[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MEDICARE REFORM: PROVIDING PRESCRIPTION DRUG COVERAGE FOR SENIORS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 15, 2001
__________
Serial No. 107-1
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
CHARLES F. BASS, New Hampshire
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Buckley, Barbara E., Assemblywoman, State of Nevada.......... 55
Jones, John, Vice President, Legal and Regulatory Affairs,
Pacificare Health Systems.................................. 22
Kessler, Sylvia, on behalf of the National Committee to
Preserve Social Security and Medicare...................... 20
Moroni, Robert D., Assistant Director, Health Care Plans,
General Motors Corporation................................. 29
Rowland, Diane, Kaiser Family Foundation..................... 32
Smith, James F., Senior Vice President, Health Care Services,
CVS Corporation, on behalf of National Association of Chain
Drug Stores................................................ 60
Weller, William, Assistant Vice President and Chief Actuary,
Health Insurance Association of America.................... 47
Material submitted for the record by:
Jones, John, Vice President, Legal and Regulatory Affairs,
Pacificare Health Systems, letter dated March 23, 2001,
enclosing response for the record.......................... 93
Rowland, Diane, Kaiser Family Foundation, letter dated March
19, 2001, enclosing response for the record................ 92
(iii)
MEDICARE REFORM: PROVIDING PRESCRIPTION DRUG COVERAGE FOR SENIORS
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THURSDAY, FEBRUARY 15, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Upton,
Greenwood, Burr, Ganske, Norwood, Shadegg, Pickering, Bryant,
Buyer, Tauzin (ex officio), Brown, Waxman, Strickland, Barrett,
Deutsch, Stupak, Engel, Wynn, Green, and Dingell (ex officio).
Staff present: Anne Esposito, professional staff member;
Tom Giles, majority counsel; Kristi Gillis, legislative clerk;
Bridgett Taylor, minority professional staff member; and Amy
Droskoski, minority professional staff member.
Mr. Bilirakis. The committee will come to order.
As per committee rules, the chairman and ranking member
will have 5 minutes for an opening statement. Other members of
the subcommittee will be limited to 3 minutes; a solid 3, I
might add.
I now call to order this first hearing of the Health
Subcommittee in this, the 107th Congress. I would like to start
by welcoming our witnesses and all of the subcommittee members,
particularly our new members, none of whom are here, I believe.
Mr. Buyer is here. I guess this is an appropriate time for me
to say that since there are no votes on the House floor today,
I thank my subcommittee colleagues for staying in town today to
participate in this important hearing. Although when we take a
look around, we don't see that too many have so far.
I am pleased to be working again with my good friend
Congressman Sherrod Brown as the ranking member, and he should
hear that. I also want to take this opportunity to recognize
the vice chairman of the subcommittee, Congressman Charlie
Norwood, whose help and support I greatly appreciate.
I am excited by the challenges before us in the current
session. This subcommittee's jurisdiction includes a broad
range of health concerns, as we know, including Medicare,
Medicaid, health insurance, public health, food safety, and
pharmaceuticals. Under the leadership of Chairman Tauzin, I am
confident that the Energy and Commerce Committee and this
subcommittee in particular will play a leading role in the
health care debate. We have a busy year before us. By working
together, and I emphasize that, we can significantly improve
the quality of health care for all Americans.
The topic of today's hearing is Medicare Reform: Providing
Prescription Drug Coverage to Seniors. The title underscores a
critical point; namely, that there is a clear and necessary
connection between adding a prescription drug benefit to the
Medicare program and broader reforms to protect and strengthen
Medicare for the future.
Before we expand Medicare to provide a costly new benefit,
a necessary new benefit, in my opinion, we must ensure the
program is standing on solid fiscal ground. A benefit promised
but not delivered, of course, is no benefit at all. I am
determined to protect the long-term solvency of this very vital
program.
In the last Congress, I proposed a State-based prescription
drug plan to help seniors in greatest need. I remain determined
that we help the poorest and sickest beneficiaries obtain the
medicines they need, should broader reform efforts be delayed.
But I am hopeful that there will not be delays, that the
present Congress can reach agreement on a plan to reform
Medicare and establish a voluntary prescription drug benefit
for all Medicare beneficiaries. This hearing is the first in a
series designed to lead us toward accomplishing that goal.
This is meant to be an educational hearing for members of
the subcommittee and the public. We have all heard the numbers.
Roughly 65 percent of Medicare beneficiaries have access to
some form of prescription drug coverage.Today we will hear more
about the ways in which beneficiaries are currently obtaining
prescription drugs outside of the Medicare program.
Our panel will begin with Mrs. Sylvia Kessler, who has
traveled from my home State of Florida to be here today. Thank
you so much for joining us, Mrs. Kessler, and I wish we could
welcome you and the others with better weather--although it is
not as bad as it was yesterday. The panel will also include
representatives from a Medicare+Choice plan, the Medigap plans,
a chain drug store, an employer-sponsored plan, a State
prescription drug assistance program, and the Kaiser Family
Foundation. I would like to again offer a warm welcome to all
of our panelists.
I look forward to a productive hearing which can shed light
on how various coverage programs are structured and how they
operate. By reviewing ways in which current prescription drug
delivery systems are modeled, we can learn from their successes
and their difficulties. However, we are not focusing, and I
want to emphasize that, we are not focusing today on specific
legislative proposals.
As Members know, this subcommittee has a strong record of
working on a bipartisan basis to tackle difficult legislative
issues, and I am hopeful that we can advance a bipartisan plan
to improve prescription drug coverage for Medicare
beneficiaries. By reaching agreement on an answer to this very
difficult question, we can also help advance broader efforts to
preserve and strengthen Medicare for the future.
In closing, I want to again thank our witnesses for their
time and effort in joining us today.
I now recognize the ranking member Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. It is a pleasure to
again serve with you as Chair in this 107th Congress. I am glad
you are back as the chairman of the newly reconfigured Health
Subcommittee. I would like to thank Diane Rowland and other
distinguished witnesses for joining us today.
Access to prescription drugs is fresh on my mind because I
just received a letter from a Medicare beneficiary who needs
medicine for his prostate cancer. His Medicare+Choice plan made
two changes effective January 1 of this year. Premiums went up
$350 per year, and brand name drugs are no longer covered,
period. There is no generic version of the drug that my
constituent needs.
I received another letter from the frantic daughter of a
woman whose Medicare+Choice plan dropped prescription drug
coverage altogether. Her mother's prescriptions cost more than
$300 per month. Neither mother nor daughter can afford that.
I received a letter from a woman whose employer-sponsored
retiree coverage dropped its prescription drug plan. My
constituent didn't know she lost her drug coverage until she
tried to fill the prescription. That prescription is still
unfilled.
I have heard from seniors who had to give up their Medigap
coverage when premiums spiked upward, from seniors who joined
the Plus Choice plan explicitly for the drug coverage, only to
have that coverage ratcheted down or eliminated altogether;
from seniors whose drug coverage is so skeletal they would be
better served putting the associated premiums in a savings
account.
These stories, which resonate with my colleagues on both
sides of the aisle, are not an indictment of Medigap or of Plus
Choice plans or employers or any other source of drug coverage,
but they are an indictment of partial solutions. The status quo
is a mishmash of partial solutions. More than a third of
Medicare beneficiaries, as all of us know, have no prescription
drug coverage, and even more than that, of the two-thirds that
have it, more than that have coverage that simply isn't
dependable and is being oftentimes scaled back.
The President's immediate Helping Hand proposal is another
partial solution, and it would leave out nearly half of those
who now lack prescription drug coverage.
The stories our constituents share with us are an
indictment of this Congress's, of our continued failure to add
prescription drug coverage to the basic Medicare benefit.
Medicare is reliable, Medicare is universal, Medicare is a
large enough insurance pool to accommodate the risk and manage
the costs associated with prescription drug coverage.
Medicare came into being because half of all seniors in
1965 were uninsured. Now, more than a third of all seniors are
uninsured, and many more underinsured for prescription drugs.
Medicare prescription drug coverage as opposed to State
assistance programs or private coverage for prescription drugs
means stable benefits over time and means coverage that does
not leave any senior worse off than that senior's neighbor in a
different county or a different State or a different income
bracket or a different health status.
Medicare prescription drug coverage has been demonized by
many in this institution and others outside the institution as
a one-size-fits-all program. This argument is spurious. The
people that make this argument, that make this assertion know
that it is spurious. The kind of choice that is important when
it comes to prescription drug coverage is choice of pharmacy,
choice of prescription drug, choice between brand name and
generic drugs, access to the right drugs, even if it is not
part of the standard formulary. That is the kind of choice a
Medicare drug benefit can provide to every senior, not just
those lucky enough to afford a Cadillac private insurance plan.
I am confident, Mr. Chairman, that today's hearing will be
informative and helpful. I am equally confident that what we
hear today will reinforce the argument for a universally
available Medicare drug benefit. Those of you who have observed
this committee and know me probably are surprised that I
haven't raised the issue of prescription drug prices or the
related issues of direct-to-consumer advertising and patent
extension, or tax cuts which put us in a straightjacket which
makes it difficult to afford the kind of coverage that
Americans deserve. In the interest of time, I will get to these
issues when it is time to ask questions of the witnesses.
Thank you, Mr. Chairman.
Mr. Bilirakis. And the Chair appreciates that.
I now yield to Mr. Norwood, the vice chairman of the
subcommittee.
Mr. Norwood. Thank you very much, Mr. Chairman, and
congratulations to you, as we are all pleased to follow your
leadership on this very important subject. As a present to you
today, I want you to know that I am here to listen and not
talk, so I am going to be very brief. I know that is different,
but I am grateful to all of you for coming so far, many of you,
and I think that is exactly what we need to do. I want you to
know we do listen to you, and what you say today will be
carefully noted and help, as this is the--probably the opening
salvo of the great Energy and Commerce Committee as we try to
work out a prescription drug plan and help the President
fulfill his campaign promises. I have great faith that this is
the year we are going to get it done.
So I thank all of you for being here and give it to us,
because that is what we are here to do today.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Dingell for an opening statement.
Mr. Dingell. Mr. Chairman, thank you, and I commend you and
Chairman Tauzin for beginning this Congress looking at one of
the most pressing problems facing the people of the country.
Millions of our seniors and disabled who depend on Medicare for
their health coverage lack affordable coverage for prescription
medications. The situation facing Medicare beneficiaries with
respect to prescription drugs today is not unlike the situation
they faced with respect to insurance coverage in 1965. Indeed,
this is the one crucial reform in the Medicare program which we
need to pursue.
Currently, there are a patchwork of stopgap measures
available, from retiree coverage to Medigap to voluntary State
assistance programs. But there is one thing clear about the
whole business: None of them adequately fills the void, and our
senior citizens confront a very serious and difficult problem
as a result.
What we need is a uniform Medicare benefit that seniors and
the disabled can depend upon; no nonsense about how we are
going to give money to States, who might or might not give it
to HMOs, who then might or might not pass it through. This is a
formula for wasted money and loss of opportunity to help people
who are in desperate need.
So the question we must examine today is how can we best do
what must be done. I would like to suggest a few basic points
to guide our thinking. First, the system must be reliable.
Competition is a nice word, it is a buzzword, I use it, we all
use it. Experience with Medicare+Choice, however, has shown
that it certainly does not result in any dependable or stable
product upon which seniors may rely. So unless we are willing
to dump billions of dollars of overpayments into a system on an
annual basis, that assuredly is not going to reach most of the
people in need. This kind of idea must be rejected.
Second, the benefit has to be defined. The Congress needs
to know who is getting what, who is paying for it, and what the
level of benefits might be. Seniors need to know exactly what
they can count on. Employers and others who provide
supplemental coverage need to know exactly what they are
supplementing. I will point out to all that Medicare is an
intricate, involved, and essential part today of industrial
retirement plans and industrial retirement health plans. It is
even a part of our Civil Service retirement. States and almost
every unit of government that has a retirement system includes
this as a part of a wraparound program in which benefits are
provided, dependent in heavy part upon Medicare.
We do not need to return to the old days of Medigap
scandals when seniors were being sold a pig in a poke and when
all kinds of scoundrels profited mightily at the expense of
senior citizens and at the expense of the Federal Government,
which was regarded as a generous giver who did not supervise.
Third, the benefit must be affordable for seniors and the
disabled. That has to include premiums and cost-sharing. A
benefit that no one can afford is no benefit at all. I would
note also a benefit that doesn't cover adequately is also no
benefit at all.
Mr. Moroni, who is assistant director of General Motors
Health Plans, will tell us how GM works to ensure that a
benefit is affordable to their members. Other companies in the
auto industry and in the American industrial community are
doing similar things, and they deserve commendations for their
efforts in this matter, but they also need us to help them fill
out a plan which will better not only those retirement plans,
but the beneficiaries of those retirement plans.
Finally, we need to remember why we are in this business.
Congress is now discussing a Medicare prescription medication
benefit because there is a pressing, urgent need amongst our
elderly and disabled.
It should be noted that today we regard ourselves as much
more heavily dependent upon medication and prescription
pharmaceuticals than we do upon medical treatment. That was
unfortunately not the case in 1965 when we passed Medicare. The
result was that we largely ignored that kind of benefit. In
consequence, today our senior citizens miss what is a major and
essential part of good health care for them.
Any solution that this Nation devises and that this
Congress designs must focus on the needs of seniors. We need to
make good on the commitment that Congress made to seniors and
the disabled in 1965 to provide their health care needs where
the private market fell short. I am pleased that Mrs. Kessler
has traveled all the way from Florida to share her experience
with us as a Medicare beneficiary who lacks affordable
prescription drug coverage, and we want to thank you for being
here, Mrs. Kessler.
I look forward to working with you, Mr. Chairman, and with
Chairman Tauzin to expeditiously address these problems this
year. I hope that we won't try to swallow any snake oil of the
kind I see marketed about how we are going to trust the States
or the HMOs to do this. We have trusted them overlong. They
have been deficient in their responsibilities, and they are now
trying to perpetrate the fraud.
Thank you, Mr. Chairman.
[The prepared statement of Hon. John D. Dingell follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
I am pleased to see that Chairmen Tauzin and Bilirakis are
beginning this Congress looking at one of the most pressing problems
facing this country. Millions of seniors and disabled who depend on
Medicare for their health coverage lack affordable coverage for
prescription medications. The situation facing Medicare beneficiaries
with respect to prescription drugs today is not unlike the situation
they faced with respect to insurance coverage in 1965. In my mind, this
is the one critical ``reform'' in the program that we need to pursue.
Currently, there is a patchwork of stopgap measures available, from
retiree coverage to Medigap to voluntary state assistance plans. But
none of them adequately fills the void. What we need is a uniform
Medicare benefit that seniors and the disabled can depend on. The
question we will examine today is how best to do it.
I suggest a few basic points to guide our thinking. First, the
system has to be reliable. While ``competition'' might be a good buzz
word these days, experience with the Medicare+Choice program has shown
that it certainly does not result in a stable and dependable product
that seniors can rely on, unless we are willing to dump billions of
overpayments into the system on an annual basis.
Second, the benefit must be defined. Seniors need to know exactly
what they can count on. Employers and others who provide supplemental
coverage need to know what they are supplementing. We do not need to
return to the days of the Medigap scandals where seniors were being
sold a ``pig in a poke.''
Third, the benefit itself must be affordable for seniors and the
disabled, including premiums and cost-sharing. A benefit that no one
can afford is no benefit at all. Mr. Moroni, Assistant Director of
General Motors health care plans, will tell us about how GM works to
ensure that a benefit is affordable for their members.
Finally, we need to remember why we are in this business. Congress
is discussing a Medicare prescription medication benefit because there
is a pressing, urgent need among our elderly and disabled. Any solution
that we design should focus on them. We need to make good on the
commitment Congress made to seniors and the disabled in 1965 to provide
for their health care needs where the private market fell short. I am
pleased that Mrs. Kessler has traveled all the way from Florida to
share her experience as a Medicare beneficiary who lacks affordable
prescription drug coverage.
We look forward to working with Chairmen Tauzin and Bilirakis to
move forward expeditiously and address this problem this year.
Mr. Bilirakis. I thank the gentleman.
Mr. Buyer for an opening statement.
Mr. Buyer. Thank you, Mr. Chairman.
I am pleased to be a member of this subcommittee and to
work with you and Mr. Brown. I come to the committee as a
strong believer in the private system, but we really don't have
that in this country. It is sort of a quasisystem. You and I
have worked together during the last 8 years with regard to the
VA and its health system. I have worked for 8 years with the
military health delivery system, as I chaired that Personnel
Subcommittee panel, and with pride, saying I am the only Member
of Congress to author and pass a prescription drug benefit that
was done in the last Congress. The reason that occurred and
that it received the support of the pharmaceutical
manufacturers was that I insured that there was a retail out-
of-network pharmacy benefit.
So I will also share a word from Mr. Dingell. I will also
be very careful and I will beware of the snake oil of those who
will try to operate or create systems that will take us on a
path to universal health care. I don't agree with universal
health care run by the government.
So what we have here, and what I recognize in Congress, are
individuals of both parties who want to bring a benefit to
people and help the disabled and the needy, most needy in our
country, but we do have two distinct, different paths to get us
there. One is make sure that we make improvements in our quasi
health delivery system we have for our country and, at the same
time, continue to press the bounds of the frontier of medicine
and science and health. The other is that path toward
incremental steps toward universal health care run by the
government. So I will also be as watchful for the snake oil.
I yield back my time .
Mr. Bilirakis. Mr. Deutsch for an opening statement.
Mr. Deutsch. Thank you, Mr. Chairman. I want to add my
words of thanks to the chairman for having this hearing and
also the honor and the really pleasure as well of working with
him during the last 6 years, and I look forward to this
Congress. I know his commitment toward this issue is absolutely
genuine, and hopefully this is a year we will see something
happen.
As opposed to my colleague who just spoke, I would say that
I would like to see America have universal health care. I think
it is the wealthiest society in the history of the world, and
we have citizens without health care, and we have a system
which has incentives--disincentives for employees to have
insurance. That is a goal that we should be talking about.
I think really the focus of where we are going is really
about the universality of the prescription drug coverage. I
think the benefits have to be universal. Attempts to address
only low-income seniors and ignore middle-class elderly who are
having a difficult time purchasing prescription drugs--and I
think Mrs. Kessler will be able to directly bear witness to
that case.
In Florida, there are 2.5 million seniors who rely upon
Medicare. That number will increase to 5.5 million by the year
2025. Over 50 percent of the seniors in Florida are middle
income who would not qualify for the low-income assistance
program suggested by some of my colleagues on the other side of
the aisle. That is the real issue that we are addressing here.
Hopefully others and a majority of the Congress, a majority of
this committee, will see it along the same lines.
I want to add quickly one other point that I know the
chairman and I are both concerned about, and it is relevant to
this issue that we are here today about, and that is on
oncology drugs and oncologists. Currently some of the drugs are
being perhaps overreimbursed while the oncologists themselves
are being underreimbursed, and I know the GAO is conducting a
study under his direction, and I look forward to the results of
that.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Greenwood for an opening statement.
Mr. Greenwood. Thank you, Mr. Chairman.
It obviously goes without saying that every member of this
committee wants to make sure that every elderly person in the
country, every disabled person has access to an affordable
prescription drug plan. I think it should be the No. 1 priority
for this Congress. It is a subject of enormous frustration to
me that we did pass legislation in the House last session and
the Senate did not. Contrary to speakers on the other side of
the aisle, it was not a plan that only provided a plan for
prescriptions for low-income people, but made it affordable for
everyone, every Medicare recipient in the country.
What is even more problematic is we are going in the wrong
direction; that we have had this fall-away from the
Medicare+Choice plans because of our failure, HCFA's failure,
the previous President's failure to adequately fund the
Medicare+Choice plans that we had, and 934,000 Medicare
beneficiaries will lose access to health care benefits and
choices next year as a result of these underpayments and
burdensome HCFA regulations.
In my district we have--I have seniors and the disabled who
were able to get into a Medicare+Choice plan, became somewhat
dependent upon the availability of prescription drugs, and then
for the reasons I have just cited, the premiums went up so
steeply in order to get those plans that many of my
constituents can no longer afford them and are in desperate,
desperate straits as we speak.
I have a fellow in my district who is 45 years old, a
computer guy, hit by a drunk driver, disabled, totally reliant
on a painkiller, is suicidal without the painkiller, and lost
access to that drug as of the first of the year. We have been
desperately trying to help him ever since, and that is just one
instance that repeats itself all over the country.
So I am looking forward to working with this committee and
other committees, and hopefully we can get this job done and
get it done soon.
Mr. Bilirakis. I thank the gentleman.
Mr. Green for an opening statement.
Mr. Green. Thank you, Mr. Chairman.
Like all of my colleagues, I am glad you led off our first
committee hearing this year with the prescription drug event
public hearing. I believe addressing the need for Medicare
coverage and prescription drugs is one of the most important
issues that Congress will face.
Just last weekend I finished a series of town hall meetings
in my own district in Houston, and in every town hall meeting
over the last month, seniors asked me to do something to help
them pay for their prescription drugs. Seniors who had lost
their HMO coverage for lots of reasons, and to my colleague
from Pennsylvania Mr. Greenwood, BBA 97 passed this House by
such an overwhelming bipartisan vote in efforts to correct it,
although I am concerned that we do need to correct it, but
there is lots of things that we could do with Medicare
reimbursements.
When Medicare was created 35 years ago, most of the
prescription medications that save and improve lives weren't
even invented. Medicare, like most private insurance plans at
that time, didn't cover outpatient prescription medications.
Well, we know now that things have changed, and over the last
20 years there has been a surge in new drugs, more than 600 in
all. Thanks to these innovations, leading causes of death have
been eliminated, and life expectancy and quality of life and
health has been dramatically improved. But that innovation and
progress comes at a high price tag. The cost of these drugs
often leaves our most vulnerable citizens, our seniors and
those with disabilities, struggling to make ends meet. While
some seniors have access to prescription drug coverage through
private insurance, Medigap, Medicare, HMOs, or other sources,
coverage is insufficient, capped, and oftentimes expensive.
Fully one-third of our Medicare beneficiaries, more than 14
million seniors, have no prescription drug coverage at all.
To make matters worse, study after study has found that
American seniors who live on the most limited incomes and who
depend most heavily on prescription drugs are paying the
highest prices for the medication that keep them in good
health. Because seniors tend to have more long-term chronic
conditions such as diabetes, arthritis, high blood pressure and
heart disease, they are more reliant on prescription drugs.
This is evidenced by the fact that more than 86 percent of
Medicare's 40 million beneficiaries use prescription drugs, 86
percent. The average older American uses 18.5 prescriptions
annually.
While seniors make up only 12 percent of the U.S.
population, they use one-third of the prescription drugs, and
this isn't just a problem for low-income seniors. Of those with
incomes below 250 percent of poverty, almost 40 percent lack
prescription drug coverage. An initial 5.4 million seniors who
have incomes over 250 percent of the poverty level are without
coverage. Hard-working seniors who worked all of their lives,
who have saved for their retirement, have moderate incomes, in
other words much more than Medicaid, find themselves excluded
from State programs like Medicaid or other discount programs
because they earn just a little too much. Many of our seniors,
like Mrs. Sylvia Kessler, are forced to work so that they can
afford to buy their prescriptions. Last Congress when we
removed the----
Mr. Bilirakis. The gentleman's time has expired.
Mr. Green. Thank you, Mr. Chairman. I will finish up.
Again, I appreciate this being the first hearing, and I
look forward to continuing hearings. Thank you.
Mr. Bilirakis. As evidence of his interest in this subject,
Chairman Tauzin has joined us today, and the Chair now
recognizes him for an opening statement.
Chairman Tauzin. I thank the chairman.
Let me particularly thank Chairman Bilirakis for his
agreement again to serve as subcommittee chairman of this
critical work of the Energy and Commerce Committee. If there
has been any doubt about whether or not the new reenergized
Energy and Commerce Committee would be an active player in all
of the health care issues that face this Congress and the
country, let there be no more doubt about it.
This first hearing on prescription drugs is just a first.
Recently Mr. Bilirakis led a tour of Members to HCFA
headquarters in Baltimore. We had a chance to see the
operations there, and we will begin very soon very extensive
hearings, along with Jim Greenwood, our O&I chairman, on HCFA
and how we might reorganize that organization to better serve
the needs of Americans in this country with their health care
problems.
Let me also congratulate Mr. Bilirakis on his and my good
friend the ranking minority member Mr. Dingell's membership on
the National Bipartisan Commission on Medicare Reform.
The talent on this committee, both of its Members on both
sides of the aisle and of the staffs have been accumulating a
wealth of knowledge and experience for years, is going to be
brought to bear on basic Medicare reform this year, and I want
to thank them for their commitment to that effort.
Let me also finally say that this is not about us providing
some kind of new services or better services for seniors out
there. This is about us take taking care of our own families. I
want to disabuse folks of a notion. When we declare national
Mother's Day, it is not a Democratic mother's day or a
Republican Mother's Day, it is Mother's Day. We, too, have
mothers and fathers and grandparents whom we love. We, too,
have children we care about. And when this Nation discusses
health care issues and health care concerns, we think about
mothers like my own, who is a 3-time cancer survivor, who,
without the health care coverage of Medicare and without the
miracle of new drugs, would not be alive today. This amazing
82-year-old woman, who still wins gold and silver medals in the
Senior Olympics, get this, in discus and javelin, has survived
breast cancer in 1960, lung cancer in 1980, and recently
uterine cancer, and she apologized to me because she wouldn't
be able to give me that little brother I always wanted. This
amazing woman is just one example of the millions of Americans
who depend upon this committee to get it right.
Mr. Bilirakis, I want to thank you for giving us this
first, most important hearing. We are going to hear from people
who are in the business of organizing and managing drug
prescription plans, and we are going to learn how we might
organize this country's efforts to make sure we get it right
when we provide a drug prescription benefit for all of our
mothers and fathers and grandparents under this new benefit
program. It is not a question of whether we are going to do it.
The issue is how to do it and how to do it right, and you will
help us learn how to do it right today, and we thank you for
that.
Mr. Bilirakis, bon voyage. You are on it, and your
committee is on it, and I wish you well, and I will be with you
every step of the way. This committee is going to help this
Nation solve these problems this Congress.
Mr. Bilirakis, good luck to you and all of the committee
members. You have my full support, sir.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Mr. Chairman, thank you for holding a hearing on this topic of
utmost importance--not just to the seniors in our country, but to all
Americans.
The Medicare Program affects all of us. Whether we are eligible for
the program today, or have family members who are eligible, all of us
have a strong interest in ensuring that the Program will meet the
health care needs of a growing senior population.
Over the past few years, it has become increasingly clear that
Congress needs to modernize Medicare and bring the Program into the
21st Century. Since the Program's inception in 1965, much in health
care has changed. Yet many of the Program's features, as well as the
design of Medicare's basic benefit package, are stuck in a 1960's style
approach to practicing medicine. Prescription drug coverage is still
not included in Medicare's basic benefit package and there are no caps
placed on seniors' out of pocket medical expenses. No one in this room
today would model a new system after Medicare's current benefit
package.
This Committee is committed to addressing the issue of Medicare
reform this session. Today's topic focuses on prescription drugs and
the entities that currently provide a prescription drug benefit to
seniors. We hope to learn how these entities administer a prescription
drug benefit to seniors, as we in Congress wrestle with how best to
administer such a benefit at the Federal level.
We can all agree that the question is not whether to enact a
prescription drug benefit, but how. As we will hear from our witnesses,
about two-thirds of our seniors have some form of prescription drug
coverage, but another one-third do not. It is critical that we
determine how best to improve access for all Medicare beneficiaries yet
focus our efforts on those who are sickest and neediest. Additionally,
when crafting a new benefit, we must be careful not to disrupt existing
coverage. Our witnesses today will share with us how they provide a
prescription drug benefit to Medicare beneficiaries in a cost-effective
way.
Providing an affordable prescription drug benefit to Medicare
beneficiaries is Just one aspect of Medicare Reform this Committee will
be exploring this year. We will also be examining the role of the
Health Care Financing Administration in the management of Federal
health care programs. Just two days ago, Members of this Subcommittee
visited HCFA's central office in Baltimore to see their operations
first hand. The Energy and Commerce Committee, through both the Health
Subcommittee and the Oversight and Investigation Subcommittee, intends
to hold a series of hearings on HCFA's operations and their policies.
We look forward to working with HCFA to remove any impediments it may
face in administering health care to tens of millions Americans. More
importantly, we look forward to improving the quality of health care
delivered to patients through HCFA's federally administered programs.
This is an exciting time to be involved in health care and Medicare
reform in particular. Our new President has expressed a strong interest
in reforming Medicare. Many in the Senate have expressed a desire to
move a reform package. Here on this Committee, we are honored to have
two Members of the National Bipartisan Commission on Medicare Reform:
Chairman Bilirakis, and my ranking counterpart on the Committee, Mr.
Dingell. With our wealth of talent on health care issues, our Committee
will be a strong leader in the Medicare reform debate.
Mr. Chairman, I thank you again for holding this important hearing.
I look forward to listening to the testimony of our witnesses and
beginning the hard work of developing a solution to this complex issue.
Mr. Bilirakis. Thank you very much, Mr. Chairman.
Mr. Wynn is recognized for a 3-minute opening statement.
Mr. Wynn. Thank you very much, Mr. Chairman.
I certainly appreciate the fact that you have gotten the
subcommittee off to a fair start dealing with this very
important issue. I don't know how much bipartisanship exists in
this Congress, but I think there is consensus on the issue of
Medicare reform, and prescription drugs does have considerable
consensus.
As a new member of the committee, I don't have any
extensive comments. I am looking forward to working with you
and our ranking member Mr. Brown and learning about these
issues.
I would like to take a moment, though, to make an
observation, I guess. One of our colleagues mentioned in his
opening statement that he was opposed to universal health care.
Now, I don't subscribe to a Socialist model, but I actually do
believe that we ought to be pursuing a goal of universal health
care, or certainly universal access, and the fact that we have
failed to accomplish that should cause us some concern. I don't
think we could be content to say, well, we have failed to
implement this, but at least we failed using a market-driven
approach. I think we need to be receptive to all approaches
that would help us achieve this objective, which is to make
sure that people don't die needlessly, don't suffer needlessly,
or don't have to endure economic hardship, making decisions
about their lot, because we as a governmental entity have
failed to implement a universal system or a universal access
system.
So I am very excited about the committee's work, and I look
forward to hearing the witnesses who are before us today. Thank
you.
Mr. Bilirakis. I thank the gentleman.
Mr. Upton for an opening statement.
Mr. Upton. Thank you, Mr. Chairman. I am going to ask
unanimous consent to put a lengthy opening statement into the
record.
Mr. Bilirakis. Without objection, the opening statement of
all members of the subcommittee may be made a part of the
record. The gentleman may continue.
Mr. Upton. I would just like to summarize it by saying
this: Our Nation leads the world in the development of new
drugs that enable us to effectively treat diseases and
conditions, but if our folks can't afford to buy those drugs,
they are useless.
I am known as an optimist, as I still root for the Chicago
Cubs, and I had a gentleman at one of my town meetings last
year who said, Upton, I know you are an optimist, and he came
with his little white prescription bag, and he said, I like the
idea that you are talking about dealing with a prescription
drug bill. Can you get it done before I have to refill this
prescription? I said, I am an optimist, but I am not that
optimistic.
This is the Congress, this is the year that we do need to
work on legislation. I commend the chairman for having this
hearing, and I look forward to watching legislation move
through the House, as well as the Senate, and get on the
President's desk. This is a job that we need to get done, and I
congratulate the chairman for holding this hearing, and I yield
back the balance of my time.
