Medicare Compliance & Reimbursement

Will the Medicare prescription drug benefit lead to greater drug expenses for plans?

Health plans are still waiting to see whether the passage of the Medicare prescription drug benefit changes how pharmaceutical companies deal with managed care plans.

A lot still depends on the many regulations within the law that the Centers for Medicare & Medicaid Services and the Department of Health and Human Services will need to work on in the coming months, says Phil Blando, vice president of public affairs for the Pharmaceutical Care Management Association, the trade group representing pharmacy benefits managers. In many ways, the remaining regulations could be more important than the legislation Congress crafted, Blando says.

Still, Blando doesn't think the Medicare law - the Medicare Prescription Drug, Improvement and Modernization Act of 2003 - will cause any huge changes in the way prescription drugs enter the supply chain and how they are delivered to health plans, physicians and beneficiaries.

"We find it encouraging that under the law, Medicare will use competitive private health plans to negotiate savings and discounts with pharmaceutical and biotechnology research companies, and that means there's going to be more of that than there is now in the private marketplace," Jeff Trewhitt, spokesman for the Pharmaceutical Research and Manufacturers of America. Pharmaceutical companies and health plans obviously will be doing more business with each other, but the nature of that business isn't expected to change much in the foreseeable future.

"The jury's still out on how the pharmaceutical companies will respond," says Dan Miller, a spokesman for PacifiCare Health Systems. Because PacifiCare has its own PBM - Prescription Solutions - rather than contracting with an outside PBM, it has more contact with pharmaceutical companies than most health plans.

"We're waiting to see how the negotiation for the discount card goes to give us some indication," Miller says, referring to the new Medicare prescription drug cards that soon will go into effect to tide beneficiaries over until the full-fledged pharmacy benefit kicks in on Jan. 1, 2006.

More Responsibility on PBMs' Shoulders 

The PBM and pharmaceutical manufacturing industries were jubilant when the new law, which does not include any government price controls on drugs, finally passed. Some Hill watchers had expected that the bill would allow Medicare to harness its negotiating power as the single largest health care payer to drive down the costs of medications, but the Republican-engineered law expressly forbids that.

The bottom line: It will be up to PBMs and health plans to keep the costs of drugs down. And PBMs are confident they can do that.

"Certainly we're pleased that the legislation recognizes the value that PBMs bring to the system," Blando says, describing the law as "a validation of our business model and a recognition that seniors should be afforded the savings that PBMs can provide."

The law "preserves the full range of tools and techniques that PBMs have used in the private sector and will be able to use in Medicare," Blando says. Such tools include drug utilization review, specialty pharmacy services, disease management and the establishment of pharmacy networks.

But will that be enough to control health plans' drug costs? Escalating drug costs have been one of the chief problems for commercial health plans over the last few years, and now that many of them will be providing pharmacy benefits to millions of Medicare benes as well, pharmaceuticals will constitute an even greater percentage of health plans' overall costs.