Prescription Drug Benefits

In earlier congressional testimony, GAO has emphasized the need to make prescription drugs more affordable to Medicare beneficiaries who lack coverage by expanding access to group rates, extending discounts associated with group purchasing, and targeting government subsidies for those most in need. Doing this will require incorporating cost-control methods. To control prescription drug costs, the private sector has developed and refined techniques implemented in some Medicare+Choice plans and private health plans. Applying them to the Medicare population would require adaptations that might diminish their effectiveness. Medicare drug coverage should be designed and implemented in a way that minimizes Medicare's financial implications and maximizes the positive effects of beneficiaries' coverage.

GAO noted that: (1) private insurers, managed care plans, and employers have tried to manage the high and rising costs of prescription drugs by adopting cost and utilization control techniques; (2) in many cases, insurers and managed care plans contract with a pharmacy benefit management company (PBM) to develop and implement these strategies; (3) if a prescription drug benefit were added to the Medicare program, the federal government would face similar cost pressures and would need to employ methods to control spending; (4) the experience gained in the private sector can provide useful insights into options for managing a possible Medicare benefit; (5) however, the unique responsibilities and characteristics of the Medicare program raise a number of issues and introduce questions about applying private sector tools to the traditional Medicare fee-for-service program and the appropriate roles of the Health Care Financing Administration and other entities, such as PBMs, in managing a drug benefit; and (6) in adapting these cost and utilization management techniques, it is important to keep in mind that: (a) strategies involving coverage restrictions impose an obligation to provide beneficiaries with adequate information about the benefit; (b) the size of the Medicare program and the need for transparency in its actions may reduce the effectiveness of some cost-control techniques; (c) using private sector entities to implement a drug benefit introduces concerns related to beneficiary equity and concentrating market power; and (d) private sector management tools require a capacity to process and scrutinize a large number of claims more quickly than is typical of the traditional Medicare program.