Medicare Moves To Limit Costs In Drug Plans

Medicare is trying to curb an opaque industry practice that inflates what some older and disabled people pay for medicines under the federal insurance program’s prescription-drug plan.

Medicare Part D, introduced in 2006 to extend drug coverage to beneficiaries, is provided through private health-insurance companies. Many insurers in turn contract with so-called pharmacy-benefit managers to administer their plans. Among other functions, these PBMs negotiate lower drug prices with pharmacies. But some companies, under a practice allowed by Medicare, then charge a higher price to health insurers and, ultimately, the government.

This approach is called “lock-in pricing” because the insurers pay the PBMs a set amount for the drugs, even if that differs from what the drugs really cost at the pharmacy. Lock-in-pricing can boost costs for Medicare beneficiaries because they pay a percentage of their drug costs. Also, the practice can more quickly drive consumers into the notorious gap in coverage known as the doughnut hole, where they generally must begin paying the full cost of their medicines. The doughnut hole kicks in when total drug expenditures by the beneficiary and the plan reach $2,510. Medicare drug plans start paying again once total expenditures reach $5,726.

Lock-in pricing “has a detrimental effect on the beneficiary because it pushes him into the coverage gap faster,” says Abby Block, director of the arm of the government’s Centers for Medicare and Medicaid Services (CMS) that runs the drug benefit. Under a current Medicare proposal, PBMs would be allowed to continue claiming the higher prices for reimbursement. But beneficiaries’ own drug costs would be calculated without the extra amounts included.

Pharmacy-benefit managers — including Express Scripts Inc., Medco Health Solutions Inc., and units of CVS Caremark Corp. and UnitedHealth Group Inc. — carry out their functions behind the scenes, including developing lists of covered drugs, maintaining networks of participating pharmacies and paying the pharmacies when beneficiaries buy drugs.

CMS figures that 19% of the hundreds of Medicare drug plans are using lock-in pricing this year, affecting 14% of the 25.8 million enrollees in the Medicare drug program. Other plans use what is known as pass-through pricing, in which PBMs charge insurers the same prices they pay the pharmacies.
CUTTING COSTS

Ways to control costs in a Medicare drug plan:
• Compare drug costs in different plans using the Prescription Drug Plan Finder at medicare.gov/mpdpf.
• Track your drug expenses and progress toward the ‘doughnut hole’ using your explanation of benefits.
• When possible, use generics, which tend to cost less than branded medicines.

Patients who take lots of drugs are most affected by lock-in pricing. For example, one female patient who last year regularly took six generics and two branded drugs had average monthly costs of about $256, according to the patient’s explanation of benefits. At that rate, the patient was on track to reach the doughnut hole in October. But without the PBM’s higher charge based on lock-in pricing, the patient would have paid $215 a month on average for the same drugs — and she wouldn’t have hit the doughnut hole until December, according to an analysis of data provided by the patient’s pharmacist.

The price spreads tend to be much greater for generics than for branded drugs. That’s because generics are much cheaper for pharmacies to acquire, making it easier for PBMs to negotiate down the prices they pay and less noticeable to patients and insurers when the extra costs are included.

PBMs that administer lock-in pricing plans argue that the method is common in the private insurance market and should be available for Medicare as well. Some PBMs say the extra money they make under the pricing method provides funds to encourage more consumers to use lower-cost generic drugs. Express Scripts, for instance, says it analyzes beneficiaries’ drug-purchasing habits and sends patients letters to explain how changes in their purchasing habits could lower their costs. And some companies, including UnitedHealth and CVS Caremark, which operate both as PBMs and insurers, have warned that if those extra amounts aren’t included in drugs’ costs, insurance plans that would be affected by any change may have to increase premiums, the monthly price that seniors pay for the plans.

To be sure, a large majority of older people are satisfied with their Medicare drug-benefit plan and say they are paying less for drugs than they were before the benefit existed, when seniors relied on a hodgepodge of private and public drug benefits, or made do without coverage. In a Wall Street Journal Online/Harris Interactive survey over the Internet of 571 U.S. adults age 65 or older, published in December, some 75% of respondents said their plan had saved them money and 83% said their plan was easy to use. Some 12% said they had to pay the full price for medicines because they had hit the doughnut hole.

The Kaiser Family Foundation projected this spring that the average premium for most Medicare Part D plans would rise nearly 17% to $31.99 a month in 2008 from $27.39 a month last year. That follows an average premium increase of 5.6% in 2007 from a year earlier.

