Piper Report
Blog on Medicare, Medicaid, health reform, and more. Insights and resources on hot issues. Kip Piper, editor.
Healthcare consultant, speaker, and writer. Expert on Medicare, Medicaid, health reform, and pharma, biotech, and medical technology industries. President, Health Results Group LLC. Senior advisor to Sellers Dorsey, TogoRun, and Fleishman-Hillard. Visit KipPiper.com. Or email Kip here.
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Medicaid Drug Benefit
posted: July 1, 2010

AHDB June 2010.jpgThe latest issue of the journal American Health & Drug Benefits includes a valuable mix of studies and articles of interest to decision makers. Topics include health reform, bundled payment, drug pricing, benefit design, Medicaid, medication therapy, and specific clinical conditions.


The Health Reform Law: Key Changes to Be Implemented in 2010
By Kip Piper, MA, FACHE


Federal Drug Price Controls in Medicaid: Expansion of Mandated Rebates under Health Reform Law
By Kip Piper, MA, FACHE


Prevalence of Treated Bipolar Disorders and Associated Comorbidities in Managed Care and Medicaid Populations
By Jeff J. Guo, PhD; Nick C. Patel, PharmD, PhD; Hong Li, PhD; and Paul E. Keck Jr, MD. With Stakeholder Perspective by Nirav R. Shah, MD, MPH


Impact of Etanercept Treatment on Absenteeism and Productivity: The Work Loss and Productivity Survey
By Denise Globe, PhD; Peter Mazonson, MD, MBA; Chris Santas, MBA; Regina Murphy, MBA; Annie Cheng; Xingyue Huang, BPharm, PhD; and Arthur Kavanaugh, MD. With Stakeholder Perspective by Atheer A. Kaddis, PharmD


Health Benefit Coverage, Reimbursement, and Influences on Traditional Pharmaceutical Channels
By F. Randy Vogenberg, RPh, PhD. With Stakeholder Perspective by Gary M. Owens, MD


Bundled Payment: A Promising Initiative of Payment Reform
By Jim Evans


Impact of 2 Copay Waivers in a Generic Incentive Program
By Anthony F. Liu, MSCS; Tom Jecklin; Geoffrey Lee; and James Hogan


Medication Adherence: Effectiveness of Physician Alerts to Resolve Potential Gaps in Pharmacotherapy
By Joshua N. Liberman, PhD; Janice Moore, MPH; Asif Ally, RPh, MBA; and Troyen A. Brennan, JD, MD


New Approaches to Treating HCV Infection
By Caroline Helwick


Promising New Approaches to Multiple Sclerosis Medications: AAN 2010
By Alice Goodman


The June issue of AHDB includes highlights from the 2010 annual meeting of the Academy of Managed Care Pharmacy:

  • Patient Out-of-Pocket Cost Affects Adherence to Oral Oncology Medications

  • Cost-Effectiveness Trends for 20 Top-Selling Drugs

  • Effect of Diabetes Medication Adherence on Costs and Outcomes

  • Applying Pharmacogenomics in Oncology Care

  • Read or Download June 2010 Issue:


    To read or download the June 2010 issue, click here. To read or download specific articles in PDF, click here.


    American Health & Drug Benefits:


    American Health & Drug Benefits is available in print and online at www.AHDBonline.com. AHDB is a peer-reviewed journal for 30,000 decision makers in health plans, prescription drug plans, PBMs, the federal Medicare program, state Medicaid programs, and the pharma, biotech, and medical device and diagnostics industries.


    Kip Piper is health policy editor of American Health & Drug Benefits.

    posted: June 30, 2010

    Medicaid Drug Rebate Changes.jpgFederally mandated rebates for prescription drugs in Medicaid were expanded significantly - by $38 billion - under the new health reform law, with extraordinary financial, administrative, and compliance implications for pharmaceutical manufacturers, Medicaid health plans, and state Medicaid programs.


