of older people. There is no mention of it on the Web site of AARP, which earns $700 million a year in royalties on the sale of private health insurance it sponsors.” Read full column here.

In the Atlanta Journal Constitution, Dr. Fein writes:

However well-intentioned, the Obama/Baucus/Kennedy approaches share a fatal flaw: they preserve a central role for the private health insurance industry.

To varying degrees, they would mandate that everyone buy private health insurance— the private insurance that is failing us today. Some of these plans offer a Medicare-like, public option that people could buy into, but experience with Medicare shows that the private plans refuse to compete on a level playing field. They cherry-pick healthier patients and insist on more than their share of payment.

Experience with mandate-based plans in Washington state (1993), Oregon (1992) and Massachusetts (1988 and today) shows that they simply don’t work, achieving neither universal health care nor cost containment.

As long as we rely on private health insurers, universal coverage will be unaffordable....
There is a cure, however. Eliminating the private insurance industry would save $400 billion annually in administrative costs, enough to ensure that everyone is covered and to eliminate all co-pays and deductibles.

At this critical juncture, a single-payer plan is the only medically, morally and fiscally responsible path to take. Read full column here.