The difference between what PBMs pay pharmacies and what they are reimbursed by insurers under lock-in pricing is generally a secret. Medicare itself doesn’t have this information and therefore doesn’t estimate the total cost of the practice.

For consumers it may be possible to determine the size of the price differences under lock-in pricing by looking at the full cost of your drug listed on your explanation of benefits, and asking your pharmacy how much it was paid. But many pharmacists are prohibited from disclosing pricing information under terms of their contracts with PBMs.

“It is absolutely unacceptable for any government benefit program to be based on questionable [numbers] or numbers that aren’t transparent or easily understood by a beneficiary,” says Michael Burgess, director of the New York State Office for the Aging, who says he was unaware of the issue until recently.

An analysis of explanation-of-benefits documents from consumers and payment data from pharmacies shows that the size of the price differences varies widely from as low as just a few dollars to well over $100. In one case, a patient filled a prescription for a 90-day supply, or 270 pills, of the generic antinausea medication prochlorperazine. The difference between what the PBM, Express Scripts, paid the pharmacy and the price that showed up on the patient’s explanation of benefits was $146.53.

Express Scripts spokesman Steve Littlejohn said it is “extremely rare” for price differences to get above $100, and it occurred in this case because the patient purchased the drug at a quantity greater than is typically prescribed. Broadly, Mr. Littlejohn said that PBM pricing on generics “is very competitive, and is generally far better than [uninsured] cash-paying customers obtain on their own.” He added that the differences on costs of branded drugs are much slimmer and that overall the company’s per-prescription profit margin is a “single digit” percentage.

Medicare has been battling lock-in pricing almost since the inception of the drug-benefit program. But efforts to curtail or stop the practice have faced numerous delays, amid intense lobbying on the subject.

“We thought we had a clear policy” barring lock-in pricing when the drug benefit was created, says Ms. Block of CMS. “We learned that there were different ways of interpreting a policy statement,” she adds.

Under Medicare’s current proposal, PBMs wouldn’t be able to hide the extra costs of drugs. Instead, they would have to declare the extra amounts as “administrative” costs that an insurance plan pays the PBM. Patients’ own drug costs would be calculated without the extra amount included, thereby easing the burden on consumers.

Although the proposal wouldn’t prohibit lock-in pricing, health-cost experts say the transparency and accounting that would be needed to include the extra costs as a separate “administrative” item could effectively curb the practice. CMS hopes to finalize its proposed regulation late this summer to go into effect in 2010.

The PBM trade group, the Pharmaceutical Care Management Association, opposes the CMS proposal because it says insurers should be able to choose what type of pricing they want. The drug benefit “program is working,” says Mark Merritt, the group’s chief executive. “Unless it can be decisively shown that one model offers more end savings for consumers or is decisively able to manage drug [costs] better for the program, we think there ought to be flexibility and choices.”

A spokeswoman for CVS Caremark, which administers Medicare drug plans as a PBM and also sponsors plans through its SilverScript Insurance Co. subsidiary, says lock-in pricing is used in its SilverScript plans and is also common in other Medicare plans for which CVS Caremark serves as the PBM. UnitedHealth says it uses lock-in pricing on United Rx Basic and United Rx Value Medicare plans.

Not all major PBMs use lock-in pricing in Medicare, including Medco Health and Humana Inc., an insurer that acts as its own PBM for its Medicare plans. Humana spokesman Tom Noland says pass-through pricing, the alternative to lock-in pricing, gives patients “the full benefit of our negotiated discounted rates with network pharmacies and also promotes transparency of pricing.”

In the meantime, Medicare drug-benefit participants buying drugs should consider checking low-price sellers of generic medications, such as Costco Wholesale Corp. and Wal-Mart Stores Inc., to see if their retail prices are lower than those in the insurance plan.

That is what Len Steinberg of Scottsdale, Ariz., did, and he found that Costco’s retail price for his generic nasal spray was about half of the drug’s total cost under his plan.

Mr. Steinberg, a 73-year-old retired employee-benefits consultant, says he now pays cash for certain cheap generics at Sam’s Club and Costco, rather than using his drug coverage. That allows him to avoid the doughnut hole and continue receiving coverage for his more expensive branded medications, he says.

Blagojevich alters insurance bill to cover autism therapy

By Monique Garcia | Chicago Tribune reporter

When Brianna Dicianni was diagnosed with autism two years ago, doctors said the girl would never learn to speak.

Undeterred, her family sought therapy, only to run into another roadblock: Because their insurance company didn’t cover treatment for autism, they would have to pay for the costly sessions out of pocket.

Brianna’s parents borrowed against their home, dipped into college savings for their three children and—$80,000 later—Brianna, now 5, can talk.

