Prescription Drug Discount Cards
Savings Depend on Pharmacy and Type of Card Used Gao ID: GAO-03-912 September 3, 2003While prescription drugs have become an increasingly important part of health care for the elderly, more than one-quarter of all Medicare beneficiaries have no prescription drug coverage. Over the past decade, private companies and not-for-profit organizations have sponsored prescription drug discount cards that offer discounts from the prices the elderly would otherwise have to pay for their prescriptions. These cards are typically administered by pharmacy benefit managers (PBM). Pharmaceutical manufacturers also sponsor and administer their own discount cards. The Administration has been interested in endorsing specific drug cards for Medicare beneficiaries to make the discounts more widely available. Legislative proposals in the Senate and House of Representatives have included drug cards as a means to lower prescription drug prices for Medicare beneficiaries. GAO was asked to examine how existing drug discount cards work and the prices available to card holders. Specifically, GAO evaluated the extent to which PBM-administered drug discount cards offer savings off non-card prices at 40 pharmacies in California, North Dakota, and Washington, D.C., and the differences between PBM-administered cards and cards sponsored by pharmaceutical manufacturers.
Medicare beneficiaries can receive prices with prescription drug discount cards at retail pharmacies that are generally lower than those available to seniors without cards. Prices available for a particular drug tend to be similar across PBM-administered cards. Savings from PBM-administered cards, however, can differ because retail pharmacy prices vary widely. For example, in Washington, D.C., which had the highest median retail pharmacy prices of the three areas GAO surveyed, median savings using a PBM-administered card ranged from $2.09 to $20.95 for a 30-day supply of the nine drugs frequently prescribed for the elderly that GAO examined. This was after accounting for the 10 percent discount for senior citizens given by each of the 14 surveyed pharmacies. Savings in California with the use of a card tended to be lower because 10 of the 13 California pharmacies GAO surveyed participated in the state's Medicaid program (Medi-Cal) and are required to give Medicare beneficiaries the Medi-Cal price. For seven of the nine drugs, savings ranged from $0.44 to $13.06. For the other two drugs the cards offered no savings at Medi-Cal-participating pharmacies because the Medi-Cal prices were lower than the median price available with a PBM-administered card. Savings in North Dakota for the nine drugs ranged from $0.54 to $7.72 even though 10 of the 13 pharmacies there did not offer a senior discount. Any savings achieved with a card are reduced by the annual or one-time fee charged by the PBM-administered cards. Prices available with a pharmaceutical-manufacturer-sponsored card for a particular drug are typically lower than prices obtained using PBM-administered cards, and are often a flat price of $10 or $15. PBM-administered cards differ from pharmaceutical-manufacturer-sponsored cards with respect to eligibility and the range of drugs they cover, as well as the price available with the card. PBM-administered discount cards are available to all adults and can be used to purchase most outpatient prescriptions. Pharmaceutical-manufacturer-sponsored cards are available only to Medicare beneficiaries with incomes below a certain level who have no prescription drug coverage and can be used to purchase only outpatient prescription drugs produced by the sponsoring manufacturers.
GAO-03-912, Prescription Drug Discount Cards: Savings Depend on Pharmacy and Type of Card Used
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
September 2003:
Prescription Drug Discount Cards:
Savings Depend on Pharmacy and Type of Card Used:
GAO-03-912:
GAO Highlights:
Highlights of GAO-03-912, a report to congressional requesters
Why GAO Did This Study:
While prescription drugs have become an increasingly important part of
health care for the elderly, more than one-quarter of all Medicare
beneficiaries have no prescription drug coverage.
Over the past decade, private companies and not-for-profit
organizations have sponsored prescription drug discount cards that
offer discounts from the prices the elderly would otherwise have to
pay for their prescriptions. These cards are typically administered by
pharmacy benefit managers (PBM). Pharmaceutical manufacturers also
sponsor and administer their own discount cards.
The Administration has been interested in endorsing specific drug
cards for Medicare beneficiaries to make the discounts more widely
available. Legislative proposals in the Senate and House of
Representatives have included drug cards as a means to lower
prescription drug prices for Medicare beneficiaries.
GAO was asked to examine how existing drug discount cards work and the
prices available to card holders. Specifically, GAO evaluated the
extent to which PBM-administered drug discount cards offer savings off
non-card prices at 40 pharmacies in California, North Dakota, and
Washington, D.C., and the differences between PBM-administered cards
and cards sponsored by pharmaceutical manufacturers.
What GAO Found:
Medicare beneficiaries can receive prices with prescription drug
discount cards at retail pharmacies that are generally lower than
those available to seniors without cards. Prices available for a
particular drug tend to be similar across PBM-administered cards.
Savings from PBM-administered cards, however, can differ because
retail pharmacy prices vary widely. For example, in Washington, D.C.,
which had the highest median retail pharmacy prices of the three areas
GAO surveyed, median savings using a PBM-administered card ranged from
$2.09 to $20.95 for a 30-day supply of the nine drugs frequently
prescribed for the elderly that GAO examined. This was after
accounting for the 10 percent discount for senior citizens given by
each of the 14 surveyed pharmacies. Savings in California with the use
of a card tended to be lower because 10 of the 13 California
pharmacies GAO surveyed participated in the state‘s Medicaid program
(Medi-Cal) and are required to give Medicare beneficiaries the Medi-
Cal price. For seven of the nine drugs, savings ranged from $0.44 to
$13.06. For the other two drugs the cards offered no savings at Medi-
Cal-participating pharmacies because the Medi-Cal prices were lower
than the median price available with a PBM-administered card. Savings
in North Dakota for the nine drugs ranged from $0.54 to $7.72 even
though 10 of the 13 pharmacies there did not offer a senior discount.