    In a new journal article, I explain changes to the Medicaid drug rebate program and implications for drug makers, health plans, and states. The article appears in the June 2010 issue of the peer-reviewed journal American Health & Drug Benefits.


    The article provides a primer on the basics of the Medicaid drug rebate program, including Average Manufacturer Price (AMP), Best Price, federal rebate agreements with drug manufacturers, supplemental rebates, Preferred Drug Lists (PDLs), reporting of drug prices by pharma and biotech companies, and drug utilization reporting by state Medicaid agencies.


    The article then summarizes the major changes effective for 2010, notably (1) increased minimum federal rebate percentages for brand and generic drugs and (2) extension of federallly mandated minimum drug rebates to Medicaid drug utilization in Medicaid managed care organizations. It concludes with a brief discussion of implications for states, drug makers, and health plans.

    posted: August 9, 2009

    At the last annual meeting of the Academy of Managed Care Pharmacy, several of us spoke on pharmaceutical research and development in the quickly emerging value-driven healthcare system. Topics focused on the impact of value-based benefit designs, comparative effectiveness research, and government policies on the development of new drugs and biologics:


    Research and Development in the Current Healthcare System: An Overview
    Thomas McCarter, MD, FACP


    What Constitutes Medical Evidence in the Era of Comparative Effectiveness?
    Nirav R. Shah, MD, MPH, FACP


    New Government Policies: Opportunities for Supporting Research and Development
    Kip Piper, MA, FACHE


    Drug Discovery and Development in a Value-Driven Healthcare System
    Matthew Sarnes, PharmD


    A Hypothetical Case: Current Drug R&D Process
    Michael F. Murphy, MD, PhD


    Our presentations were published in a supplement issue of American Health & Drug Benefits, a peer-reviewed journal serving about 30,000 decision makers. To read the articles, which are approved for continuing education credit, click here.

    posted: July 30, 2009

    Doctor Catching Up on Laptop.jpgHere are articles from the latest issue of American Health & Drug Benefits. AHDB is a peer-reviewed journal for 30,000 decision makers in health plans, PBMs, Medicare, Medicaid, and the pharma and biotech industries:


    June - July 2009 Issue:


    Applying Evidence for Medical Technologies: Closing the Gap between R&D and Decision Maker Need
    Interview with Sean R. Tunis, MD, MSc


    The Working Patient with Cancer: Implications for Payers and Employers
    By Grant D. Lawless, BSPharm, MD, FACP


    Lower Copay and Oral Administration: Predictors of First-Fill Adherence to New Asthma Prescriptions
    By Zackary Berger, MD, PhD; William Kimbrough, MD; Colleen Gillespie, PhD; Joseph A. Boscarino, PhD, MPH; G. Craig Wood, MS; Zhengmin Qian, MD, PhD; J. B. Jones, PhD, MBA; and Nirav R. Shah, MD, MPH


    Use Pattern and Off-Label Use of Atypical Antipsychotics in Adults with Bipolar Disorder, 1998-2002
    Jeffery A. Demland, MS; Yonghua Jing, BPharm, PhD; Christina M. L. Kelton, PhD; Jeff J. Guo, BPharm, PhD; Hong Li, MPH, PhD; and Patricia R. Wigle, PharmD


    Biosimilars Policy Forum: Perspectives on Safety and Efficacy of Future Products
    By F. Randy Vogenberg, RPh, PhD


    Payer Perspectives on Healthcare Reform
    By Peyton Howell, MHA; Gene Reeder, RPh, PhD; and Timothy S. Regan, BPharm, RPh, CPh


    Prioritizing Healthcare Resources to Keep the Baby Boomers Out of Nursing Homes
    By Robert E. Henry


    The View from Washington: Healthcare Reform
    By John Gorman


    Read Current and Past Issues:


    American Health & Drug Benefits is available in print and online at www.AHDBonline.com. To view the current or past issues or download in PDF format, click here.