On Sunday, Gov. Rod Blagojevich moved to help families like the Diciannis, using his amendatory veto power to alter legislation so insurance companies would be required to cover diagnosis and various therapies for autistic children.

“The billion-dollar profits of insurance companies are being put before our children, and it’s wrong, it’s criminal,” said Brianna’s father, Peter Dicianni.

The legislation would force insurance companies to cover up to $36,000 a year in occupational, physical, speech and behavioral therapies in addition to psychiatric and psychological services. Children would be covered until they turned 21.

Proponents of the legislation said early treatment is vital to the development of children with autism. By undergoing therapy early in life, they are more likely to gain the communication and social skills needed to live independent lives.

“This is literally about whether a child can grow up and live a good and happy life, or whether a child will grow up and be in his own isolated world, unable to communicate,” Blagojevich said at a news conference announcing the legislation.

For Peter Dicianni, the governor’s action comes after more than a year of lobbying lawmakers and insurance companies to cover autism treatments. But hurdles still remain. Lawmakers in both chambers must approve the governor’s changes.

Congress rejects veto of bill to halt Medicare payment cuts

WASHINGTON (CNN) — Congress voted to halt planned cuts in Medicare payments to doctors Tuesday, overriding President Bush’s veto in a battle that pitted health insurers against physicians.
President Bush says he objects to the bill because it takes choices “away from seniors to pay physicians.”

President Bush says he objects to the bill because it takes choices “away from seniors to pay physicians.”

The new law stops a 10.6 percent cut in Medicare payments to doctors, part of a scheduled cost-saving formula that went into effect July 1.

The money for the doctors will be taken from the government-subsidized Medicare Advantage program, which the Bush administration strongly supports.

Bush spiked the bill Tuesday, telling lawmakers they would be “taking choices away from seniors to pay physicians.”

“I urge the Congress to send me a bill that reduces the growth in Medicare spending, increases competition and efficiency, implements principles of value-driven health care and appropriately offsets increases in physician spending,” he said in his veto message.

The Senate voted 70-26 to enact the law over Bush’s objections, the third time in his presidency that Congress has overridden his veto. The margin in the House of Representatives was a lopsided 383-41, well beyond the two-thirds majority needed.

The American Medical Association lobbied heavily for the bill, warning that its members could be forced to curtail seeing Medicare patients if the cuts went into effect. But insurers, which receive government subsidies to offer Medicare Advantage plans, warned that 2 million seniors could lose health benefits if it passed.
Don’t Miss

* Kennedy helps break Republican filibuster
* Senate GOP pressured to stop Medicare ‘meltdown’

A total of 21 Senate Republicans joined 47 Democrats and two independents in the override vote.

Supporters broke a GOP-led filibuster of the bill last week, aided by the dramatic return of Sen. Edward Kennedy of Massachusetts. Kennedy’s vote came in his first appearance on the Senate floor since surgery to remove a brain tumor in early June.

Though he did not vote Tuesday, Kennedy praised his colleagues for overriding the “misguided” veto.

“It’s a great vote, and a great day for America’s seniors,” he said in a written statement.

Those Republicans who opposed the bill argued that it would roll back many of the changes made to Medicare in 2003, when Congress created privately run, government-subsidized prescription drug coverage and expanded the role of private insurers in other coverage.

“These are not pro-patient policies,” said Sen. Jon Kyl, R-Arizona. “Rather, the bill reduces access, benefits and choices for Medicare beneficiaries.”

But critics of the 2003 reforms say Medicare Advantage subsidies end up costing more than the government would pay to cover the same people through regular Medicare, the federal health insurance program for seniors. The Congressional Budget Office estimates that the bill will reduce federal spending by $12.5 billion by 2013, largely by reducing Medicare Advantage enrollment.

Sen. Patty Murray, D-Washington, said the bill also made “vital improvements” by supporting rural health care and lowering fees for mental health care.

“Today, we can stand up for Medicare,” she said. “We did it last week, when we came together and voted for this measure by a veto-proof margin, and I believe we can do it today by overriding that veto.”

Congress had passed only two bills over Bush’s objections: a $23 billion water-project legislation that the president vetoed in 2007 and a $300 billion farm bill he spiked in May.

The Medicare system pays for the health care of roughly 40 million elderly Americans. Rising health care costs have made Medicare a growing part of the federal budget, and the stress on the system is increasing as more baby boomers reach retirement age.

While the debate was raging over the bill, the AMA said the cuts could lead to a “meltdown” of the government’s health care system for the elderly.