Any savings achieved with a card are reduced by the annual or one-time
fee charged by the PBM-administered cards. Prices available with a
pharmaceutical-manufacturer-sponsored card for a particular drug are
typically lower than prices obtained using PBM-administered cards, and
are often a flat price of $10 or $15.
PBM-administered cards differ from pharmaceutical-manufacturer-
sponsored cards with respect to eligibility and the range of drugs
they cover, as well as the price available with the card. PBM-
administered discount cards are available to all adults and can be
used to purchase most outpatient prescriptions. Pharmaceutical-
manufacturer-sponsored cards are available only to Medicare
beneficiaries with incomes below a certain level who have no
prescription drug coverage and can be used to purchase only outpatient
prescription drugs produced by the sponsoring manufacturers.
What GAO Recommends:
www.gao.gov/cgi-bin/getrpt?GAO-03-912. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Laura A. Dummit at (202) 512-7119.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Characteristics of Drug Discount Cards Vary Based on Their Sponsor:
Card Savings Depend on Usual Pharmacy Prices and Any Card Fees:
State Regulatory Efforts Focus on Protecting Consumers:
Comments from External Reviewers:
Appendix I: Selected Drug Discount Card Characteristics:
Appendix II: Median Retail Pharmacy PBM-Administered Drug Discount Card
Prices and Median Retail Pharmacy Noncard Prices:
Table:
Table 1: Selected Provisions of State Regulation of Prescription Drug
Discount Card Programs, November 2002:
Abbreviations:
CMS: Centers for Medicare & Medicaid Services:
PBM: pharmacy benefit managers:
United States General Accounting Office:
Washington, DC 20548:
September 3, 2003:
Congressional Requesters:
Prescription drugs have become an increasingly important part of health
care for the elderly. While many Medicare beneficiaries have some of
their out-of-pocket drug costs covered by employer-sponsored retiree
health plans, Medicare+Choice plans, Medicare supplemental plans, or
Medicaid, more than one-quarter of all Medicare beneficiaries have no
prescription drug coverage.[Footnote 1] Over the past decade, private
companies and not-for-profit organizations have sponsored card programs
that give the elderly discounts from the retail prices they would
otherwise have to pay for their prescriptions.
In July 2001, the President announced a set of principles for reforming
Medicare, including adding a prescription drug benefit for the elderly.
As an initial step toward providing a drug benefit, the Administration
proposed establishing a drug discount card program to lower
prescription drug out-of-pocket expenses for Medicare beneficiaries.
The Centers for Medicare & Medicaid Services (CMS) issued a final rule
in September 2002 for the Medicare-Endorsed Prescription Drug Plan
Assistance Initiative, in which the agency would endorse discount card
programs developed by private entities if they met certain
standards.[Footnote 2] The initiative would promote the use of drug
discount cards by Medicare beneficiaries. A federal district court
judge found in January 2003, however, that CMS did not have authority
for the initiative and permanently enjoined the agency from going
forward with it.[Footnote 3] In March 2003, CMS filed a notice of
appeal from this decision. More recently, legislative proposals in the
Senate and the House of Representatives have included drug cards as a
means to lower the prices Medicare beneficiaries pay for their
prescription drugs.
The Medicare-endorsed card initiative has focused interest on private-
sector prescription drug discount card programs. You requested that we
examine these programs and pertinent state laws and regulations.
Specifically, you asked (1) how do existing prescription drug discount
card programs work, (2) how do the prescription drug prices available
with existing discount cards compare to prices available without a
discount card, and (3) how do states regulate card programs?
To obtain information on discount card programs, we used a structured
interview guide to conduct telephone interviews with officials from
five organizations that administer many of the programs. Four of these
organizations are among the nation's largest pharmacy benefit managers
(PBM)[Footnote 4]--Medco Health Solutions (formerly Merck-Medco
Managed Care), AdvancePCS, Express Scripts, and WellPoint Health. They
administer numerous nationwide card programs sponsored by a range of
entities, such as health insurers, retail pharmacies, employee
associations, and other organizations.[Footnote 5] The fifth
organization was Citizens Energy, a nonprofit company that sponsors and
administers the Citizens Health drug discount card, which is available
to all adults in Connecticut, Massachusetts, and Rhode Island. We also
obtained information from company Web sites on the prescription drug
discount card programs introduced in the last 2 years by four
pharmaceutical manufacturers--Eli Lilly, GlaxoSmithKline, Novartis,
and Pfizer---as well as the Web site for Together Rx, a card that
provides discounts on some drugs produced by eight pharmaceutical
manufacturers.[Footnote 6] An estimated 18 to 19 million people have
enrolled in one or more of the drug discount card programs that we
examined. In addition, we examined CMS's final rule on the Medicare-
Endorsed Prescription Drug Plan Assistance Initiative. To understand
the role of drug discount cards in the retail pharmacy marketplace, we
spoke with representatives of three retail pharmacy chains whose
pharmacies comprise about 22 percent of all retail pharmacies
nationwide.
