Medicare

In deliberating Medicare and the rising availability, cost, and use of prescription drugs, Congress faces a policy dilemma: The lack of a prescription drug benefit may impede beneficiaries' access to treatment advances while adding that benefit could be costly to the program. One possible resolution would be to model the benefit after Medicaid's drug rebate program; price discounts could be substantial, but beneficiaries would have no incentive to make cost-conscious decisions about drug use. Another possible resolution would be to do what the private sector does in negotiating price discounts from manufacturers in exchange for shifting market share. However, Medicare's using pharmacy benefit managers to process claims, negotiate with manufacturers, establish preferred drug lists, and develop beneficiary incentives for controlling spending would be difficult because of the program's size, need for transparency, and imperative for equity.

GAO noted that: (1) proposals to add prescription drug coverage to Medicare's benefits come during a period of rapid growth in national spending for pharmaceuticals and transformations in the prescription drug market; (2) coverage of drugs by health plans and insurers, advances in drug treatments, and aggressive marketing have spurred the growth in the use of pharmaceuticals; (3) insurers have attempted to manage the cost of the benefit through the use of formularies, pharmacy benefit managers, and generic substitutions--cost control approaches that have dramatically changed the nature of the market in which prescription drugs are purchased; (4) what remains unchanged since the inception of the Medicare program, however, is the absence of coverage for outpatient prescription drugs by traditional Medicare; (5) high drug use among Medicare's beneficiaries translates into a potentially daunting financial burden, particularly for the third who have no drug coverage; (6) for those who obtain coverage through employer-sponsored plans, Medicare Choice plans, Medigap policies, or Medicaid programs, the rise in spending can have an impact as well; (7) as these payers attempt to control their outlays, coverage may be scaled back, priced out of the reach of the average beneficiary, or dropped altogether; (8) recent experience provides at least two approaches for implementing a drug benefit; (9) one would involve the Medicare program obtaining price discounts from manufacturers modeled after Medicaid's drug rebate program; (10) while the discounts in aggregate would likely be substantial, this approach lacks the flexibility to achieve the greatest control over spending, and could not effectively influence or steer utilization because it does not include incentives that would encourage beneficiaries to make cost-conscious decisions; (11) the second approach would draw from private sector experience in negotiating price discounts from manufacturers in exchange for shifting market share; (12) some plans and insurers employ pharmacy benefit managers to manage their drug benefits, including claims processing, negotiating with manufacturers, establishing lists of drug products that are preferred because of price or efficacy, and developing beneficiary incentive approaches to control spending and use; and (13) applying these techniques to the entire Medicare program, however, would be difficult because of its size, the need for transparency in its actions, and the imperative for equity for its beneficiaries.