    AHDB also published web exclusives, available for reading here.


    Kip Piper is health policy editor of American Health & Drug Benefits.

    posted: July 28, 2009

    Boy in Hospital.jpgThe Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA) created the Medicaid and CHIP Payment and Access Commission (MACPAC) to advise Congress on a wide range of Medicaid and CHIP issues. MACPAC will start operating in early 2010.


    MACPAC Membership and Staff:


    Modeled closely after the long standing and highly influential Medicare Payment Advisory Commission (MedPAC), MACPAC will be a Congressional agency like MedPAC, the Congressional Budget Office (CBO), and the Government Accountability Office (GAO). Like MedPAC, the 17-member MACPAC will include an executive director and a professional staff of ~25-40. MACPAC appoints the executive director.


    The 17 Commission members will be appointed for three-year, staggered terms, by the Comptroller General (head of the GAO), with representation from health financing experts, physicians, health professionals, employers, third-party payors, consumers, and current or former state Medicaid / CHIP officials. Non-health care providers must constitute a majority of the MACPAC membership. MACPAC appointments must be made by January 1, 2010.


    Qualifications for MACPAC Membership:


    In general, MACPAC's membership must include individuals with direct experience as:

    • Medicaid / CHIP beneficiaries or parents of beneficiaries.
    • Individuals with national recognition for expertise in Medicaid, CHIP, health finance and economics, actuarial science, health plans, integrated health systems, reimbursement, health information technology, or health care providers (e.g., pediatricians, dentists).

    In particular, the MACPAC membership must include physicians and other health professionals, employers, third-party payors, and individuals with expertise in the delivery of health services. This must include:

    • Members representing children, pregnant women, the elderly, and individuals with disabilities
    • Current or former state Medicaid agency officials.
    • Current or former State CHIP agency officials.

    Congress seeks a mix of different professionals, broad geographic representations, and a balance between urban and rural representatives.


    Role and Duties of MACPAC in Advising Congress on Medicaid and Children's Health Insurance Program:


    Starting in 2010, MACPAC will:

    • Review Medicaid and CHIP policies affecting children's access to covered services and make recommendations to Congress, with a report due by March 1 each year.
    • More broadly examine issues affecting Medicaid and CHIP, including implications of changes in care delivery and the marketplace. Make recommendations to Congress, with report due by June each year.

    More specifically, Congress directs MACPAC to regularly review and assess:

    • Medicaid and CHIP payment policies, including state payment methodologies and factors affecting expenditures in different sectors, including the process for updating reimbursement rates for hospitals, nursing facilities, physicians, and community health centers.
    • The relationship of payment policies to access and quality of care for Medicaid and CHIP beneficiaries.
    • Interaction of Medicaid and CHIP payment policies with health care delivery.
    • Implications of health care delivery changes and other marketplace changes on access to care for Medicaid and CHIP beneficiaries.
    • The effect of other Medicaid and CHIP policies on access to covered health care services, including transportation and language barriers.

    MACPAC must also:

    • Create an early warning system to identify provider shortage areas or any other problems that threaten access to care or the health care status of Medicaid and CHIP beneficiaries.
    • Review and comment to Medicaid and CHIP related reports to Congress by HHS.
    • Upon request of committee chairs or ranking members, conduct studies, produce special reports, and make recommendations to Congress on Medicaid and CHIP issues.
    • Periodically consult with Congressional leadership (committee chairs and ranking members), make its reports available to the HHS Secretary and the public, record and report votes on all recommendations, and examine the budget consequences of recommendations.
    • Before making any recommendations, MACPAC must consider the budget consequences of such recommendations, directly or through consultation with experts.

    CHIPRA also contains provisions on MACPAC operations, data collection and access, authority, funding and staffing. Again, these closely align with existing policies governing MACPAC's sister agency MedPAC.