We obtained April 2002 prices from 40 retail pharmacies in California,
North Dakota, and the Washington, D.C. area for nine drugs frequently
prescribed for the elderly.[Footnote 7] The prices reflect any senior
citizens discount that the pharmacies routinely provide. We compared
these prices to prices for these drugs in the same period that were
available using five PBM-administered discount cards at retail
pharmacies or through the PBMs' mail order pharmacies.[Footnote 8] We
did not independently verify the drug prices that we obtained, and they
may not reflect current prices.
To examine state regulation of drug discount cards, we obtained
information from the National Conference of State Legislatures, the
National Association of Chain Drug Stores, and several PBMs that track
state regulation of discount cards. We also contacted legislators from
New Hampshire, South Dakota, and Mississippi to learn more about why
they supported legislation to regulate drug cards. We performed our
work from July 2002 through August 2003, in accordance with generally
accepted government auditing standards.
Results in Brief:
PBM-administered cards differ from pharmaceutical-manufacturer-
sponsored cards with respect to eligibility, the range of drugs they
cover, whether the pharmaceutical manufacturer pays the pharmacy part
of the card discount, and the price available with the card. Most of
the card programs administered by PBMs are available to all adults,
while the pharmaceutical manufacturers' cards are available only to
Medicare beneficiaries with incomes below a certain level who have no
prescription drug coverage. The PBM-administered cards provide
discounts on most outpatient prescription drugs, while each of the
cards sponsored by a pharmaceutical manufacturer typically provides
discounts on all the outpatient prescription drugs that its
manufacturer produces. For drugs purchased with PBM-administered cards,
retail pharmacies accept a lower price from cardholders than their
usual price, and in some cases receive partial payment for the
difference. For drugs purchased with cards sponsored by pharmaceutical
manufacturers, retail pharmacies receive payment from the manufacturer
for a portion of the difference between the usual price and the
cardholder's price. PBM-administered cards typically offer a price to a
cardholder that is 10 to 15 percent below either a standard reference
price or the retail pharmacy's usual price, whichever is lower. Prices
available with a manufacturer-sponsored card for a particular drug are
typically lower than those through PBM-administered cards because the
pharmaceutical-manufacturer-sponsored cards offer either a larger
discount off a lower reference price or a flat price ($10 or $15).
PBM-administered drug discount cards used at retail pharmacies or the
PBMs' mail order pharmacies generally offer savings to cardholders
because card prices are typically lower than the prices retail
pharmacies would otherwise charge. Card savings--the difference between
the pharmacy's usual price and the cardholder's price--vary, primarily
because the usual price varied across the 40 pharmacies we surveyed.
For example, even though all the surveyed Washington, D.C. pharmacies
offered a 10 percent discount to senior citizens, cards provided the
highest median savings because the usual pharmacy prices were higher
than in the other areas. The median savings with the use of a PBM-
administered card were from $2.09 to $20.95 for a 30-day supply of the
nine drugs. The range of card savings in North Dakota for these drugs
was from $0.54 to $7.72, even though most of the pharmacies there did
not offer a senior discount. Because the majority of the California
pharmacies we surveyed participated in the state's Medicaid program
(Medi-Cal) and are required to give Medicare beneficiaries the Medi-Cal
price for drugs, card savings ranged from $0.44 to $13.06 for seven of
the drugs. Medi-Cal prices for the other two drugs were lower than the
median drug card prices so a card offered no savings at Medi-Cal
participating pharmacies. Savings achieved through a drug discount card
would be reduced by any fee that the card charges.
As of October 2002, 16 states had enacted laws regulating one or more
aspects of prescription drug discount card programs. While the scope of
each of the laws varies, the sponsors of several of the laws have
characterized their purpose as consumer protection. Thirteen of the
states required that a notice appear prominently on the card declaring
that it does not represent insurance coverage (the cards may be similar
in appearance to insurance cards). Eleven states required that the
discounts offered by the cards not be misleading, deceptive, or
fraudulent. Twelve states required that the discounts be specifically
authorized by separate contracts between the card administrator and
each pharmacy or pharmacy chain that accepts the card. Under certain
conditions, Mississippi requires a drug card program to compensate a
pharmacy for accepting the card price.
We received technical comments on a draft of this report from four of
the five PBM administrators we surveyed, as well as from one
pharmaceutical manufacturer that sponsors its own card and participates
in the Together Rx card, and from one independent expert reviewer. We
incorporated their technical comments as appropriate.
Background:
Prescription drug discount cards are a relatively new option for
consumers. Most of the large PBM-administered programs have been
operating for less than 5 years, although some cards, such as one
administered by Express Scripts, have been available for about a
decade.[Footnote 9] Pharmaceutical-manufacturer-sponsored discount
cards are a more recent development; the first one began in fall 2001.
Together Rx began operating in June 2002.
Features Common to Most Cards:
PBM-administered drug discount card programs are generally offered to
consumers through such organizations as retail stores, retail
pharmacies, employee and other associations, nonprofit organizations,
insurance companies, and PBMs. The sponsoring organization typically
markets the program under its own name, but contracts with another
organization--usually a PBM--to administer the program. Generally, the
PBM creates a network of participating pharmacies that have contracts
with the PBM specifying discount arrangements. The PBM processes orders
for the cards and operates a mail order pharmacy that cardholders may
use. Consumers can have as many different cards as they like. Each card
can be used at any participating retail pharmacy or through the PBM's
mail order pharmacy.