[The prepared statement of Hon. Fred Upton follows:]
Prepared Statement of Hon. Fred Upton, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for holding today's hearing on how many
seniors currently obtain prescription drug coverage. It will give us
important background information that will be useful as we again set
out to craft a federal benefit within the Medicare program.
It was my pleasure to serve with you on the House Leadership's
Prescription Drug Task Force in the last Congress and to see the plan
we crafted approved by the House of Representatives. I sought to serve
on this task force because I strongly believe that no senior citizen
should be forced to forego needed medication, take less than the
prescribed dose, or go without other necessities in order to afford
life-saving medications. Our nation leads the world in the development
of new drugs that enable us to effectively treat diseases and
conditions. But if people cannot afford to buy these drugs, their
benefits are lost to many in our population.
Let me just quote from a letter I received last year that is all
too typical of many I receive every week and of many stories that I
hear at my town meetings:
``I am among those who skip my meds every other day to make it
through the month. I am taking nine pills a day plus I'm a diabetic. My
husband has glaucoma and high blood pressure and eye drops are very
expensive. We have no prescription drug coverage, so it is a very
trying ordeal for us.''
Mr. Chairman, I am looking forward to working with you and my
colleagues on both sides of the aisle and with the new Administration
to craft a plan that can win the bipartisan support necessary to move
quickly through Congress and be signed into law by President Bush. I
see today's hearing as an important first step toward ensuring that my
constituent and the many seniors like her no longer have to skip their
meds or stretch their limited incomes to the breaking point paying for
basic necessities and the prescriptions they need. We cannot allow
another Congress go by without providing relief to the millions of
seniors without prescription drug coverage.
Mr. Bilirakis. I thank the gentleman.
Mr. Stupak for an opening statement.
Mr. Stupak. Thank you, Mr. Chairman.
Let me just summarize. I look forward to working with you
again in this Congress, and thanks for holding this hearing.
Last Congress we had three main plans out there. The Democrats
had their plan which made prescription drugs part of Medicare;
we had the Republican plan, if you will, the insurance one
where you buy a voucher and try to buy some drugs; the Allen
bill was out there with the Federal Supply Service. None of
them went very far. I hope this year we can do something
different.
As you know, Mr. Chairman, because you have heard me speak
of this before, back in 1998 we did a study up in my district
from Marquette to Hancock to Gladstone, and seniors pay 91
percent more in northern Michigan for their drugs than large
HMO and insurance plans.
I don't support price controls or unfairly limiting the
pharmaceutical companies on what they can charge for their
important lifesaving drugs, but I do believe that Medicare
beneficiaries should be allowed to participate in the market
the same way GM employees or any other class of employees come
together jointly to purchase a product. So hopefully this year
we can move forward and really put forward a true, true
prescription drug plan that will help out all people; not just
seniors, but all people.
Someone mentioned Medicare Choice, or Medicare+Choice. We
don't have that in northern Michigan. We don't have much in the
way of HMOs. So the small rural districts really do need some
help. This is a really pressing problem. When I do my town hall
meetings next week back in my district during the work break,
that is going to be the No. 1 issue from the seniors and others
who show up at the town hall meetings, not just prescription
drugs, but health care reform in general.
So I look forward to working with you, Mr. Chairman. I am
going on my 7th year on this committee, and I enjoy this
committee, and that is why I grandfather in every year, and I
look forward to working with you on health care issues. Thank
you.
Mr. Bilirakis. I thank the gentleman.
Mr. Pickering for an opening statement.
Mr. Pickering. Thank you, Mr. Chairman. Let me acknowledge
and commend you for the willingness and the commitment that you
have made to address this issue and move this legislation. I do
believe we have a great opportunity working with the new
administration for this Congress, and this committee, to get
something done.
Let me say, as we approach it, there are several
fundamental principles that I hope will be part of the
equation. First, I support a plan that provides full coverage
for seniors facing serious illnesses and catastrophic out-of-
pocket drug costs. Second, I favor an approach that gives
seniors choices and flexibility in choosing a plan that fits
their individual needs. And third, I would like to see a plan
that offers prescription drug protection for rural areas,
including guaranteeing the availability of at least two drug
plans and allowing seniors to have the convenience of assessing
medicine through a main street pharmacy, the Internet, or mail
order.
Again, I believe that this is the year that we can get it
done. I look forward to working with all of the members of the
committee, and I look forward to hearing the testimony of the
panel today.
[The prepared statement of Hon. Chip Pickering follows:]
Prepared Statement of Hon. Chip Pickering, a Representative in Congress
from the State of Mississippi
Mr. Chairman, thank you for holding this hearing today about one of
the most important issues facing many people in our country,
particularly seniors. As Congress begins a new year, we are in the
process of shaping and focusing on our priorities. That is why today's
hearing on prescription drug coverage for seniors is timely and
necessary as we move forward on this issue.
Medicare is an essential health care component for America's
seniors. While it is true that Medicare needs to be strengthened and
modernized, there is also room under the Medicare umbrella for a
prescription drug benefit for seniors who need help covering the costs
of their medicines. While we will need to fund additional resources to
Medicare to make it work, the fact remains that seniors should have
access to affordable, voluntary prescription drug coverage that
provides protection against high out-of-pocket costs.
Last year, Congress passed a bipartisan bill ensuring that
prescription drug coverage is affordable, available and voluntary for
all senior citizens and disabled Americans, regardless of income.
Unfortunately, this legislation was not signed into law by President
Clinton so we must begin again to craft legislation to address this
issue. I supported this legislation last year that allowed seniors,
including approximately 408,000 in my state of Mississippi, to choose
from at least two competing drug plans so each person could get the
plan that worked best for them, or to keep their existing coverage. The
price of premiums were adjusted to reflect the income of seniors and
the type of coverage each person chose to receive. The plan was
designed to protects seniors from high out-of-pocket drug costs,
without government price controls which would hurt research and
development of new drugs and cures.
Last year, President Clinton proposed a plan that would have forced
seniors into a ``one size fits all'' government run program with no
flexibility or choice. They would pay a set monthly premium regardless
of their prescription drug needs. I opposed President Clinton's
proposal because it would have given the federal government too heavy a
hand in controlling drug benefits, denying some seniors the right to
select the coverage that best fits their needs.
This year, as we work on legislation to bring about a common sense
plan to provide prescription drug coverage to seniors who need help,
there are several fundamental principles I hope will be part of the
equation. First, I support a plan that provides full coverage for
seniors facing serious illnesses and catastrophic out-of-pocket drug
costs. Second, I favor an approach that gives seniors choices and
flexibility in choosing a plan that fits their individual needs. Third,
I would like to see a plan that offers prescription drug protection for
rural areas, including guaranteeing the availability of at least two
drug plans and allowing seniors to have the convenience of accessing
medicine through a main street pharmacy, the Internet, or mail order.
I am confident that working together with President Bush, Congress
can develop legislation to help seniors with the costs of prescription
drugs through a voluntary, affordable plan that brings lower costs and
more peace of mind. I look forward to working on this important issue
with all of the members of the Health Subcommittee and the entire
Energy and Commerce Committee. Thank you.
Mr. Bilirakis. I thank the gentleman.I think we are all
pleased with the fact that we have had such a good turnout
considering that it is a day that we have no votes at all or
the balance of the week.
Mr. Engel is recognized for an opening statement.
Mr. Engel. Thank you, Mr. Chairman.
When I was first elected to Congress more than 12 years
ago, I spoke with my mother, who, by the way, Mrs. Kessler, is
a resident of Tamarac, Florida, for the past 24 years, and said
to her, Mom, what is the one thing we can do to help seniors in
the country? And she said, prescription drugs, prescription
drugs, prescription drugs. And that hasn't changed. We haven't
moved very fast, but that still hasn't changed. When she tells
me stories about her friends, people cutting down on their
pills because they can't afford to take the required
medication, cutting pills in half and things like that, we know
that this is certainly something whose time has come.
I commend the chairman, and I am glad we are finally on the
right track. This is the Congress, this is the year that we
have to move with prescription drugs. The American people don't
want partisan bickering or fighting, they want production, they
want us to produce. We have an obligation to produce for them.
Whether it is the senior citizens in my district in New York,
or whether it is people in Florida, California, all across the
country, senior citizens need the help now. We have to make
sure that we cover all seniors; the poorest elderly, of course,
but there are many, many Medicare beneficiaries without drug
coverage, and more than half of them have an income of only
$15,000 to $17,000 a year, and they don't qualify for Medicaid
or State-run drug plans as we have in New York. So clearly
today's living standards render these seniors incapable of
bearing the full burden of their prescription drug needs.
I have made this a priority of mine, and I have offered
legislation to establish a Medicare prescription drug benefit,
and as I mentioned, we cannot wait any longer. We have to do it
now.
Senior citizens are becoming more and more dependent on
medication to maintain their health and quality of life. And
just the way the chairman spoke about his mother and how
medication kept her alive, the same thing with my mother, who
has had two heart surgeries. So it is not a matter of luxury.
Seniors need help with prescription drugs. As they are living
longer, they need more and more help.
So I am very delighted to be part of this subcommittee and
very delighted that we are finally tackling the issue so that
we can help seniors like Mrs. Kessler and my mother and
millions of other people across the country who are really
looking to Congress for leadership.
I thank you, Mr. Chairman. I will submit my full statement
for the Record.
[The prepared statement of Hon. Eliot L. Engel follows:]
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress
from the State of New York
Mr. Chairman, I want to thank you for having this hearing today.
Providing seniors with affordable access to prescription drugs has been
a priority of mine for several years, and I am pleased we are moving
forward. I have authored legislation to establish a Medicare
prescription drug benefit and feel that we cannot wait any longer to
provide relief to seniors who today cannot purchase the medicine they
need.
The evidence is clear. The elderly are becoming more and more
dependent on medication to maintain their health and quality of life.
Medication has taken the place of hospital stays and surgery in many
instances, and also provides a means of treatment that did not exist in
the past. In essence, advancements in medical and drug technology have
changed how health care is delivered. Medicare has not kept pace. We in
Congress must act now to give seniors access to these new medical
benefits.
We have all heard stories about seniors sitting at their kitchen
table cutting pills in half to extend the life of a prescription or
taking their medicine every other day to cut costs. We cannot let
seniors continue to suffer financially or medically because they cannot
afford the medicine they need. In many instances, not taking the proper
amount of medication results in little or no benefit, leaving many in
an even more precarious situation and costing Medicare more in hospital
stays and acute care expenses. We must assist seniors in obtaining
affordable drugs that allow them to receive the full benefit of today's
medicinal technology. However, the question remains, what form should
this drug benefit take?
Designing a prescription drug benefit in the context of Medicare
reform is no small undertaking. There are infinite considerations and
many different visions of the size and scope of the benefit. Many feel
that providing the poorest elderly with a benefit is as far as we
should go or that catastrophic coverage is sufficient. On the contrary,
while we must provide for our poorest and most catastrophic cases,
average, middle-income seniors are suffering as well and in dire need
of assistance. In fact, more than half of Medicare beneficiaries
without drug coverage have an average income of $15,000 to $17,000 a
year. Thus, they do not qualify for Medicaid or state-run drug plans.
Clearly, today's living standards render these seniors incapable of
bearing the full burden of their prescription drug needs.
A question many are asking is whether or not to move forward with a
Medicare prescription drug benefit now or wait to completely overhaul
the Medicare program. I believe that we must act now to help our
seniors. Medicare reform is certainly needed, but it is likely several
years down the road. Any benefit designed today will give us invaluable
experience and expertise in any reform model. I am pleased we are here
today, and I await the testimony from the panel in hopes that it will
set the stage to move ahead with a Medicare prescription drug benefit
that will assist our seniors in meeting their health care needs.
Mr. Bilirakis. I appreciate that.
The longtime chairman of this subcommittee, a very active
chairman in those days, Mr. Waxman for an opening statement.
Mr. Waxman. Thank you very much, Mr. Chairman. I plan to be
active these days as well.
I am pleased that the very first hearing that you have
called of this subcommittee is on the question of the need for
prescription drug coverage. I think the large majority of this
committee and indeed of this Congress recognize that we cannot
fail to enact legislation that will provide seniors and
disabled persons with the coverage they desperately need. We
are going to hear some interesting testimony today.
We will hear again that seniors as a group are most
dependent on prescription drugs because they are older and
sicker than the population as a whole. We are going to hear
again that many seniors lack coverage, and even those who are
covered are finding that their coverage is eroding, whether it
is retiree coverage provided by their employers, Medigap
coverage which is increasingly unaffordable, or coverage
through Medicare Choice plans. We will hear again that seniors
without coverage end up paying the highest prices for their
drugs, simply because they do not have the advantage of group
purchasing power. But even buying at discounted rates continues
to be costly and beyond the means of many seniors.
Finally, we will hear again that although Medicaid makes a
significant contribution in terms of drug coverage for the
poor, and supplementary State-run programs to provide drugs
have been tried to extend that coverage to higher-income
seniors, generally those programs geared just to lower-income
people have had only very limited success in even reaching
their target population. We will hear again what we all know:
All seniors and disabled beneficiaries need a drug benefit, and
they need it to be an assured benefit, a defined benefit, and
an accessible and affordable benefit.
This isn't only a problem for low income, it isn't just a
problem for people in some areas of the country, it isn't a
problem that will solve itself if we do not take action. Every
day we delay makes the problem worse. This is the reform of
Medicare that we all know we must make, and we need to do it
now.
I want to congratulate you, Mr. Chairman, for holding this
hearing, the very first of our subcommittee, in putting this
issue right there on our agenda.
I yield back the balance of my time.
Mr. Bilirakis. I thank the gentleman.
Mr. Barrett for an opening statement.
Mr. Barrett. Thank you, Mr. Chairman.
I want to join with my colleagues on this side of the aisle
to thank you for holding this hearing. I think you are showing
real leadership on this issue, and I appreciate that very much.
I think leadership is something that is desperately needed on
this issue, because I believe that President Bush's plan falls
woefully short of what is needed for seniors in this country.
To suggest that seniors who make over $12,000 or couples
over $15,000 are too well off to receive any type of assistance
I think really is an insult to the millions of senior Americans
who are struggling to get by, primarily on their Social
Security checks, and are seeing double-digit inflation as they
pay for the products that they need most desperately in their
lives.
I also think, as I think probably every member of this
panel recognizes, that this is a real world issue. I have held
many, many town hall meetings on this issue, and this is the
one issue where people truly are affected and really are crying
out for action at the Federal level. I think it is our
obligation to respond.
I am concerned, and I have to voice my concerns, although I
am strongly in favor of adding a Medicare benefit for pharmacy
products, I think we still have to deal with the market
distortions, because I believe with the marketing structure and
the pricing structure here in the United States, we are, in
effect, subsidizing seniors throughout the world and others who
use pharmaceutical products throughout the world because of the
pricing structures that take place in other countries.
So if we were merely to transfer the cost of prescription
drugs from seniors to taxpayers, we would not be dealing with
that market problem, and taxpayers don't want us to be taken
for a ride either. So I think, again, we have to, as Mr. Stupak
was saying, be more aggressive in finding market ways to deal
with this problem.
Finally, one of the problems that I have encountered in my
town hall meetings throughout my neck of the woods in
Wisconsin, there are currently programs that the pharmaceutical
companies offer that will allow individuals with very low
incomes to get some sort of pricing relief. The problem is that
the companies for whatever reason have not come together to
develop a common procedure to get this type of relief. In other
words, if you have a senior who goes into a physician and needs
three or four different products, and those products come from
different manufacturers, there is paperwork, and sometimes
significant paperwork, that will go along with getting that
free or discounted rate from each of those pharmaceutical
companies. I think if there are antitrust problems developing,
as we have been told, I think that this committee should at a
minimum do something quite quickly to come up with a common
forum so that seniors who need these products right now can get
them without having to spend hours filling out paperwork.
Mr. Bilirakis. The gentleman's time has expired. Please
finish up, Tom.
Mr. Barrett. That's it.
Again, thank you for holding the hearing.
Mr. Bilirakis. Thank you, sir.
Mr. Strickland, to close the opening statements, I trust.
Mr. Strickland. Thank you, Mr. Chairman. I think all of us
appreciate your personal concern about this important issue.
As many of you know, I represent a rural area. The great
majority of my Medicare beneficiaries have never had an
opportunity to get drug coverage through a Medicare+Choice HMO,
because my area is terribly unattractive to HMOs. A small
minority of my constituents did sign up for an HMO that served
the most populous section of my district, but many of them have
been dropped by that HMO during the last 2 years.
Precious few of my constituents have incomes high enough to
afford coverage through a Medigap policy. A slightly greater
percentage depend on a retiree health plan. Based on my
countless conversations with seniors in my district, I know
that there are very large numbers of seniors who lack any drug
coverage at all, and the lack of an affordable and meaningful
prescription drug benefit is the most serious issue facing
seniors in my district.
Every day that we delay action on this issue, we deny
lifesaving medications to our constituents. For us it is very
difficult to imagine the pain of having to choose between
taking the medicine we need and paying our rent or buying
groceries, and I doubt that any of us on this panel have ever
had to make such a decision. However, that is what some of our
constituents are doing every day, and while we wait, they face
these circumstances.
I believe this circumstance is intolerable. Seniors are
most likely to have chronic illnesses. They are most likely to
need multiple prescriptions. They are among the group least
likely to have adequate prescription drug coverage. They are
the group most likely to be on fixed incomes, and they are the
group that is paying the highest price for prescription drugs
in this country. This is a moral issue. It will define whether
or not we are a moral people.
I am encouraged to read in The New York Times comments by
Senator Grassley, and this gives me courage, because it appears
that if they do the right thing on the Senate side and we do
the right thing on this side, something good can happen.
Senator Grassley is quoted as saying, I plan to work with
Finance Committee members on both sides of the aisle and with
our President to get something done before August. And then,
drug benefits should be part of Medicare, not a freestanding
supplement, and should be available and affordable to every
older American, and I would hope that Senator Grassley's advice
would be taken to heart by all of us as we proceed to deal with
this difficult issue.
Thank you, Mr. Chairman, and I yield back my time.
Mr. Bilirakis. I thank the gentleman.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Lois Capps, a Representative in Congress
from the State of California
Mr. Chairman, I would like to thank you for holding this hearing on
one of the most pressing healthcare issues facing our country today,
prescription drug coverage.
When Medicare was created in 1965, seniors were more likely to
undergo surgery for major health problems than to use prescription
drugs. Today, prescription drugs are often the preferred, and sometimes
the only, method of treatment for many illnesses and diseases.
In fact, 77% of all seniors take a prescription drug on a regular
basis. And yet, nearly 15 million Medicare beneficiaries have no
insurance coverage for prescription drugs whatsoever.
Most of us here today would agree that Medicare's most glaring
problem is the lack of drug coverage.
Clearly, no one would design a health insurance program for seniors
today that doesn't include a drug benefit. I don't think anyone here
would voluntarily choose a plan for their family that doesn't provide
such coverage. And Medigap policies designed to fill this need are
often expensive and inadequate.
We hear again and again about seniors on modest, fixed incomes
choosing between food on the table and life saving medication. At this
time of prosperity and strength, we really can and should do better
than that for older Americans.
And this problem is getting worse. According to Families USA, the
price of prescription drugs most often used by seniors has risen at
DOUBLE the rate of inflation for six years in a row.
I have been working on this issue for more than two years, and I
have been frustrated by the lack of progress. As we fall to develop
effective solutions the problem continues. Congress can no longer stand
idly by.
As Congress considers different plans to tackle this problem, I
believe that any worthy proposal would provide certain key components.
A strong plan should be universal, voluntary, affordable,
accessible to all, and based on competition. It must also address the
issue of catastrophic coverage.
In the last Congress, many worthy legislative proposals were
raised. There was the Allen bill, the Stark/Dingell bill, and the
Pallone bill. Among others, I myself cosponsored H.R. 4607, the
Medicare Prescription Drug Act of 2000 introduced by my colleague and
good friend Representative Anna Eshoo.
The Eshoo bill creates a new voluntary ``Part D'' prescription drug
benefit in Medicare that is optional and available to all
beneficiaries, regardless of income.
It included a defined stop-loss benefit to prevent any individual
beneficiary from being bankrupted by a single catastrophic event that
causes unusually high drug costs. And it used proven market-based
approaches to promote competition and drive down prices. OPM (Office of
Personnel Management) would administer the plan in coordination with
HCFA. I hope she will introduce this bill again in this Congress.
Mr. Chairman, Democrats have offered many different approaches to
this problem, but have not seen a legitimate proposal from the other
side. It would be my hope that we could work together, in a bipartisan
fashion as we craft the best benefit possible for older Americans.
As I think about the countless seniors on the Central Coast of
California that have shared their personal stories with me about
crushingly high drug prices, I know in my heart that prescription drug
coverage is not a political issue. It is simply the right thing to do,
as we seek to honor our seniors and care for them as they move into the
later phases of life.
I thank the Chairman for holding this hearing. I hope we can move
legislation as soon as possible on this most pressing issue for our
country.
Mr. Bilirakis. Let us go right into the panel now. I would
like to introduce the panel.
Mrs. Sylvia Kessler from Tamarac, Florida, is here on
behalf of the National Committee to Preserve Social Security
and Medicare; Mr. John Jones, the Vice President of Legal and
Regulatory Affairs of PacifiCare Health Systems; Mr. Robert
Moroni, Assistant Director, Health Care Plans, General Motors
Corporation; Diane Rowland, Kaiser Family Foundation; Bill
Weller, Assistant Vice President and Chief Actuary, Health
Insurance Association of America; Barbara Buckley,
Assemblywoman from the State of Nevada; and James F. Smith,
Senior Vice President of Health Care Services, CVS Corporation,
and he is here on behalf of the National Association of Chain
Drug Stores.
Ladies and gentlemen, I will turn the clock on for 5
minutes. If you are certainly in the middle of something, I am
not going to stop you, but hopefully you would try to stay
within that. Your written statements are a part of the record,
as you may know, so hopefully you will complement or supplement
those written statements.
We will kick it off with Mrs. Kessler. Welcome, ma'am.
STATEMENTS OF SYLVIA KESSLER, ON BEHALF OF THE NATIONAL
COMMITTEE TO PRESERVE SOCIAL SECURITY AND MEDICARE; JOHN JONES,
VICE PRESIDENT, LEGAL AND REGULATORY AFFAIRS, PACIFICARE HEALTH
SYSTEMS; ROBERT D. MORONI, ASSISTANT DIRECTOR, HEALTH CARE
PLANS, GENERAL MOTORS CORPORATION; DIANE ROWLAND, KAISER FAMILY
FOUNDATION; WILLIAM WELLER, ASSISTANT VICE PRESIDENT AND CHIEF
ACTUARY, HEALTH INSURANCE ASSOCIATION OF AMERICA; BARBARA E.
BUCKLEY, ASSEMBLYWOMAN, STATE OF NEVADA; AND JAMES F. SMITH,
SENIOR VICE PRESIDENT, HEALTH CARE SERVICES, CVS CORPORATION,
ON BEHALF OF NATIONAL ASSOCIATION OF CHAIN DRUG STORES
Mrs. Kessler. Good morning, Mr. Chairman and the
distinguished members of the committee. My name is Sylvia
Kessler, and I am a resident of Tamarac, Florida, and a member
of the National Committee to Preserve Social Security and
Medicare. I am here today to share my personal story with you.
My hope is that you will understand how important my daily
prescription drugs are to my health, and what a prescription
drug plan under Medicare would mean to someone like me.
I am an 81-year-old grandmother. I have worked very hard
for my entire life to make sure that I would not be a burden to
my children as I get older. The reason that I am not a burden
to them is because of the Medicare program, which is there to
take care of me when I get sick or have emergencies. For
example, I recently demolished my only car in a bad accident
and suffered several bruises and minor injuries. Thank God,
with all of the cost involved in the accident, Medicare paid
for the emergency care that I needed. Without Medicare, there
would have been real problems. There is no way that I could
have afforded the costs of treatment on my own.
I believe that a large part of my health is due to the
prescription drugs that I take every day. I take nine pills
every day for a variety of conditions, including heart disease
and high cholesterol. These drugs have allowed me to remain
active and to contribute to my community and share in the lives
much my children and grandchildren.
However, it has become more and more difficult each month
to afford them. My prescription drugs cost almost $2,300 a
year, which is over 10 percent of my annual income. The only
way that I can make ends meet is to work two part-time jobs,
one at a local flea market and the other for my local board of
elections. Without these two part-time jobs and some financial
help from my children, thank God, I would have to choose
between food and my medications, and I don't think I could make
it without either of them for very long. I worry about what
will happen when I can no longer work.
So now what are my options? Well, I have tried Medicare
managed care for a while, but I could not get the specialty
care that I needed. I now pay for a Medigap plan that pays for
some of my medical expenses, but it does not cover my
prescription drugs. Now, I know that some Medigap plans offer
prescription drug coverage, but I can't afford that type of
coverage.
There just aren't a lot of options for people like me. My
daughter, who is a nurse practitioner, she made me get off HMO
and hopes to open up a clinic in the hills of Georgia and
Tennessee for poor people who do not even know about Medicare
and Medicaid prescriptions. They don't know anything about it.
Please don't think that I am asking for a handout. I have
been a hard-working American for my entire life, and now I am
in need of a little help. I am asking you, Mr. Chairman, and
everybody here today to please do everything that you can to
make sure that seniors can have access to their prescription
drugs so that they can have healthy lives and continue to work.
I hope that you and all of our elected officials from both
parties can work together to provide access to prescription
drugs for all seniors. I know it is the right thing to do.
Thank you for your time.
Mr. Bilirakis. Thank you very much for your time, Mrs.
Kessler.
Mrs. Kessler. Thank you for having me.
[The prepared statement of Sylvia Kessler follows:]
Prepared Statement of Sylvia Kessler
Good Morning, Chairman Bilirakis and distinguished Members of the
Committee.
My name is Sylvia Kessler and I am a resident of Tamarac, Florida
and a member of the National Committee to Preserve Social Security and
Medicare. I'm here today to share my personal story with you. My hope
is that you will understand how important my daily prescription drugs
are to my health . . . and what a prescription drug plan under Medicare
would mean to someone like me.
I am an 81-year-old grandmother. I have worked very hard for my
entire life to make sure that I would not be a burden to my children as
I get older. The reason that I am not a burden to them is because of
the Medicare program, which is there to take care of me when I get sick
or have emergencies. For example, I recently demolished my only car in
a bad accident and suffered several bruises and minor injuries. Thank
God, with all of the cost involved in the accident, Medicare paid for
the emergency care that I needed. Without Medicare, there is no way
that I could have afforded the costs of treatment on my own.
I believe that a large part of my health is due to the prescription
drugs that I take every day. I take 9 pills every day for a variety of
conditions, including heart disease and high cholesterol. These drugs
have allowed me to remain active, contribute to my community, and share
in the lives of my children and grandchildren.
However, it has become more and more difficult each month to afford
them. My prescription drugs cost almost $2,300 a year--which is over 10
percent of my annual income. The only way that I can make ends meet is
to work two part-time jobs--one in a local flea market and the other
for my local Board of Elections. Without these two part-time jobs and
some financial help from my children, I would have to choose between
food and my medications. And I don't think I could make it without
either of them for very long. And I worry about what will happen when I
can no longer work.
So what are my options? Well, I have tried Medicare managed care
for a while, but I could not get the specialty care that I needed. I
now pay for a Medigap plan that pays for some of my medical expenses,
but it does not cover any prescription drugs. Now I know that some
Medigap plans offer prescription drug coverage, but I can't afford that
type of coverage. There just aren't a lot of options for people like
me.
Please don't think that I am asking for a handout. I have been a
hard working American for my entire life and now I am in need of a
little help. I am asking you, Mr. Chairman, and everybody here today to
please do everything that you can to make sure that seniors can have
access to their prescription drugs so that they can have healthy lives.
I hope that you and all of our elected officials from both parties can
work together to provide access to prescription drugs for all seniors.
I know it is the right thing to do. Thank you for your time.
Mr. Bilirakis. Mr. Jones.
STATEMENT OF JOHN JONES
Mr. Jones. Mr. Chairman and members of the subcommittee,
thank you very much for the opportunity to comment on issues
related to providing prescription drug coverage for Medicare
beneficiaries.
I am John Jones, Vice President of Legal and Regulatory for
Prescription Solutions. I am a pharmacist, and I have been in
practice for 25 years.
Prescription Solutions is a pharmacy benefit management
company. It was founded in 1993 as a subsidiary of PacifiCare
Health Care Systems. We serve more than 5 million individuals,
including members of managed care organizations and union
trusts, as well as retirees, third-party administrators, and
employer groups. We fill over 2 million prescriptions per month
for our Medicare beneficiaries. Our goal is to provide the
highest quality drug coverage in a cost-effective manner.
Our parent company, PacifiCare, is one of the Nation's
largest health care services companies. Primary operations
include managed products for employer groups and Medicare
beneficiaries in eight States and Guam, serving approximately 4
million members. One million of these members are in our
Medicare health plan, Secure Horizons.
Prescription coverage is one of the main reasons
beneficiaries support the Medicare+Choice program. We believe
that the success of a pharmacy benefit program rests on many
methods to provide quality and safety, along with cost
management.
Now, let me tell you a few of the tools that we use. We
employ a quality improvement program. This is an integrated
approach to prevention or management of specific diseases that
involves physicians, pharmacists and patients. These programs
often encourage the use of medication and can increase the
initial cost of care, but will decrease the cost of overall
health care in the long term.
Our beta blocker effort is an example of such a program.
National guidelines identify the importance of beta blockers in
reducing the risk of a second heart attack.
Our program has succeeded in getting 85 to 90 percent of
patients on beta blockers who need to be on them. The national
average per use of beta blockers is only about 70 percent.
We use a strong clinically based formulary. The drug
formulary, of course, is a list of drugs that have been
reviewed for safety and efficacy. The list is maintained by our
pharmacy and therapeutics committee, which is comprised of
physicians who use the formulary to treat their own patients.
Nonformulary drugs may be prescribed and covered, but they do
require preauthorization. However, preauthorizations represent
only 1 percent of the total paid prescriptions for Prescription
Solutions.
Another tool is our on-line computer review. These reviews
are made to identify inappropriate prescribing and dispensing
of prescription drugs.
Provider education is also important. We regularly educate
physicians and pharmacists within the network to provide up-to-
date information on formulary changes and significant clinical
developments in the pharmaceutical area. Keeping all providers
well informed helps ensure positive outcomes for our members.
Prescription Solutions achieves its most significant
savings from effective contract negotiations with
manufacturers. Aggressive contracting for classes of
medications that have several me-too-type drugs results in
substantial discounts to the health plan. Pharmaceutical
manufacturers are willing to discount drugs if the drug benefit
design and formulary management results in a larger market
share and increased sales.
Our mail service pharmacy is another key cost control and
quality component. The fully automated pharmacy has highly
trained pharmacists who oversee the system's multiple quality
checks to identify and prevent errors. We employ a generic
sampling program to encourage the use of generic drugs which
offer exceptional value and are considered first-line therapy
for a variety of diseases. With our program we supply the
physician with samples of widely used and well-tested generic
medications that effectively treat many diseases. The physician
provides the patient with a prescription for the generic
medication, along with the samples.
Finally, our real-time audit program is connected to our
claims system. We have developed proprietary software which
incorporates filters to identify those claims that fall outside
of normal pharmacy practice. These claims pop up on our audit
team's computers for immediate action.Taking immediate action
allows us to follow through on claims flagged as possible
errors and stop payment on those that are indeed erroneous so
we don't pay them at all.
In conclusion, the tools I have described to you are just a
few that are responsible for the success of our pharmacy
benefit program. They are critical to making a quality Medicare
drug benefit affordable.
Thank you, and I would be happy to answer any questions.
