Prescription Drugs

Including outpatient prescription drug coverage would have substantial consequences for the cost of Medicare. One study has suggested that it would add 7.2 to 10 percent annually to Medicare's outlays. Prescription drugs would have to be made more affordable to 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. To the extent that this would be accomplished through expanding Medicare's benefit package, cost-control methods would need to be incorporated into the management of the benefit. The private sector has developed and refined techniques to control prescription drug costs that have been implemented in some Medicare+Choice plans and private health plans. Applying these techniques to the larger Medicare population would require adaptations that could diminish their effectiveness. Private sector tools for controlling drug expenditures provide options but applying them effectively to Medicare presents a number of challenges: (1) the size of the Medicare program and the need for transparency in its actions may reduce the effectiveness of some cost control techniques; (2) using private-sector entities to implement a Medicare drug benefit introduces concerns related to beneficiary equity and concentrating market power; (3) 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; and (4) strategies involving coverage restrictions impose an obligation to provide beneficiaries with adequate information.

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 (PBM) company 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) the size of the Medicare program and the need for transparency in its actions may reduce the effectiveness of some cost control techniques; (b) using private-sector entities to implement a drug benefit introduces concerns related to beneficiary equity and concentrating market power; (c) 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; and (d) strategies involving coverage restrictions impose an obligation to provide beneficiaries with adequate information about the benefit.