Retail pharmacies play an important role in drug discount card programs
because they agree to offer a lower price to cardholders. The PBM
administrators with whom we spoke estimated that retail pharmacies fill
75 to 95 percent of the prescriptions paid for using PBM-administered
discount cards, with mail order filling the remaining prescriptions. A
large majority of prescriptions paid for using pharmaceutical-
manufacturer-sponsored cards are also filled by retail pharmacies,
rather than through mail order. To the typical pharmacy, however, card
users comprise a small share of their prescription business.
Representatives of three retail pharmacy chains we contacted told us
that from 2 to 10 percent of a pharmacy's prescriptions are purchased
using a card.
Medicare-Endorsed Prescription Drug Card Assistance Initiative:
Under the Administration's proposed Medicare-Endorsed Prescription
Drug Plan Assistance Initiative, established drug card sponsors could
apply to CMS for a Medicare endorsement; if they get it, sponsors could
advertise this endorsement.[Footnote 10] Before the injunction was
issued, applications from card sponsors were due March 7, 2003, and a
final decision on the initial cards that would be Medicare-endorsed was
slated to be announced in May 2003. On this timetable, CMS said it
expected that beneficiaries would be able to enroll in the card program
of their choice beginning in September 2003. Cards receiving the
endorsement would have to meet certain standards, which are described
below. The CMS rule does not provide details on some of these standards
and is silent on how the agency would ensure compliance with some of
them.
Beneficiary eligibility. A card program would have to be open to all
Medicare beneficiaries. Each beneficiary could be enrolled in only one
Medicare-endorsed card program at a time, but could withdraw from it at
any time. (A database of all cardholders would be maintained to ensure
that each beneficiary was enrolled in only one Medicare-endorsed card
program.) After withdrawing from a card program, the beneficiary could
enroll in another Medicare-endorsed card program, but that enrollment
would not take effect until the first day of the following July or
January, whichever came first.
Fees. A card program could charge an enrollment fee of no more than $25
to each Medicare beneficiary.
Coverage. Each card program would provide a discount for at least one
brand name or generic prescription drug from each therapeutic class of
drugs (specified in the final rule) commonly needed by Medicare
beneficiaries. CMS said it anticipated periodically modifying the
therapeutic classes to keep them up to date with Medicare
beneficiaries' use of drugs and with changes in the pharmaceutical
marketplace, including newly approved drugs.
Advertised discounts. The discount that a beneficiary would receive by
purchasing drugs with a Medicare-endorsed prescription drug card must
be advertised in dollars, not as a percentage. CMS said it anticipated
working with beneficiaries and the pharmaceutical industry to create a
means to compare prices for drugs among all Medicare-endorsed
prescription drug cards. CMS stated that it would give a special
designation to up to 10 percent of cards that offered the deepest
discounts to beneficiaries.
Negotiation of discounts. Medicare-endorsed cards would require card
administrators to negotiate with pharmaceutical manufacturers to
provide lower prices to retail pharmacies for drugs purchased by
cardholders. Discount card administrators would have to ensure that a
"substantial" share of the lower prices was passed on to beneficiaries,
either indirectly, through retail pharmacies, or directly.
Information for beneficiaries. Enrollment fees, the availability of
patient management services, such as drug interaction warnings, and
information about the generic equivalent of brand name drugs for each
Medicare-endorsed card would be included on CMS's Web site and in the
documents that contain card price comparisons developed by CMS.
Characteristics of Drug Discount Cards Vary Based on Their Sponsor:
PBM-administered drug discount cards differ from pharmaceutical-
manufacturer-sponsored cards with respect to eligibility, the range of
drugs they cover, the extent to which the retail pharmacy is paid for
all or part of the difference between the price a person pays without a
discount card and the discount card price for a particular drug, and
the prices available with a card. The discount card programs
administered by PBMs are available to any adult, while the
pharmaceutical manufacturers' cards are available only to Medicare-
eligible individuals and couples with incomes below a certain level who
do not have prescription drug coverage. Each PBM-administered card
covers most outpatient prescription drugs, while the cards sponsored by
pharmaceutical manufacturers generally provide discounts only on the
outpatient prescription drugs that company produces. PBM-administered
discount cards specify that the cardholder's price will be the lower of
a percentage below a commonly used reference price or the pharmacy's
usual price (generally referred to as the usual and customary price).
The typical card sponsored by a pharmaceutical manufacturer offers
cardholders either a price that is a specified percentage off a list
price or a fixed price for a specified quantity of each covered drug.
(See appendix I for selected characteristics of the drug card programs
that we examined.):
Eligibility Requirements:
The eligibility requirements for a card generally depend on whether it
is administered by a PBM or sponsored by a pharmaceutical manufacturer.
Unlike the PBM-administered cards, which are available to any
individual, the drug company-sponsored cards are available only to
Medicare-eligible individuals and couples with no prescription drug
coverage who earn less than a certain amount. Income eligibility limits
for these cards range from $18,000 to $30,000 for an individual and
from $24,000 to $40,000 for a couple.