A recent survey by the group found that 60 percent of physicians will be forced to limit the number of new Medicare patients they can take on if the cuts go into effect.

“We stand at the brink of a Medicare meltdown. … For doctors, this is not a partisan issue; it’s a patient access issue,” AMA President Nancy Nielsen said in a statement after last week’s Senate vote.

The AMA ran radio and TV ads over the July Fourth congressional recess targeting 10 Republican senators, seven of whom are up for re-election.

The AARP, the nation’s largest organization of retired people, and other groups also are weighing in against the cuts.
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Gerald Harmon, a family physician who practices in Pawleys Island, South Carolina, said the cuts could lead to doctors taking fewer Medicare patients, making it difficult for the program’s elderly patients to get the care they need.

“This Medicare access problem is a real issue, not just a political football,” said Harmon, who said 35 percent of his patients were eligible for Medicare. “It affects your dad when he’s sick. It affects my patients in my practice. This has to be addressed.”

Democrats Gear Up New Push for Universal Health Care

A coalition of liberal groups that includes major labor unions such as the Service Employees International Union and the activist group MoveOn.org announced today it will spend $40 million to make health insurance a major issue in the campaign, with Elizabeth Edwards, the wife of former Democratic presidential candidate John Edwards, as the one of the group’s main spokespersons. The group, which has dubbed itself “Health Care for America Now!” plans to spend its money running ads in battleground states, canvassing 45 states to get people to sign petitions supporting the initiative and trying to get every member of Congress to sign a pledge to expand health insurance to all Americans.

Meanwhile, on Capitol Hill, Democratic staffers are trying to set up a structure for getting a bill through Congress next year.

The staffs of Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee and Sen. Ted Kennedy (D-Mass.), who heads the Senate’s Health, Education Pensions and Labor Committee, are already meeting with key health care experts, including some from Massachusetts, which passed a landmark health care law two years ago.

In a series of meetings over the next month, Senate aides plan to meet with doctors’ groups, insurance companies, business associations and other key players in reforming health care. Their goal is to have the outlines of a health care proposal by the end of this year that can be introduced in the opening days of the next president’s administration.

“We want to create a mandate,” said Richard Kirsch, one of the leaders of the health care organization of the liberal groups, many of whom worked together to oppose President Bush’s 2005 Social Security plan.

Barack Obama has already pledged to make passing health care reform a centerpiece of his first term, and his campaign has recently added a group of advisers who specialize in the subject, including Elizabeth Edwards, Sarah Bianchi, a former Clinton White House aide and Neera Tanden, Hillary Clinton’s policy director during the primaries. Tanden is working as a domestic policy adviser, while Bianchi and Edwards are participating in campaign conference calls on health care with other experts.

“It’s important for this to be one of the first things that’s considered,” Edwards said in an interview, referring to the priorities of a new administration. “I’d like to see it on the agenda in 2009.”

The coalition of liberal groups is hoping to make sure health care is a priority even if John McCain is elected and to make sure the majority of Congress backs the goal as well.

McCain has also said he would make health care a major issue if he wins the presidency, but Democrats and labor groups oppose many of his proposals, as the Arizona senator is trying to transform the health care system into one in which individuals buy their own health care in a less-regulated market, which means they could have lower costs but also would assume more risk.

The new coalition, while not outlining a specific health care plan, has goals that resembled what Obama and the Democratic candidates proposed in the primaries, offering subsidies to people so health insurance is affordable to the 47 million Americans who currently don’t have it, creating new regulations that would prevent insurance companies from charging high prices or not offering insurance to people who already have chronic illnesses and allowing people to either buy insurance from a private company like Kaiser or enroll in a government-managed health care plan that would be run like but separate from Medicare.

But, even if Obama were elected, there’s no broad agreement on exactly how a universal health care bill would work, which is the problem Democrats faced in 1993 when the Clintons pushed the issue. Insurance companies, who drove much of the opposition in 1993, have signaled they would not support an approach like Obama’s, which add regulations for them but does not require all people to purchase health insurance. Democratic Senate aides are pointing to the legislation passed in Massachusetts in 2006 as a model. That legislation included increased subsidies for low-income people but also a mandate that all people in the state purchase insurance, something Obama has railed against on the campaign trail.

A bipartisan coalition that now includes more than a dozen senators is pushing a more radical health care reform in which people would buy coverage directly from insurance companies instead of getting it through their employers, with people getting tax credits to buy insurance in a more-tightly regulated system. Obama advisers had earlier largely ruled out that idea as too much of a drastic change for the vast majority of Americans who currently get their insurance through their employer.