[The prepared statement of John Jones follows:]
Prepared Statement of John Jones, Prescription Solutions
INTRODUCTION
Mr. Chairman and members of the subcommittee, thank you very much
for the opportunity to comment on issues related to providing
prescription drug coverage for Medicare beneficiaries. I am John Jones,
Vice President of Legal and Regulatory for Prescription Solutions,
based in Costa Mesa, California.
BACKGROUND
Prescription Solutions, a pharmacy benefits management (PBM)
company, was founded in 1993 as a subsidiary of PacifiCare Health
Systems, Inc. (PHS). As one of the leading managed care PBMs in the
U.S., Prescription Solutions serves more than five million individuals,
including members of managed care organizations and union trusts, as
well as retirees, third-party administrators, and employer groups. Our
goal is to provide the highest quality drug coverage in a cost-
effective manner. Access and affordability are the cornerstones of
everything we do. Our company manages over $2 billion of prescription
drugs annually. With the opening of our newest mail-service facility in
Carlsbad, California, we anticipate our annual prescription fulfillment
volume to increase from 17,000 to approximately 45,000 prescriptions a
day.
Our parent company, PHS, is one of the nation's largest health care
services companies. Primary operations include managed products for
employer groups and Medicare beneficiaries in eight states and Guam
serving approximately 4 million members. One million of these members
are in our Medicare health plan, Secure Horizons. PHS and Prescription
Solutions strive to provide a high quality, cost-effective pharmacy
benefit for our commercial members and Medicare beneficiaries.
(Attachment A outlines the structure of our Medicare+Choice drug
benefit in eleven of the markets we serve.)
Prescription benefits have been documented as one of the main
reasons Medicare+Choice is so positive for eligible beneficiaries. We
believe that the success of a pharmacy benefit program rests on a
multitude of business functions. Today, I would like to focus on areas
that we believe are the most important factors in providing a pharmacy
benefit: quality and safety, and cost management.
QUALITY & SAFETY
Our processes for quality and safety encompass several elements: an
overarching quality assurance program, formulary development, and
various other techniques such as on-line computer review, and provider
education.
Quality Initiative (QI) improvement programs are an integral part
of an effective strategy for a PBM. The QI program is an integrated
approach to prevention or management of specific diseases that involves
physicians, pharmacists, and patients. We improve quality of care and
quality of life, and at the same time reduce medical and pharmacy
costs. These programs often encourage the use of medication and can
sometimes increase the initial cost of care, but will decrease cost of
overall health care over the long term. Two recent programs have shown
that QI programs are making a difference. The use of beta-blockers
after a first heart attack is strongly supported by research to prevent
a second heart attack. National guidelines are in place that recognize
the need for these medications. Our program has demonstrated an 85-90%
compliance with this standard. The national average for the use of beta
blockers is only about 70%. Another Prescription Solutions program
designed to encourage the use of ACE inhibitors for patients with
congestive heart failure has shown equal success. We are able to exceed
the national compliance rate by identifying patients with these
conditions and communicate with their personal physicians on the use of
the most efficacious drugs.
Prescription Solutions' commitment to quality also is evidenced by
voluntary compliance with standards set forth by the National Committee
on Quality Assurance (NCQA) and with Health Plan Employer Data and
Information Set (HEDIS). Currently, PBM's are not required to comply
with either NCQA or HEDIS standards. However, at Prescription
Solutions, we adhere to the standards and criteria to measure quality.
The use of formularies is one of our quality enhancement tools. By
our definition, a drug formulary or preferred drug list is a
compilation of drugs that have been reviewed for safety and efficacy.
Contrary to the popular belief that formularies exist simply to control
costs of an individual drug, there are many aspects to proper
administration of a formulary that have more to do with quality and
clinical effectiveness.
For example, in a recent case, a request for a non-formulary
antibiotic medication, Vancomycin oral, was received in the prior
authorization department. The physician had prescribed this drug for a
serious knee infection. Due to the way this oral medication works, it
could not get into the blood stream in a high enough concentration to
effectively treat the infection. Subsequently, our systems identified
this as a care issue, and we contacted the doctor to change the
medication to an intravenous form. Notwithstanding the fact that the
intravenous drug was significantly more costly than the oral
medication, the latter would have had no benefit and potentially could
lead to a more serious problem, including the need for surgery.
Often times, formularies are misunderstood. Requests for non-
formulary drugs only represent one percent of total claims. Even then,
Prescription Solutions employs prior authorization to determine
approvals. In fact, of the one percent of requests for non-formulary
drugs, 75 percent are approved.
With the recent advent of direct-to-consumer (DTC) advertising,
demand for ``newer and better'' medications has dramatically increased
the demand for drugs new to the market. In many cases, the physicians
reviewing these products for our formulary have found that they are not
always better than existing treatments.
Physicians are often approached by patients with specific requests
for medications they have seen on TV or in print media. The patient may
indeed have a legitimate need for a medication to treat an illness, but
it is often preferable to use drugs that have a proven track record
with regard to safety and effectiveness. In order to keep a patient
happy, many physicians have reported that they are likely to prescribe
a requested drug, unless they believe that the drug may cause harm. In
many cases, the new drug is not significantly better than existing
products that can be purchased at a fraction of the cost. For example,
Celebrex is widely promoted for arthritis at a retail price of about
$75 per month vs. generic ibuprofen or naproxen at about $10 per month.
In clinical studies, these drugs have shown equivalent response in the
patients tested.
Another quality control we use at Prescription Solutions is on-line
computer review, known as ``edits,'' to identify inappropriate
prescribing or dispensing of prescription drugs. In many cases, on-line
edits identify potential inappropriate drug interactions or possible
dosing discrepancies. For reasons that can vary, physicians sometimes
prescribe medications in a manner that varies from prescribing
guidelines. For example, there are many drugs that are manufactured to
be taken only once a day. However, if a physician orders a twice-a-day
dose, our edits will notify the pharmacy of the correct dosage.
Frequent communication to physicians and pharmacists within the
network provides up-to-date information on formulary changes and any
significant clinical developments in the pharmaceutical arena. Warnings
on new drugs, as well as drug recalls, are communicated on a regular
basis. Keeping all providers well-informed helps ensure positive health
outcomes for our members.
PRESCRIPTION DRUG COST MANAGEMENT
The key elements to prescription drug cost management are:
formularies, provider contracts, mail services, generic and over-the-
counter drug promotions, and audits.
In addition to the quality controls referred to earlier, drug
formularies are valuable tools to control costs. In today's
environment, formularies have proven to be necessary to maintain
affordable pharmacy benefits. On the cost management side, a formulary
is designed to leverage the collective buying power of large member
organizations. The list is maintained by the Pharmacy and Therapeutics
(P&T) Committee, comprised mostly of practicing physicians, along with
medical directors from the health plans. Decisions are made based upon
the clinical expertise and experience of the physicians on the
committee. This list is the basis for our pharmacy benefit and is made
available to our members.
Most formularies have 1000 to 2000 medications available. The P&T
Committee meets every two months to decide to add or replace
medications on the list. The majority of AIDS and cancer medications
are automatically added without restriction of use. New drugs are
reviewed as requested by network physicians. Unique, breakthrough drugs
tend to get higher priority review.
Prescription Solutions contracts with over 50,000 pharmacies
nationwide. Although we provide fairly broad pharmacy access to our
members, we command competitive discounts in each region where we have
significant membership. However, we achieve the most significant
savings from effective contract negotiating with manufacturers.
Strategic purchasing has contributed to lower drug costs and a drug
benefit that is affordable. Aggressive contracting for classes of
medications that have several ``me-too'' type drugs results in
substantial discounts to the health plan. Pharmaceutical manufacturers
are willing to discount drugs if the drug benefit design and formulary
management results in a larger market share and increased sales. Deep
discounts by the manufacturers are available only to those PBMs that
demonstrate a value to the manufacturers in achieving those goals.
The Prescription Solutions mail service pharmacy is another key
cost control component. The fully automated pharmacy is staffed with
highly trained pharmacy personnel who oversee the systems' multiple
checks to identify and prevent errors. Patients can order medications
24 hours a day, either by phone or on-line. With mail-service, members
have the convenience of pharmacy refills delivered to their door,
eliminating trips to the pharmacy and waits for their prescriptions.
Our members also save money when using mail-service by paying lower co-
payments. Additionally, where appropriate, our mail service pharmacists
work with the patient's physician to determine if one of the plans'
formulary drugs can be used if equivalent to the member's non-formulary
drug. These services are especially important to our Medicare
enrollees.
Pharmacists and technical personnel provide personal, high quality
services in a high tech/interactive environment. Automation allows for
a high degree of accuracy and efficiency. However, automation is not
successful in the absence of direct member communication. Patients are
provided with detailed, personalized instruction about their
medication, along with a toll-free number to a Prescriptions Solutions
pharmacist for a personal consultation. This service provides members a
convenient and easy way to refill their prescriptions. We field up to
12,000 calls per day on our toll-free personal assistance line to help
our members with their prescriptions.
This toll-free service is used by 25 percent of our Secure Horizons
(Medicare) members. Seventy-five percent of all prescriptions filled by
our mail service are for our Medicare members. Members that use the
mail service pharmacy have stated that they are pleased with the
convenience and cost-savings. Members receive a 90-day supply of
medications for the price of a 60-day supply. The average Medicare
member uses on average two prescriptions per month; by using mail
service, they will save about eight copays per year and depending upon
the market, approximately $70-100.
Generic drugs also offer exceptional benefits and are often
considered first line therapy for a variety of diseases. Prescription
Solutions employs a generic sampling program to encourage the use of
these high value drugs as a balance to traditional sampling programs.
Currently, pharmaceutical companies give providers free samples of new,
branded drug products that the pharmaceutical companies are anxious to
promote. In many cases, these drugs offer little or no advantage over
current tried and true medications. When samples of new drugs are
available, physicians are often tempted to grab a starter package for a
patient to try, instead of writing a prescription for a generic
medication. With our program, we will supply the physician with starter
supplies of widely-used and well-tested generic medications that
provide an appropriate starting point for many diseases.
Other generic or over-the-counter programs, such as our migraine
management program, encourage the use of non-prescription drugs for
migraine. Studies have shown that some non-prescription products are
just as effective as their expensive prescription counterparts for the
majority of people who use them. Promotion of programs like these helps
control the spiraling cost of pharmaceuticals without sacrificing
quality of care.
Fighting fraud is an ongoing battle. Each year, billions of dollars
are wasted for fraudulent prescription claims. Roughly, three percent
of all pharmacy claims are fraudulent. At Prescription Solutions, an
organized effort to combat fraud began two years ago and recently
resulted in the arrest of a pharmacist in California that may have been
involved in over $1 million of fraudulent claims. In order to stop
fraud, real time audits are necessary. Occasionally, incorrect claims
are simply mistakes, but many times, these are deliberate attempts to
defraud the system. Real time audits allow us to stop payment on
erroneous claims.
Our ``real time'' audit program is connected to our claims system.
Prescription Solutions has developed proprietary software, which
incorporates filters to identify those claims that fall outside of
normal pharmacy practice. These claims pop up on our audit teams'
screens for immediate action. This does not hold up the payment process
for normal claims that pass through the system. Taking immediate action
allows us to follow-through on claims flagged as possible errors and
stop payment on those that are indeed erroneous.
SUMMARY
In conclusion, our success at managing pharmacy costs is due to an
integrated approach. (This approach is illustrated in Attachment B.) We
target pharmaceutical companies, physicians, members, prescription plan
design and retail pharmacies. We are able to effectively forecast the
cost of providing pharmacy benefits based on our experience. When
necessary, benefits are flexed in response to market issues. Our strong
clinical foundation means we emphasize appropriate drug utilization,
which drives cost-effective care. This unique combination of clinical
expertise and health plan experience is what qualifies us to
effectively influence pharmacy costs over the long-term. Our primary
goal is to keep pharmacy benefits accessible and affordable for all
Americans well into the 21st century. We look forward to working with
Congress and the Administration in the design and implementation of a
drug benefit for all Medicare beneficiaries.
Attachment A
Secure Horizons (Medicare+Choice Plan)
2001 Drug Benefit Examples
------------------------------------------------------------------------
Location Secure Horizons Coverage
------------------------------------------------------------------------
Dallas, Texas............................. $5 copay per generic drug
and $25 copay per brand
name drug. Coverage of
generic and brand name
drugs is subject to a
combined annual limit of
$1000. Formulary applies.
Mail order available for
$15 generic and $50 brand.
Annual limit applies.
Denver, Colorado.......................... $11 copay per generic drug,
$30 per brand name drug,
$60 per generic or brand
non-formulary drug.
Coverage of generic drugs
is unlimited. Coverage of
formulary brand and non-
formulary/generic drugs is
subject to an annual limit
of $1300.
Houston, Texas............................ $5 copay per generic drug
and $20 copay per brand
name drug. Coverage of
generic and brand name
drugs is subject to a
combined annual limit of
$1200. Formulary applies.
Mail order available for
$15 generic and $50 brand.
Annual limit applies.
King County, Washington................... No supplemental drugs
coverage.
Las Vegas, Nevada......................... $7 copay per generic drug
and $15 copay per brand
name drug. Coverage of
generic drugs is unlimited.
Coverage of brand name
drugs is subject to an
annual limit of $1500.
Formulary applies. Mail
order available $14 generic
and $30 brand. Annual limit
applies.
Los Angeles, California................... $7 copay per generic drug
and $14 copay per brand
name drug. Coverage of
generic drugs is unlimited.
Coverage of brand name
drugs is subject to an
annual limit of $2000 per
year. Formulary applies.
Mail order available for
$14 generic and $30 brand.
Annual limit applies.
Oklahoma City, Oklahoma................... $10 per generic drug and $25
copay per brand name drug.
Coverage of generic and
brand name drugs is subject
to an annual limit of
$1000. Formulary applies.
Mail order available $20
generic and $50 brand.
Annual limit applies.
Orange County, California................. $7 copay per generic drug
and $14 copay per brand
name drug. Coverage of
generic and brand name
drugs is subject to a
combined annual limit of
$2000 per year. Formulary
applies. Mail order
available for $20 generic
and $40 brand. Annual limit
applies.
Portland, Oregon.......................... No supplemental drugs
coverage.
San Diego, California..................... $7 copay per generic drug
and $14 copay per brand
name drug. Coverage of
generic and brand name
drugs is subject to a
combined annual limit of
$2000 per year. Formulary
applies. Mail order
available for $20 generic
and $40 brand. Annual limit
applies.
San Francisco, California................. $8 copay per generic drug
and $16 copay per brand
name drug. Coverage of
generic and brand name
drugs is subject to a
combined annual limit of
$1200 per year. Formulary
applies. Mail order
available for $30 generic
and $60 brand. Annual limit
applies.
------------------------------------------------------------------------
[GRAPHIC] [TIFF OMITTED] T1491.001
Mr. Bilirakis. Thank you, Mr. Jones. And we will have those
questions.
Mr. Moroni, please proceed, sir.
STATEMENT OF ROBERT D. MORONI
Mr. Moroni. Good morning. My name is Robert Moroni. I am
the Assistant Director of Health Care Plans for General Motors.
Mr. Bilirakis. Pull the mike closer, Mr. Moroni.
Mr. Moroni. Is that better?
General Motors is the largest private purchaser of health
care in the United States, offering enrollees a variety of
health plan options including self-insured traditional and PPO
options and insured HMOs. General Motors' health plan covers
1.2 million salaried and hourly employees, retirees, surviving
spouses and their families. Of the total enrollment, 75
percent, which equates to about 900,000 enrollees, are the
self-insured traditional and PPO options for which General
Motors pays the prescription drug directly.
In 2000, GM spent nearly $4 billion to provide health care
coverage to its total population. Of that amount nearly $900
million was spent on just our self-insured prescription drug
coverage. That was a 19 percent increase over our prescription
drug expense for 1999.
Approximately $700 million of the $900 million was for
retirees' surviving spouses and their families. Under our
current design, retirees' surviving spouses and their
dependents pay the same copays as their employee counterparts
even though they account for proportionately more of the
expense.
The current design of our prescription drug coverage is
often referred to as a card program, with enrollees issued ID
cards that they present to local pharmacies to obtain covered
prescription drugs. The enrollee pays a copay at the time of
dispensing, and the balance is billed to General Motors through
our pharmacy benefit managers, also known as PBMs. GM uses two
PBMs. We believe these PBMs provide some level of quality
control and cost containment through a managed network of
retail pharmacies and a mail order house. They have put a
number of components in place to encourage medically
appropriate, cost-effective prescribing and dispensing
practices.
Among the tools our PBMs use are programs that encourage
prescribed drugs that are safe when taken by the elderly;
encourage the use of formulary medications; profile physicians;
detect in real time severe drug-to-drug interactions, which are
not that uncommon when patients see more than one physician;
provide disease management; optimize dosing; and deliver
generic substitutions when appropriate.
Although this is not an exhaustive list, it will give you a
feel for some important components of a well-managed pharmacy
program. But even with these comprehensive program components,
we are extremely concerned about our continuing ability to
provide our current level of prescription drug coverage.
Prescription drugs are the most inflationary component of our
health care costs. Year-to-year increases for the past 3 years
have averaged more than 19 percent, and future costs are
projected to increase at even more alarming rates.
Prescription drugs do not operate according to the
traditional free market model. Consumerism is limited. Patients
are inundated by direct-to-consumer advertising, yet they lack
the full information to make fully informed decisions about the
risks, benefits and cost of a particular drug. We believe it is
a challenge for providers, payers and consumers to ensure that
prescription decisions are clinically appropriate and cost-
effective.
Other concerns regarding escalating drug costs are--ongoing
of market exclusivity--pharmaceutical manufacturers' pricing
practices in the U.S. which produce higher prices than in
Europe and Japan and other countries in North America.
Breakthrough drug technology definitely offers the
potential for increased longevity and functionality. However,
new and replacement therapies for existing drugs often result
in cost increases that are out of proportion with the benefits
to the patient.
High drug costs have a negative impact on international
competitiveness of U.S. firms that provide prescription drug
coverage. It should not come as a surprise that such firms
would consider implementing increasingly stringent controls or
discontinuing coverage altogether.
General Motors supports the addition of a prescription drug
component to Medicare. We regard this coverage as necessary not
only for the treatment of illness and injury, but because in
many cases prescription drugs are the most clinically
appropriate and cost-effective treatment option. We believe
Medicare prescription drug benefits should be universal and
should employ quality control features to ensure that drugs
being covered are necessary, appropriate and effective. The
Medicare program should have effective mechanisms that can
maintain spending at a manageable level. It should have broad-
based equitable financing. And a program with less than
universal coverage would be unfair to enrollees and employers
who have paid into Medicare for many years, and providing
coverage only for those who have no coverage through employers
would penalize responsible employers who have voluntarily
provided prescription drug coverage in the past.
Thank you.
[The prepared statement of Robert D. Moroni follows:]
Prepared Statement of Robert D. Moroni, Assistant Director, Health Care
Plans, General Motors Corporation
Good morning. My name is Robert Moroni and I am the Assistant
Director--Health Care Plans, for General Motors Corporation. In this
capacity, I oversee the GM self-insured health care plans including
coverage for prescription drugs. I have been employed by General Motors
for almost twelve years, the last 6 of which have been in our Health
Care Activity. My professional background is as a certified public
accountant. I hold a Masters Degree in Health Services Administration
from the University of Michigan's School of Public Health.
Background
By way of background, under our health care programs we offer
enrollees a variety of health plan options, including self-insured
``Traditional'' and Preferred Provider Organization options and Health
Maintenance Organizations (the latter being insured). General Motors'
health plans cover over 1.2 million salaried and hourly employees,
retirees, surviving spouses and their families. Of the total
enrollment, 75% (almost 900,000 enrollees) are in the self-insured
Traditional and PPO plans, for which GM pays prescription drug expenses
directly. We require that the HMOs offered to our people provide
prescription drug coverage, but it varies in detail from HMO to HMO. We
estimate that our HMO premiums include $300 million in prescription
drug costs. Since we offer over 130 HMOs nationwide, I think you can
appreciate why my comments today will be limited to our self-insured
coverage which, after all, addresses the bulk of our program enrollees.
In calendar year 2000, GM spent approximately $3.9 billion to
provide health care coverage for its total population. Of that amount,
nearly $900 million was for our self-insured prescription drug
coverage. That was a19% increase over our prescription drug expense for
1999. Approximately $700 million (or $1,289 per enrollee) of the $900
million was for retirees, surviving spouses and their families.
General Motors has been providing prescription drug coverage for
its retirees, surviving spouses and their families since 1971. As
noted, this group accounts for the vast majority of our prescription
drug expense. Under the current design, retirees, surviving spouses and
their dependents pay the same co-pays as their employee counterparts,
even though they account for proportionately more of the expense.
Coverage Design
The current design of our prescription drug coverage is often
referred to as a ``Card Program'', with enrollees issued ID cards that
they present at local pharmacies to procure covered prescription drugs.
The enrollee pays a co-pay at the time of dispensing and the balance is
billed to GM through our carriers or pharmacy benefit manager (PBM). We
pay the ingredient costs, dispensing fees and administrative fees.
There are both retail and mail order options, the latter option being
of particular benefit to those with long term ``maintenance drug''
needs and/or limited access to a local pharmacy.
There are different co-pays for our hourly and salaried programs.
Currently, hourly program ``Traditional'' and PPO option enrollees pay
flat $5 or $3 retail co-pay and enrollees of both options pay a $2 mail
order co-pay for each prescription or refill. The salaried program co-
pay is 25% of the prescription cost at retail with a $15 minimum and
$25 maximum. If a generic drug is chosen the retail co-pay is $5. The
salaried mail-order co-pay is $20 for brand-name drugs and $10 for
generics. It should be noted that with mail order a 90-day supply is
available, versus a 34-day supply at retail. We have what I refer to as
a ``preferred formulary''--actually an open formulary where we do not
restrict the choice of drug dispensed but we try to influence physician
prescribing behavior and/or patient selection, as I will describe
shortly.
GM uses two PBMs, Merck-Medco and Blue Cross/Blue Shield of
Michigan. We believe these PBMs provide some level of quality control
and cost containment through a managed network of retail pharmacies and
a mail order house. They have put a number of components in place to
encourage medically-appropriate and cost-effective prescribing and
dispensing practices. Many of these are ``transparent'' to the enrollee
and/or voluntary, and operate on a pharmacist-to-physician interaction.
Among the tools our PBMs use are:
Partners for Healthy Aging--an enrollee/patient and physician
education effort which provides information on issues of
pharmaceutical safety and use among the elderly.
Therapeutic Interchange--contacts with physicians to encourage
use of formulary medications
Physician Profiling and Peer Rating--an expansion on the above
which provides feedback on quality and utilization performance.
Severe Drug-Drug Interaction Edits--on-line, electronic
feedback at the time of dispensing that prevents dispensing
drugs that could represent life-threatening interactions. This
situation often arises when an enrollee is seeing more than one
physician and the respective physicians are not aware of all of
the drugs the enrollee is taking. When one of these cases
arises, the pharmacist contacts the prescribing physician and
reviews the facts of the case before dispensing the potentially
conflicting medication.
Digestive Health Solutions--addressing unique concerns of
patients with gastro-intestinal disease. It provides
educational materials to enrollees and encourages appropriate
prescribing practices by physicians.
Dose Optimization--which simplifies the dosing regiment for
patients and capitalizes on cost savings of taking one pill
versus two.
Generic Substitution Component--When an appropriate generic
drug is available it is dispensed unless the physician
specifies ``dispense as written'' or the enrollee requests the
brand drug. If the brand drug is dispensed at the enrollee
request, the enrollee pays the difference between the cost of
the generic and brand, in addition to the normal co-pay.
This is not an exhaustive list, but will give you a feel for some
of what we feel are important components of a well-managed pharmacy
plan.
Cost Considerations
I would be remiss if I did not tell you that regardless of the
efforts discussed above, we are extremely concerned about our
continuing ability to provide the kind of prescription drug coverage
that our people have come to expect. Prescription drugs are the most
inflationary component of our health care costs. Year-to-year increases
for the last 3 years have averaged more than 19%. Future costs are
projected to increase at even more alarming rates.
Prescription drugs do not operate according to the traditional
free-market model. Consumerism is limited. Patients are inundated by
direct-to-consumer advertising yet lack the information to make fully-
informed decisions. Other practices that are a concern include
unwarranted patent extensions and pharmaceutical manufacturers' pricing
practices in the U.S., compared to their practices in Europe and Japan,
or even other countries in North America. These factors impose
unnecessary costs which, in turn, have a negative impact on
competitiveness of U.S. firms which provide prescription drug coverage.
It should not come as a surprise that such firms would consider
implementing increasingly stringent controls, or discontinuation of the
coverage altogether.
Potential Medicare Coverage of Prescription Drugs
General Motors supports the addition of a prescription drug
component to Medicare. We regard the coverage as necessary--not only
for the treatment of illness and injury but because in many cases
prescription drugs are the most clinically appropriate and cost-
effective treatment option. We believe Medicare prescription drug
benefits should be universal so that access is available to all, and
employ quality assurance features to assure that the drugs being
covered are necessary, appropriate and effective. The Medicare program
should have effective program controls or expenditure limits to ensure
spending is controlled at a manageable level. It should have broad-
based equitable financing. To construct a program with less than
universal coverage would be unfair to enrollees and employers who paid
into Medicare for many years. Further, to the extent it might provide
coverage only for those who have no coverage through employers, it
would seem to penalize responsible employers who have voluntarily
provided prescription drug coverage in the past.
Summary
In closing, I must reiterate that General Motors is very concerned
about the economics of continuing to provide prescription drug
coverage. Obviously we hope to continue to provide prescription drug
coverage for our employees, retirees and their families. It is our hope
that a fair and equitable Medicare Program will be implemented to help
seniors bear the cost of prescription drugs. Such a program should not
put responsible employers, who have provided such coverage to date, at
a disadvantage.
Mr. Bilirakis. Thank you, Moroni.
Ms. Rowland.
STATEMENT OF DIANE ROWLAND
Ms. Rowland. Thank you, Mr. Chairman and members of the
subcommittee. I am Diane Rowland, Executive Vice President of
the Henry J. Kaiser Family Foundation and Executive Director of
the Kaiser Commission on Medicaid and the Uninsured.
I am pleased to be here at this hearing today to talk about
the 35 million seniors and 5 million disabled Americans on
Medicare who are in need of health care coverage, especially
that of prescription drugs. Outpatient drug therapy has become
an increasingly effective tool for managing many of the
conditions faced by this population.
As Mrs. Kessler has shown you today, these needs are
substantial. She represents about one-quarter of all Medicare
beneficiaries who have expenditures in excess of $2,000, but
live on limited and modest incomes. In fact, 40 percent of all
Medicare beneficiaries today live on an income of less than
16,500 for an individual or 22,000 for a couple, and as you
well know, most rely on Social Security as their main source of
income.
For these beneficiaries, the need for multiple medications
to manage and treat their acute and chronic illness often
results in substantial and rising financial burdens and means
many leave needed prescriptions unfilled. Today one-third of
all Medicare beneficiaries go without any form of prescription
drug coverage. About half of those live below 175 percent of
the poverty level.
Lack of drug coverage disproportionately affects
beneficiaries living in rural areas and the oldest old. As you
will hear from the other witnesses, supplemental coverage does
provide some assistance with prescription drugs to two-thirds
of the elderly, but that coverage varies widely by income, is
often costly, and appears to have a very unstable future.
For the lowest-income population, Medicaid has played a
significant role over the years and covers today roughly 14
percent of all Medicare beneficiaries. Yet to be eligible for
the Medicaid program, one must generally be eligible for cash
assistance through the Supplemental Security Income program or
be institutionalized in a nursing home. Medicaid does, however,
cover nearly half of Medicare beneficiaries with incomes below
the poverty level and covers 40 percent of the nonelderly
disabled Medicare population. This population has a
particularly important attachment to Medicaid because it is
often--the disabled are often ineligible to obtain any kind of
private-based coverage. Those eligible for both Medicare and
Medicaid, the dual-eligible population, have poorer health care
status and greater health care needs than other Medicare
beneficiaries.
In 1998, Medicaid spent $14.5 billion for prescription
drugs, representing 8 percent of total Medicaid spending.
However, without the Medicaid drug rebate program, an
additional $2.5 billion alone would have been spent in 1998 on
prescription drugs. Within the Medicaid program, the elderly
and disabled account for over 80 percent of all Medicaid
spending for prescription drugs. So this is a major item in all
State budgets and in the Medicaid program.
Coverage of prescription drugs, however, under Medicaid
varies widely across the States. States are allowed to
establish formularies that limit coverage of specific drugs and
are permitted to require prior authorization before dispensing
any drug. Almost all States maintain a formulary. Most place
limits on the number of concurrent prescriptions, the amount of
a given drug supplied at one time, or the number of refills
permitted. Thirty-two States require copayments for
prescription drugs ranging from 50 cents to $3 per prescription
for beneficiaries with extremely low incomes.
However, many States are now struggling with the impact of
rapidly rising prescription drugs on their budgets. Rising
costs stem from both the increase in the average cost of drugs
and from the increased volumes of drugs prescribed. As a
result, many States are now looking to restrain rather than
expand their coverage of prescription drugs in the future.
Building on Medicaid as well as some of the State-based
pharmacy programs does provide a means to direct assistance for
the lowest-income Medicare beneficiaries. However, the
variations across States in existing coverage and the limited
reach and scope of both State pharmacy assistance programs as
well as Medicaid would perpetuate uneven coverage for low-
income Medicare beneficiaries based on where they live.
In sum, today the likelihood of having drug coverage to
supplement Medicare depends largely on where you worked and
whether you have retiree benefits, on where you live and
whether managed care plans are available in your area, on what
your income is and whether you are eligible for Medicaid or can
afford to purchase coverage, and how sick you are, and whether
plans are willing to enroll you if you have high drug costs.
This is neither a fair nor rational way to provide health
insurance coverage to our Nation's 40 million Medicare
beneficiaries.
Including the drugs under Medicare would provide Medicare
beneficiaries with needed coverage that is comparable to the
benefits generally offered to the less--to the more healthy,
nonelderly insured population. It would both help to stabilize
coverage by leveling the playing field between traditional
Medicare and Medicare+Choice plans, and it would serve to
improve the quality of care for the Nation's Medicare
population while shielding the most vulnerable from rising,
potentially unaffordable prescription drug costs.
Thank you.
[The prepared statement of Diane Rowland follows:]
Prepared Statement of Diane Rowland, Executive Vice President, The
Henry J. Kaiser Family Foundation, and Executive Director, Kaiser
Commission on Medicaid and the Uninsured
Thank you, Mr. Chairman and members of the Subcommittee, for the
opportunity to provide an overview of the Medicare population's access
to prescription drug coverage. I am Diane Rowland, Executive Vice
President of The Henry J. Kaiser Family Foundation and Executive
Director of The Kaiser Commission on Medicaid and the Uninsured. I also
serve as an Adjunct Associate Professor in the Department of Health
Policy and Management at The Johns Hopkins University School of Hygiene
and Public Health.
The Medicare population is, by definition, a population that is
older, sicker and more dependent on prescription drugs than those not
enrolled in the program. While the range and continuing proliferation
of new drug treatments have made the management of the many health
conditions suffered by this population possible, traditional, fee-for-
service Medicare does not generally cover outpatient prescription drug
costs. My testimony today will review sources of prescription drug
coverage for the Medicare population, describe the scope and level of
coverage offered by these various sources, and devote particular
attention to Medicaid's role in providing drug coverage to Medicare's
lowest-income beneficiaries.