Covered Drugs:
PBM-administered discount cards usually cover most brand name and
generic drugs. PBM officials said exceptions could include high-cost
drugs in limited supply, those needing special administration, and the
relatively few outpatient prescription drugs covered by Medicare. Each
of the cards sponsored by a pharmaceutical manufacturer typically
covers all the outpatient prescription drugs that the manufacturer
produces. The number of drugs covered by the four manufacturer-
sponsored cards we reviewed ranges from 14 to 46. The Together Rx card
offers discounts on about 150 brand name drugs manufactured by its
participating pharmaceutical manufacturers.[Footnote 11]
Retail Pharmacy Payment Arrangements:
Under all drug discount card programs, retail pharmacies agree to
accept a lower price from a cardholder than the usual price they would
charge a noncardholder. The card programs vary, however, in whether and
to what extent the pharmacies are paid for the difference between these
two prices. For purchases with the Medco Health Solutions and WellPoint
Health PBM-administered cards, there is no such payment. For some of
the purchases made with the other three PBM-administered cards, the
retail pharmacy is either paid a portion of the difference between the
pharmacy's usual price and the price the cardholder pays. For other
purchases made with any of these three cards, the pharmacy is not paid
for any of the difference between the usual price and the price the
cardholder pays.
Under the typical pharmaceutical manufacturer-sponsored card, the
manufacturer pays retail pharmacies for a portion of the difference
between the usual price it charges for a drug and the lower price the
pharmacy agrees to charge a cardholder. Some manufacturers set limits
on the usual price that will be used to determine this portion.
Expression of Card Prices:
While PBM-administered drug discount cards typically express their
savings to cardholders as a percentage off what a cardholder would
otherwise pay, the cards differ in how they calculate the price that
cardholders pay at a retail pharmacy. For example, all the PBM-
administered cards other than Citizens Health express the cardholder's
price as the lower of the average wholesale price[Footnote 12] minus 10
to 15 percent or the retail pharmacy's usual price. Citizens Health and
the AARP card administered by Express Scripts use similar formulas, but
further stipulate that the cardholder's price must be at least one
dollar below the retail pharmacy's usual price.
Drug prices available with pharmaceutical manufacturer-sponsored cards
are typically lower than the prices available with PBM-administered
cards because a manufacturer-sponsored card's price is either a
percentage off the manufacturer's list price to wholesalers,[Footnote
13] which is generally lower than average wholesale price, or a dollar
amount for a specified amount of a drug. For example, Aventis
cardholders pay no more than 15 percent below its list price to
wholesalers for a covered drug, and a Pfizer Share Card enrollee pays
$15 for each 30-day supply of any covered drug. With GlaxoSmithKline's
Orange card a cardholder pays a price that is the pharmacy's usual
price, subject to a limit determined by the manufacturer, minus 25
percent off the company's list price to wholesalers. Each manufacturer
participating in Together Rx sets the price for each of its drugs
independently, while guaranteeing that the price will be at least 15
percent off the manufacturer's list price to wholesalers.
Card Savings Depend on Usual Pharmacy Prices and Any Card Fees:
PBM-administered drug discount cards used at retail pharmacies or the
PBMs' mail order pharmacies generally offer savings to consumers
because card prices are typically lower than the prices retail
pharmacies would otherwise charge. Card savings--the difference between
the pharmacy's usual price and the cardholder's price--vary, primarily
because the usual price varied across the 40 pharmacies we surveyed.
For certain drugs at certain pharmacies, however, no savings were
achieved through the use of the card because the retail pharmacy's
usual price was lower than the median card price. Savings achieved
through a PBM-administered card would be reduced by the annual or one-
time fee that the card charges.
Cards Used at Retail Pharmacies:
The range of savings achieved using a PBM-administered drug discount
card at a retail pharmacy for a 30-day supply of the nine drugs we
examined varied within and across geographic areas, primarily because
of differences in the usual prices charged by the pharmacies. Choice of
pharmacy rather than choice of card had more effect on how much a
person saved with a discount card. (See appendix II for more
information on the median retail drug card prices and the median retail
pharmacy prices in the three areas we examined.):
Median savings available with a PBM-administered card in the
Washington, D.C. pharmacies ranged from $2.09 to $20.95 for the nine
drugs. All 14 of the surveyed pharmacies offered a 10 percent senior
discount. Card savings amounted to an additional 1.7 percent to 43.9
percent off the median pharmacy price. The highest percentage discount
was for the two generic drugs in our sample (atenolol and furosemide),
although because these were the lowest priced drugs, the dollar savings
were among the lowest in the sample. The substantial price differences
across pharmacies affected the card savings for a given drug. For
example, the noncard price for a 30-day supply of 200 milligrams of
Celebrex at the surveyed Washington, D.C. pharmacies ranged from $74.33
to $95.59.
Median savings in North Dakota ranged from $0.54 to $7.72 for the nine
drugs or from 1.3 percent to 42.3 percent off the median pharmacy
price. Only 3 of 13 pharmacies offered a senior discount (two offered
10 percent and one offered 5 percent). At one of the pharmacies
offering a senior discount, some card prices for eight of the nine
drugs were higher than the pharmacy's usual price for those drugs.
In California, Medi-Cal, the state's Medicaid program, requires retail
pharmacies that participate in the program to offer the Medi-Cal price
to Medicare beneficiaries who do not have prescription drug
coverage.[Footnote 14] At the 10 Medi-Cal-participating pharmacies,
savings for seven of the nine drugs ranged from $0.44 to $13.06 or from
0.7 percent to 11.1 percent off the median pharmacy price. The Medi-Cal
prices for the other two drugs at these pharmacies were lower than the
median drug card prices for these drugs so the use of the card offered
no savings. At the two pharmacies that did not participate in Medi-Cal,
but offered a 10 percent senior discount, the savings were similar to
those at the Medi-Cal participating pharmacies, although one pharmacy's
prices for four drugs were lower than the median card prices. Savings
at the other pharmacy, which did not offer a senior discount or
participate in Medi-Cal, were considerably higher.
