Medicare demonstration project previews drug benefit

The program comes at a time when some experts are still raising questions about how much savings seniors can expect from the reform effort.

By Joel B. Finkelstein — Posted July 19, 2004

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Washington -- As many as 50,000 patients will get a sneak peak at the Medicare prescription drug benefit, which does not officially start until 2006.

Over the next couple of months, physicians may find themselves in the position of helping patients navigate the demonstration project, which will provide coverage for self-administered drugs that replace medications previously administered in doctors' offices. Normally, Medicare Part B covers drugs only when administered by physicians.

The project, mandated by last year's Medicare reform law, requires the Centers for Medicare & Medicaid Services to spend 40% of the $500 million in funding on cancer-fighting drugs and the rest on medications for other serious chronic conditions, such as osteoporosis, rheumatoid arthritis, multiple sclerosis, pulmonary hypertension and hepatitis C. Patients who don't already have prescription coverage will be eligible to participate in the demonstration project.

"Many beneficiaries will get literally tens of thousands of dollars worth of help in purchasing these critical medicines right away," said CMS Administrator Mark McClellan, MD, PhD.

For example, the agency estimates that a patient with multiple sclerosis could save $12,260 a year for medicines that normally cost more than $16,298 annually.

But CMS officials also estimate that for every patient who gets into the Medicare drug program, nine potentially eligible patients will not. Because of this, participation will be determined by a lottery of eligible applicants.

Medical societies are trying to get the word out to make the most of a short application period, which runs through September, said Jenny Heumann, spokeswoman for the American Society of Clinical Oncology.

Drug coverage available through the demonstration program closely mirrors the prescription drug benefit that will be available to all Medicare patients as of January 2006, but project participants will not have to pay a monthly premium. Patients who win a spot in the preview will be able to transition straight into the Medicare benefit when it launches.

"Seniors are going to save substantial money on their prescription medicines thanks to the new drug benefit under Medicare, and this demonstration will give them a sense of the savings that are on the way," Health and Human Services Secretary Tommy Thompson said.

For patients to participate, their physicians will have to certify that the drugs covered under the demonstration project are replacements for treatments that would have been covered under Medicare Part B. That does not necessitate that the patient already be taking the Part B drug.

Although the physician's certification, including the list of eligible drugs and conditions, takes up only two pages of an 18-page form, some experts said doctors could end up filling out more of that if patients are confused by the application process.

Drug prices keep going up

The project was announced just days before the AARP released a report raising questions about whether Medicare beneficiaries would be able to afford their drugs even after the federal drug benefit begins.

The study shows that prices for the 197 most widely used prescription drugs rose by 6.9% in 2003.

"Since at least 2000, drug prices have risen steadily. The first three months of 2004 look like more of the same," said Doug Holbrook, a member of the AARP board.

The increase in prices during the first quarter of 2004 alone was 3.4%, and that comes during a period when inflation was only 1.2%.

Rising prices along with slowing inflation make it more difficult for Medicare patients, many on fixed incomes, to afford their medications, said John Rother, AARP's policy and strategy director.

"A concern that we have is that manufacturers are offsetting [expected] discounts with prices that are higher than they otherwise would have been," he said. "It's particularly disappointing to see these prices jump after the [Medicare reform] legislation was signed, after they had the assurance that they would have a broader market."

Drug manufacturing companies debate the AARP's conclusions.

"Government data, not PhRMA data, show that the prices of medicines have increased at an equal rate to other health care services since the Medicare bill was signed into law in late 2003," said Richard Smith, senior vice president of policy, research and strategic planning for the Pharmaceutical Research and Manufacturers of America.

The AARP is not the only group raising concerns that Medicare beneficiaries' savings might not be as large as anticipated. A recent Kaiser report suggests that drug formularies that are available through the drug benefit could be structured to maximize profit and exclude patients with high drug utilization.

Rother said time would tell whether the drug benefit yielded more affordable prescriptions, but if it does not, the federal government will need to step in to negotiate lower prices.

The AARP also surveyed seniors to see how they were managing their drug costs. The two most common approaches were asking for drug samples and for generics instead of brand-name medications.

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Drug inflation

The prices of the most widely used prescription drugs have been rising consistently faster than inflation.

Drug prices Inflation
2000 4.1% 3.4%
2001 4.7% 2.8%
2002 6.1% 1.6%
2003 6.9% 2.3%
2004 (first quarter) 3.4% 1.2%

Source: AARP Public Policy Institute

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External links

Centers for Medicare & Medicaid Services information on the Medicare Replacement Drug Demonstration (link)

"Trends in Manufacturer Prices of Prescription Drugs Used by Older Americans," AARP report (link)

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