    Committee Jurisdictions in Congress:


    MACPAC will be accountable to the Congressional committees with jurisdiction for Medicaid and CHIP, namely:

    posted: December 18, 2008

    CBO%20Health%20Budget%20Options.jpgTo aid the incoming 111th Congress and Obama Administration, the Congressional Budget Office (CBO) released a 235-page report outlining 115 budget options for health care reform. The report catalogs most of the hottest legislative ideas on Capitol Hill, with useful background information and scores of costs and savings. Here's the list of reform ideas in the report:


    The Private Health Insurance Market:


  • Foster the Formation of Association Health Plans

  • Allow Individuals to Purchase Non-Group Health Insurance Coverage in Any State

  • Impose a Pay-or-Play Requirement on Large Employers

  • Establish a National High-Risk-Pool Program

  • Establish a National Reinsurance Program to Provide Subsidies to Insurers and Firms for Privately Insured Individuals

  • Require States to Use Community Rating for Small-Group Health Insurance Premiums

  • Create a Voucher Program to Expand Health Insurance Coverage

  • Limit Awards from Medical Malpractice Torts

  • The Tax Treatment of Health Insurance:


  • Reduce the Tax Exclusion for Employment-Based Health Insurance and the Health Insurance Deduction for Self-Employed Individuals

  • Replace the Income Tax Exclusion for Employment-Based Health Insurance with a Deduction

  • Replace the Income and Payroll Tax Exclusion with a Refundable Credit

  • Allow Self-Employed Workers to Deduct Health Insurance Premiums from Income That Is Subject to Payroll Taxes

  • Expand Eligibility for an "Above-the-Line" Deduction for Health Insurance Premiums

  • Disallow New Contributions to Health Savings Accounts

  • Allow Health Insurance Plans with Coinsurance of at Least 50 Percent to Qualify for the Health Savings Account Tax Preference

  • Levy an Excise Tax on Medigap Plans

  • Changing the Availability of Health Insurance Through Existing Federal Programs:


  • Raise the Age of Eligibility for Medicare to 67

  • Create a Medicare Buy-In Program for Individuals Ages 62 to 64

  • Eliminate or Reduce Medicare's 24-Month Waiting Period for Recipients of Social Security Disability Benefits

  • Create a Medicaid Buy-In Program

  • Require States to Adopt Premium Assistance Programs for Medicaid Enrollees

  • Expand Eligibility for Medicaid Family Planning Services

  • Expand Medicaid Eligibility to Include Young Adults with Income Below the Federal Poverty Level

  • Expand Medicaid Eligibility to Include Parents with Income Below the Federal Poverty Level

  • Establish a Medicaid Outreach Program with Mandatory Funds

  • Permanently Extend the Transitional Medical Assistance Provision in Medicaid

  • Allow People and Firms to Buy Health Insurance Plans Through the Federal Employees Health Benefits Program

  • End Enrollment in VA Medical Care for Veterans in Priority Groups 7 and 8

  • Reopen Enrollment for VA Medical Care Among Priority Group 8 Veterans for Five Years

  • The Quality and Efficiency of Health Care:


  • Bundle Payments for Hospital Care and Post-Acute Care

  • Reduce Medicare Payments to Hospitals with High Readmission Rates

  • Expand the Hospital Quality Incentive Demonstration to All Hospitals

  • Deny Payment Under Medicaid for Certain Hospital-Acquired Conditions

  • Establish Regional Centers of Excellence for Selected Surgical Procedures Covered by Medicare

  • Convert Medicare and Medicaid Disproportionate Share Hospital Payments into a Block Grant

  • Consolidate Medicare and Federal Medicaid Payments for Graduate Medical Education Costs at Teaching Hospitals

  • Allow Physicians to Form Bonus-Eligible Organizations and Receive Performance-Based Payments

  • Pay Primary Care Physicians in Medicare Using a Partial-Capitation System, with Bonuses and Penalties

  • Pay for a Medical Home for Chronically Ill Beneficiaries in Fee-for-Service Medicare