Cards Used at Mail Order Pharmacies:
Mail order prices for a 30-day supply[Footnote 15] of a drug with a
PBM-administered discount card were typically lower than the retail
pharmacies' usual price without a discount card, resulting in greater
card-related savings. The mail order prices with a discount card
resulted in savings ranging from $6.30 to $27.56 for eight of the nine
drugs we examined at the Washington, D.C. pharmacies we surveyed. The
average retail pharmacy usual price without a discount card for the
other drug was lower than the mail order price with a card. In North
Dakota, the savings realized by using a PBM-administered drug card to
purchase the nine drugs from a mail order pharmacy ranged from $0.63 to
$17.58. In California, mail order prices using a PBM-administered drug
card were lower than the Medi-Cal price for eight of the nine drugs we
examined, resulting in savings ranging from $1.03 to $19.67; the Medi-
Cal price was lower than the mail order drug card prices for the other
drug. Mail order savings at the three California pharmacies that were
not participating in Medi-Cal ranged from $3.12 to $104.32, except at
one of the pharmacies offering a 10 percent senior discount where the
retail price for two drugs was lower than the mail order price.
Because it generally offers lower prices than retail pharmacies, mail
order can be an attractive option for purchasing drugs for the chronic
conditions common among the elderly, such as diabetes, arthritis, and
high blood pressure. Two PBM administrators noted, however, that many
elderly people cannot afford to buy at one time the 90-day supply of a
drug that mail order pharmacies typically dispense.
Consumers who use a mail order option can purchase drugs at Internet
pharmacies without a discount card. Our comparison of prices using data
from November 2001 found that the median mail order price using a PBM-
administered discount card was generally lower than Internet pharmacy
prices for a drug. But we also found at least one Internet pharmacy at
that time that offered a price lower than the median discount card mail
order price for 8 of 17 drugs that we examined.[Footnote 16]
Card Fees' Effect on Savings:
The savings from using a card are reduced if the card charges a fee.
None of the pharmaceutical manufacturers' cards charges a fee. The PBMs
whose cards we examined generally charged a one-time fee or an annual
fee. For example, the discount card we examined from Wellpoint Health
charges a one-time fee of $25 for an individual and about $50 for a
family. The Citizens Health card costs $12 a year for an individual and
$28 a year for a family.
State Regulatory Efforts Focus on Protecting Consumers:
As of October 2002, 16 states had passed laws regulating one or more
aspects of prescription drug discount card programs (see table 1).
While the scope of each of the laws varies, the sponsors of several of
the laws have characterized their purpose as consumer protection.
Table 1: Selected Provisions of State Regulation of Prescription Drug
Discount Card Programs, November 2002:
Provision: Card must prominently display that it does not represent
insurance; States that have adopted the provision: Ark., Ga., Idaho,
Ind., Kans., Ky., Minn., Mont., N.H., Oreg., S.C., S. Dak., Tenn.
Provision: Discounts' description must not be misleading, deceptive, or
fraudulent; States that have adopted the provision: Ark., Idaho, Ind.,
Kans., Minn., N.H., Oreg., S.C., S. Dak., Tenn., Tex.
Provision: Discounts must be authorized by separate contracts for each
retail pharmacy; States that have adopted the provision: Ark., Ga.,
Idaho, Ind., Kans., Ky., Minn., Oreg., S.C., S. Dak., Tenn., Tex.
Provision: Card seller must register with state; States that have
adopted the provision: N.H., Oreg., S.C.
Provision: Card administrator required to pay a portion of any
discount; States that have adopted the provision: Miss.
Provision: Specifies restrictions on use of information about consumers
by retailer issuing card; States that have adopted the provision:
Conn.
Source: National Conference on State Legislatures and National
Association of Chain Drug Stores.
[End of table]
Thirteen of the states require that a notice appear prominently on the
card declaring that it does not represent insurance coverage. Eleven of
the states require that the reporting of discounts offered by the cards
not be misleading, deceptive, or fraudulent. New Hampshire's law, for
example, requires that the advertising for any discount card expressly
state that the discount is available only at participating pharmacies.
The law was enacted in May 2001 after some consumers complained about
confusion in how and where discount cards could be used. The sponsor of
the New Hampshire law told us that she heard from consumers in her
state who said they would pay for a card over the telephone, only to
later find that the nearest pharmacy honoring it was 50 to 100 miles
away from their home.
Twelve states require that the discounts be specifically authorized by
separate contracts between the card administrator and each
participating pharmacy or pharmacy chain. South Dakota's law, which
includes such a provision, was enacted following complaints from
pharmacists that companies were selling cards that promised discounts
at various pharmacies, but that the companies did not have agreements
with all of those pharmacies to actually provide the discounts. The
sponsor of the South Dakota law said some cardholders claimed that
certain pharmacies that the card's sponsor advertised as accepting the
card did not do so. The sponsor of the law told us that it is intended
to protect consumers and pharmacies from deceptive sales practices by
drug discount card sponsors.
Mississippi's drug discount card law bars a program administrator, such
as a PBM, from requiring pharmacies to accept a card as a condition of
receiving a contract for the PBM's other business, unless the
administrator "pays a portion" of the cost of the discount given by the
pharmacy. According to a representative of the Mississippi Attorney
General's office, which is responsible for enforcing the law, the state
has not defined "portion" in regulation and the meaning of the term has
not been the subject of litigation.