The Medicare Population
Any discussion of Medicare benefits must acknowledge the
characteristics and needs of the elderly and disabled population that
Medicare serves. The Medicare population, by definition, is older and
less healthy than the general population. Those who are covered by
Medicare must be at least 65 years old or, if under-65, totally and
permanently disabled. Because health problems increase with age, those
who are covered by Medicare tend to have greater health needs than the
non-elderly population. (Exhibit 1). Nearly 7 in 10 Medicare
beneficiaries living in the community (69 percent) have two or more
chronic conditions; many report having serious or disabling health
problems, including arthritis (56 percent), hypertension (53 percent),
and heart disease (36%). (Exhibit 2). Outpatient drug therapy has
become an increasingly effective tool for managing many of these
conditions and for delaying and even preventing the onset of more
serious illnesses.
With health needs increasing with age, it is not surprising that
prescription drugs are a particularly important part of the therapeutic
regimen for millions of elderly and disabled Americans, and that drug
use increases with age. Eight in ten Medicare beneficiaries utilize
prescription drugs on an ongoing basis, filling an average of 19.6
prescriptions in 1996. Outpatient drug therapy has come to substitute
for inpatient hospital care and to help manage chronic conditions. Many
expect outpatient drug therapy to play an even greater role in medical
care in the future
These prescription drugs often come at a substantial cost to the
Medicare population--a population that generally lives on modest, and
often fixed incomes. Over 40 percent of Medicare beneficiaries--14
million people--today have incomes below 200 percent of the federal
poverty level, or below $16,500 for an individual and just over $22,000
for a couple (Exhibit 3). Twelve percent of beneficiaries have incomes
below the poverty level.
Not only do many Medicare beneficiaries live on modest incomes, but
most rely on Social Security benefits as their main source of income.
This is especially true for the 20 million low- and moderate-income
elderly beneficiaries with incomes below $22,225 per year. They
comprise 60 percent of Medicare beneficiaries and derive from 64 to 81
percent of their income from Social Security (Exhibit 4). Living on
fixed incomes with little potential for additional earnings leaves
these beneficiaries with minimal cushion to absorb additional medical
costs.
Why Is Drug Coverage Important?
For many Medicare beneficiaries, the need for multiple medications
to manage and treat their acute and chronic illnesses often results in
a substantial and rising financial burden. Between 1996 and 2001,
average total per capita drug expenses for the Medicare population
increased from $798 to $1,402, while average out-of-pocket spending
increased from $390 to $686 per year.
Having insurance coverage to supplement Medicare and help finance
the cost of prescriptions affects individuals' financial burdens of
care and use of medications. Beneficiaries without any form of
prescription drug coverage tend to have higher out-of-pockets drug
costs than those with some form of drug coverage (Exhibit 5). Overall,
those without coverage for prescription drugs spent more than those
with coverage in 1996 ($463 vs. $253 in 1996). Differences in health
status do not explain these differentials. Among those in poor health,
the disparities in out-of-pocket spending widened; those who lacked
coverage had substantially higher out-of-pocket costs than those with
coverage ($423 vs. $749 in 1996).
Beneficiaries without drug coverage incur relatively high costs
because they do not have an insurer to share the cost of each filled
prescription and because they tend to pay the full retail price when
they go to the pharmacy. By contrast, those with prescription drug
coverage are often shielded from the full effect of high and rising
drug costs as they often benefit from the pharmacy discounts negotiated
by their employer plan or HMO.
While lack of coverage means higher out-of-pocket costs faced by
the elderly and disabled on Medicare, these higher costs do not result
from greater utilization. In fact, those without prescription drug
coverage fill fewer prescriptions than those with coverage, even after
adjusting for health status (Exhibit 6). Beneficiaries without drug
coverage averaged five fewer prescriptions per year than those with
coverage in 1996. Among those in poor health, those who lacked coverage
averaged 11 fewer medications filled than their insured counterparts.
Lack of coverage poses particular concerns for those with chronic
conditions. For example, beneficiaries with hypertension who lacked
drug coverage were 40 percent less likely than those with drug coverage
to purchase antihypertensive medications, according to a recent study
by Blustein. Systematic underutilization of prescribed medications
poses a threat to quality of care for individuals and potentially
increases costs to the system in terms of avoidable emergency room and
hospital admissions, physician visits, and nursing home stays.
Who Lacks Drug Coverage?
While two-thirds of the Medicare population receive some assistance
with their prescription drug expenses, nearly a third (12 million) were
without any form of prescription drug coverage in 1996--the most recent
year for which national data are available. About half (6 million) of
those without drug coverage had incomes below 175 percent of poverty,
which was $14,600 for individuals in 2000 (Exhibit 7).
Lack of drug coverage disproportionately affects beneficiaries
living in rural areas and the oldest-old (Exhibit 8). Those in rural
areas were substantially more likely than others to be without drug
coverage in 1996 (43 percent vs. 27 percent) in 1996. Beneficiaries
ages 85 and older were more likely to lack drug coverage than those
between the ages of 65 and 74 (38 percent vs. 29 percent).
The near poor are at high risk of being without drug coverage.
Forty percent of beneficiaries with incomes between 100 percent and 150
percent of the federal poverty level lacked coverage in 1996. By
contrast, 24 percent of those with incomes above 300 percent of poverty
and 32 percent of those with incomes below 100 percent of poverty,
where about half received drug coverage under Medicaid.
What Are the Sources of Prescription Drug Coverage?
Most beneficiaries have supplemental insurance to help fill the
gaps in Medicare's benefit package, but the nature of that coverage
varies widely by income (Exhibit 9). Those with higher incomes are more
likely to have broader and more comprehensive retiree benefits, while
those with low and modest incomes are more likely to rely solely on
Medicare for coverage. Medicaid fills in gaps for those with the lowest
incomes, but only assists slightly more than half of all poor Medicare
beneficiaries.
The nature of supplemental coverage has a significant impact on the
scope of prescription drug coverage and the level of out-of-pocket
spending. Those with employer-sponsored retiree health benefits, for
example, have substantially lower out-of-pocket expenses than those
with Medigap or no supplemental coverage at all (Exhibit 10).
Employer-sponsored plans, the leading source of drug coverage for
seniors, assisted 31 percent of the Medicare population in 1996,
generally those with higher incomes. Half of those with incomes above
200 percent of poverty had employer-sponsored supplemental coverage
compared to only a quarter of the near-poor and 8 percent of the poor.
Benefits offered by employers to their former employees and spouses
tend to be more generous than drug benefits covered under Medigap
policies or Medicare+Choice plans.
Today's workers, however, are less likely than current retirees to
receive drug benefits from their employer when they retire. The number
of large employers offering health benefits to retirees 65 and older
has declined from 80 percent in 1991 to 66 percent in 1999.
Furthermore, among those employers that continue to offer benefits to
retirees, reductions in drug benefits appear to be on the horizon.
Forty percent of large employers report seriously considering cutting
back on drug benefits for their retirees in the next three to five
years, according to a recent survey of large employers conducted for
the Kaiser Family Foundation by Hewitt Associates.
Medicare supplemental insurance, known as Medigap, is another
potential source of prescription drug coverage for the Medicare
population. In 1996, Medigap provided prescription drug benefits to
approximately 10 percent of all Medicare beneficiaries. These policies
are individually purchased by Medicare beneficiaries to supplement
Medicare, largely by paying cost-sharing and deductibles. Beneficiaries
pay premiums to have this coverage, with premiums ranging from about
$1,400 per year to as much as $4,700 per year, depending on where they
live, the type of coverage they obtain, and their age.
There are 10 standard Medigap policies (Plans A-J), three of which
(Plans H-J) cover some prescription drug costs. Plans H and I have a
$250 deductible and cover 50 percent of drug costs up to $2,500; Plan J
covers 50 percent of drug costs up to $6,000. Premiums for Medigap
policies that cover a portion of prescription drug expenses have risen
dramatically in recent years, by as much as 20 to 30 percent in many
markets across the nation. These high premiums appear to be making
Medigap drug coverage increasingly unaffordable for the large share of
beneficiaries who are living on modest incomes. In fact, only 537,000
of the 6 million beneficiaries with standard Medigap policies had a
plan that included prescription drug coverage in 1999, according to a
new study by Chollet and Kirk (Exhibit 11). Access to Medigap drug
coverage is further restricted by a provision of the law that permits
insurers to deny Medigap drug coverage to the under-65 disabled on
Medicare, and others who lose coverage when they disenroll from their
HMO.
In addition to employer-sponsored and Medigap coverage, a growing
number of beneficiaries have turned to Medicare+Choice programs for
assistance with their drug costs. Medicare HMOs assisted 8 percent of
all beneficiaries with their drug costs in 1996 and as many as 12
percent in 2000. In recent years, many HMOs have been able to offer
supplemental benefits, such as drug coverage, because Medicare requires
plans with costs below the Medicare payment level to return savings to
beneficiaries in the form of additional benefits or lower cost-sharing.
While HMOs in many parts of the country have until very recently
been able to offer fairly generous drug benefits to enrollees, there is
some uncertainty about the future capacity of Medicare+Choice plans to
provide this coverage. The number of Medicare+Choice plans
participating in the program has declined in recent years, as has the
share of plans offering prescription benefits to enrollees. At the same
time, Medicare+Choice plans that continue to offer prescription drug
benefits are moving in the direction of capping their benefits as part
of a broader strategy to reign in costs (Exhibit 12).
Medicaid and state operated pharmacy assistance programs also
assist many low- and moderate-income beneficiaries with their drug
costs. For the lowest income population, most notably Medicare
beneficiaries receiving cash assistance and those who are in nursing
homes, Medicaid provides coverage to fill in Medicare's gaps.
The Role of Medicaid
In 1997, 14 percent of Medicare beneficiaries (nearly 6 million
people) depended on Medicaid for supplemental insurance coverage, and
most were eligible for the full range of Medicaid benefits, including
prescription drugs. Although coverage of prescription drugs is optional
for states, all Medicaid programs currently provide prescription drug
coverage for Medicaid enrollees. Medicare beneficiaries who receive
cash assistance through the Supplemental Security Income (SSI) program
(known as ``dual eligibles'') generally qualify for Medicaid
prescription drug benefits.
Medicaid covers nearly half of Medicare beneficiaries with incomes
below the poverty level and 40 percent of the non-elderly disabled
Medicare population. Near-poor Medicare beneficiaries with incomes
between 100 and 200 percent of poverty receive more limited assistance;
their incomes or assets generally exceed the low levels required to
qualify for full Medicaid benefits.
The Medicare-Medicaid dual-eligible population has poorer health
status and greater health care needs than other Medicare beneficiaries.
Over half of all dual eligibles report their health as fair or poor
compared to a quarter of other beneficiaries. They are also more likely
to have ongoing chronic illness and require long-term care assistance,
leaving them particularly in need of assistance with medical care and
prescription drug expenses (Figure 13).
Prescription drug coverage is the second most widely utilized
benefit in Medicaid, largely due to the elderly and disabled
population's reliance on the program for prescription drug coverage. In
1998, Medicaid spent $14.5 billion for prescription drugs, representing
8.2 percent of total Medicaid spending. Usage and costs vary
considerably by enrollee eligibility category. The disabled and elderly
accounted for 80 percent of all Medicaid spending for prescription
drugs (Figure 14). In 1998, the disabled alone constituted less than a
fifth of enrollees but accounted for over half of Medicaid drug
expenditures. By contrast, children represented over half of Medicaid
enrollees and accounted for only 12 percent of drug payments.
Prior to the Omnibus Budget Reconciliation Act of 1990 (OBRA 90),
limited formularies were the main strategy used by states trying to
control Medicaid drug costs. With OBRA 90, states were given a new
tool--the drug rebate program, which uses the government's volume
purchasing authority to get discounted prices. Under this program, in
order for a state to receive federal Medicaid matching funds for a
manufacturer's prescription drugs, the manufacturer must agree to
rebate a portion of drug payments back to the government in return for
Medicaid covering all prescription drug products manufactured by the
company. More than 500 manufacturers, representing 55,000 drug
products, currently have federal rebate agreements. Some states also
have separate rebate agreements with manufacturers.
The rebate program influences the acquisition cost for prescription
drugs (purchase of the drug itself). Medicaid regulations limit
payments for acquisition costs. While payment limits are based on the
cost of specific drugs, these limits only apply to aggregate spending;
states may set their own payment policies for individual prescription
drugs as long as total expenditures for all drugs are at or below the
amount determined using the payment limits. Medicaid payments for
outpatient prescription drugs also include the dispensing fee, which
pays pharmacists for filling the prescription. Medicaid regulations
only require that dispensing fees be ``reasonable.''
Coverage of prescription drugs under Medicaid varies across states.
States are allowed to establish formularies that limit coverage of
specific drugs and are permitted to require prior authorization before
dispensing any drug. Almost all states maintain a Medicaid formulary or
list of approved products. Most states attempt to control Medicaid drug
costs by placing limits on the number of concurrent prescriptions (as
few as three permitted in some states), the amount of a given drug
supplied at one time, or the number of refills permitted. Thirty-two
states require copayments for prescription drugs, ranging from 50 cents
to 3 dollars per prescription for certain beneficiaries.
As a quality control, states are also required to provide
prospective and retrospective drug use review (DUR) for Medicaid
enrollees who get drugs on an outpatient basis. Prospective drug use
review (PDUR), performed by the pharmacist or practitioner prior to
dispensing a drug, is intended to reduce medication errors and adverse
drug events, while retrospective drug use review (RDUR) involves the
review of provider drug prescribing history to identify safety and cost
problem areas.
Medicaid is a crucial source of prescription drug coverage for a
significant portion of the Medicare population, but many states are now
struggling with the impact of rapidly rising prescription drug costs on
state budgets. Rising costs stem not only from the increased average
cost of drugs, but also from the increased volume of drugs prescribed.
Medicaid payments for outpatient pharmaceuticals rose from an estimated
$4.8 billion in 1990 to $14.5 billion in 1998, an increase of almost 15
percent annually, largely due to rising costs for the disabled and
elderly (Exhibit 15).
Because of Medicaid's coverage for the elderly and disabled,
including nursing home residents, a greater share of the Medicaid
dollar is devoted to prescription drugs compared to total national
health care spending. Medicaid prescription drug expenditure growth
consistently outpaces the total growth of prescription drug spending.
Recent reports indicate that states are now seeking larger discounts
from manufacturers, restricting access to expensive brand-name drugs,
and proposing that local pharmacies lower their prices. As a result,
states are likely to be looking to restrain--rather than expand--their
coverage of prescription drugs in future years.
At the same time, limits to Medicaid coverage and restrictive
income and assets test for eligibility, coupled with variations across
states in both eligibility and coverage, leave millions of low-income
Medicare beneficiaries without drug coverage. Some states (26 as of
January 2001) have enacted state-based pharmacy assistance program to
supplement Medicaid, and these programs now provide assistance to about
one million people. However, these programs are limited in their
ability to fill the gaps in prescription drug coverage and vary widely
in terms of structure, eligibility, and benefits. While most provide a
direct subsidy to low-income seniors, other approaches include discount
programs, tax credits, and private-insurance models. Most are
relatively new and not widely utilized.
Building on Medicaid and the state-based pharmacy assistance
programs provides a means to direct assistance toward the lowest income
Medicare beneficiaries. However, the variations across states in
existing coverage and the limited reach and scope of most state
pharmacy assistance programs perpetuates uneven coverage for low-income
Medicare beneficiaries based on where they live.
Conclusion
Prescription drug use and expenditures are not evenly distributed
among the Medicare population. Among Medicare's 40 million
beneficiaries, nearly a third (30%) will incur drug expenses of less
than $250 per year. In contrast, eight percent of beneficiaries will
experience drug costs of $4,000 or more this year and account for over
a third (36%) of the $50 billion in drug spending attributed to
Medicare beneficiaries (Exhibit 16). These striking variations in
spending within the Medicaid population underscore the importance of
pooling the risk for coverage broadly.
Today the likelihood of having drug coverage to supplement Medicare
depends largely on where you worked and whether you have retiree
benefits, where you live and whether managed care plans are available
in your area, what your income is and whether you are eligible for
Medicaid or can afford to purchase coverage, and on how sick you are
and whether plans are willing to enroll you if you have high drug
costs. This is neither a fair nor rationale way to provide health
insurance coverage to our nation's 40 million Medicare beneficiaries.
Use of prescription drugs to maintain functioning and promote well-
being is an integral part of medical treatment today and should be an
integral part of the health care coverage as well. Inclusion of
prescription drugs into the Medicare benefit package would help to
assure basic coverage for millions of our most vulnerable citizens and
help to stabilize their coverage in either the traditional Medicare
program or managed care plans. Broadening Medicare to cover
prescription drugs would also help stabilize the current erosion of
retiree health benefits and level the playing field between managed
care plans and the traditional program, thus helping to both modernize
Medicare and secure adequate future coverage.
Medicare has served the nation's elderly and disabled population
well for more than 35 years. Much progress has been achieved through
Medicare in alleviating disparities in access to care and bringing life
saving medical advances to our elderly and disabled citizens regardless
of income or residence. Our challenge now is to build on the strengths
of Medicare by addressing its gaps and securing its financial
viability.
I look forward to working with the Subcommittee to address this
challenge. Thank you.
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Mr. Bilirakis. Thank you very much, Ms. Rowland.
Mr. Weller. Please proceed, sir.
STATEMENT OF WILLIAM WELLER
Mr. Weller. Thank you, Mr. Chairman, members of the
committee. I am Bill Weller, Assistant Vice President and Chief
Actuary of the Health Insurance Association of America. I
appreciate the opportunity to testify on this important issue.
I arrived at HIAA just after OBRA'90 passed and have assisted
the HIAA members who offer Medigap products as well as
Medicare+Choice plans since then.
Our members, including national Medigap writers, have a
strong interest in meeting the needs of seniors. Medicare
supplements are very popular with seniors; 90 percent have some
type of additional coverage. HIAA is therefore concerned with
any proposals to change these products. Changes designed to be
improvements, if all the implications are not well understood,
can create a worse situation for seniors, many of whom have no
option other than Medigap.
In addition, as an actuary I have been involved with
studies of Medigap experience for the American Academy of
Actuaries. The academy's reports can be a valuable resource to
Congress. These reports provide insight into the effects,
positive and negative, of various ideas. HIAA believes it is
very important to take steps now to help seniors better afford
needed prescription drugs, yet changes must be made carefully
to avoid disrupting private coverage millions now rely on.
I would like to take most of my time this morning comparing
the principal factors I believe are needed for viable private
drug coverage with the current rules and limitations of
Medicare supplement, in particular the 10 Medigap standardized
plans. But first, let me note that all seniors when they become
eligible for Medicare have the right to purchase a Medigap plan
which includes coverage of prescription drugs, plan H, I or J.
Medigap carriers cannot deny coverage or charge these people an
extra premium, for example, based on their poor health.
However, the vast majority do not purchase drug coverage. It is
expensive, and most are still healthy at that time.
The additional cost of Medigap plans H, I and J reflects
both the cost of the drugs and the higher use of medical
services by these people. The added cost from both appears to
about equal the maximum amount of reimbursement for drug
benefits alone within those plans.
Surveys document a high level of satisfaction among seniors
with the Medigap coverage they maintain. Seniors recognize the
value of this coverage if they need significant medical care.
This can change if the Medigap policies that seniors buy
quickly become unaffordable. Viable plans, public or private,
that cover prescription drugs need to adequately address the
following factors. They are discussed more fully in the written
testimony.
Insurance costs. Successful private insurance plans, as you
have already heard, have adopted formularies, encouraged
generic substitution and used PBMs as important tools to
maintain quality and control costs. Copayments in the past
several years have been changed to make insureds more aware of
the substantial difference in costs for different drugs.
On the other hand, Medigap is generally not allowed to use
restrictive networks and cannot change copays after issues.
The loss ratio standards in OBRA'90 are unlikely to leave
enough margin for the cost of administering a modern drug
benefit with these necessary tools.
Future trends. Everyone is aware of the increases in cost
of prescription drugs. Projections for the future are also
worrisome. Managing an insurance program which includes drug
coverage entails updating formularies, adjusting copays, et
cetera, not just increasing premiums. Even determining an
insurance company or employer's willingness to continue the
coverage is an issue. However, Medigap carriers, by law, cannot
change anything except the premium. For example, in force
policies could not be changed to require a higher copay for a
brand name drug when there is a generic equivalent. And once a
Medigap policy is issued, the carrier must continue the
coverage.
Sources of revenue. Subsidies are generally considered
necessary to generate high levels of participation in health
plans. All the major drug proposals from the last Congress,
whether relying on public or private insurance, included such a
subsidy. A subsidy for added drug benefits within a Medigap
plan where other benefits are not subsidized will have less
perceived value. Thus, there is a lower likelihood of achieving
satisfactory levels of participation.
Finally, adverse selection. I suspect that you are weary of
actuaries raising this concern. Unfortunately it is real, and
it must be controlled. Most employer-based groups control
adverse selection by requiring continuous coverage of retirees.
If the retiree drops coverage, they can't get it back. Medigap,
because of expansions to open enrollment, has become easy to
get back into.
Open enrollment is causing increases in rates for Medigap
plans without drug coverage, and the effect would be even worse
for new Medigap plans with drug coverage.
In closing, I can state that HIAA shares the concerns of
many about the issue of drug coverage for seniors. We believe
the ultimate solution will provide meaningful drug benefits as
part of changes to the underlying Medicare program. But if
changes are made before broad restructuring takes place, we
need to move with extreme caution. Changes to Medigap and
Medicare+Choice without changes to Medicare itself could harm
the private coverage seniors now rely on. It could also reduce
the coverage choices for future seniors like me.
Thank you.
[The prepared statement of William Weller follows:]
Prepared Statement of William Weller, Assistant Vice President and
Chief Actuary, Health Insurance Association of America
Introduction
Mr. Chairman, distinguished members of the Subcommittee, I am
William Weller, Assistant Vice President and Chief Actuary of the
Health Insurance Association of America (HIAA).
HIAA is the nation's most prominent trade association representing
the private health care system. Its 290 members provide health, long-
term care, dental, disability, and supplemental coverage to more than
123 million Americans.
During the past 10 years with HIAA, I have been involved in the
actuarial aspects of Medicare Supplement products starting with the
implementation of the changes required by Omnibus Budget Reconciliation
Act of 1990 (OBRA'90). Prior to joining HIAA in 1990, I worked in the
insurance industry for 25 years. I received my fellowship in the
Society of Actuaries in 1971 and became a member of the American
Academy of Actuaries in 1972. During the past several years, I have
been a member of the Academy's Medicare Supplement Insurance Work
Group, reviewing the causes of premium increases on Medicare Supplement
(or Medigap) plans. Their final report (Medigap Report) was presented
to the National Association of Insurance Commissioners in June 2000.
I am very pleased to be here today to speak with you about how the
current Medigap market works, special challenges relating to the three
Medigap plans that include prescription drug coverage, the impact of
increasing costs and regulation on the premiums that seniors now pay
for Medigap coverage, and the higher costs they would be asked to pay
in the future if prescription drug coverage were to be expanded.
In the last section of my testimony, I will address the differences
between Medigap and other products that provide drug coverage, and the
implications for actuarial models used to estimate the price of each
such product.
It is worthwhile to note the importance of the broad spectrum of
Medicare Supplement products and the key role of Medigap plans within
that spectrum. Because Medicare requires beneficiaries to pay
deductibles and coinsurance amounts that can add up to substantial
annual out-of-pocket expenses and because it does not cover the cost of
care for truly catastrophic illnesses, 90 percent of seniors maintain
additional, supplemental coverage.
Approximately 20 million seniors have some Medicare Supplement
coverage, either through an employer-sponsored plan for retirees (11
million beneficiaries) or through an individually purchased Medigap
plan (nine million beneficiaries). Many other seniors have supplemental
coverage through Medicare+Choice or Medicaid. It is the nine million
seniors who pay the total cost of supplemental coverage themselves by
purchasing an individual Medigap plan who would have the biggest
problem finding the resources to pay for new, mandated expanded
coverage of prescription drugs.
Surveys conducted bi-annually by the Inspector General of the
Department of Health and Human Services continue to show a high level
of satisfaction among seniors with Medigap and with their choices
including options with and without outpatient prescription drug
coverage. These surveys also note the importance seniors attach to
having these choices include a wide range of premium levels to allow
affordable options. Even with this range, the most popular Medigap
plans cover the beneficiaries' obligations under Parts A and B but do
not include drug coverage.
SENIORS SHOULD HAVE EXPANDED ACCESS TO NEEDED PHARMACEUTICALS
Pharmaceuticals have become a critical component of modern
medicine. Prescription drugs play a crucial role in improving the lives
and health of many patients, and new research breakthroughs in the
coming years are likely to bring even greater improvements. As older
Americans become an ever-increasing percentage of the overall United
States population, the need for more outpatient medicines, including
maintenance drugs for this sector of the population, is growing
rapidly. There is continuing emphasis on new pharmaceuticals to treat
diseases typically associated with aging. Over 600 new medicines to
treat or prevent heart disease, stroke, cancer, and other debilitating
diseases are currently under development. Medicines that already are
available have played a central role in helping to cut death rates for
chronic and acute conditions, allowing patients to lead longer,
healthier lives. For example, over the past three decades, the death
rate from atherosclerosis has declined 74 percent and deaths from
ischemic heart disease have declined 62 percent, both due to the advent
of beta blockers and ACE inhibitors. During this same period, death
rates resulting from emphysema dropped 57 percent due to new treatments
involving anti-inflammatories and bronchodilators.
These advances have not come without a price. Rapid cost increases
for prescription drugs are a major concern of our nation's seniors. We
are using more drugs, and the average price for the drugs are rising.
As a result, prescription drug spending has outpaced all other major
categories of health spending over the past few years. For example,
while hospital and physician services expenditures increased between 3
percent and 5 percent annually from 1995 through 1999, the Academy of
Actuaries' Medigap Report showed Medigap claim costs growing at 11
percent annually (twice the rise in Medicare expenses) for the plans
without drug coverage. The Academy also reported an increase of 16.5
percent per year for a plan in one state that included extensive
coverage of drugs and more frequent guarantee issue options.
A study completed in 2000 for HIAA and the Blue Cross and Blue
Shield Association by the University of Maryland's School of Pharmacy
found that drug spending will increase at an even faster pace than the
government had been predicting. The University of Maryland researchers
project that the nation's expenditures for prescription drugs will
increase at a rate of 15-18 percent per year over the next five years,
more than doubling annual drug spending from $105 billion in 1999 to
$212 billion by 2004. According to the lead author of the study, Dr. C.
Daniel Mullins, 60 percent of those expenditures will be caused by
increases in the price and use of drugs already on the market today,
while 40 percent will be attributable to the cost of drugs still under
development--so-called ``pipeline'' pharmaceuticals.
These statistics all demonstrate the increasing proportion of
seniors' overall medical costs, which are for outpatient prescription
drugs. Probably as a result of this fact, roughly two out of every
three seniors have some type of insurance coverage for
pharmaceuticals--either through employer-sponsored retiree health
plans, private Medicare+Choice plans, Medicaid or, in limited
instances, individual Medigap policies. Yet, HIAA recognizes the
concerns for those without any coverage, as well as those in fear of
losing the coverage they currently have.
Whatever path Congress chooses to follow to bring expanded drug
coverage to Medicare beneficiaries, it is vitally important not to
jeopardize the supplemental coverage that seniors now have, whether or
not it includes coverage for drugs. Seniors rely heavily on their
supplemental plans since Medicare now pays just 50 percent of their
medical costs. As already noted, seniors are highly satisfied with
their supplemental coverage and value the range of choices now
available to them in supplemental plans.
DETAILS OF THE CURRENT MEDIGAP MARKET AND ISSUES WITH EXPANDING DRUG
COVERAGE
The existing Medigap market provides 10 standardized plans, three
of which include some prescription drug coverage (plans H, I, and J). A
``high deductible'' option is also available with two plans (plans F
and J), but has not proved popular with seniors. Except for the high
deductible addition, these plans have not been changed since developed
immediately following OBRA'90. The attached chart showing the benefits
provided by the various Medigap standard plans is very familiar.
The Medigap market also includes the Medicare SELECT option that
allows the insurer to provide benefits through a network of health care
providers who agree to provide care at discounted rates in return for a
higher volume of patients. Certain Medigap benefits are not paid for
out-of-network care. Medicare SELECT has grown steadily since the
program was first authorized and is now allowed in all states.
There are now a number of open enrollment opportunities for
Medicare beneficiaries to purchase new or replace existing coverage
with a Medigap plan. OBRA ``90 established a six-month open enrollment
period for Medigap coverage beginning when a beneficiary is age 65 or
older and enrolls in Part B. A beneficiary applying for a Medigap plan
during this period may not be denied coverage and cannot be charged a
higher premium because of poor health. All Medigap plans, including
those with prescription drug coverage, are available during this open
enrollment period.
From 1991 through 1997, there was a small amount of expansion in
open enrollment under laws enacted in a few states. Since then, federal
legislation (BBA, BBRA and BIPA) has expanded the open enrollment
opportunities and states have frequently gone beyond the federal open
enrollment standards.
ISSUES WITH EXPANDING MEDIGAP DRUG COVERAGE
HIAA believes that Medigap is not a good starting point for
legislative proposals to expand drug coverage for seniors. In addition
to a host of other problems with this approach, which are discussed
below, several studies show that adding a drug benefit to Medigap plans
that currently do not include such coverage would increase premiums
dramatically. Seniors who today have chosen to purchase Medigap
policies that do not provide a drug benefit would be forced to pay an
additional $600 or more a year (assuming a $250 deductible for expanded
drug benefits), according to HIAA estimates.
Revising the existing Medigap market to include expanded coverage
of prescription drugs would need to address three key participants in
the market--Insurance Regulators, Medicare Beneficiaries and Medigap
Writers.
Regulators--The National Association of Insurance Commissioners
(NAIC) would likely have to develop standards for new Medigap plans.
State regulators would have to approve new policy forms before they
could be sold, as well as scrutinize their initial rates and any
proposed rate increases. Even relatively straightforward product
changes based on proven design formulas can take several years to
progress from the design stage through the regulatory approval process
and, finally, to market.
The requirement that Medigap policies must be ``guaranteed
renewable'' (GR) would exacerbate problems with creating insurance that
reflects modern drug benefits. If the NAIC were to standardize a new
set of GR plans with greater drug coverage, as some have proposed, it
could impose unworkable limitations on the use of pharmacy benefit
managers (PBM) or formularies. Once coverage is issued, insurance
carriers would be prevented by contract from increasing co-payments and
deductibles as drug costs continue to skyrocket. Effective cost
management would be extremely difficult. On the other hand, allowing
needed flexibility, including PBMs and formularies, would destroy the
standardization of Medigap that Congress and the NAIC have worked so
hard to achieve during the past decade.
The states would also need to create a set of transition rules that
are fair to both beneficiaries and companies with existing policies and
that do not run afoul of the guaranteed renewability requirements for
Medigap policies. Establishing and administering such rules would be a
very difficult task.
Medicare Beneficiaries--Surveys show that there is considerable
recognition of the current plans among seniors. Thus, changes to the
standard plans are likely to create some confusion. In addition, open
enrollment opportunities for viable products with expanded drug
coverage would need to be limited to avoid severe adverse selection.
Finally, the level of initial premiums for Medigap plans and the size
of premium increases over time will both need to rise substantially if
there is expanded drug coverage. Even if proposed premium increases
were consistent with state law parameters, seniors and state regulators
would be likely to resist approving the magnitude of increases it will
take to sustain an insurance policy as drug prices grow rapidly.
Medigap Writers--Insurance carriers attempting to offer Medigap
plans with expanded drug coverage for seniors would have to address
difficult business decisions and cost issues:
costs of development, marketing and administration of the new
plans;
costs of new processes for drug benefits (e.g. PBM interface
and formularies);
increasing and volatile cost of drugs to be reimbursed;
reflecting the value of any government subsidy to some or all
seniors for their drug coverage; and
estimating the impact of adverse selection.
