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Medicare Compliance & Reimbursement

DRUG BENEFIT:

PDP Sponsors Face Pricing Challenges

Published on Tue Mar 01, 2005

Projected enrollment tied to national average.

According to information presented by Medicare Payment Advisory Commission staff analysts at the panel's March 10 meeting, Part D bidding is about to get a lot more interesting. MedPAC's analysts said beneficiaries should expect to see a wider variation in plan premiums.

According to MedPAC analyst Rachel Schmidt, enrollee premiums will vary more in percentage terms than the plans' bids to Medicare.
 
CMS will calculate premiums by calculating a national average bid based on the bids submitted by risk-bearing plans. The national average will be weighted by each plan's projected enrollment, Schmidt explained.
 
Enrollee premiums will have two components: the first, a percentage of the nationwide average bid. In addition, however, an enrollee who chooses a plan that bid above the nationwide average will pay the entire difference between the plan's bid and the calculated average. Enrollees who choose plans that bid less than the national average will be credited with the full difference between their plans' bids and the average, thus reducing their premiums by that full dollar amount.

PDP applications were due to CMS March 23, and providers must follow up with formularies by April 18 ... and then comes the tough part. Plans must submit their bids for price by June 6.

Data is sparse on beneficiary drug spending and how it varies by region, said Schmidt. Though some data sets do exist, they don't all agree on which regions spend more.

"There is no gold standard among data sets for telling us how much geographic variation in drug spending we should expect to see," said Schmidt.

From years of supplying prescription drugs to employer-based populations, commercial plans "have a lot of data they can rely on for decisions," said Tom Paul, chief pharmacy officer for UnitedHealth Group's elder-care division, Ovations.

But with Medicare lacking drug coverage up to now, PDPs are missing a whole range of vital facts concerning their new target populations, including clinical and financial data, as well as pharmacokinetic information - how specific drugs are absorbed, distributed, metabolized and eliminated by elderly and disabled people - and information about how Medicare consumers respond to marketing, plan design and more.

The result: Among other uncertainties regarding PDP operation and design, "plans are ... going to have a hard time estimating what their Part D spending will look like and therefore what their bids should be," said Schmidt.

"It may take a few years of collecting real claims information to reduce uncertainty in setting premiums."

Regional spending variation - and the uncertainty about it - raises several questions, Schmidt noted. For example, since high utilization means that some regions will see higher PDP premiums than others, will beneficiaries in those areas be scared off from enrolling because of  the cost?

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