Comments from External Reviewers:
We provided a draft of this report for review to the five PBM
administrators whose cards we examined, four of whom responded. We also
obtained comments from a pharmaceutical manufacturer that sponsors its
own card and participates in the Together Rx card, and one independent
expert reviewer. They provided technical comments that we incorporated
as appropriate.
As agreed with your offices, unless you publicly announce this report's
contents earlier, we plan no further distribution until 30 days after
its issue date. At that time, we will send copies to the Administrator
of CMS, the PBMs that administered the cards we examined, the
pharmaceutical manufacturers that sponsored cards we examined and other
interested parties. We will also make copies available to others upon
request. This report is also available at no charge on GAO's Web site
at http://www.gao.gov.
If you or your staffs have any questions about this report, please call
me at (202) 512-7119 or John Hansen at (202) 512-7105. Major
contributors to this report were Roseanne Price, Michael Rose, and Jeff
Schmerling.
Laura A. Dummit
Director, Health Care--Medicare Payment Issues:
Signed by Laura A. Dummit:
List of Congressional Requesters:
The Honorable John D. Dingell
Ranking Minority Member
Committee on Energy and Commerce
House of Representatives:
The Honorable Henry A. Waxman
Ranking Minority Member
Committee on Government Reform
House of Representatives:
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives:
The Honorable Sherrod Brown
Ranking Minority Member
Subcommittee on Health Committee on Energy and Commerce
House of Representatives:
The Honorable Pete Stark
Ranking Minority Member
Subcommittee on Health
Committee on Ways and Means
House of Representatives:
The Honorable Mike Ross
House of Representatives:
[End of section]
Appendix I: Selected Drug Discount Card Characteristics:
Table 2:
Card sponsor: Retail pharmacies, employee associations, and insurance
companies (All administered by PBMs); Card name: Cards use different
names; Eligibility: No eligibility requirements; Income requirements:
No requirements; Drugs covered: Each card covers all generic drugs and
most brand name drugs; Advertised prices: 10 to 15 percent off average
wholesale price; Approximate number of enrollees: 17-18 million[A].
Card sponsor: Consortium of 8 pharmaceutical manufacturers; Card name:
Together Rx; Eligibility: Medicare eligibility and no other
prescription drug coverage; Income requirements: Individual annual
income below $28,000 or couple income below $38,000[B]; Drugs covered:
About 150 brand name drugs produced by participating pharmaceutical
manufacturers; Advertised prices: At least 15 percent off
manufacturer's list price to wholesalers; Approximate number of
enrollees: 920,000[C].
Card sponsor: Eli Lilly; Card name: LillyAnswers; Eligibility: Medicare
eligibility and no other prescription drug coverage; Income
requirements: Individual annual income below $18,000 or household
income below $24,000; Drugs covered: All drugs manufactured by the
company, except controlled substances, and products not distributed by
retail pharmacies; Advertised prices: $12 for a 30-day supply;
Approximate number of enrollees: 100,000[D].
Card sponsor: GlaxoSmithKline; Card name: Orange Card; Eligibility:
Medicare eligibility and no other prescription drug coverage; Income
requirements: Individual annual income below $30,000 or couple income
below $40,000[E]; Drugs covered: All outpatient prescription drugs
manufactured by the company; Advertised prices: Average savings of 30
percent off the usual price; Approximate number of enrollees:
100,000[F].
Card sponsor: Novartis; Card name: Care Card; Eligibility: Medicare
eligibility and no other prescription drug coverage; Income
requirements: Individual annual income below $18,000 or household
income below $24,000; Drugs covered: Certain Novartis outpatient
prescription drugs; Advertised prices: $12 for a 30-day supply or 25 to
40 percent off depending on the beneficiary's income; Approximate
number of enrollees: 15,000[G].
Card sponsor: Pfizer; Card name: Share Card; Eligibility: Medicare
eligibility and no other prescription drug coverage; Income
requirements: Individual annual income below $18,000 or household
income below $24,000; Drugs covered: All Pfizer prescription drugs;
Advertised prices: $15 for up to a 30-day supply; Approximate number of
enrollees: 250,000[H].
Source: Pharmaceutical manufacturers' Web sites and interviews with
card administrators.
[A] Based on information provided by five PBM card administrators
surveyed in February 2003.
[B] As of February 2003.
[C] As of August 2003.
[D] As of October 2002.
[E] In Alaska, individual annual income must be below $35,000 or a
couple's income below $48,000. In Hawaii, individual annual income must
be below $33,000 or a couple's income below $44,000.
[F] As of November 2002.
[G] As of April 2002.
[H] As of December 2002.
[End of table]
[End of section]
Appendix II: Median Retail Pharmacy PBM-Administered Drug Discount Card
Prices and Median Retail Pharmacy Noncard Prices:
Table 3:
Drug: Atenolol 50 mg; Median retail drug card price: $5.57; California
median retail price[A]: $5.19; North Dakota median retail price[B]:
$9.65; Washington, D.C. median retail price[C]: $9.09.
Drug: Celebrex 200 mg; Median retail drug card price: $75.35;
California median retail price[A]: $69.76; North Dakota median retail
price[B]: $78.12; Washington, D.C. median retail price[C]: $84.68.