While Obama has suggested ending tax cuts for people who make more than $250,000 a year to fund the health care subsidies, few Republicans will back what is effectively a tax increase, and some members of the GOP would likely need to support an agreement so it could pass in the Senate.

“It’s much easier to oppose something than get something passed,” Kirsch admitted.

By Perry Bacon Jr. of The Washington Post

Medicare Beneficiaries at Risk of Identity Theft

WASHINGTON — Social Security officials, concerned about the risk of identity theft, are calling for immediate action to remove Social Security numbers from the Medicare cards used by millions of Americans.

But Medicare officials have resisted the proposal, saying it would be costly and impractical.

In a new report, the inspector general of Social Security, Patrick P. O’Carroll Jr., says “immediate action is needed.”

“Displaying such information on Medicare cards unnecessarily places millions of individuals at risk for identity theft,” Mr. O’Carroll said. “We do not believe a federal agency should place more value on convenience than the security of its beneficiaries’ personal information.”

In a memorandum to the heads of federal departments and agencies in May 2007, Clay Johnson III, deputy director of the White House Office of Management and Budget, said they should draw up plans to “eliminate the unnecessary collection and use of Social Security numbers within 18 months.”

Social Security cannot prohibit the Medicare agency from using Social Security numbers, although Congress could do so. Federal officials say that more than 40 million people who are 65 and older or disabled have Medicare cards with Social Security numbers on them.

Charlene M. Frizzera, chief operating officer of the Centers for Medicare and Medicaid Services, played down the risk of identity theft from the misuse of Medicare cards. If the government suddenly issued new Medicare cards or identification numbers, she said, it could startle or alarm beneficiaries. “We don’t want to scare them,” Ms. Frizzera said.

Most private insurance companies have abandoned the use of Social Security numbers as identifiers because many states forbid it.

Gail K. Hillebrand, a lawyer at Consumers Union, said, “A person holding a private health insurance card now has more privacy protections than a person holding a Medicare card.”

Byron Hollis, director of the antifraud department at the Blue Cross and Blue Shield Association, said, “Medical identity theft is the fastest-growing form of health care fraud.”

To prevent such fraud, Mr. Hollis said, Blue Cross and Blue Shield plans stopped using Social Security numbers on their cards several years ago. The 39 Blue Cross and Blue Shield companies provide coverage for more than 100 million people.

Ms. Frizzera, the Medicare official, said that issuing new Medicare cards would be “a huge undertaking.” The agency would need three years to plan such a move and eight more years to carry it out, she said.

Medicare officials estimate that it would cost $500 million to change their computer systems if they issued new ID numbers to beneficiaries. Doctors, hospitals and other health care providers use those numbers in filing claims with Medicare, which pays a billion claims a year.

“Many individuals carry their Medicare cards in their wallets or purses and could become victims of identity theft should dishonest individuals steal such items or lift their Medicare number from a beneficiary card or medical document,” Mr. O’Carroll said.

With a solution years away, many individuals are taking their own precautions and signing up for LifeLock and other companies that prevents your identity from being stolen before it happens.

About LifeLock

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U.S. Lawmakers Block Medicare Bill Reducing Insurers’ Pay

WASHINGTON (Reuters) – A $20 billion Medicare refinancing bill, paid for mostly by reducing Medicare’s reimbursement of private health plans, was blocked by U.S. lawmakers on Thursday, raising the likelihood a version with smaller cuts will emerge.

Health insurers such as Humana Inc and UnitedHealth Group would face billions in cuts in two competing versions of the legislation that lawmakers are debating this week.

The legislators face a ticking clock to pass a bill by June 30, or doctors working in the Medicare program would face a 10 percent cut in pay — a highly unlikely outcome in an election year.

A legislative fix is needed to ward off a pending 11 percent pay cut to doctors who work with Medicare patients. Medicare is the federally run insurance plan for roughly 44 million elderly and disabled.

The bill sponsored by Montana Democrat Sen. Max Baucus and backed mostly by Democrats had more drastic cuts, but failed a key procedural vote on Thursday.

Iowa Republican Sen. Charles Grassley, has a competing version of the legislation. His plan would be less pricey, but he also backs some cuts in reimbursement to private plans.

AARP, the nation’s largest advocacy group for older Americans, said the bill would help low-income seniors. In a statement, the group said it is “disturbed” that the bill was blocked.

Scores of other health companies would also be affected by whatever bill emerges, ranging from dialysis companies such as DaVita Inc to oxygen providers such as Apria Healthcare.

Medicare is the top buyer of U.S. health-care goods and services, spending nearly $400 billion a year.