  • Require Medicare Carriers to Provide Information About Peer Profiling to Physicians

  • Require Prior Authorization for Imaging Services Under Medicare

  • Encourage Wider Use of Patient Shared-Decision Aids by Physicians in Medicare

  • Expand Medicare's Least Costly Alternative Policy to Include Viscosupplements

  • Require Drug and Device Manufacturers to Disclose Their Relationships with Physicians Who Participate in Medicare

  • Fund Research Comparing the Effectiveness of Treatment Options

  • Create Incentives in Medicare for the Adoption of Health Information Technology

  • Require the Use of Health Information Technology as a Condition of Participation in Medicare

  • Support Development of VistA to Meet Standards and Encourage Adoption

  • Sponsor Regional Markets for Health Information Technology

  • Geographic Variation in Spending for Medicare:


  • Reduce Medicare's Fees for Physicians in Areas with Unusually High Spending

  • Reduce Medicare's Payment Rates for Hospitals in Areas with a High Volume of Elective Admissions

  • Reduce Medicare's Payment Rates Across the Board in High-Spending Areas

  • Impose a Surcharge on Medicare Cost Sharing in High-Cost Areas and Prohibit Medigap Plans from Covering the Surcharge

  • Paying for Medicare Services:


  • Reduce Annual Updates in Medicare Fee-for-Service Payments to Reflect Expected Productivity Gains

  • Reduce the Update Factor for Hospitals' Inpatient Operating Payments Under Medicare by 1 Percentage Point

  • Reduce the Update Factor for Payments to Providers of Post-Acute Care Under Medicare by 1 Percentage Point

  • Eliminate Inflation-Related Updates to Medicare's Payment Rates for Home Health Care for Five Years

  • Reduce the Update Factor for Medicare's Payments for Skilled Nursing Facilities by 1 Percentage Point

  • Modify the Sustainable Growth Rate Formula for Updating Medicare's Physician Payment Rates

  • Create Service-Specific Updates for Medicare's Physician Payment Rates

  • Use the Medicare Economic Index to Update Physician Payment Rates for Evaluation and Management Services and Create Four Service-Specific Updates for Remaining Services

  • Modify the Equipment Utilization Factor for Advanced Imaging in Calculating Physicians' Fees in Medicare

  • Set the Benchmark for Private Plans in Medicare Equal to Local Per Capita Fee-for-Service Spending

  • Convert Medicare to a Premium Support System

  • Establish Benchmarks for the Medicare Advantage Program Through Competitive Bidding

  • Eliminate the One-Sided Rebasing Process for Establishing Benchmarks for Medicare Advantage Plans

  • Require Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Medicare Part D

  • Establish an Abbreviated Approval Pathway for Follow-On Biologics

  • Financing and Paying for Services in Medicaid and State Children's Health Insurance Program:


  • Convert the Federal Share of Medicaid's Payments for Acute Care Services into an Allotment

  • Remove or Reduce the Floor on Federal Matching Rates for Medicaid Services

  • Equalize Federal Matching Rates for Administrative Functions in Medicaid at 50 Percent

  • Restrict the Allocation to Medicaid of Common Administrative Costs

  • Reduce the Taxes That States Are Allowed to Levy on Medicaid Providers

  • Modify the Amount of the Brand-Name Drug Rebate in the Medicaid Program

  • Apply the Fee-for-Service Medicaid Drug Rebate to Drugs Purchased for Medicaid Managed Care Enrollees

  • Apply the Medicaid Additional Rebate to New Formulations of Existing Drugs

  • Base Medicaid's Pharmacy Payment Formulas for Brand-Name Drugs on the Average Manufacturer Price

  • Encourage Therapeutic Substitution in Medicaid by Applying Federal Upper Payment Limits to Two Classes of Drugs

  • Eliminate Allotment Caps for the State Children's Health Insurance Program and Permit States to Expand Coverage up to 400 Percent of the Federal Poverty Level