Premiums for the new Medigap form would have to reflect these
costs. However, one substantial barrier is that the expense margin
limitations insurance carriers must meet under OBRA ``90 (which are a
function of the dollars paid to Medigap insured) are too small to
support the expected administrative costs of expanded drug coverage.
Finally, premium increases for Medigap plans would become even larger,
generating further adverse selection with the potential that the
product may not remain viable.
In our view, the combined weight of these problems would doom any
attempt to focus on private Medigap plans as a principle source of
expanded drug coverage to seniors.
PRIVATE INSURANCE OPTIONS WITH DRUG BENEFITS
As already noted, a significant number of Medicare beneficiaries
already have insurance for their prescription drug expenses from the
private market. In addition, Medicaid as a public option provides
insurance for many low-income beneficiaries.
The vast majority of the private options rest on four
characteristics to maintain a viable insurance product:
1. The full cost of the drug program is not expected to be paid by the
individual.
2. The drug benefits are part of comprehensive, coordinated care
management so that the risk taker for the full set of benefits
will receive any offset from lower required use of other
medical services.
3. The drug benefit is managed and, if necessary, modified to control
growing costs, by utilizing formularies, generic substitution,
and other cost saving opportunities, consistent with good
medical care.
4. The option is structured to avoid adverse selection by giving
beneficiaries strong incentives to maintain coverage even when
their expected drug costs are low.
Employer-based coverage is the primary source of existing drug
coverage for seniors. Most employer-sponsored plans incorporate the
``viability'' factors listed above or are rapidly moving to incorporate
them. Yet, even these plans are finding the private option increasingly
expensive. Recent surveys indicate that employers are contemplating
several changes for their retiree health care plans over the next
several years, including increasing premiums and cost-sharing (81
percent of respondents to a 1999 Hewitt Associates survey sponsored by
the Kaiser Family Foundation) and cutting back on prescription drug
coverage (40 percent).
Medicare+Choice plans, the second most utilized option for
prescription drug coverage, have used the savings they have achieved
through efficient total care management to offer drug benefits.
Unrealistically low increases in government payments to Medicare+Choice
plans, however, are having the effect of reducing drug coverage for
many seniors enrolled in these plans and threatening the very
continuation of the Medicare+Choice program.
Medigap plans H, I, and J (which cover drugs) are subject to
underwriting, except during open enrollment. The ability to underwrite
these plans is the only one of the four ``viability'' factors currently
available to insurers offering these plans. Even so, studies have shown
that these plans experience higher use of part A and B services. As a
result, costs of non-drug Medigap benefits for plans H, I, and J are
higher than the same benefits within Medigap plans A through G. These
are major reasons why the cost of plans H, I, and J is often
prohibitive.
There is a growing use of ``drug discount cards.'' These non-
insurance programs provide access to discounted drug prices. However,
drug discount card programs do not spread the cost of prescription
drugs as with insurance products. Instead, these cards provide seniors
with significant discounts to retail prices at designated pharmacies.
The vast majority of Medigap writers offer such opportunities where not
restricted by state regulation. Some of these drug discount cards are
now being advertised on television, reflecting their growing
attractiveness to seniors as a viable alternative to the increasingly
expensive insurance options for drug coverage.
MODELING A PRESCRIPTION DRUG BENEFIT FOR SENIORS
Insurance products rest on actuarial models to estimate the future
benefits, costs, and revenues necessary to support the product.
Modeling coverage of prescription drug benefits involves:
projecting costs for different subgroups of the insurable
population (minus the portion to be paid by the insured);
adjusting these base year costs for periodic cost increases
(trend) and shifting patterns of care;
approximating government provided payments, if any;
reflecting the expected willingness of these various subgroups
of the population to purchase the coverage; and
allowing for the chance that new, higher premiums will cause
healthier Medicare beneficiaries to discontinue their coverage.
Costs for drug coverage for seniors, prior to any of the other
adjustments, are projected to rise by 15 percent each year. A table in
another Academy of Actuaries report, Medicare Reform: Providing
Prescription Drug Coverage for Medicare Beneficiaries, shows the effect
of various cost-sharing provisions on this base rate of increase. The
table (Table 3 is attached) demonstrates that premium rates for
universal coverage would need to increase more than 15 percent to keep
pace with rising drug costs. For example, the impact of a deductible
increases insurance costs at a faster rate than the cost of the
underlying benefits (e.g. a $500 deductible would require an 18.8%
increase to offset the effects of ``deductible leveraging'' when all
costs increase by 15%).
If the ``benefit maximum'' were changed to an ``out-of-pocket
maximum'' to include stop-loss or catastrophic coverage (part of many
of the proposals from last year), this feature, along with the others,
could generate premium increases of 25 to 30 percent per year for the
first few years. Products that contractually cannot adjust benefits
(e.g. Medigap) can only increase premiums. Rate increases of this
magnitude would create additional problems.
Volatility in pharmaceutical cost trends also makes private drug
coverage difficult to price. While there has been relative stability in
the rate of increase of hospital and physician costs during the past
two decades, pharmaceutical costs have been more difficult to predict.
In March 1999, for example, HCFA estimated that prescription drug
expenditures would reach $171 billion by 2007. Just six months later in
September, HCFA was forced to revise these projections and the new
prediction was that prescription drug spending will reach $223 billion
by 2007, which is a 30 percent increase over the previous estimate.
Several legislative proposals in the past have included some
government contribution to eliminate the ``individual pay-all''
problems when using voluntary programs. It was often stated that this
subsidy would result in almost universal acceptance of any offer to
provide coverage. However, many actuaries do not believe 25 percent or
even 50 percent subsidies are sufficient to achieve 70 percent
acceptance, much less universal acceptance. These actuaries point to
the increasing unwillingness by some employees to pay the required
employee contribution for employer-sponsored coverage as evidence.
In addition, the ability of government contributions to maintain a
consistent share of the costs of a private option over 20 years is hard
to imagine. Errors in cost assumptions, changes in patterns of
including drugs in comprehensive medical care, and other budgetary
dictates could reduce the level of subsidy. The insurers' obligations
to Medicare beneficiaries are not likely to be reduced simply because
of a shortfall in the percentage of costs contributed by the
government.
Appropriate oversight of the use of PBMs and/or formularies will
likely be a part of any successful legislation that includes a
government subsidy for prescription drug coverage. Actuaries will look
to existing examples of this oversight to estimate its likely effect
and cost to be included in the price of the new coverage. The two
representative examples are the oversight of employer-plans and
Medicare+Choice Organizations. Medicare+Choice Organizations are
subject to more restrictive controls, so there is a higher level of
administrative cost to meet the control requirements. The employer-
based market has lowed costs and flexibility to quickly adjust to
changing circumstances.
The most difficult factor to model, however, will be ``adverse
selection.'' Adverse selection, which tends to drive up premiums,
occurs because those who expect to receive the most in benefits from
the policy will purchase it immediately, while those who expect to have
few claims will forego purchasing it. When people with low drug costs
choose not to enroll in coverage while those with high costs do enroll,
insurance carriers are forced to charge higher premiums to all
policyholders. The more opportunities there are for enrollment, the
greater the risk of adverse selection.
Adverse selection is and will be a very real problem for private
insurers, particularly those selling coverage on an individual basis.
Using cost estimates for the year 2000, one-third of seniors (even if
all had coverage for outpatient prescription drugs) would have drug
costs under $250 per year, with the average cost estimated at $68
annually. These seniors are unlikely to purchase any type of private
drug coverage without almost a complete subsidy of the cost, given that
the premium for such coverage would be at least 10 times higher than
their average annual drug costs. Of the two-thirds who might buy the
coverage, many would be doing little more than dollar trading without a
significant subsidy. Some may actually end up much worse off: a person
with $500 of drug expenses could have premium, deductible, and
coinsurance costs of about $1,000 or twice the actual costs of drugs.
Consequently, many relatively healthy seniors are not likely to
purchase the product, resulting in further premium increases for those
that do.
Employer plans control this type of adverse selection by limiting
eligibility to employees and spouses at the time they retire. In
addition, beneficiaries with coverage must maintain the coverage
continuously, even in years when their expected use of the insurance
coverage is low. Re-enrollment is not permitted.
Medicare+Choice Organizations cannot directly control adverse
selection due to the annual open enrollment requirement. This has
caused Medicare+Choice Organizations to be very concerned that rich
drug benefits would lead to disproportional enrollment of those with
high drug costs. Offsetting this risk to some extent has been the
ability of Medicare+Choice Organizations to manage the entire medical
and pharmacological risk. But the manner in which the Health Care
Financing Administration is implementing risk adjustment sharply
reduces the value of this offset since there is no risk adjustment
factor attributed to drug benefits.
As previously noted, Medigap has seen considerable expansion of
open enrollment opportunities. Actuarial models would likely anticipate
a similar expansion for drug coverage even if the legislation only
provided a single eligibility period initially.
The expansion of Medigap open enrollment opportunities is generally
felt to be one of the causes of above average increases in Medigap
costs since 1996. The American Academy of Actuaries Medigap Report to
the NAIC noted:
``While it is too early to evaluate the quantitative effects of
the 1997 Balanced Budget Act requirements for the guaranteed
issue of certain Medicare Supplement plans to individuals who
lose Medicare+Choice health coverage, this requirement may
provide opportunities for anti-selection. The level of anti-
selection will be affected by individuals' health status, by
whether Medicare+Choice alternatives exist, and the ease [for
beneficiaries] to move in and out of plans (e.g. in
Massachusetts, there are virtually no limits on individuals
moving in and out of plans).
In the other Academy report on prescription drug coverage, they
address this issue as well:
``Seniors (many of whom are on drug therapies for chronic
medical conditions) can more easily predict the level of their
out-of-pocket drug costs than is the case with their other
health costs. They also frequently know the specific drugs they
will need. Accordingly, adverse selection presents a greater
technical obstacle for programs with voluntary elements; for
example, when there are different choices in the levels of
coverage (e.g., different deductibles or annual maximums) or in
the particular drugs covered (e.g. formularies). Similarly, the
overall level of both prescription and other expenditure
required by beneficiaries who use a specific drug is more
predictable than the case with other acute health care
services''
Illustrating the concern, Table 2 (attached) from this last report
shows that seniors with at least an average of three prescriptions per
month make up 40 percent of seniors. Their costs are over 3.5 times the
average costs of the other 60 percent. In addition, the table notes
that these more frequent users, reflecting greater incidence of
maintenance drugs, have a lower rate of using generic drugs.
Adverse selection is considered within actuarial models when
coverage must be offered in open enrollment situations. It is also
considered when insurers must increase premiums by 20-30 percent each
year to cover rising costs. Policyholders will compare the higher
premiums to their current and expected costs. Those who expect to
receive relatively little in benefits (generally due to low actual use
of drugs in the prior year) are much more likely to lapse their
existing coverage (citing unaffordability as their reason) than those
who recognize that their insured drug costs have been more than the
premiums they have been paying.
Drug discount card programs are not likely to suffer from adverse
selection because, unlike insurance programs, there is no spreading of
costs. At present, they have no method to provide any subsidy beyond
the discounts provided by the pharmacies in their network.
CONCLUSION
There is no question that seniors, especially seniors with low
incomes, need help with the cost of the prescription drugs vital to
their health. However, the likely effects of any new policy proposal
must be carefully examined to ensure that unintended consequences do
not erode the private coverage options that beneficiaries rely on today
to meet their health care needs. Actuarial models have significant
value in projecting the implications of proposals on the premium costs
for various groupings of likely insureds. More important, these models
also address the impact of potential ongoing changes--legislative,
economic and insurance related.
HIAA shares the concerns of many public voices today calling for
measures to help seniors better afford prescription drugs. HIAA
developed a proposal in 2000 which, we still believe, represents an
immediate and workable step that will provide meaningful relief for
seniors before addressing needed changes in the underlying Medicare
program.
HIAA is extremely concerned with proposals that would require
Medicare supplement insurance or Medicare+Choice plans to cover the
costs of outpatient prescription drugs without the addition of
prescription drug coverage as a Medicare covered benefit. Mandating all
Medigap policies to include a drug benefit would not be popular with
seniors--who would experience diminished choice of policies, higher
prices, and in some cases, loss of coverage.
HIAA stands ready to work with the members of this Subcommittee,
and all in Congress and the Administration, to ensure that all seniors
to have access to affordable prescription drugs.
Attachment A
Benefits Covered By Standard Medigap Plans
----------------------------------------------------------------------------------------------------------------
Standard Medigap Plans
Covered Benefits ---------------------------------------------------------------------
A B C D E F** G H I J**
----------------------------------------------------------------------------------------------------------------
Core Benefits*............................ P P P P P P P P P P
Part A Deductible......................... ..... P P P P P P P P P
SNF Coinsurance........................... ..... ..... P P P P P P P P
Foreign Travel Emergency.................. ..... ..... P P P P P P P P
At-Home Recovery.......................... ..... ..... ..... P ..... ..... P ..... ..... P
Part B Deductible......................... ..... ..... P ..... ..... P ..... ..... ..... P
Part B Excess Charges..................... ..... ..... ..... ..... ..... P \1\ ..... P P
Prescription Drugs........................ ..... ..... ..... ..... ..... ..... ..... \2\ \2\ \3\
Preventive Medical Care................... ..... ..... ..... ..... P ..... ..... ..... ..... P
----------------------------------------------------------------------------------------------------------------
* Core benefits include Part A co-payment for days 61-90 in the hospital, Part A co-payment for each lifetime
reserve day in the hospital, up to 365 additional days of hospital coverage after Medicare coverage is
depleted, the first three pints of blood used under Part A or Part B, and the 20-percent coinsurance for Part
B services after the Part B deductible has been met.
** Plans F and J also have a high deductible option. The high deductible, which is adjusted for inflation, is
$1,530 in 2000.
\1\ Medigap policy pays 80 percent of balance billing charges.
\2\ After $250 deductible, policy covers 50 percent of prescription drug costs to a maximum of $1,250.
\3\ After $250 deductible, policy covers 50 percent of prescription drug costs to a maximum of $3,000.
Table 2--Distribution of Prescription Expenditures for Seniors
----------------------------------------------------------------------------------------------------------------
Percent of Relative to Population Generic Drugs
--------------------------- Average -----------------
Scripts per Year ------------------------ % of % of
Members Scripts Costs Scripts Cost Scripts Cost
----------------------------------------------------------------------------------------------------------------
0 to 12.................................... 21.9 4.4 2.1 0.20 0.10 69 41
12 to 24................................... 20.0 11.0 7.1 0.55 0.36 58 30
24 to 36................................... 18.2 16.2 12.6 0.89 0.69 54 27
36 to 54................................... 20.3 26.4 24.5 1.30 1.21 50 24
54 or more................................. 19.5 42.0 53.6 2.15 2.74 47 21
----------------------------------------------------------------------------------------------------------------
Source: Data provided by a national Medicare+Choice Health Plan
Table 3--Annual Rates of Increases in Prescription Drug Insurance Plan
Costs Per Capita Assuming 15 Percent Per Year Increases in the Cost of
Drugs
------------------------------------------------------------------------
Annual Rate of Increases
-------------------------
Cost Sharing Feature Through CY Through CY
2005 2020
------------------------------------------------------------------------
A. Fixed Dollar Amounts
Co-payments ($10 Generic/$20 Brand)........... 18.5% 15.5%
50% Coinsurance with annual deductibles of:
$100........................................ 15.7% 15.0%
$500........................................ 18.8% 15.4%
$2,000...................................... 29.2% 16.9%
50% Coinsurance with benefit maximums of:
$2,500...................................... 10.9% 2.4%
$5,000...................................... 13.6% 4.3%
B. Amounts Adjusted for 2.5% annual increases
in CPI
Co-payments ($10 Generic/$20 Brand)........... 17.9% 15.6%
50% Coinsurance with annual deductibles of:
$100........................................ 15.6% 15.0%
$500........................................ 18.2% 15.5%
$2,000...................................... 27.1% 17.3%
50% Coinsurance with benefit maximums of:
$2,500...................................... 11.9% 5.4%
$5,000...................................... 14.0% 7.6%
------------------------------------------------------------------------
Note: Trend in per capita spending assumed to be 15 percent per year.
Per capita expenditures trend comprised of prices (3 percent), mix of
drugs (8 percent) and volume (3.5%).
Mr. Bilirakis. That is a good way to finish.
Ms. Buckley to tell us about Nevada.
STATEMENT OF BARBARA E. BUCKLEY
Ms. Buckley. Thank you, Mr. Chairman, members of the
committee. For the record, my name is Barbara Buckley. I am
serving my fourth term as the assembly representative for
district 8 in Clark County, Nevada, which is Las Vegas. I also
serve as the majority leader for the Nevada Assembly. I have
served on the commerce and labor committee for four terms, and
on the health and human services committee for three terms.
In my tenure in the Nevada Legislature, I have worked
extensively on health care issues, sponsoring our Nevada
patients' bill of rights in 1997 and expanding our work by
creating an cabinet level ombudsman for patients in 1999.
In 1999, I was also part of the assembly leadership team
that fought to ensure our tobacco dollars were earmarked for
health care, senior programs, and programs to prevent tobacco
use in our State. I am proud to say that those efforts were
successful, and as a result, 60 percent of our funds were
earmarked for these purposes.
Like most legislation enacted in Nevada and indeed
everywhere, our tobacco legislation was a result of compromise
between both parties with divergent opinions on how best to
achieve our goals. We were committed to securing a portion of
the funds to promote independent living programs for seniors as
well as establishing a prescription drug plan.
When our Governor asked that we try an insurance-based
prescription drug plan for seniors, many of us were skeptical
about whether such a plan could work, but agreed to try the
plan to ensure that all of our goals for our tobacco
legislation were met. And so with the unanimous support of the
1999 Nevada Legislature, we began our experiment with an
insurance-based senior prescription drug plan.
The statute sets forth the details of our plan. A senior is
eligible for a subsidy from our tobacco funds based on their
income level. Generally from zero to $12,000, they are eligible
for a 90 percent subsidy. It goes up to $21,500, and at that
income level a senior is eligible for 10 percent subsidy. The
maximum amount of subsidy that could be awarded to a senior is
capped at $480 per year. $4.2 million was set aside to begin
our program. It was estimated that 10,000 seniors could be
served.
Implementation of our program was left to the Department of
Human Resources. They issued a request for proposal to hundreds
of insurance companies. Only one unlicensed insurance company
bid. The RFP was reworked, relet. At that time six insurance
companies bid, and one was selected.
The successful bid resulted in our senior RX program. As
you can see from the testimony and the handouts, there are two
programs contained in this, a blue and a silver program. The
premium for a blue program is approximately $75 a month or $900
a year. There is a $100 calendar year deductible. A managed
formulary is utilized. Generic drugs cost $10; preferred drugs
cost $35 or 50 percent of the cost of the drug, whichever is
greater. Nonpreferred drugs are not covered, and there is a
$5,000 maximum annual plan benefit.
There is also a silver program which costs approximately
$99 a month. Generic drugs are $10; preferred brands are $25;
nonpreferred brands are $40 or 40 percent of the cost of the
drug. There is also a $5,000 cap on that program as well.
As of January 26, 2001, 1,400 applications have been
received, and 124 seniors were enrolled. I learned from our
Governor yesterday we have had 65 people enroll. Almost 700
people are eligible for the subsidies, but have not yet chosen
to sign up for the benefits or pay their share of the premiums.
Reviews of the program are decidedly mixed. I am pleased
that the Nevada Legislature and the Governor felt that
establishing a drug program was important for our State. I am
also pleased that our State chose to go forward instead of
waiting for Congress to act. No offense meant.
The program, though, has a number of shortcomings. First,
the program only covers 10- to 12,000 seniors who earn less
than $21,000. That means there are over 100,000 additional
seniors earning below 21,000 who are unable to take advantage
of our program due to funding limitations. Seniors who earn
21,000 or more are not eligible at all. These excluded seniors
should not have to choose between paying their power bill and
affording prescription drugs, a very real choice today.
For those that are offered coverage, the insurance model
does not result in an affordable prescription drug model for
many. I have attached charts showing sample seniors. In one, a
senior must pay $35 a month in premiums and still $327 in
copays. If her income is $12,000 a year, she is still spending
34 percent of her income for drugs.
It is also difficult for seniors to figure out how the
program works, and it also excludes all Medicaid beneficiaries
who are not seniors. In March of 2001, the Nevada Legislature
is going to begin hearings on a number of different
alternatives that other States are considering, and I have
outlined those in my testimony, and I am sure you are very
familiar with them. I know this committee has been studying
this issue for some time and has great expertise.
In conclusion, I will offer a couple of observations from
my vantage point some 3,000 miles away. A private insurance
plan is not successful in helping our seniors if it is
unaffordable. At this point, for many, our plan is
unaffordable. And even if we had the lowest-cost plan in the
Nation, we would only cover 10,000 people when hundreds of
thousands need help.
I believe we need to add a prescription drug benefit to
Medicare so that everyone in need can be helped. Our State
resources are strapped in implementing new programs. A uniform
program passed by this Congress that would apply to all seniors
would be most effective in helping our Nevada seniors in need.
My experience with this insurance-based approach is that
its elements are often confusing for seniors, and if the
insurance companies find that they cannot make money, they
withdraw from the market, again leaving our seniors without
help.
Thank you.
[The prepared statement of Barbara E. Buckley follows:]
Prepared Statement of Barbara E. Buckley, Assemblywoman, State of
Nevada
Mr. Chairman, members of the Committee, for the record my name is
Barbara E. Buckley. I am serving my fourth term as the Assembly
representative for District 8 in Clark County, Nevada. I also serve as
the Majority Leader for the Nevada Assembly. I have served on the
Commerce and Labor Committee for all four terms and served on the
Health & Human Services Committee for the previous three terms.
In my tenure in the Nevada Legislature, I have worked extensively
on health care issues, sponsoring the Nevada Patient's Bill of Rights
in 1997 and expanding on our work by creating a cabinet level position
of Ombudsman for Health Care Consumers in 1999.
In 1999, I was part of the Assembly leadership team that fought to
ensure our tobacco dollars were earmarked for health care, senior
programs, and programs to prevent tobacco use in our state. I am proud
to say that those efforts were successful and that Nevada dedicated 50%
of its tobacco dollars to these programs.
Like most legislation enacted in Nevada, and indeed all 50 states,
our tobacco legislation was the result of compromise between elected
officials of different parties with divergent opinions on how to
accomplish what is best. The Assembly leadership was committed to
securing a portion of the funds to promote independent living programs
for senior citizens as well as establishing a prescription drug plan.
When our governor asked that we try an insurance-based senior
prescription drug plan, many of us were skeptical about whether such a
plan could work but agreed to try the plan so as to ensure our other
goals in the legislation were met. And so, with the unanimous support
of the 1999 Nevada Legislature, we began our experiment with an
insurance-based senior prescription drug plan.
The statute sets forth basic details of the insurance-based
prescription drug plan. A senior would be eligible for a subsidy
depending on his or her income. The attached chart reflects the subsidy
available:
------------------------------------------------------------------------
Income Subsidy
------------------------------------------------------------------------
$0-$12,700.................................................... 90%
$12,700-14,800................................................ 80%
$14,800-17,000................................................ 50%
$17,000-19,100................................................ 25%
$19,100-21,500................................................ 10%
------------------------------------------------------------------------
The maximum amount of subsidy that could be awarded to an
individual was capped at $480.00 per year. $4.2 million was set aside
to begin the program; it was estimated that approximately 10,000
seniors could be assisted.
Implementation of the program was left to the Nevada Department of
Human Resources. The department decided to initiate a request for
proposals to all insurers for participation in the Senior RX program.
They decided at the outset to set few, if any, parameters on program
design. For example, it did not require compliance with any sort of
affordability design for co-payments or deductibles; it did not require
adherence to any sort of appeal process if the insurer were to use a
formulary. The administration wanted to ensure that it received as many
bids as possible and left program design to the insurance companies.
In March of 2000, Nevada released its first request for proposals.
The results were disappointing; only one insurance company applied and
it was not licensed in the State of Nevada. The request for proposals
was redesigned and re-released. Five companies submitted a bid and in
the fall of 2000, Fidelity Security Life Insurance Company was
selected.
The successful bid resulted in the Senior Rx Program. Attached to
my testimony is its outline. As you can see, there are two programs--a
blue and a silver.
The premium for blue program costs $74.76 a month or $897.12 a
year. There is a $100 calendar year deductible. A managed formulary is
utilized. Generic drugs cost $10.00; preferred drugs cost $35 or 50% of
the cost of the drug, whichever is greater. Non-preferred drugs are not
covered. The maximum annual plan benefit is $5,000.
The premium for the silver plan's premium is $98.31 a month or
$4,179.72 a year. Generic drugs are $10.00; preferred brands are $25.
Non-preferred brands are $40 or 40% of the cost of the drug, whichever
is greater. The maximum annual plan benefit is also $5,000.
As of January 26, 2001, 1,457 applications for the program have
been received; 124 are enrolled. Almost 700 people are eligible for the
subsidies, but they have not yet chosen to sign up for the benefits or
pay their share of the premiums. They have 60 days to do so.
Reviews of the program are decidedly mixed. I am pleased that the
Nevada Legislature and the Governor felt that establishing a
prescription drug program is a high priority for our state. I am
pleased that our State chose to go forward instead of waiting for
Congress to act. However, our program has many serious shortcomings.
First, the program only covers 10,000-12,000 seniors who earn less
than $21,500. That means there are over 100,000 additional seniors
earning below $21,500 who are unable to take advantage of the program
due to funding limitations. Seniors who earn $21,501 and higher are not
eligible at all. These excluded seniors should not have to choose
between paying their power bill and affording prescription drugs--a
very real choice right now.
For the few that are offered coverage, the insurance model approach
does not result in an affordable prescription drug model for many. For
example, if Mary Smith earns $12,000, and needs two generic drugs, one
preferred drug, and one non-preferred drug, (NAME THEM) and selects the
Blue plan, she must pay the following:
$417.12 a year on premiums
$100 annual deductible
______________________CO-pays
As you can see, the program penalizes Medicare beneficiaries who
need brand name drugs by charging unaffordable co-payments, even though
there may not be generic drugs that are medically appropriate for them.
On the other end of the user extreme, if John Doe uses __________,
__________, and __________, and he earns ______ a year, he will be
required to pay ______ in premiums, a $100 deductible and ______ in co-
payments. Purchasing the drugs without any insurance would cost only
__________. (CONTRAST WITH SENIOR USING JUST ONE OR TWO GENERICS)
The prescription drug program also excludes Medicare beneficiaries
with disabilities. These beneficiaries are likely to be poorer, sicker,
and have less access to alternative sources of payment for drugs such
as Medigap or Medicare HMOs.
In March, 2001, the Nevada Legislature will begin hearings on
prescription drug issues. I believe that the Governor and the
Legislature is committed to making whatever changes are necessary to
improve our program for our seniors. The Task Force for the Fund for a
Healthy Nevada, chaired by myself and Assemblywoman Vivian Freeman,
requested bill drafts which will be considered at that time.
One bill will create a state-administered prescription drug plan
similar to those run by 26 other states with more affordable co-
payments. Another makes improvements to the existing insurance based
program, such as the right of a senior to pay the lower price when a
generic drug is not recommended by the their physician and the right to
appeal a denial of a certain drug.
On a broader level, we will also hear testimony on the price of
prescription drugs and approaches other states have taken in examining
these price increases. We will no doubt hear from individuals who go to
Mexico to purchase drugs cheaper than they are in the United States.
Finally, the Nevada Legislature will consider measures recently
adopted by other states--requiring pharmacies to honor Medicaid prices
for prescription drugs needed by individuals on Medicare (with a state
established dispensing fee) and the use of bulk purchasing to lower the
price of drugs.
The Legislature will also examine a recent University of Boston
study by Alan Sager and Debbie Socolar entitled ``A Prescription Drug
Peace Treaty: Cutting Prices to Make Prescription Drugs Affordable For
All and to Protect Research: State by State Savings''. Sagar and
Socolar argue that the marginal cost of production for producing more
pills once they have been developed is only 5% of retail price. They
argue that Wall Street analysists concur that drug companies could make
up for price cuts by selling more medications and suggest that if drug
prices are set at the Federal Supply Schedule price, government could
subside all necessary drug costs for people who cannot afford the
discounted price. This study notes that there are 557,000 people in
Nevada without any drug coverage at all. This includes 75,000 seniors
without any drug coverage, 398,000 uninsured people, and 84,000
privately insured people with no drug coverage. Our State ranks 4th
highest among the states in the percentage of people without drug
coverage. This study indicated that Nevada could have saved $186
million dollars this year alone by purchasing drugs at the Federal
Supply Schedule utilized by the Veterans Administration. Hearings will
be held on this study in Nevada.
I know that this Committee has been studying these issues for some
time and has great expertise in this area. I would offer a few
observations from my vantage point three thousand miles away in Nevada.
A private-insurance plan is not successful in helping our seniors if it
is unaffordable. At this point in time, for many, our plan is
unaffordable. Even if we had the lowest cost plan in the nation, we
would cover only 10,000 people when 150,000 need help.
I believe we need a prescription drug benefit added to Medicare so
everyone in need can be helped efficiently and effectively. I believe
that block-granting to the states would be inefficient--it would
require 50 different administrations to struggle the way Nevada did
while seniors wait for help. It also taxes a state's already strapped
human resources.
For example, it has taken the Nevada Department of Human Resources
three years to increase the number of insured children in our Nevada
Check-Up program--the CHIP program--from 1,400 to 16,000. Nevada's
Medicaid waiver program for individuals with disabilities is still not
off the ground even though it was approved by the 1997 Legislature.
This is not because they do not want to help children or people with
disabilities--it is a resource issue. To add yet another program to be
implemented to the State's taxed resources is not efficient when the
Medicare program exists and could be improved. It would also allow us
to use our scarce state resources and help other programs in need. One
that immediately jumps to mind is the need to help those on fixed
incomes with assistance in paying their utility bills--our electric
bills alone will jump 60% by 2003 and gas rates have also climbed.
Thank you for the opportunity to share a few thoughts on Nevada's
experience and I would be happy to answer any questions.
Mr. Bilirakis. Thank you very much, Ms. Buckley, for
sharing with us the experience of Nevada in this area.
Mr. Smith.
STATEMENT OF JAMES F. SMITH
Mr. Smith. Mr. Chairman and members of the subcommittee, I
am Jim Smith, senior vice president of health care services of
CVS Pharmacy. As the largest pharmacy provider in the Nation,
CVS operates 4,126 community pharmacies in 27 States. CVS
operates 278 pharmacies in districts of this subcommittee's
members.
I am also here on behalf of the National Association of
Chain Drug Stores. NACDS represent about 170 chain pharmacy
companies that operate about 33,000 retail pharmacies all
across the United States. We very much appreciate this
opportunity to testify before the subcommittee today.
We believe that Congress should develop a pharmacy benefit
for seniors, not just a prescription drug benefit. Because
seniors take so many more prescription medications than younger
individuals, they need ready access to community pharmacy-based
education, counseling, and medication therapy management so
that they can take their medications appropriately to achieve
the intended medical outcomes.
Mr. Chairman, we especially applaud your leadership in
recognizing the essential nature of these services by including
a comprehensive medication therapy management benefit in your
legislation, H.R. 5151. It is absolutely critical that any
Medicare prescription drug benefit that Congress approves
includes coverage for these services.
About 69 percent of seniors have some form of prescription
drug coverage through a variety of sources. About 31 percent of
the seniors do not have any form of prescription coverage and
pay for their prescriptions out of pocket. What can pharmacies
do to help those seniors without coverage who pay for their
prescription drugs? First, our pharmacists work with patients
and their doctors to try to maximize the use of lower-cost
generics when they are available on the marketplace. The
savings for using generics are remarkable and unmistakable. At
CVS the average brand of prescription price is about $65, while
the average generic prescription price is about $15, difference
of 333 percent.
