The Right Prescription for Medicare Drug Coverage


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The Manhattan Institute held a Capitol Hill briefing today on the principles of designing a Medicare prescription drug benefit. Many speakers emphasized the importance of designing a benefit that would give Medicare beneficiaries access to the newest drugs, avoid restrictive formularies, maintain incentives that encourage future innovations, and provide assistance to low-income seniors.

“Medicare can be used as a way to improve health and not create a huge financial albatross for the future,” said Robert Goldberg, Director of the Center for Medical Progress at the Manhattan Institute and the host of the briefing. In reference to proposals to create a drug benefit, Goldberg said, “Providing access to medical progress and encouraging medical technologies should be a priority.”

Dr. Susan Horn of the Institute for Clinical Outcomes Research presented findings of several studies that show curtailing access to medications has an adverse effect on health outcomes and costs more in other health expenditures in the long run. For example, in one study, making fewer drugs available through restrictive formularies resulted in more patient visits to physicians, more emergency room visits, more hospitalizations, increased numbers of drugs prescribed, and increased cost of drugs prescribed. For psychiatric drugs, patients with restrictions on access had 29% higher pharmaceutical costs and 14% higher overall health costs.

John Graham of the Fraser Institute and Ralph Hawkins, a doctor from British Columbia, explained the problems with the reference-based drug pricing program known as Pharmacare in British Columbia. The program only fully reimburses the cheapest drug in each therapeutic class, leaving consumers to pay the difference of a more expensive drug. Graham said there was a one-fifth increase in hospital admissions after the Pharmacare program was instituted in 1995, and that most people continued using the same drugs as before and simply paid the difference. “Reference pricing did not save money, and actually backfired,” said Graham.

Hawkins echoed those comments, saying 95% of physicians surveyed report that they have had some problem with the reference-based pricing program, and that 78% report an increase in patient visits. Hawkins said eight major studies have shown that newer drugs are better at treating end-stage renal disease than diuretics, yet the Pharmacare program only covers diuretics. Hawkins own research shows that for every $1 spent on diuretics, $16 additional dollars are spent on treating end-stage renal disease over a lifetime.

Grace-Marie Turner of the Galen Institute said that it is clear the president believes Medicare is not sustainable as currently structured and that structural reforms are a priority of the White House. She said the Federal Employees Health Benefits Program (FEHBP) is believed by many to be the best health plan in America because it gives individuals the choice of the health plan that best fits their needs, and that the president believes these choices are key to a modern Medicare program. Turner concluded that passage of a Medicare prescription drug benefit of some type is likely this year and that it should include four principles:

  • Administered by the private sector, not the government, so as to avoid price controls
  • Avoid crowd-out of existing prescription drug coverage seniors already have
  • Set the foundation for a modernized Medicare program
  • Give consumers a choice of plans and incentives to shop wisely

Ron Pollack of Families USA said that even though two-thirds of seniors already have prescription drug coverage, many would lose this coverage in future years if a Medicare prescription drug benefit is not enacted now. According to Pollack, there’s no guarantee that employers will continue providing prescription drug benefits. He supported a comprehensive prescription drug benefit for low-income seniors and believes that it could pass this year, but without the structural reforms to Medicare supported by the president. “The administration would be wise to revise its plan,” said Pollack. Pollack maintained that even though the president has set aside $400 billion for Medicare reforms over the next ten years in his budget proposal, this amount is about one-fifth of the amount seniors will spend on prescription drugs during this period. Pollack also laid out four principles he thinks are important in a Medicare prescription drug benefit:

  • Target low-income seniors first, but set the income eligibility limit at twice the federal poverty limit
  • Make benefits affordable for seniors, with no “doughnut holes”
  • Ensure that funds for low-income seniors’ drug coverage are not taken by the states for fiscal relief
  • Make the benefit user friendly and streamline the enrollment process

–Joe Moser
Galen Institute


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