Drug: Fosamax 70 mg; Median retail drug card price: $62.42; California
median retail price[A]: $62.86; North Dakota median retail price[B]:
$70.14; Washington, D.C. median retail price[C]: $71.05.
Drug: Furosemide 40 mg; Median retail drug card price: $5.04;
California median retail price[A]: $5.60; North Dakota median retail
price[B]: $7.65; Washington, D.C. median retail price[C]: $8.99.
Drug: Lipitor 10 mg; Median retail drug card price: $63.77; California
median retail price[A]: $69.62; North Dakota median retail price[B]:
$66.09; Washington, D.C. median retail price[C]: $70.85.
Drug: Norvasc 5 mg; Median retail drug card price: $41.37; California
median retail price[A]: $45.16; North Dakota median retail price[B]:
$41.91; Washington, D.C. median retail price[C]: $50.93.
Drug: Premarin .625 mg; Median retail drug card price: $22.53;
California median retail price[A]: $25.33; North Dakota median retail
price[B]: $23.10; Washington, D.C. median retail price[C]: $26.00.
Drug: Prilosec 20 mg; Median retail drug card price: $123.19;
California median retail price[A]: $130.06; North Dakota median retail
price[B]: $126.95; Washington, D.C. median retail price[C]: $125.28.
Drug: Zocor 20 mg; Median retail drug card price: $116.39; California
median retail price[A]: $129.45; North Dakota median retail price[B]:
$119.69; Washington, D.C. median retail price[C]: $137.34.
Source: Drug prices obtained from five PBM-administered drug discount
cards and 40 retail pharmacies.
Note: GAO analysis.
[A] Ten of the 13 pharmacies were Medi-Cal participants, meaning they
had to offer seniors Medi-Cal drug prices. Two of the three pharmacies
not participating in Medi-Cal offered a 10 percent senior discount; the
other pharmacy offered no discount.
[B] Two of the 13 pharmacies offered a 10 percent senior discount and
one offered a 5 percent discount; the other ten pharmacies offered no
senior discount.
[C] All 14 pharmacies offered a 10 percent senior discount.
[End of table]
FOOTNOTES
[1] Medicare generally does not cover outpatient prescription drugs,
except if they cannot be self-administered and are related to a
physician's services, such as cancer chemotherapy, or are provided in
conjunction with covered durable medical equipment, such as inhalation
drugs used with a nebulizer. In addition, Medicare covers selected
immunizations and certain drugs that can be self-administered, such as
blood clotting factors and some oral drugs used in association with
cancer treatment and immunosuppressive therapy.
[2] Medicare-Endorsed Prescription Drug Card Assistance Initiative, 67
Fed. Reg. 56,618 (2002).
[3] National Association of Chain Drug Stores v. Thompson, No. 01-1554
(D.D.C. 2003).
[4] The primary functions of PBMs are negotiating drug prices with
pharmacies and pharmaceutical manufacturers on behalf of health plans,
processing drug claims for health plans, and dispensing prescriptions
through mail order pharmacies.
[5] Discount card sponsors put their name on the card and establish its
terms and conditions.
[6] The founding members of Together Rx are: Abbott Laboratories;
AstraZeneca; Aventis Pharmaceuticals, Inc.; Bristol-Myers Squibb
Company; GlaxoSmithKline; Janssen Pharmaceutical Products, L.P.;
Novartis; and Ortho-McNeil Pharmaceutical, Inc. Ortho-McNeil and
Janssen are owned by Johnson & Johnson.
[7] The nine drugs are Atenolol, Celebrex, Fosamax, Furosemide,
Lipitor, Norvasc, Premarin, Prilosec, and Zocor.
[8] For additional information on drug discount card prices see U.S.
General Accounting Office, Prescription Drugs: Prices Available Through
Discount Cards and From Other Sources, GAO-02-280R (Washington, D.C.:
Dec. 5, 2001).
[9] Kaiser Family Foundation, Prescription Drug Discount Cards: Current
Programs and Issues (Prepared by Health Policy Alternatives, Inc., Feb.
2002), p. 9.
[10] Major legislative proposals in both houses of Congress, S. 1 and
H.R. 1, contain sections on establishing drug discount card programs.
[11] In November 2002, one retail pharmacy chain began offering
discounts on generic drugs to Together Rx cardholders.
[12] Average wholesale price is often described as a list price or
suggested retail price because it is not necessarily the price paid by
a purchaser. Most manufacturers periodically report average wholesale
prices to publishers of drug pricing data who make them publicly
available. Because it is publicly available, average wholesale price is
a commonly used reference price for determining drug discounts.
[13] The list price to wholesalers, also called the wholesale
acquisition cost, is the price that manufacturers generally charge
wholesalers, excluding any rebates or discounts, and is published by
the manufacturers.
[14] Florida is the only other state that requires retail pharmacies in
the state that participate in Medicaid to offer the Medicaid price to
Medicare beneficiaries who do not have prescription drug coverage.
[15] The mail order option of PBM-administered cards generally
dispenses a 90-day supply of a drug. The PBMs gave us their mail order
prices for a 30-day supply, which allowed us to compare these prices to
30-day retail pharmacy prices for purchases without a discount card.
[16] See U.S. General Accounting Office, Prescription Drugs: Prices
Available Through Discount Cards and From Other Sources, GAO-02-280R
(Washington, D.C.: Dec. 5, 2001).
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