With billions in dollars in brand names drugs coming off
patents over the next few years, we believe it is critical that
any Medicare drug benefit includes incentives to encourage
greater generic use. We are concerned, however, about some of
the tactics being used by brand name companies that may delay
the availability of many of these lower-cost generics and thus
increase costs for all prescription drug users.
Second, many of our pharmacies already offer discounts to
seniors on prescription drug purchases. These discounts are
usually about 10 percent, but each pharmacy has its own policy
on discounting their prices for seniors. We are a fiercely
competitive industry as evidenced by our 2 percent net profit
margins. If you don't like the price at one pharmacy, you can
go to another. Many pharmacies will match their competitor's
prices. And, yes, retail pharmacy prices do vary from store to
store, reflecting differences in cost of doing business, loss
leaders, and other factors. The fact is, however, consumers can
and should shop around for prices.
We believe that two good principles for the committee to
keep in mind when developing senior drug benefits are, first,
don't overpromise to the seniors; and second, make sure that
you understand how all the pieces fit together in the pharmacy
marketplace.
Having said this, we are concerned about policy approaches
that would seek to control or target retail prescription prices
as the solution to the high cost of prescription drugs for
seniors. Here is why: Almost 80 percent of the cost of the
average retail prescription price represents the cost, the
pharmacy's cost, of acquiring the drug product from the
manufacturers, over which we have no control. The remaining 20
percent of the prescription price represents our operating
costs, such as heat, light, rent, salaries, computers,
counseling and overhead expenses. Currently our salary budgets
are experiencing significant upward pressure as a result of the
critical pharmacy shortage.
We look forward to working with you this year, Mr.
Chairman, on alleviating this shortage and ensuring that an
adequate supply of pharmacists exists to serve all Americans.
Given these facts, any initiatives that seek to control and
limit our retail charges do nothing to affect our cost of
buying the drugs. For example, these so-called cash discount
card programs essentially require pharmacies to provide a
discount on the retail prescription price without lowering the
cost of providing the product. In other words, the pain doesn't
flow upstream.
We also believe that these prescription cash discount cards
create unfulfilled promises for seniors. If a senior cannot
afford a drug at $100, it is very unlikely that this senior can
afford it at $90.
Second, some say you may be able to obtain better
prescription prices for the elderly by pooling their purchasing
power so they can get the same volume discounts obtained by
other pharmaceutical purchases. Be wary of this line of
argument. The pharmaceutical marketplace does not work that
way.
Let me give you a case in point. If volume purchasing drove
manufacturer discounts, then why do some of the largest
pharmaceutical purchasers, such as CVS, other large drug
chains, as well as many independent pharmacies that belong to a
large buying group, pay higher prices for brand name drugs than
smaller pharmaceutical purchasers who buy less volume?
Insurance plans and PBMs say that they can volume purchase and
get lower prescription prices for seniors. All this really
means is they require the pharmacy to give a discount to the
seniors without passing along to the seniors any of the
manufacturers' discounts, rebates or other financial incentives
being given to the plan.
We also believe that the subcommittee should take a good
hard look at the use of competitive-based premium support
models and pharmaceutical benefit managers, also known as PBMs,
in providing any new Medicare drug benefit. For example, how
did PBMs achieve most of their savings? In 1998, CBO said much
of the savings that PBMs achieve appear to come from the lower
drug prices paid to pharmacies rather than rebates offered by
drug manufacturers.
So then what works for seniors in terms of providing them a
meaningful pharmacy benefit? First let me say we support the
establishment of a meaningful voluntary pharmacy benefit
program for all seniors that need and want it. For the short
term we believe that the best course that Congress can take is
provide Federal funds to States to help low-income seniors
obtain this pharmacy benefit. Many States already have these
programs in place, like New York, Pennsylvania, New Jersey,
Illinois, and they work. Almost every State is now considering
enacting or developing some sort of prescription assistance
program for seniors. For that reason we believe that States are
in good position right now to help those most in need. For the
long term we believe that any new drug----
Mr. Bilirakis. Would you finish up, please, Mr. Smith.
Mr. Smith. I am summing up right now.
For the long term we believe that any new drug benefit for
seniors should promote the utilization of generic drugs,
provide seniors with access--with meaningful access to
community-based medication therapy management, give seniors
access to the community-based pharmacy provider of their
choice; not economically coerce seniors to using prescription
delivery mechanisms such as mail order, not include price
controls on retail pharmacy prices including cash discount
cards, and assure that the community pharmacies are adequately
compensated and providing services to meet the needs of our
seniors.
We look forward to working with you and the committee on
these issues. Thank you.
[The prepared statement of James F. Smith follows:]
Prepared Statement of James F. Smith, Senior Vice President, Health
Care Services, CVS Corporation
INTRODUCTION
Mr. Chairman and Members of the Subcommittee. I am Jim Smith,
Senior Vice President of Health Care Services of CVS Corporation. As
the largest pharmacy provider in the nation, CVS operates 4,126
community pharmacies in 27 states. In 2001, we will provide an
estimated 320 million prescriptions. CVS operates 278 pharmacies in
districts of this subcommittee's members.
I am also here on behalf of the National Association of Chain Drug
Stores (NACDS). NACDS represents about 170 chain pharmacy companies
that operate about 33,000 retail pharmacies all across the United
States. Chain pharmacy is the single largest segment of pharmacy
practice. We filled about 60 percent of the 3.1 billion prescriptions
provided across the nation last year. NACDS operates 2,112 stores in
the districts of this subcommittee's members.
We very much appreciate this opportunity to testify before the
subcommittee today. We believe that our experience in delivering and
managing pharmacy benefits can be of value to the subcommittee as you
begin your important work this year in determining what works, and
doesn't work, for seniors in helping them obtain their vital
prescription medication and pharmacy services.
DEVELOP A PHARMACY BENEFIT, NOT ONLY A ``DRUG'' BENEFIT
Today, when a patient arrives at their local community pharmacy, be
it a chain pharmacy or an independent, they come into contact with one
of the most accessible and trusted providers in the entire health care
system. It is estimated that 95 percent of Americans live within five
miles of a retail community pharmacy.
Thus, the vast majority of Americans are never far from a highly
trained health professional that can provide medications or advice on a
wide range of health care issues. Convenient access to community
pharmacies makes us a critical part of society's health care safety
net.
Prescription medications are the most widely used and cost-
effective health care interventions used by patients today. Modern
prescription drugs have extended and improved the lives of millions of
Americans and saved millions of dollars through shortened length of
illnesses, increased productivity, and reductions in hospitalization
and medical procedures. Community pharmacy is proud of the role we have
in assuring the safe and effective use of these therapies.
That is why we believe that any new program to expand prescription
drug coverage to seniors should be a pharmacy benefit, not just a
prescription drug benefit. Too often, we think of a prescription drug
benefit as only providing a ``drug product'' to seniors. We believe
that this is a serious mistake. Seniors take so many more prescription
medications than younger individuals. For that reason, seniors need
ready access to community-pharmacy-based education, counseling, and
medication therapy management, in addition to the drug product, so they
can take their medications appropriately to achieve the intended
medical outcomes.
We believe that insurers, payors, pharmaceutical manufacturers, and
seniors themselves can agree that these important community-based
pharmacy services help make better use of prescription products. To
play off a popular catch-phrase, ``pharmacy doesn't make the drugs, but
pharmacy does make the drugs work more effectively.''
We applaud forward thinking members of this House who supported
inclusion of medication therapy management services in various
prescription drug proposals introduced last year. Mr. Chairman, we
especially applaud your leadership for recognizing the essential nature
of these services by including a comprehensive medication management
benefit in your legislation, H.R.5151. It is absolutely critical that
any Medicare prescription drug benefit that Congress approves includes
coverage for these services.
EXISTING PRESCRIPTION COVERAGE SOURCES FOR SENIORS
Now let me turn to our perspectives on the various approaches being
used to provide prescription drug benefits to seniors, and what
pharmacies already do to help uninsured seniors obtain their
prescription medications. As the Committee knows, about 69 percent of
seniors have some form of prescription drug coverage through a variety
of sources.1
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\1\ Kaiser Family Foundation, ``The Medicare Program'', Issue
Brief, October 2000.
---------------------------------------------------------------------------
About 50 percent of seniors obtain their coverage through private
sector sources, such as employer-sponsored retiree plans, Medigap
plans, and Medicare managed care plans. The remaining seniors obtain
their prescription coverage from public-sector sources, predominantly
Medicaid and state-based pharmaceutical assistance programs.
About 31 percent of seniors do not have any form of prescription
coverage and pay for their prescriptions out of pocket. Clearly, we see
first hand that many seniors without prescription drug coverage, and
even those with it, struggle to pay their prescription drug bills.
What do pharmacies do to help these seniors obtain their
prescription drugs? First, our pharmacists work with patients and their
doctors to try to maximize the use of lower-cost generics when they are
available on the market. The savings from using generics are
unmistakable. At CVS, the average brand name prescription price is
about $65, while the average generic prescription price is about $15, a
difference of 333 percent.
Obviously, if a generic substitute is not available, we will try
and work with the doctor to see if the patient can, in fact, take a
generic version of another drug. With billions of dollars in brand name
drugs coming off patent over the next few years, we believe that it is
critical that any new Medicare drug benefit have both patient and
pharmacy incentives in order to encourage greater generic use. We are
concerned, however, about some of the tactics being used by brand name
companies that may delay the availability of many of these lower cost
generics, and thus raise costs for all prescription drug users.
Second, many of our pharmacies also offer discounts to senior
citizens on their prescription drug purchases. These discounts are
usually about 10 percent, but each pharmacy has its own policy on
discounting their prices for seniors. Consumers already reap the
benefits of the highly-competitive retail pharmacy marketplace. We are
a fiercely competitive industry, as evidenced by our 2 percent net
profit margins. If you don't like the price at one pharmacy, you can go
to another. Many pharmacies will match their competitors' prices. And
yes, retail pharmacy prices do vary store to store, reflecting
differences in cost of doing business, loss leaders, and other factors.
The fact is, however, consumers can and should shop around for prices.
Third, we can help the poorest seniors access the patient
assistance programs that pharmaceutical manufacturers have established.
Clearly, these programs provide a short-term benefit to some low income
seniors, but they are not an adequate solution or appropriate
substitute for meaningful, long-term prescription drug coverage.
DON'T OVER PROMISE SENIORS AND UNDERSTAND THE MARKET
Regardless of how seniors obtain for their prescription drugs,
whether through public or private prescription programs, or pay out of
pocket, community retail pharmacies are in a good position to help
evaluate for the Committee the effectiveness of various options for
prescription drug coverage. In other words, because we are at the point
of service where the ``rubber meets the road'', we can help determine
what works and what doesn't.
When considering approaches to prescription drug coverage, we
believe that two good principles for the Committee to keep in mind are:
first, don't over promise seniors; and second, please make sure that
you understand how all the pieces fit together in the pharmacy
marketplace.
For example, many of you often receive mail from constituents
asking the simple question: ``Why do my drugs costs so much?'' Well,
pharmacy economics 101 is not that difficult to understand.
Reimbursement for almost 85 to 90 percent of all our prescriptions is
set by third party plans, such as insurance companies, HMOs or PBMs.
Third party plans keep squeezing down reimbursement rates in order to
control exploding costs, but these policies do little to control
escalating expenditures. Under these plans, most patients simply pay a
copay for these prescriptions. Patient copays have been increasing over
the last few years also because of the escalating costs of prescription
benefit programs.
Having said this, we are concerned about policy approaches, both at
the Federal level and the state level, that would seek to target retail
prescription prices as the solution to the high cost of prescription
drugs for seniors. Here's why. The Committee should be aware that
almost 80 percent of the cost of the average retail prescription price
represents costs to the pharmacy over which we have absolutely no
control (See Attached). These are predominantly the cost of acquiring
the drug product from the manufacturer, which is passed through to the
consumer, and thus reflected in the retail price charged.
The remaining 20 percent of the prescription price represents our
operating costs, such as heat, light, rent, salaries, computers,
counseling, and other overhead expenses. Currently, our salary budgets
are experiencing significant upward pressures as a result of the
critical pharmacist shortage. We look forward to working with you this
year, Mr. Chairman, on alleviating this shortage and assuring an
adequate supply of pharmacists exists to serve all Americans, including
Medicare beneficiaries.
With this as background, let me now talk about some of our
perspectives and cautions on other approaches that you may consider
this year.
PRESCRIPTION DRUG ``CASH DISCOUNT CARDS'': UNFULFILLED PROMISE
We have no upward negotiating leverage with brand name drug
manufacturers, so any initiatives that seek to control or limit our
retail charges do nothing to affect our cost of buying the drug. For
example, these so-called ``cash discount'' card programs essentially
require pharmacies to provide a discount on the retail prescription
price, without lowering our cost of providing the product. In other
words, the pain doesn't flow upstream.
We also believe that these prescription cash discount cards create
unfulfilled promises for seniors. If a senior cannot afford a drug at
$100, it is very unlikely that the senior can afford it at $90. In
addition, as stated above, many of our pharmacies already give senior
citizen discounts, which reduce the retail price essentially to the
price that the senior would pay under the cash discount card. Finally,
many of these cash discount card programs also often use out-of-state
mail order as an incentive to steer patients to certain drugs that may
be inappropriate for the senior. Mail order also takes the senior out
of the neighborhood pharmacy setting.
On this topic, we'd like to draw your attention to a recent report
from the Massachusetts Institute of Technology that said, ``the
individuals who face the greatest burden lack insurance coverage for
prescription drugs are in relatively poor health with severe chronic
conditions, have relatively low income, and do not qualify for existing
state prescription drug coverage programs. These individuals need
benefits that far exceed the savings attainable from a pure discount
card program.'' 2
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\2\ Massachusetts Institute of Technology, The HOPE Plan and the
Section 271 Discount Drug Purchase Program for Massachusetts: An
Economic Analysis. December 21, 2000.
---------------------------------------------------------------------------
THE MYTH OF VOLUME PHARMACEUTICAL PURCHASING
Some may say that you can obtain better prescription prices for the
elderly by ``pooling their purchasing power'' so that they can get the
same volume discounts obtained by other pharmaceutical purchasers. What
I am here to tell you is be wary of this line of argument--the
pharmaceutical marketplace doesn't work that way. Volume purchasing
does not drive pharmaceutical manufacturers to give discounts--you have
to move a manufacturer's ``market share'' to obtain these discounts.
Let me give you a case in point. If ``volume purchasing'' drove
manufacturer discounts, then why do the largest pharmaceutical
purchasers, such as CVS and other large chain pharmacies, as well as
many of the independent pharmacies that belong to large buying groups,
pay higher prices for brand name drugs than smaller pharmaceutical
purchasers who buy less volume?
Here's what the proponents of ``volume purchasing'' for seniors
don't and won't tell you. All this really amounts to is simply
discounting the retail prescription price that seniors pay at their
pharmacy, without affecting our cost of buying the drug or without
requiring the insurance plan or PBM to ``pass through'' to the senior
any and all of the financial incentives that are given to them by the
manufacturer. If these plans were required to pass through all the
discounts that they negotiate, both pharmacy discounts and manufacturer
discounts, the senior would truly benefit from lower prescription drug
prices. Without these other ``pass throughs'', the entire burden of so-
called ``volume purchasing'' falls squarely and unfairly on the
shoulders of community pharmacies.
We also believe that some of the estimates being made of the size
of the discounts that volume pharmaceutical purchasing would attain for
seniors are unrealistic and will create serious unfulfilled promises.
For example, there were several numbers floating around last year that
indicated that private sector entities, or PBMs, would be able to lower
retail prescription prices paid by consumers by 25 percent, with some
estimates as high as 30 to 39 percent.3
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\3\ Price Discounting Practices for Pharmaceuticals in the U.S. The
Lewin Group, April 2000.
---------------------------------------------------------------------------
We do not know where these numbers come from or how they are
calculated. The only remotely conceivable way that this discount size
could be attained is if the PBM is required to pass along to the
consumer any and all financial incentives (e.g. rebates or discounts)
that they negotiate with pharmaceutical manufacturers. I am here to
tell you that this does not happen today in the marketplace and is
creating false and unrealistic expectations.
``DRUGS ONLY'' PLANS AND INSURANCE-BASED MODELS
We understand that there is support among Members for creating
``drugs only'' insurance-based models to provide prescription drug
coverage to seniors. Recent experience in Nevada should tell us that,
just because you ``build it'', doesn't mean that ``seniors will come.''
In a genuine effort to help seniors obtain prescription drugs, Nevada
embarked upon establishing an insurance-based model to provide
prescription drug coverage to seniors. After several attempts to
finally find a company that wanted to administer the program, reports
are that only a handful of seniors have signed up because of the high
premiums and cost sharing in the program.
We are concerned about a similar fate if such an approach is tried
at the Federal level. In general, these programs are subject to
significant ``risk selection'', and tend only to attract those seniors
that need protection against high prescription drug bills. Many seniors
will not see the benefit in obtaining this coverage because of the
significant deductibles and premiums that have to be paid before any
benefit is derived from the coverage. Thus, because the cost will keep
many seniors out of the ``risk pool'', premiums will keep increasing
for those remaining in the pool, making it less and less affordable for
those that need the coverage.
Moreover, the cost of these private-sector insurance plans can also
be prohibitive, as was reported last week in the New York Times. The
premiums for Medigap plans with prescription drug coverage, the model
on which these insurance-based programs are based, will increase 31
percent in New York, 26 percent in Illinois, 24 percent in Wisconsin,
16 percent in Arizona, and 14 percent in Ohio.4
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\4\ Insurers Push Rates Higher for Medicare Supplement. Milt
Freudenheim, New York Times, February 8, 2001.
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``PREMIUM SUPPORT'', CAPITATION AND PBMS
We also believe that the subcommittee should take a good, hard look
at the use of the competition-based ``premium support'' model and
pharmaceutical benefit managers, also known as PBMs, in providing any
new Medicare drug benefit. For example, how do PBMs achieve most of
their savings? By focusing on squeezing pharmacy reimbursement or
negotiating rebates and discounts from drug manufacturers?
The track record of PBMs in being able to manage pharmaceutical
costs was called into question by CBO in a 1998 study, which said:
``Much of the savings that PBMs achieve appear to come from the lower
prices paid to pharmacies rather than from the rebates offered by drug
manufacturers.'' 5 The study found that 50 percent to 70
percent of the drop in the plans' spending on prescription drugs
resulted from lower retail prescription prices. Only 2 to 21 percent of
the savings resulted from manufacturer rebates that the PBMs shared
with the health insurance plans.
---------------------------------------------------------------------------
\5\ Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry, July 1998, p 8.
---------------------------------------------------------------------------
This study reflected the experience of the three largest PBMs that
manage the 9-million member Federal Employees Health Benefits Program
(FEHBP). Members of Congress should be aware that this program, which
is being talked about as the basis for a future Medicare ``premium
support'' model, has been experiencing double-digit increases in
prescription drug expenditures over the last several years, 22 percent
for 1998 alone.
In announcing significant health premium increases for the 2000
FEHBP plan year, a significant percentage of which was to account for
escalating prescription drug costs, Office of Personnel Management
(OPM) Director Janice LaChance said that ``it is clear that competition
in the marketplace has not effectively slowed the growth in FEHBP
premiums.'' 6
---------------------------------------------------------------------------
\6\ U.S. Office of Personnel Management, ``Plan to Control Health
Premiums for Federal Employees and Retirees announced with Release of
Premium Increases for 2000. September 20, 1999.
---------------------------------------------------------------------------
We believe that the experience of FEHBP should be instructive to
Members of Congress as they consider the ``premium support'' model for
Medicare. Please note that these prescription drug cost increases are
occurring in a population that is not representative of the Medicare
population. FEHBP generally serves a younger population that uses fewer
prescription drugs than the Medicare population. More significant
increases are likely to occur in an older, Medicare-based population.
Moreover, some of the proposed ``premium support'' models would pay
a fixed, ``capitated'' rate to providers of the pharmacy benefit. Past
experiences is using capitation models for pharmacy benefits have been
unsuccessful. There is no reason to believe that they would be any more
successful today, given the impact that manufacturer direct-to-consumer
advertising has had on fostering increased prescription drug use. We
are concerned with this model and the impact that it would likely have
on the health of Medicare beneficiaries and on the economic viability
of community pharmacies.
SO . . . WHAT WORKS FOR SENIORS?
What works for seniors in terms of providing them a meaningful
pharmacy benefit? First, let me say that we support the establishment
of a meaningful, voluntary pharmacy benefit program for all seniors
that need and want it.
For the short term, we believe that the best course that Congress
can take is to provide Federal funds to states to help low income
seniors obtain this pharmacy benefit. We know that there are many mixed
feelings among Members of Congress about this approach. However, given
that almost every state is now considering enacting or developing some
form of prescription assistance program for seniors, we believe that
states are in a good position, right now, to help those most in need.
And data indicate that 60 percent of those seniors without
prescription drug coverage, or about 7.2 million seniors, have incomes
of less than 200 percent of poverty.7 We see many of these
seniors in our pharmacies every day, struggling to pay their
prescription bills. For them, they just want some help to get them
their medications.
---------------------------------------------------------------------------
\7\ Kaiser Family Foundation. ``The Medicare Program'' Issue Brief,
October 2000.
---------------------------------------------------------------------------
For the long term, we want to work with this Committee, the rest of
the Congress, and the Administration to achieve long term reform of the
Medicare program to provide the type of quality pharmacy benefit that
seniors need and deserve.
We believe that this benefit should:
promote the utilization of generic drugs when appropriate;
provide seniors with access to meaningful, community-based
medication therapy management services with appropriate
compensation for pharmacies;
give seniors access to the community-based pharmacy provider
of their choice;
not economically coerce seniors to use other prescription
delivery mechanisms, such as out-of-state mail order;
not include price controls on retail pharmacy prices,
including prescription cash discount card programs; and,
assure that community pharmacies are adequately compensated in
providing services to meet the needs of our nation's seniors.
We look forward to working with you and the Committee on these
issues, and that you for the opportunity to testify today.
Mr. Bilirakis. Thank you very much, Mr. Smith.
I will start the questioning. Mr. Smith, I will start with
you.
In your testimony you state that it is important for
Members of Congress to understand how all of the pieces fit
together in the pharmacy marketplace. God knows, that certainly
is true. And you have touched on that, but not in very much
detail. I wonder if you could help me understand the chain that
takes place as a prescription drug tablet journeys from the
manufacturing plant to the medicine chest of a senior citizen.
I appreciate the fact that you represent the chain drugstores,
but take into consideration in addition to the chain drugstore
the little family drugstore, which there aren't many left out
there. Could you do that for me?
Mr. Smith. Sure. There are many parts to this, but in
essence the delivery--the distribution system, is that what you
are interested in? It comes from the pharmaceutical----
Mr. Bilirakis. I am interested in the distribution system,
but also your opinion. And you touched on this in terms of the
costs of that particular tablet as it goes through the system.
Mr. Smith. I will give it to you from the chain
perspective. And today most independents form buying groups,
and they operate very similar to a chain, so I think you can
use that model for everyone.
Mr. Bilirakis. Do most----
Mr. Smith. Most independents, and as you said there are
fewer of them today, but they are actually stabilizing out
there and are much stronger today than they were in previous
years. So we do have a very strong community-based system out
there. But most of them buy by either of two mechanisms. They
buy directly from the manufacturers where that is permitted, or
they buy from a wholesaler.
Mr. Bilirakis. Who is that wholesaler?
Mr. Smith. Wholesaler could be somebody like Cardinal
Health or McKesson or somebody like that, and they will have
daily deliveries. The bulk of what we purchase in dollar volume
is usually purchased through a manufacturer directly. Now, we
warehouse that in certain warehouses across the Nation, or
stores order that medication and is delivered to the stores.
But obviously you can't be in supply of every medication every
day, so we use wholesalers on a daily basis to supplement our
inventories.
Mr. Bilirakis. Are these wholesalers, the warehouses that
you are referring to, are some of those CVS warehouses?
Mr. Smith. Yes. We have CVS warehouses across the Nation
where our stores are located, which supplies not only on
pharmacy items, but also over-the-counter items. We also have
wholesalers located geographically which we use a primary
wholesaler and generally a backup wholesaler.
Mr. Bilirakis. Can you take the cost of that tablet----
Mr. Smith. The cost of a tablet, and I will break it to the
brand side and generic side. If we go and we buy from pharma
company A, whatever the medication we are buying, whatever
class it is, we are going to pay on the brand side the exact
same price as our competitor from Rite Aid, Walgreen's, or
Eckerd's or the independent buying group. On the brand side
there is no volume purchasing.
Mr. Bilirakis. That is if you purchase it from the
manufacturer?
Mr. Smith. Manufacturer or wholesaler.
Mr. Bilirakis. All right then. Or wholesaler. So if it goes
from the manufacturer to, let's say, one of your warehouses,
then what does your warehouse do? Does the warehouse purchase
that tablet from the manufacturer?
Mr. Smith. The warehouse is just a holding point to
distribute the medications to the individual pharmacy stores.
Mr. Bilirakis. So it doesn't really--it doesn't purchase it
and then resell it?
Mr. Smith. We purchase centrally from our home office in
Woonsocket, Rhode Island, and we have it delivered to our
distribution centers, which then distribute it to the stores.
We also use--the individual stores on an as-needed basis will
order daily from a wholesaler to get medications which they are
out of stock on and they have to get to the store. Those are
preset prices on contracts or arrangements. But as I said on
the brand side, those prices are relatively the same across the
industry. There are some volume purchase arrangements on the
generic side. So the larger you are, the better you can buy
some of those products. So there is a little bit of slight
advantage on buying generics, although the bulk in dollars of
what we buy is obviously on the branded side.
Now, what we sell those--what we sell in medications is
certainly dependent on the plan which we have. And CVS, 90
percent of the business we do from pharmacy is through some
type of third-party arrangement. And we negotiate with that
third-party plan whether it is a Medicaid or whether it is a
private PBM or HMO. Each one of those are different contractual
arrangements based on administrative costs.
Mr. Bilirakis. Did you say 90 percent?
Mr. Smith. Ninety percent of CVS business, higher than most
of the industry. Most of the industry is somewhere in the 80's.
But 90 percent of our business is done through some type of
third party, and those arrangements are all separate. And once
again, the arrangements there are done from the HMO, PBM to the
plan, so they arrange on rebates or whatever else they do. So
the financial gain there would be from the PBM or the insurance
agency, not to the retailer pharmacy.
Matter of fact, just the opposite really occurs at the
retail because we are the ones who end up administering the
care, administering the formulary or whatever. So additional
costs end up being promoted at the retail setting because our
pharmacists are required to explain, try to explain to plan
design why they can't get the medication they have been taking
for 20 years.
As you all hold your town meetings next week and on a
regular basis in your district, I also visit our pharmacists in
each of the locations, and we hold town meetings, and the one
thing that they tell me is, please take away the administrative
burden of filling a prescription. Give me the ability to do
what I have gone to school for 6 years for. Let me talk to my
patients and my customers, explain to them the medications they
are taking.
Right now as we try to----
Mr. Bilirakis. Well, my time has expired, Mr. Smith. I will
tell you, as we will announce when we finish up, there will be
questions that will be submitted to all of you, and I plan to
go into some of the details regarding my questioning in more
detail to you.
Mr. Smith. I would love to do that.
Mr. Bilirakis. I appreciate that.
Mr. Brown.
Mr. Brown. Thank you.
The chairman in his opening statement linked Medicare
reform and prescription drug coverage, that this Congress
perhaps or maybe likely will pursue them together. I think the
more critical link is between prescription drugs and the $1.6
trillion proposed tax cut.
If you look at the cost of prescription drugs, one plan
that we considered last year was $80 billion over 5 years,
which is--under Medicare, which is adequate, but hardly as
generous as many of us would like. A plan with more of an 80/20
split that would be--would really, I think, better meet the
needs of Medicare beneficiaries would be at least half again as
expensive as that.
Then you also consider in the years ahead, 30 years from
now, the projections of the Medicare population, today 40
million will then be some 80 million beneficiaries, and the
huge burgeoning of costs that come with that.
Ms. Rowland, if you have done any analysis, if Kaiser has
done any analysis on this, or if you haven't, if you would,
just draw on your knowledge and experience of how this all
collides in the next couple of decades if we pursue the $1.6
trillion tax cut and we pursue a good prescription drug
benefit, at least the $80 billion over 5 years; understanding
the increased costs will cost later and the burgeoning numbers
of Medicare beneficiaries in the next couple or three decades,
sort of where we go and what happens.
Ms. Rowland. Well, clearly as you look at the expanding
Medicare population, as you look at the history that we have
just laid out today of the rising cost of prescription drugs,
but also the increased need of the population for the use of
prescription drugs, we have no way to really anticipate what
additional drugs will come onto the market over the next 10
years. So I think we can really look at this area as one that
is going to grow, and the cost is going to grow. Some estimate
that a comprehensive drug benefit under Medicare could cost as
much as $300 billion over the next 10 years. Obviously when you
begin to use the surplus for prescription drugs, it requires
then a substantial commitment of that surplus. A substantial
tax cut would really leave that fairly limited.
So I think you really need to look at the fact that if you
are going to do a meaningful drug benefit, it is probably going
to be expensive. It is going to grow in cost over time, and you
are either going to have to commit what resources the surplus
offers or additional tax revenue.
Today the elderly pay about 20 percent out of pocket on
drugs. That is expected to rise to about 30 percent by 2025. So
we are kind of on a collision course here of increasing costs
for a very needed medication and the need to pay it down
through either increased commitment of Federal revenues through
the surplus or whatever means.
Mr. Brown. Ms. Rowland, let me go in a different direction
for a moment, too. Some are advocating--in Congress are
advocating a drug proposal to specifically target low-income
individuals. What is your research showing us about coverage,
who doesn't--about who has coverage, who doesn't, and where the
real need is?
Ms. Rowland. Well, the very poorest of the population
obviously receive coverage through the Medicaid program. Those
who are basically receiving cash assistance through
Supplemental Security Income are also eligible for coverage
under Medicaid, which today includes a prescription drug
benefit. So it is really the near poor and the modest income
that have the greatest need for prescription drug coverage,
although the other thing that one needs to look at is within
the Medicare population, income and need for drugs are not
directly related. And so when we look at those with the highest
drug expenditures and those who don't have coverage today, it
crosses all income spectrums. In fact, people, for example, in
rural areas have particular problems. They are less likely to
have access to HMOs, less likely to have worked in a situation
giving them retiree benefits. So we really see that the need
for prescription drug assistance, I think, is fairly universal.
Mr. Brown. So if someone is 200 or 250 percent of poverty,
and our program is targeted to those at 175 or below, we really
are missing out at helping a good number of people who won't
get help otherwise and will face pretty----
Ms. Rowland. Right. Like a third of Medicare beneficiaries
without prescription drug coverage today. About half of them
have incomes below 175 percent of poverty, so you inevitably
leave out 6 million people above that who today go without drug
coverage.
Mr. Brown. Mr. Chairman.
Mr. Norwood [presiding]. There are so many of us here,
happily, today that I am going to keep us on the 5-minute
schedule, but hopefully we will have time for another round
because I am absolutely certain that everybody up here has lots
of questions, and that includes myself, who happily is next.
Mr. Weller, I would like to ask you some quick questions of
which I hope, you know, I can get fairly quick answers and then
go on to Mr. Moroni. Of the 9 million people who purchase
individual Medigap coverage today, H, I and J, I believe, all
of those are the prescription drugs, how many of the 9 million
actually purchase those Medigap policies?
Mr. Weller. I believe that the 9 million includes both of
the prestandardized plans, many of which had some prescription
drug coverage, as well as the 10 standardized plans. Studies
have shown that less--less than--around 10 percent, I guess, of
people purchase H, I or J, one of those three.
Mr. Norwood. Could you compare the price for me real
quickly as to what perhaps an H or I Medigap policy might cost
with drug prescription drug benefits versus one that doesn't?
Mr. Weller. It appears that those policies cost about
$1,000 more, 1,000 to 1,200. It is very close to the amount of
the maximum drug benefit in those plans, which is 1,250 and
$250 deductible. As I noted, the difference in cost is because
of the difference in other--utilization of other services as
well as the drugs.
Mr. Norwood. How many seniors in these plans actually hit
their caps? Can you give me some percentage of that?
Mr. Weller. I have not seen any study that had a good
distribution of that.
Mr. Norwood. You can get back to me.
Mr. Weller. I will try.
Mr. Norwood. I was pretty startled to read that seniors
electing the drug coverage option, they actually have a higher
A and B cost than those seniors that are in non-drug plans. Is
that true?
Mr. Weller. Yes, that is true.
Mr. Norwood. Mr. Moroni, I particularly wanted to ask you a
couple of questions because I think GM is a pretty good model.
You guys do a lot of things right and have a lot of information
in terms of the numbers of people that you insure. My
understanding from what you said was that as you look at your
coverage for your employees, you are finding that prescription
drug costs are rising or escalating. Is that still--that is a
true statement?
Mr. Moroni. Yes, at approximately 19 percent annually.
Mr. Norwood. Do you believe that cost is because your
seniors are actually taking more medications because more are
available, or do you believe that cost is up there because
there is an increase in the price of the medications that you
are buying?
Mr. Moroni. It is obviously a combination of both. I mean,
we do have an aging population, like all groups, so part of it
is that people are taking more drugs. However, you also see
different factors there; not just more drugs, it is inflation,
and it is trading up of drugs. So it is really both. And I
guess I would comment that you want your seniors on the right
drugs. You know, you want them on hypertension, heart
medication, whatever it is they need. You also want everything
that they need to be appropriate and nothing more.
Mr. Norwood. Tell me, do you see--I mean, as we are taking
or prescribing more medications, there are a couple of reasons
that may be true, but one of which is--I hope is that people
are healthier; in other words, it can be preventative in
nature. Are you seeing any decrease at all in your health care
treatment costs as you are seeing an increase in your
prescription drug costs?
Mr. Moroni. That is a question we get asked often in
various forms, and we have seen no decrease in our--we call it
hospital surgical medical, everything other than the drug
costs, as the drug costs have increased. So----
Mr. Norwood. Is the medication a quality of life issue or
extending life issue more than fewer costs in actual treatment?
That is an important question. I don't mind you getting back to
me either if you want to. But that is--if you can know that, it
would be helpful for us to know.
Now, you said in your statements that you support a
universal drug benefit with Medicare. Does your company then--
if and when we do some form of that, do you believe that your
company would then drop drug benefit coverage for your
employees because then they could use Medicare?
Mr. Moroni. I think what we would like to do is have the
option to see what Congress enacts and then decide how we may
want to wrap around or provide coverage, you know, within the
coverage that is enacted. Today we provide wraparound coverage
for the nondrug benefits to Medicare. So it is all dependent.
Mr. Norwood. Has there been any discussions with UAW about
that, any talk about, well, if Congress actually furnishes a
Medicare coverage, then what General Motors might want to do
with their plan?
Mr. Moroni. Not that I am aware. I mean, that conversation
just hasn't occurred that I am aware of.
Mr. Norwood. Is that a reasonable concern for people to
believe that if we go to a full Medicare coverage, that people
such as yourself that are offering benefits might get out of
that totally, particularly in view of the rising costs?
Mr. Moroni. I guess the way that I would--I think the best
way to answer that without seeing what might be enacted is that
we hope that it is a universal type of coverage, that----
Mr. Norwood. Well, you support universal. Let's presume
that it is universal.
Mr. Moroni. You know, I think it would be our hope that
such coverage as universal coverage, it has good controls, and
it might help some of the employers, whoever they are, whether
it is General Motors or other employers providing retiree
benefits, continue to maintain the benefits they are providing.
I think it is a challenge today for people to do that.
Mr. Norwood. I will get back with that on the next round. I
have a minute or so left.
Mr. Smith, in your purchasing--time is up? Well, my time is
up. I will get back to you next time. I would like to give the
time to my good friend John Dingell all the way down at the
end.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
Mr. Jones, welcome to the committee. What percent of the
counties in the United States have HMOs within their borders?
Mr. Jones. I am not sure. That is not something I would
know.
Mr. Dingell. Is it all or part?
Mr. Jones. I would say it is not all. It is part.
Mr. Dingell. Would you submit that for the record?
My information is that 38 million Medicare beneficiaries
live in areas where there are no HMOs, and that 68.1 percent of
the beneficiaries live in a county with at least one HMO. Now,
do you agree with that?
Mr. Jones. Again, that is not my speciality.
Mr. Dingell. What would the statement be with regard to
PacifiCare?
Mr. Jones. We operate in eight States.
Mr. Dingell. Eight States. All right. Now----
Mr. Jones. And not all counties of those eight States.
There are some counties we don't have HMO benefits in or health
plan benefits.
Mr. Dingell. Usually you don't do business in rural
counties because there aren't enough people there, right?
Mr. Jones. It is hard to get physicians to----
Mr. Dingell. So usually the HMOs stay out of the rural
counties. Yes or no?
Mr. Jones. Rural counties are difficult, yes.
Mr. Dingell. So you stay out of the rural counties.
Now, what criteria do you have at your HMO for going into a
particular county or staying out of it?
Mr. Jones. I am a pharmacist, and I don't make those
decisions. I am not----
Mr. Dingell. So you don't know.
Mr. Jones. I don't know.
Mr. Dingell. But it would be fair to assume you go where
you make money, right?
Mr. Jones. I assume.
Mr. Dingell. I assume.
Now, what did your HMO do with the money that was given to
the HMOs in the last Congress? What percentage of it went to
beneficiaries, and what percent went to profits, and what
percent went to dividends, and what percent went to the
corporate officers in salaries or bonus?
Mr. Jones. Seeing that I am not a financial officer of the
company----
Mr. Dingell. The answer is you don't know.
Mr. Jones. I don't know.
Mr. Dingell. So if I made the statement that you folks cut
a fat hog on that, and that the rest of the industry did, you
would not be able to deny it, would you?
Mr. Jones. I wouldn't be able to comment.
Mr. Dingell. Well, I am going to make the statement. You
cut a fat hog on it, and nobody but you and the HMOs got
anything out of this.
Now, having said that, what commitment did the HMOs make
with regard to the administration bill? This bill, as you note,
gives money to the States, who are then supposed to give it to
the HMOs in the somewhat dubious expectation that that money
will then flow forward and through to the HMO patients. Do the
HMOs make any commitment on this matter, or do you just intend
to pocket that fine generosity which flows through from the
Federal Government?
Mr. Jones. As I understand, and again, the pharmacy part of
our company, our parent company, does other things, but as I
understand, the money flowed through to providers, paid
providers.
Mr. Dingell. Now, I note here that in some 66 counties the
maximum benefit is $1,000 under most of the HMO prescription
pharmaceutical benefits. I note that the copay is 50 percent,
and I note that in most instances the plan premium per month is
somewhere between $29 and $75 a month. Do those figures sound
right to you?
Mr. Jones. We don't have percentage copays for our--not at
our company.
Mr. Dingell. As a matter of fact, this is interesting. My
staff informs me that this is your company, and that you do
have a copay.
Mr. Jones. We have copays, but not percentages. They are
individual copay amounts.
Mr. Dingell. It says brand mail order copay percentage 50
percent. And this is in Oklahoma: Creek County, Grady County,
Lincoln County, Logan County, McClain County, Nowata County,
Okfuskee County, Oklahoma County, Osage, Pottawatomie, Rogers,
Tulsa, and so on. Is this a surprise to you?
Mr. Jones. I don't know every single county and every
single State of our eight States; however, the vast majority of
our business, in fact----
Mr. Norwood. Mr. Jones, go ahead and complete the answer,
and that will end the questioning for Mr. Dingell and yourself.
We will come back.
Mr. Dingell. I feel sad about this because I know Mr. Jones
has been enjoying this questioning.
Mr. Norwood. I feel sad about it, too, but I was sad about
my 5 minutes, too.
Mr. Jones. I would say that greater than 90 percent of our
copays are fixed. Again, I wasn't aware--you may be entirely
right.
Mr. Dingell. I notice that you have a copay----
Mr. Norwood. Thank you very much, Mr. Dingell. I am sorry
to interrupt you.
Mr. Buyer, you are next.
Mr. Buyer. Mr. Weller, I want you to know that I agree with
your comments that you made that we should not add a
prescription drug benefit without doing some structural reforms
in Medicare, and I think that we should make it as part of a
comprehensive plan would be my position, so I want to agree
with your comments.
Second, to the gentleman from General Motors, I recall in
the early 1990's when there was this euphoria over Clinton
care, the major automobile manufacturers supported a provision
that permitted the government to assume the health care costs
for your retiree population 55 and older. You wanted to trigger
them on to the taxpayers; is that correct?
Mr. Moroni. I can't comment on that. I was not--but that
would not be my understanding of the triggering on to the
taxpayers, no.
Mr. Buyer. Well, I don't know who else was going to pay for
it if you wanted to trigger them into the universal Clinton
government health care system. One of the biggest concerns that
many of us had was when the Big 3 came in, they negotiated a
lot of different contracts, and then the escalating costs, they
were very eager to sort of dump retirees onto the government.
Who is the government? It is the taxpayers.
So you got my attention here today and so has Ms. Rowland
in her testimony. I pick up her testimony and she says that
``40 percent of large employers report seriously considering
cutting back on drug benefits for their retirees in the next 3
to 5 years, according to a recent survey of large employers
conducted for the Kaiser Family Foundation by Hewitt
Associates.'' So I want to continue with the questions of
earlier.
You have some negotiated benefits with union employees. You
also now have retirees that are nonunion, whether they are
administrative or white collar. My fear is that while the
unions are going to put up a really big fight if you think you
are going to trigger them into some type of plan, they are in a
comfort zone; but you have a lot of employees, independents,
widows who may not have that coverage or protection like the
union retiree may have, and my fear is you are going to trigger
them into something different.
So will you please--what do you tell the retirees--I used
to have a GM facility, a lot of retirees in Kokomo, I have some
in Marion. What do you say to them? They are on fixed incomes
right now.
Mr. Moroni. You know, I think the best way to look at this
from our perspective is the way to ensure that employers
continue to provide some sort of retirement benefit, the
responsible employers that there are right now; to make sure
that Congress swiftly enacts a type of broad-based universal
prescription drug Medicare, either program or supplement.
So I think it just has to be viewed that there are a lot of
responsible employers out there right now that are still
providing health care coverage, drug coverage and whatever,
that probably want to continue to provide such coverage, and
they are looking for different avenues to help them through the
challenges of trends that we are seeing. So I think the best
way to make sure that that continues is by Congress swiftly
moving toward some sort of universal Medicare coverage. That is
what will help in our opinion, that is what will help the
employers who are being responsible right now to continue to be
responsible.
Mr. Buyer. Do you have sort of an idea of what the cost of
prescription drugs are added to the price of an automobile?
Mr. Moroni. You know, I should. That is not one figure I
have with me.
Mr. Buyer. Is the General Motors executive sort of looking
at this and saying that the dollar is fungible, that someone
out there in America is going to be paying for this, and if you
have this 19 percent increase in cost, well, we can't eat it,
so we add it to the price of automobiles and the consumers pay,
or we wrap them into some systems that we create here, and the
general population pays?
Mr. Moroni. I guess--could you redirect something more
specific to me, because I really think that what we are really
trying to say is that we are feeling very pressured by the type
of trends that we are seeing. We still want to be a responsible
employer. We are looking for all avenues to be able to, you
know, still provide comprehensive coverage. We are also seeing
that there are gaps, and that a universal type of plan by
Medicare will help offer----
Mr. Buyer. Let me----
Mr. Norwood. I am sorry, Mr. Buyer. Your time is up.
Mr. Green, you are next.
Mr. Green. Thank you, Mr. Chairman. Again, hopefully we
will have a second round for those of us who can stay around.
Let me first start off by saying that in 1965, if we could
have created Medicare without covering doctors or hospitals, we
would have thought it was crazy. And here we are in 2000 where
we have seen over the years our prescription costs, both for
seniors, but for the private sector has gone up, compared to--
along with other costs, but it is so much more a part of our
health care dollar today than it ever was. So I think if we
recreated Medicare here today, we would have prescription drugs
as part of it.
I thought it was interesting, the adverse selection
concern, Mr. Weller, because that is why Medicare was created.
Insurance is there for adverse selection. You want--insurance
companies have to make a profit. They don't want people--all
their claimants--to claim, so they can make that profit. They
couldn't make a profit in 1965, and so that is why Medicare was
created, or really 20 years before that, because that is when
the bills were introduced.
So that is what troubles me about trying to have the
private sector provide for a prescription drug benefit and make
a profit on it without a great deal of subsidization that we
would have to do.
Mr. Jones, we work with PacifiCare a great deal in Houston,
because after all, the other HMOs, Secure Horizon stayed in the
Houston market and I appreciate that, and I appreciate Secure
Horizon working with my staff on individual constituent cases,
and really good to work with. NICARE, 65 withdrew from the
Houston market last year, along with about 60 percent of our
seniors--they covered 60 percent of our seniors, NICARE did,
and they withdrew.
We do have two new companies that just announced coverage
in Houston, one a PPO and one an HMO. The HMO will not cover
prescription drugs, and the other one, the PPO will, but they
are charging $85 per month premiums in addition. National
Medicare+Choice plans are dropping their drug benefits,
lowering payment caps, imposing stiff premium surcharges, and
the portion of Medicare+Choice plans with a payment cap of $500
or lower has increased by 50 percent in the last 2 years since
1998--3 years. Nearly three-quarters of the Medicare+Choice
plans have capped benefits at $1,000. I know, I think Secure
Horizon's prescription drug benefit in Houston, at least Harris
County, is $1,200.
How can seniors rely on Medicare+Choice plans to provide
coverage that they need when we see what is happening in the
market?
Mr. Jones. It is a challenge for Medicare+Choice plans. We
do what we can to manage the pharmacy benefits to where people
can continue to afford them. Increasing costs are a continued
challenge for us and we have to come up with methods of dealing
with the increasing cost of drugs, increasing utilization. We
do all of that, and we do it in a fairly flexible manner. We
try to change with the changing times. But reimbursement is
always an issue for us.
Mr. Green. How many--what percentage of Secure Horizon's
customers do you think--has your company done any research--
joined your HMO because of prescription drug benefit?
Mr. Jones. I am sure there are figures, and I could
certainly get back to you on that.
Mr. Green. I would appreciate it, because just again,
nonscientific in my own district, a huge percentage of our
seniors joined an HMO simply because they didn't have any
options, they needed some type of prescription drug benefit.
Mr. Jones. I don't doubt it.
Mr. Green. Mr. Moroni, you state in your testimony that
prescription drug cost increases for GM have averaged 19
percent annually for the last 3 years.
Mr. Moroni. Correct.
Mr. Green. And you expect them to continue to rise, and you
also reference that 80 percent of the prescription drug costs
for your retirees are for your retirees, surviving spouses and
their family. Eighty percent of the drug costs that GM pays for
are for retirees, surviving spouses and their families?
Mr. Moroni. Correct.
Mr. Green. So only 20 percent is for current GM employees?
Mr. Moroni. Correct.
Mr. Green. That is an amazing percentage. I mean it shows
that the older you get, the more medicine we need, which is,
again, seems like it should be given.
Mr. Norwood. Thank you, Mr. Green. I am new at this. I
forget to turn the microphone on. Thank you very much, Mr.
Green. You have 5 seconds and I wanted to say you are getting
into a long, lengthy question.
Mr. Green. Let me just ask to Mr. Moroni, both--GM is
trying to curb costs and however you can answer it, if you have
to get back, but what is GM doing to solve the problem of
adverse selection that we heard from other witnesses?
Mr. Norwood. Mr. Moroni, if you would submit that in
writing, please. I have to go to Mr. Greenwood, and now it is
his turn.
Mr. Greenwood. Thank you, Mr. Chairman.
I would like to direct some questions to Mr. Jones and Mr.
Weller, and anyone else who would like to comment, it would be
helpful.
I want to focus on Medicare+Choice plans. It is sort of
interesting that we get two completely different perspectives,
depending upon who we are listening to, about how
Medicare+Choice plans operate. In listening to Mr. Dingell, it
sounds like the Medicare+Choice plan is some sort of carnivore
that wanders into a region and gets fat on profits and, after
fattening up, gluttonly wanders off for some strange reason, as
if it doesn't want to eat anymore. The way it looks to me is
that the Medicare+Choice plans go out there, and we started
feeding them well enough when we started out with 95 percent of
the average area per capita cost, and they could provide a
nice, full plate of all of the regular Medicare benefits, plus,
plus. There was the plus. The prescription drugs and the dental
and hearing benefits and so forth. And then we stopped--we
stopped feeding them. We didn't pay them enough to keep up with
the costs. So after they got down to skin and bones, they
wandered out and said, we are not going to starve to death.
That is a bit of an exaggeration, but it seems to me that
those are the prevailing perspectives on how Medicare+Choice
plans are operating. I wondered if you could comment on--I
mean, to me, we have, as I said in my opening statement, we
have a lot of work to do to try to provide a prescription drug
benefit, but at least for a while there, the Medicare+Choice
program seemed to be a great option. It certainly was for my
mom and dad. They didn't have to buy Medigap anymore, they got
their prescription drugs, they got good health care, everything
was going fine.
Now, in my district, what has happened is A, we didn't keep
up paying these plans, the premiums that they needed; and B, we
have a screw-up, because in Philadelphia, which is not in my
district but borders my district, there is a zero premium
prescription plan. But in my district, it is very expensive to
get exactly the same package.
I wonder if you could comment on what I have just said in
terms of really what has been driving the Medicare+Choice plans
and what their options have been, and these two perceptions.
Mr. Jones. I think that this industry has been fairly
competitive among the various players, and where there was
fairly reasonable reimbursement in a region, they would enrich
their benefits to attract members into their plans. As the
reimbursement levels were reduced, so was the richness of the
benefits that were offered. And everyone needs to be able to
break even or show a profit in order to continue their
business. It has been unfortunate for seniors because they did
get used to companies competing for their attention and trying
to get them into their programs, which included very reasonable
benefits for a pharmacy. There were no caps in some programs,
the competition was such.
That has all changed. I certainly empathize that we have
done whatever we could to keep that benefit there, but there
have been caps put on it, higher copays, more cost-sharing by
the seniors, and it is a difficult situation we are all put in.
Mr. Greenwood. Is there a Medicare beneficiary in the
country that you wouldn't cover with a very nice
Medicare+Choice package, including a nice prescription drug
package, if you were paid by HCFA an annual premium for that
patient that--for that beneficiary that allowed you to, on
average, actuarially cover your costs and earn what--fill in
the blank--and what percent profit?
Mr. Jones. Our profits last year were 2.3 percent. It is
not a large profit. But no, we took all comers.
Mr. Greenwood. So 2.3, 3 percent, that range of profit,
just do the math, the Federal Government pays your company and
any other Medicare+Choice company enough to cover the benefit,
plus prescription drug benefit and make 2 to 3 percent profit,
you cover everybody in the country, right?
Mr. Jones. I can't speak for our parent company and its
goals, but that has been traditionally where we are.
Mr. Norwood. Thank you very much, Mr. Greenwood. Now we go
to Mr. Engel.
Mr. Engel. Thank you, Mr. Chairman.
Mrs. Kessler, since you are the only one on the panel that
actually is a consumer and has experienced some of these
programs, we have people on the panel from a number of
different groups that provide prescription drugs for Medicare
beneficiaries. You have heard, Medicare Choice plans, Medigap
plans, employee retirement plans, a State program and a
pharmacy program. I believe that while these programs provide
assistance for some seniors, not all can benefit from them, and
I am wondering--you alluded in your testimony, and I am
wondering if you could give us some more detail about your
experiences with these types of programs?
Mrs. Kessler. Well, I was on HMO and I was not very happy
with it. Of course, I have been well practically all of my
life, and then all of a sudden, it caught me. So my daughter,
who is a nurse practitioner, made me get off HMO, and I got on
to AARP, and of course, I pay for my drugs. I get a little
percentage here and there, but that is about it. And there are
plenty of senior citizens like me who really couldn't afford
all of these medicines that I take, that they take. We save all
of our money all of our lives and then all of a sudden we get
sick, and we are afraid that the money that we have saved would
have to go for the drugs, which scares the heck out of us.
Mr. Engel. Well, it seems that now there is a patchwork of
options, but what you are saying is none offer the safety and
security of a comprehensive Medicare benefit. So you are
actually saying that a uniform universal benefit for everyone
in Medicare is really the way we should go?
Mrs. Kessler. Yes, definitely so.
Mr. Engel. Now, the Florida program that is similar to New
York covers seniors over age 65 who are duly eligible for both
Medicare and Medicaid with an income of under $11,000 per year.
So obviously a lot of seniors are left out of that. The State,
I understand in Florida, has a discount program which allows a
discount on the cost of drugs at pharmacies, but you and others
don't qualify for that because you have a program through AARP?
Mrs. Kessler. Yes.
Mr. Engel. So many seniors actually get lost in the shuffle
and find that they don't have the care that they need; is that
an accurate statement?
Mrs. Kessler. That is right. That is right.
Mr. Engel. Thank you very much.
I want to raise an issue that Charlie Norwood had mentioned
before. I wonder if Ms. Rowland or Mr. Moroni could comment.
When you talk about the increasing cost of prescription
drugs, it would seem to me that on the other end of it,
Medicare would save money because of beneficiaries getting the
proper medication at the proper dosage as opposed to taking a
half dose or going without certain drugs due to cost. So I am
wondering, Ms. Rowland, if you could comment about--are there
any real numbers that measure potential savings due to proper
drugs which will lead to decreased hospital stays and fewer
acute care conditions as a consequence of a prescription drug
benefit? And also, after that, if Mr. Moroni can mention if you
have noticed a decline in costs of other areas of care as you
initiated the prescription drug benefit?
Ms. Rowland. We don't have any hard statistics on what
happens when individuals cut their prescriptions in half and
only take half of what they need. We do know when we look at
some experience in the Medicaid population, that when cost-
sharing was imposed on some of the lowest-income Medicaid
beneficiaries, they went without their drugs and ended up more
often in nursing homes. So we in the State of New Hampshire,
for example, the cost of nursing home care increased when they
imposed additional cost-sharing for prescription drugs.
There is a new study just out from Canada looking at the
imposition of cost-sharing for low-income elderly and disabled
people in Canada, showing a greater use of emergency rooms as a
result of lack of taking proper medications.
So while we don't have a lot of studies in the U.S., we do
have a lot of stories about people who don't take their
medications properly, and we know that for many of the
medications that the elderly take today, lack of taking them on
a regular basis can really lead to complications.
Mr. Engel. And more expense.
Ms. Rowland. And more expense.
Mr. Engel. Thank you. Mr. Moroni.
Mr. Moroni. From our data, we have not seen a decrease in
the hospital-surgical-medical side of the expense due to the--
or I should just say in conjunction with the higher drug costs.
So I think you would have to think about although there may be
certain hospitalizations you avoid, with the trend of just your
normal hospital-surgical-medical coverage, and then on top of
that, you put on something like as high a trend as 19 percent,
and actually, in 1999, it was actually 23 percent, it just
averaged out.
Mr. Engel. Can you comment, Mr. Moroni, on PBMs to manage
the drug benefit? Some of the Medicare drug proposals would
rely on PBMs to provide a drug benefit. Could you talk about
some of the things they do for GM to manage the pharmacy
benefit like reducing cost and providing quality assurance?
Mr. Moroni. Yes. Actually, we do think that our PBMs help
kind of optimize cost and quality. Most importantly, I would
say our PBMs look for drug-to-drug interactions on a real-time
basis, which you do fine. Especially, as I said, when people
see multiple physicians. We also have programs like, you know,
a preferred formulary that our PBM has assigned to hopefully
optimize some of the costs. Their dosing authorization
programs, generic substitution programs, disease management
programs--all of which we think has helped us save costs, and
that was part of my testimony--that even with the extensive
programs we have in place, both on a quality side and a cost
side, our costs are still at 19 percent. Actually, safety is
another major issue that I cannot really leave out of there,
because there are specific drugs actually cited in a GAO report
that our PBMs make sure that our elderly people are not on it,
they are safe for the elderly.
Mr. Norwood. Thank you, Mr. Moroni and Mr. Engel. Now, Mr.
Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman. I want to commend you
for holding this hearing today.
It is very obvious that in this country we need to be
looking at how we make sure seniors get the drugs they need to
be able to care for themselves. No one wants a Nation where
people have to make a decision between paying rent or buying
groceries and taking the medicines they need.
By the same token, I have to say that I think to a certain
degree, a lot of the discussion and a lot of the focus on how
we create the right program to do this, in the context in which
we are not looking at the cost of doing this, the staggering
cost of doing this is literally whistling past the graveyard
and missing a huge issue. I think, Mr. Moroni, your testimony
drives that point home pretty clearly. I can imagine that
General Motors would be in favor of a universal drug benefit if
General Motors for the past years has seen an average of a 19
percent increase in its prescription drug program.
Now, I hope everyone in this panel and everyone in this
Congress understands that if we, in a well-intentioned fashion,
create a universal drug benefit and we face the kind of
escalating costs GM has faced over the past 3 years of 19
percent per year, we are in deep trouble. So I would like to
focus on what foundation we need to be looking at in terms of
drug pricing and drug costs before we jump into creating this
program. Because I have not seen anything in the discussion of
the shape of the program or the structuring of the program,
whether you favor one over the other, that is going to address
the issue of cost. And in looking at these facts, I want to
point out that the more things change, the more they stay the
same.
In 1959, the Senate Judiciary Subcommittee on Antitrust and
Monopoly, led by Estes Kefauver of Tennessee did a study, a
2\1/2\ year study of drug pricing in America, and you will be
surprised to learn that they found almost exactly what we are
finding today. They found, for example, that Eli Lilly was
selling 100 tablets of an antibiotic called V-Cillin, and they
are selling it in England for $6.50, in Australia for $10.75,
and in the United States for $18. So the pricing in the United
States was roughly three times the price in England. For 100
capsules of Tetracycline, the production cost for Bristol Myers
was $1.67. Its price to druggists was $30.60, and consumers
paid $51.
You then come flash forward to today. Here is a study done
by Life Extension Network, on the most outrageously high-priced
drugs in America, one called Premarin. For 28 capsules of 6
milligrams, the U.S. price is $14.98; the European price is
subsidized, $4.25. For Coumadin, which is a blood thinner that
my mother-in-law takes, for 25 10-milligram capsules of
Coumadin, the U.S. price is $30.25, the European price is
$18.50.
Another study done by USA Today in November 1999, I will
just pick a couple, there are many on here, and I would like to
put both of these in the record--for Prozac, the U.S. price,
$2.27; in Canada, less than half of that, $1.07; in Britain,
$1.08; and in Australia, 82 cents. Zocor for high cholesterol,
U.S. price $3.16; Canadian price $1.47; British price $1.73;
Australian, $1.75. Again, we are more than twice. Claritin,
everybody hears about Claritin; it is one that is a demand pull
drug, and I want to talk about demand pull in a moment; U.S.
price, $1.96; Canadian price a little closer, $1.11; British
price, 41 cents; Australian price, 48 cents.
[The information referred to follows:]
10 Best-Selling Prescription Drugs in the USA Cost less in Other Countries
(Retail Price of the most commonly prescribed dose of each drug, converted to U.S. dollars)
----------------------------------------------------------------------------------------------------------------
Rank Drug Condition U.S. Canada Britain Australia
----------------------------------------------------------------------------------------------------------------
1.............................. Prilosec.......... Heartburn/Ulcer... $3.31 $1.47 $1.67 $1.29
2.............................. Prozac............ Depression........ $2.27 $1.07 $1.08 $0.82
3.............................. Lipitor........... High colesterol... $2.54 $1.34 $1.67 $1.32
4.............................. Prevacid.......... Ulcer............. $3.13 $1.34 $0.82 $0.83
5.............................. Epogen............ Anemia............ $23.40 $21.44 $27.48 $29.24
6.............................. Zocor............. High colesterol... $3.16 $1.47 $1.73 $1.75
7.............................. Zoloft............ Depression........ $1.98 $1.07 $0.95 $0.84
8.............................. Zyprexa........... Mood disorder..... $5.27 $3.39 $2.86 $2.63
9.............................. Claritin.......... Allergies......... $1.96 $1.11 $0.41 $0.48
10............................. Paxil............. Depression........ $2.22 $1.13 $1.70 $0.82
----------------------------------------------------------------------------------------------------------------
Source: USA Today, November 10, 1999
Outrageously High Drug Prices
------------------------------------------------------------------------
U.S. Euro.
Drug (Quality/Potency) Price Price
------------------------------------------------------------------------
Premarin.......................................... $14.98 $4.25
Synthroid......................................... $13.84 $2.95
Coumadin.......................................... $30.25 $2.85
Prozac............................................ $36.12 $18.50
Prilosec.......................................... $109.00 $39.25
Claritin.......................................... $44.00 $8.75
Augmentin......................................... $49.50 $8.75
Zocor............................................. $96.99 $45.00
Prempro........................................... $23.49 $4.75
------------------------------------------------------------------------
Source: Life Extension Network.
Mr. Shadegg. I would like to ask Mr. Moroni and Mr. Jones a
series of questions, and if others of you would like to
comment, I would be happy to do that.
Have any of you, since you buy large quantities of drugs,
done a study of your own to try to find out why drug prices in
the U.S. are so much higher than they are in other countries?
I don't want to run out of time. Let me give you the other
questions. Have you studied demand pull marketing? Because I
saw from your expressions you haven't done the other. Demand
pull marketing is kind of a new phenomenon in the United States
where we are telling the American people hey, there is this
prescription drug that will go out and solve every problem you
have. I would suggest to General Motors that part of the reason
you are facing a 19 percent increase in your drug
prescription--prescription drug program--is demand pull
marketing, and I wonder if anybody has looked at that.
I want people to get the drugs they need, but I am not
certain that--I talk to a lot of doctors back in Phoenix,
Arizona who tell me patients are watching television, coming in
demanding the drug. The doctor has to talk them out of that
drug.
Mr. Norwood. Thank you very much, Mr. Shadegg, and remember
the question, because the second round we need to have an
answer for that.
Now I think it is Mr. Strickland's turn.
Mr. Strickland. Thank you, Mr. Chairman. To follow up on my
friend's comments, I would like each of you to respond to these
two questions and I think you can do it in one or two words.
Do you think that the issue described by my colleague
regarding Americans being charged so much more than other
citizens in other countries is a serious problem in terms of
the costs of prescription drugs in this country? And I think
you can do that with a yes or no. And then I would like for you
to say, hopefully with a yes or no, if you think it would be
appropriate for this Congress to consider some legislation to
deal with this price inequity. Two questions. Would you mind
beginning here and just going down the table?
Mrs. Kessler, what is your opinion there?
Mrs. Kessler. Yes, I would say that that would be a good
idea, that that should be a question about the drugs, why it is
so high here, definitely so. This should be one of the
requirements to judge so that we can get all of our
prescriptions paid.
Mr. Strickland. Thank you. Mr. Jones?
Mr. Jones. The differentials between our prices and those
abroad is a very complex issue which we have not taken a very--
--
Mr. Strickland. Do you think it results in Americans being
charged more, regardless of the complexity of the reasons?
Mr. Jones. Drugs cost more here, there is no question about
it.
Mr. Strickland. Do you think drugs would cost less here if
there wasn't this price disparity?
Mr. Jones. Again, therein lies the complexity of an
international market.
Mr. Strickland. Okay. Second question. Do you think we
should address this disparity problem legislatively?
Mr. Jones. I think that it is one that will bedevil
Congress. It is one that will probably have to be looked at one
way or the other.
As far as a poll marketing, we have a very aggressive
physician education campaign to counter some of that type of
marketing, and we understand that people are subject to it.
Mr. Strickland. Okay. Could we go ahead?
Mr. Moroni. As I said in our testimony, we do believe that
the pricing practices are a concern and we do feel that they
affect some competitiveness of U.S. industry.
Ms. Rowland. I think you should clearly look at the pricing
policies, and I think in looking at this examination you might
also want to take a look at the current Medicaid program which
has a drug rebate provision that allows Medicaid to at least
get a discounted price in some of the States for that.
Mr. Weller. I would agree with Mr. Jones that it is a
complex issue, but as a straight question of does it cost more,
clearly, yes. What Congress should do, we believe that you need
to restructure and reform Medicare, the entire program; that
has as part of that, you need to deal with prescription drugs
and you need to deal with the cost of them to the Federal
Government, to the beneficiaries.
Ms. Buckley. Yes, there are clearly price inequities; yes,
Congress should look at it and look at it in a comprehensive
way to ensure research and development is not hurt, and to look
at ways we can cover everyone, increase sales to pharmaceutical
companies so that they can lower costs.
Mr. Smith. Eighty percent of the price of a prescription is
bound in product cost. If you can reduce that product cost, the
price will absolutely come down.
Second, I do believe Congress should look at those
inequities and try to find out why and try to alleviate those
problems.
Mr. Strickland. Thank you. The comment was made that we
should have the restructuring of Medicare, and the concern I
have there is because I think this may be a euphemistic way of
saying we should basically destroy Medicare as we know it and
go to a system that would be quite different than Medicare.
Ms. Rowland, I serve a rural area. You know, I think, that
the people who live in rural areas do not have the same
opportunities and access. Can you speak a little bit more about
that and what you think we can do as we try to plan a fix to
this terrible situation that we all know exists?
Ms. Rowland. We know that around a quarter of all Medicare
beneficiaries live in rural areas, but we also know that those
in rural areas are more likely to go without drug coverage.
Roughly 40 percent are without drug coverage today.
That is largely due to the fact that many of the
Medicare+Choice plans aren't out there in rural areas, and I
think with the withdrawals, you are not likely to see a large
increase in rural areas in the near future.
Second, many of the people living in rural areas have not
worked for some of the large employers that offer the retiree
benefits, so they are the most likely to go without the more
comprehensive retiree wrap-around benefits to Medicare that do
include prescription drugs, and they tend to have lower and
more fixed incomes. So even when a Medigap policy may be
available, the ones that include prescription drugs are largely
unaffordable. I think that is one of the reasons why one needs
to really look at providing a comprehensive benefit within
Medicare so that people get the same benefits under Medicare,
whether they live in urban or rural areas, just as they do with
physicians' services and hospital care today.
Mr. Strickland. Thank you.
Mr. Bilirakis. The gentleman's time has expired.
The vice chairman of the committee, Mr. Burr.
Mr. Burr. Thank you, Mr. Chairman.
Let me take this opportunity to thank all of our witnesses
today. I am not going to ask you any questions, so I will
relieve you of that burden. But I did want to thank you for the
information that you brought to the committee. I assure you
that it will be extremely helpful as we proceed on.
This is a very talented committee. The members as well as
the staff have spent a tremendous amount of time understanding
the complexities that each of you brings with your testimony.
They understand the scope of the population that is covered
under the proposed benefit that we all seek. We understand the
geographical challenges that we have. We also understand that
it is a population that needs it today. I am convinced, more so
than I was last year, that because of the passion and the
talents of this committee, we can achieve a legislative
proposal that benefits patients. And that is ultimately where
we have to keep our focus.
I would tell you that there are 3 major components: .
Access. Some do, some don't today; all should. I think that
every member of this committee would agree with that statement.
Affordability. Affordability sometimes is a function of
competition. We have certainly seen that in private sector
areas. And I would tell you that when you look at this
population because of the size, when you find a way to
negotiate based upon the size of the population, you find
better pricing. It is what you referred to, Ms. Rowland, as it
related to Medicaid, even though that was a legislative
mandate. But clearly, we have seen the private sector markets
respond the same way relative to a population large enough that
you can negotiate on their behalf, brings you levels of pricing
we never dreamed of 10 years ago in health care. So we have to
understand that component.
The third piece is voluntary. We can't force anybody to
participate, nor should we. We should not discourage employers
from extending that benefit to retirees; we should find ways to
support it even greater than we do today. But the reality is,
over time, as we incorporate a benefit, if we don't make a
component of that the ability for employers to fit into it, to
piggyback onto it, to dovetail into some section of it, we will
allow them to remove that forever as a benefit that they extend
to retirees.
We need your help. We will need your continued help. No
matter who the new Administrator is at HCFA, I am convinced
that if the support of Congress dries up or the support of
those individuals who are really the brain trust of this issue
is not there to support them as well as the American people,
they will not accomplish the structural changes that I
personally believe have to be made in HCFA, nor will they
accomplish a drug benefit that can withstand the test of time
and money that we all know it goes into.
Let me suggest that we are not here just considering this
benefit for today. Our focus should be for tomorrow. We have
heard a number of examples of meds that were mentioned and
prices and individuals who were covered and weren't covered,
and it was broken down in whatever way it was advantageous to
those that either asked it or answered it. We have to get past
that. We are headed into an age, with the completion of the
Human Genome Project, where we will talk about medications that
cure, for the first time, diseases that we have maintained or
treated up to this point. We will have to go through a whole
new cultural change of assessing medications based upon not
their value at the beginning, but their cost-savings because
they are now available.
Somewhere in that component, hopefully first on my mind,
but every member will have to make that up on their mind, will
be the quality of the patients. We will offer in many cases the
ability to relieve what is a constant chronic or terminal case
for what is now 35-plus million Americans and 15 years from now
will be 70 million Americans: my parents, your parents,
somebody's grandparents.
This is an important thing. It is the most important thing
for this subcommittee today. I am confident that we can
accomplish it, Mr. Chairman, with our friends on the other side
of the aisle, with the support of the brain trust that is
willing to come up and share their information with us. It
won't be easy, but we can come up with a plan.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Burr. The gentleman is finished. Thank you, Mr.
Chairman.
Mr. Bilirakis. Mr. Ganske.
Mr. Ganske. Mr. Chairman, I am juggling simultaneous
hearings on high energy costs and high prescription drug costs
and unfortunately, we do have people in the country who are
having to make decisions on whether to pay their power bills or
whether to buy their medicines, and that is a problem.
Mr. Chairman, I need to speak briefly about an arcane item
called adverse risk selection. I have felt like a voice crying
in the wilderness in my floor speeches late at night on this
issue, but in my opinion, it is the single most important issue
that we need to face as we are talking about this additional
benefit.
The designers of many Medicare prescription drug proposals
recognize this problem. Some try to address it by saying that
if a beneficiary doesn't sign up for the drug insurance program
on an initial registration for Medicare, then, thereafter, when
he or she wants to sign up for the drug insurance program the
program would be quote, ``experienced-based,'' and potentially
more costly. The theory is that the threat of higher premiums
would act as an inducement for seniors with no or low drug
costs to sign up initially.
But, Mr. Chairman, if everyone had already acted with such
prudence, we wouldn't be here today, because the low
participation in the current voluntary Medigap programs
indicates that unless seniors must sign up initially, a large
number won't. They will wait until they need drugs and then
they will complain vociferously to Congress about their high
premiums and we will be right back here where we started. And
since other seniors will have a prescription drug benefit,
there will be enormous pressure on legislators to further
subsidize the seniors who are tardy in signing up for a drug
program. That, of course, will significantly increase the cost
of the program.
Now, another way to control adverse risk selection is to
try to devise a risk adjustment system. This committee has been
involved in that many times. We will wait eagerly for the day
to show that we can actually devise that type of program in
other parts of Medicare.
Now, another way would be a similar benefit package to help
control that. Consumers would then be able to select plans
based on price and quality rather than benefits, but if plans
are allowed wide variation in benefits, some plans, I guarantee
you, will be more likely to attract low-cost beneficiaries and
we will again see adverse risk selection.
Now, a sure way to avoid adverse risk selection would be to
mandate enrollment, and that was the approach in 1988 with the
Catastrophic Coverage Act, and we saw what happened to that
law. And to say, Mr. Chairman, that mandatory enrollment today
has little appeal to policymakers is an understatement, to say
the least. All they have to do is remember the Grey Panthers
jumping up and down on Dan Rostenkowski's car.
Now, finally we could avoid adverse selection for a
voluntary prescription drug benefit if we subsidized this
benefit so much that seniors won't have much cost, and with
that huge subsidy, the benefit would then become cost effective
for the vast majority of seniors. But, Mr. Chairman, we are
then likely facing a $400 billion or $500 billion subsidy.
That reminds me of an article by Dan Rostenkowski in the
Wall Street Journal, who said, ``The problem was, and still is,
a lack of money.'' And yes, we have a surplus, but the 10-year
cost of a more highly subsidized drug coverage could, in my
opinion, easily double or triple the cost, and that is where I
am in line with Congressman Shadegg who just spoke about this.
So what do we do? Well, it is clear that there are seniors
that really need the help right now, and there are seniors who
are getting the help in the State Medicaid drug programs. And
those programs are in every State, and they are, as Ms. Rowland
pointed out, getting discounts from pharmaceuticals.
My proposal is that we build on that, that we try to get
something done on this at a cost that we can absorb right now,
and the way to do that would be to add the qualified Medicare
beneficiaries and the select low-income beneficiaries up to 175
percent of poverty, give them their little Medicaid card, tell
the Governors, we are going to pay for it from the Federal
side; and this provision can be implemented immediately and it
will help take care of the large number of beneficiaries who
need that help right now, and we can move on to a comprehensive
Medicare benefit in terms of prescription drugs in the context
of a comprehensive Medicare bill.
Mr. Bilirakis. The gentleman is granted 2 additional
minutes, without objection.
Mr. Ganske. Thank you, Mr. Chairman.
Mr. Bilirakis. And we will not have a second round, but we
will grant everyone an additional 2 minutes if they like.
Mr. Ganske. I very much appreciate that, Mr. Chairman,
because I wanted to get to your and my feelings on this, and
that is that you have advocated a similar approach in terms of
block grants to States who have in some cases set up programs
to help subsidize citizens in those States with prescription
drugs.
I think that, Mr. Chairman, you and I are closer to each
other on this than we actually were to either the Democratic or
the GOP bill last year. I have some concerns with the block
grant, because I have some concerns about how you control fraud
and abuse with the block grant program and I have concerns that
in some cases they aren't set up in any of the States; you have
some variability, and I believe for that reason that tying this
in with Medicaid could be accomplished immediately, and there
are controls already built in for fraud and abuse in those
programs, and that this is something we should look at.
Mr. Chairman, as I pointed out, you and I are much closer
together on this than we are far apart. And I just look forward
to, Mr. Chairman, working with you on this issue, because this
is something that we could do now and not have another 2 years
go by and have that widow who isn't so poor that she is in
Medicaid, that she is a dual-eligible, but who is just above
that margin who is really scraping by on her energy bills and
her prescription drug bills, and we could give her help right
now and it would be a simple thing to do. And that is what I
think this Congress should look at.
In addition, we ought to look at fixing the drug
reimportation bill that we passed last year to close some of
the loopholes, particularly on labeling, and that should be
part of it too. I thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. Mr. Brown, for 2
additional minutes.
Mr. Brown. Just a couple of comments rather than questions.
I very much appreciate the panel's insight and I want to thank
you all for that. There was some talk earlier of the amount
of--how we have overfed and then starved or something--the
metaphor--some Medicare+Choice. There is a GAO report of August
2000, and I want to enter one page into the Record, page 3, and
I want to site that paragraph real quick. ``In addition, the
combination of spending forecast areas built into plan payment
rates and BBA payments cause an additional $2 billion, or 8
percent, excess payments to plans. Instead of paying less for
health plan enrollees,'' this is from the GAO, ``we estimate
that aggregate payments to Medicare+Choice plans in 1998 were
about $5.2 billion, 21 percent, or about $1,000 per enrollee
more than if the plan's enrollees had received care in the
traditional fee-for-service program.''
[The information referred to follows:]
. . . In addition, the combination of spending forecast
errors built into plan payment rates and BBA payment provisions
caused an additional $2.0 billion, or 8 percent, in excess
payments to plans. Instead of paying less for health plan
enrollees we estimate that aggregate payments to
Medicare+Choice plans in 1998 were about $5.2 billion (21
percent) or approximately $1,000 per enrollee, more than if the
plans' enrollees had received care in the traditional FFS
program. . . .
Mr. Brown. So I think that we--people in this institution
have sort of tried to convince others that we have overpaid--
that we have underpaid HMOs and that they have been starved,
and there really is no evidence for that.
Second, I appreciate the comments of Mr. Shadegg about the
cost of prescription drugs in the United States and overseas,
and it begs the question, obviously, of why, and the answer.
And I appreciate his siting.
I saw an article recently in the Post, I saw some of those
numbers that were there that he had, but every other country in
the world has a legislature which has stood up to conservative
politicians and prescription drug lobbyists and actually passed
legislation that does something about the cost of prescription
drugs.
I don't know that Mr. Moroni, when he talks about the costs
that GM is almost buried by, and that all of you see with
health plans or whatever, that you understand that this is
going to be awfully difficult to afford any of these Medicare
prescription drug plans unless we do something about cost,
compulsory licensing. That article talked about and was tried
by Senator Kefauver, defeated in the Senate again, because the
hordes of prescription drug lobbyists were all over the Capitol
then as they are now. And until we do something about
compulsory licensing or reimporting, which country after
country after country around the world has done, it injects
competition, not price controls, but competition in this whole
morass of prescription drug price gouging, and it clearly is
the way to go to explore these kinds of alternatives.
Mr. Chairman, I am well beyond my 2 minutes.
Mr. Bilirakis. Mr. Shadegg, 2 minutes.
Mr. Shadegg. Thank you, Mr. Chairman. Let me just say that
I am not going to ask you today to answer any further
questions. I am going to give you a little more information
from the Kefauver study and then ask, if you would, to answer
two questions for us in writing after we finish today.
First of all, let me make it clear, I do not favor drug
price controls mandated by the government. What I want to look
at is competition in the drug industry and make sure that the
industry is, in fact, competitive and that we are not suffering
because it is not competitive.
Interestingly, one of the findings of the Kefauver
committee study that went on in this industry said that of the
22 largest pharmaceutical manufacturers, those firms were
spending, on average, 24 cents out of every dollar on
promotion. Now, interestingly, that was before demand pull
marketing of prescription drugs began in America, because this
was, remember, 1959, and I believe it was also before the
lavish marketing to doctors that goes on today. I can tell you,
you can read about them, and I have an article here about the
dinners that doctors are taken to, the gifts that they are
given, the golf outings that they are taken to.
I have been told by doctors in Phoenix, Arizona that they
will be taken for a night of entertainment out by a drug firm
and they will be taken first to a cigar shop where they can
walk in and pick out anything they want in the entire cigar
shop. They are then taken to a florist where they can pick out
any flowers they want for their spouses, no holds barred; then
they are taken to a restaurant, the highest end restaurant and
fed a lavish dinner. And we have all heard those stories.
So I am concerned and I am not an advocate of government
regulation or government price controls, but I am concerned.
The three questions I would like you to answer are----
Mr. Bilirakis. Please ask the questions. I don't think we
will have time for the responses now.
Mr. Shadegg. No, no. That is why I say answer them in
writing.
First, have you or your organization studied or analyzed
the effect or the phenomenon of these very high U.S. drug
prices versus low foreign prices of drugs, prescription drugs?
That is question one.
Two, do you think the Congress should do that before it
enacts a comprehensive Medicare drug benefit?
Third, have you studied demand pull marketing and its
effect on drug prices in the United States? And if you have or
haven't, do you think the Congress should do that before--and
we will get you these in writing, we will type them and send
them to you--do you think the Congress should do that before it
enacts a comprehensive drug benefit?
And then the third is, have you or your organization
studied the marketing practices of the drug, some of these
parties, golf outings, et cetera, to see the effect of those
marketing strategies on drug pricing in the United States? And
if you have or haven't, do you think the Congress should study
those again when it enacts a comprehensive Medicare drug
benefit?
Mr. Bilirakis. As I indicated, there will be questions
submitted to you and this is among them. Sooner rather than
later, it would be very helpful.
Mr. Shadegg. I appreciate your time.
Mr. Bilirakis. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I would like to follow
up.
Mr. Moroni, if you could tell the committee or GM could
tell the committee of the concern of overutilization, today's
National Journal talks about our Republican Majority Leader
saying that when you have the coverage, you will use it more.
And I know there is a way that that can be dealt with, if you
would get that to the committee.
Ms. Buckley, to follow up on my colleague's questions, I
know Nevada is trying to put together a bipartisan
collaboration. Do you think--what do you think about every
State having to take the responsibility, 50 different States,
each coming up with some way to address the issue of financing
prescriptions for seniors? And also, does the Nevada plan cover
the disabled like Medicare does?
Ms. Buckley. Thank you, Mr. Chairman. I do not think it
would be effective or efficient for seniors to have all 50
States struggle to develop their own programs. It has taken us
2 years to develop our program, and numerous RFPs, and so far
benefits are still unaffordable. I think it would create a
patchwork of ineffective programs when Medicare can be
utilized.
Mr. Green. The concern I have, Mr. Chairman, if we do the
block grant that is proposed, is that the fear of most seniors
is that there are some Members of Congress who fear that we
would block grant all of Medicare in a Medicare reform, and
again we would end up with 50 States trying to provide senior
citizen coverage not just for prescriptions, but for Medicare
in general. And our example with the Medicaid, the diversity of
the benefits under Medicaid is just outrageous. And I can talk
about my own State of Texas. It provides very little Medicaid
coverage compared to other States. So Medicare is a Federal
program and we should coverage prescriptions under the Federal
program.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Green. Can I just get a----
Mr. Bilirakis. Yes or no. Who did you ask that of?
Mr. Green. Ms. Buckley.
Mr. Bilirakis. Ms. Buckley.
Ms. Buckley. Yes, we would like Congress to act so that it
is a more uniform program. States don't have the resources to
provide effective senior prescription drug programs for
seniors. We would like to take our senior prescription drug
money and help seniors with utility bills that they can't
afford.
Mr. Bilirakis. Mr. Engel may inquire for 2 minutes.
Mr. Engel. Thank you, Mr. Chairman. I want to thank the
whole panel, and again, Ms. Buckley, I couldn't agree with you
more. I think that we cannot have a hodgepodge of different
States with different programs. We have the EPOC program in New
York which is a pretty good program, and yet there are
literally hundreds of thousands of seniors that are not
covered. I think Mrs. Kessler is a perfect case in point.
Someone who worked hard all of her life, does not ask for a
handout, a middle class person, and she is just above the
threshold for this and above the threshold for that and gets
very, very little help.
We have to help those seniors. I think it should come down
in this Congress. We should not wait for total Medicare reform.
We need to deal with the prescription drug problem now. I know
that the chairman--under his leadership, we are dealing with it
now.
The bill that was passed in the Congress, the last
Congress, I think is woefully inadequate. Private industry
doesn't want it. Very few seniors would be covered by it. I
think, quite frankly, it is a way of killing real reform in
helping seniors with prescription drugs, and I think that is
not a path that we should go down in this Congress again. I
still maintain that if we provide prescription drug coverage
for seniors, ultimately health care costs in many areas will go
down because preventive care helps do that, and if people are
getting the medication that they need, they will be less sick
later on.
So again, thank you, Mr. Chairman. I look forward to
dealing with all of these issues, and again, I hope we can deal
with this in this Congress so that seniors like Mrs. Kessler
and my mother who reside in the same place, and millions and
millions of seniors all over this country, can get the health
coverage they deserve.
Mr. Bilirakis. I thank the gentleman. I would just merely
say in closing that first of all, Mr. Barrett, I believe it
was, said it well when we were talking about the cost of drugs
in some of these foreign countries versus the cost here. And he
said something about the Americans are subsidizing the cost of
drugs there, and when you stop to think about it, he said it
well there. Now, what is the solution to that is the difficult
part.
But I would say, Mr. Engel brought up--I mean, there are an
awful lot of good arguments against doing something now. There
is concern, there is a fear that if you put some temporary fix
in place to help the needy and the sickest now, that that means
that prescription drugs as a part of Medicare is just something
that is not going to be addressed by this Congress, because the
immediate solution, so to speak, would be considered the final
solution.
I don't believe that. I think that Mrs. Kessler is hurting
now and I think that if we help Mrs. Kessler now--I mean there
is no sin in that--but at the same time, continue to work
toward prescription drugs in Medicare. I feel very strongly
that we have to have prescription drugs in Medicare. I daresay
there aren't many Members of Congress who don't feel that way.
It is just a case again of how you go about it all. And also it
is the complexities of these partnerships that enters the
picture, turf fights enter the picture, all sorts of things
that can.
Can we do it in this Congress? God knows, we have to do it
in this Congress, but we may not; and that means another 2
years plus for Mrs. Kessler to continue to have problems with
her prescription drugs when, in fact, we could probably help
Mrs. Kessler and Mrs. Tauzin and Mrs. Engel and whatnot now and
in the meantime, so to speak.
So I don't know. There are a lot of arguments certainly
against doing anything other than universal. I realize that.
But common sense dictates to me that our job is to help people
now, not necessarily say we will help you 3 or 4 or 5 years
from now.
Well, having said that, we have kept you here a long time
and I really appreciate your patience and your willingness to
be here and to help out, and you have helped. We will be
submitting questions to you, and hopefully all of us working
together, if we can toss aside demagoguery and partisanship for
a change, we can get the job done. Thank you very much. The
hearing is----
Mrs. Kessler. May I say something? I want to thank all you
gentlemen. You have reaffirmed my faith in the U.S. Government.
Mr. Bilirakis. Isn't that nice.
Mrs. Kessler. And I know I am going to go back and tell
this to everybody. So I know I would like to see this happen
before I die.
Mr. Bilirakis. And this comes from a Floridian, I want you
to know, Mr. Brown. Thank you very much. The hearing is
adjourned.
[Whereupon, at 1 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Kaiser Family Foundation
March 19, 2001
Hon. Michael Bilirakis
Chairman
Subcommittee on Health
Committee on Energy and Commerce
United States House of Representatives
Room 2125, Rayburn House Office Building
Washington, DC 20515-6115
Dear Chairman Bilirakis: Thank you again for the opportunity to
testify before the Subcommittee on Health on February 15, 2001
regarding ``Medicare Reform: Providing Prescription Drug Coverage for
Seniors.'' I received the follow-up questions and am submitting the
following information for the record.
Pharmaceutical Company Marketing:
What effect does direct-to-consumer advertising have on
utilization? What effect does pharmaceutical company marketing have on
health care providers? What is your experience with pharmaceutical
prices in other countries versus the United States? If there is a
difference, can you explain why?
Spending by drug manufacturers on direct-to-consumer (DTC)
advertising has increased substantially in recent years, from $266
million in 1994 to $1.3 billion in 1998. However, I am unfortunately
not aware of any systematic analysis of the effect of direct-to-
consumer advertising on utilization. We are beginning such a study in
conjunction with researchers at Harvard University, and I would be
happy to forward the results to you when they are completed.
Indications of the extent to which DTC advertising has reached
consumers can be found in a September 2000 survey we conducted with The
Lehrer Newshour. The survey found that 91% of Americans say they have
seen or heard a drug advertisement in the past 12 months, and over a
third of those who had been exposed to an ad talked to their doctor
about the drug that was advertised. I have enclosed a copy of the
toplines and the summary chartpack from that survey.
While there has been substantial public focus on the growth in DTC
advertising for prescription drugs, marketing targeted to physicians
remains a much larger share of pharmaceutical promotional activities--
drug manufacturers spent an estimated $7 billion on professional
promotion in 1998 compared to $1.3 billion for direct-to-consumer
advertising. This difference is not surprising given the fact that
physicians must prescribe a medication in order for a consumer to have
access to it. We are in the process of conducting a survey of
physicians that includes some questions about drug advertising and
would be happy to also forward those results to you when they are
available.
I have enclosed a copy of our Prescription Drug Trends chartbook
for your reference. This publication provides information about the
trends in prescription drug coverage, spending, prices, use, and
industry structure, and contains additional data on pharmaceutical
company marketing efforts. In addition, the office of the Assistant
Secretary for Planning and Evaluation (ASPE) at the Department of
Health and Human Services is planning a conference to examine and
develop research designs to explore the impacts of direct-to-consumer
pharmaceutical advertising on health care costs and patient outcomes.
The conference will be held on May 30, 2001 in Washington, DC and is
likely to produce additional information on this topic.
Finally, our research has focused primarily on domestic
pharmaceutical issues, so I am unfortunately unable to provide any
information on drug prices in other countries. I would be happy to
provide the Subcommittee with suggestions for other possible sources of
information if that would be helpful.
Delivery of Prescription Drugs Under the Medicaid Program
Please explain the chain that takes place as a prescription drug
tablet journeys from the manufacturing plant to the medicine cabinet of
a senior citizen who gets prescription drug coverage from you.
Every state's Medicaid program operates in a different way, and,
even within a state's Medicaid program, delivery of prescription drugs
may vary depending on beneficiaries' enrollment in a managed care plan.
However, there are general rules and processes that all states share in
delivering prescription drugs to Medicaid beneficiaries.
Each Medicaid program has a formulary consisting of drugs that are
available to all beneficiaries eligible for prescription drug coverage.
The formularies are determined, in large part, by which manufacturers
have agreed to participate in the federal Medicaid drug rebate program.
Participating manufacturers agree to rebate a set amount of payments
for their products, and, in return, the Medicaid formulary includes all
participating manufacturers' products. A few formulary exclusions are
permitted, such as for products with a high risk of abuse or products
that the FDA has determined to be ineffective. In addition, a state can
require the prescriber to seek prior authorization before a particular
drug can be dispensed--a strategy often used for more costly
medications.
When a Medicaid beneficiary receives a prescription, he or she has
it filled at a participating pharmacy that gets its stock either
directly from manufacturers or through wholesalers. Many states have
provisions that require or encourage the use of generic substitutes
when available. Medicaid beneficiaries can face limits to the number of
prescriptions they may fill, quantity of medication dispensed at any
one time, or dollar amounts on the cost of the prescription.
Beneficiaries may also be charged a nominal co-payment for their
medications.
I hope that this information is useful to the Committee as it
considers options for extending prescription drug coverage among
Medicare beneficiaries. Please do not hesitate to contact me if you
need any additional follow-up information. Thank you.
Sincerely,
Diane Rowland, Executive Vice President,
The Henry J. Kaiser Family Foundation
Executive Director, The Kaiser Commission on Medicaid and the
Uninsured
______
Prescription' Solutions
Costa Mesa, CA 92626
March 23, 2001
Questions for witnesses of February 15, 2001
Energy and Commerce Subcommittee on Health
Hearing on Medicare Prescription Drugs
Question 1. What effect does direct-to-consumer advertising have on
utilization?
Direct-To-Consumer (DTC) advertising provides information about
diseases and drugs that treat those ailments. DTC advertising has been
shown to increase utilization of specific drugs according to a report
published in the Journal of Family Practice, December 2000. Physicians
admit to prescribing drugs that patients request even though there are
other less expensive drugs that achieve comparable results. In the same
article, Dr. Richard L. Kravitz, Director of the UC Davis Center for
Health Services Research in Primary Care, has stated ``these ads are
designed to encourage patients to request the advertised drugs from
physicians. In some cases, the request may be appropriate, but the ads
can also result in doctors prescribing drugs they don't deem
necessary.'' For Prescription Solutions, utilization (based on number
of prescriptions/member/year) has increased 17% over the past 3 years.
Question 2. What is your experience with pharmaceutical prices in
other countries versus the United States? If there is a difference, can
you explain?
There have been reports of pricing disparities regarding the cost
of drugs in other countries, but Prescription Solutions has no direct
experience in the pricing of foreign drug products. This subject is
complex since access to certain pharmaceuticals and drug price controls
vary by country and it is difficult to speak generally regarding the
international markets.
Question 3. What effect does pharmaceutical marketing have on
health care providers?
Physicians are susceptible to marketing pressures much as any other
segment of society. Pharmaceutical marketing to providers may take the
form of advertising and visits by sales representatives but is often in
the form of drug samples. According to a New York Times article,
November 15, 2000, some physicians that have responsibility for
pharmacy budgets believe that the ready availability of samples in
medical offices increases inappropriate drug utilization. In the
article, Dr. John B. Chessare, chief medical officer at Boston Medical
Center, states that his hospital was strongly discouraging its doctors
from accepting free drug samples. Health care administrators also
assert that the samples are helping to inflate their drug costs.
Focus groups conducted by Prescription Solutions have demonstrated
an interest by physicians in generic drug sampling that would encourage
use of appropriate and cost effective therapies. A generic sampling
program has been initiated to help physicians counteract the effect of
pharmaceutical samples of new, branded drugs.
MEDICARE REFORM
Question 1. Please explain the chain that takes place as a
prescription drug tablet journeys from the manufacturing plant to the
medicine cabinet of a senior citizen who gets prescription drug
coverage from you.
The diagram below shows the ``high level'' flow of a prescription
drug from the manufacturer to the patient. It doesn't account for all
areas of interaction, however. There are negotiations with the
manufacturer for discounts and rebates on formulary drugs selected.
There are also computer systems that support the insurance eligibility
of the patient, check for drug interactions, and price the
prescriptions so the pharmacy can be paid. The patient also has a
choice of pharmacies between either a retail pharmacy (patient picks up
the prescription) or a mail service pharmacy (prescription is delivered
to patient's home).
A patient visits their doctor and may receive a prescription for a
medicine, which they will take to the pharmacy to be filled. If the
drug is on the health plan formulary, it will be dispensed to the
patient with instructions for proper use and storage of the medication.
The patient pays a co-pay that is predetermined according to their
benefit and then takes the medication home for use. If the medication
is not on the formulary, the physician will be contacted. The physician
will call in the request or fax a form for the request of a
nonformulary drug. Clinical guidelines have been established for the
use of nonformulary drugs. If the patient meets those criteria,
approval will be given, and the drug will be dispensed by the
pharmacist. If approval is denied, the physician will often be given
formulary options to use that will be therapeutically equivalent to the
requested drug.
Non-formulary drugs are reviewed via a Prior Authorization process
for medical necessity. Guidelines have been established by the Pharmacy
& Therapeutics Committee for the appropriate use of non-formulary
drugs. Drugs are chosen for the formulary based on safety and efficacy.
There are more than 1600 drugs on the formulary, and 24 million
prescriptions filled annually for our Medicare members. Occasionally,
medications are requested that are not on the formulary and must be
evaluated on an individual basis. About one percent of all
prescriptions require prior authorization before being filled, and of
these cases, 75% of the prescriptions written are approved without
further action. Approximately one-fourth of one percent of all
prescriptions are denied.
Question 2. To the extent that you or the organization you work
for, have experience with the purchase and supply of prescription drugs
abroad, please identify any differences you are aware of in the
international systems.
We are a domestic company. Since we are subject to the drug
importation laws, we do not buy drugs from foreign countries.
Thank you for the opportunity to provide clarification on these
questions.
Sincerely,
John Jones, R.Ph., J.D.
V.P. Legal and Regulatory