  • Adjust Funding for the State Children's Health Insurance Program to Reflect Increases in Health Care Spending and Population Growth

  • Premiums and Cost Sharing in Federal Health Programs:


  • Replace Medicare's Current Cost-Sharing Requirements with a Unified Deductible, a Uniform Coinsurance Rate, and a Catastrophic Limit

  • Restrict Medigap Coverage of Medicare's Cost Sharing

  • Combine Changes to Medicare's Cost Sharing with Restrictions on Medigap Policies

  • Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare

  • Require a Copayment for Home Health Episodes Covered by Medicare

  • Impose a Deductible and Coinsurance for Clinical Laboratory Services Covered by Medicare

  • Increase the Basic Premium for Medicare Part B to 35 Percent of the Program's Costs

  • Permanently Extend the Provision That Provides Cost-Sharing Assistance for Qualifying Individuals Under Medicaid

  • Eliminate the Doughnut Hole in Medicare's Drug Benefit Design

  • Institute a Premium for Higher-Income Enrollees Under Medicare's Drug Benefit Similar to That Used in Part B

  • Increase the Fraction of Beneficiaries Who Pay an Income-Related Premium for Part B of Medicare

  • Base Federal Retirees' Health Benefits on Length of Service

  • Adopt a Voucher Plan for the Federal Employees Health Benefits Program

  • Require Federal Employees Health Benefits Plans to Subsidize Premiums for Medicare Part B and Reduce Coverage of Medicare Cost Sharing by an Equivalent Amount

  • Increase Health Care Cost Sharing for Family Members of Active-Duty Military Personnel

  • Introduce Minimum Out-of-Pocket Requirements Under TRICARE For Life

  • Increase Medical Cost Sharing for Military Retirees Who Are Not Yet Eligible for Medicare

  • Require Copayments for Medical Care Provided by the VA to Enrollees Without a Service-Connected Disability

  • Long-Term Care:


  • Increase States' Flexibility to Offer Home- and Community-Based Services Through Medicaid State Plan Amendments

  • Make Home and Community-Based Services a Mandatory Benefit Under Medicaid

  • Increase the Federal Matching Rate for Home and Community-Based Services and Decrease the Federal Matching Rate for Nursing Home Services

  • Clarify Medicaid's Definition of Permissible Asset Transfers

  • Increase the "Look-Back" Period for Transfers of Assets in Medicaid

  • Implement Policies That Encourage the Use of Advance Directives

  • Require Deposits to Individual Accounts for Purchasing Long-Term Care Insurance

  • Health Behavior and Health Promotion:


  • Impose an Excise Tax on Sugar-Sweetened Beverages

  • Increase the Excise Tax on Cigarettes by One Dollar Per Pack

  • Increase All Taxes on Alcoholic Beverages to $16 Per Proof Gallon

  • Reduce Medicare Payment Rates for Primary Care Physicians Who Do Not Meet Benchmarks for Influenza Vaccination

  • Base Medicare's Coverage of Preventive Services on Evidence of Effectiveness

  • Closing the Gap Between Medicare's Spending and Receipts

  • Increase the Payroll Tax Rate for Medicare Hospital Insurance by 1 Percentage Point

  • Limit Growth in Medicare Per Capita Spending to Growth in Per Capita Gross Domestic Product Plus 1 Percentage Point

  • Design an Enforcement Mechanism for the Medicare Funding Warning

  • Set a Savings Target to Reduce Spending for Medicare by 1 Percent

  • Increase Funding for the Health Care Fraud and Abuse Control Program in Medicare and Medicaid

  • posted: August 18, 2008

    Medicaid%20Policy%20Making.jpgMany of my clients ask me how Medicaid policy is made, particularly for coverage, reimbursement, and managed care and other delivery systems. The $360 billion Medicaid program is highly complex and there are many nuances and exceptions, but here is a high-level primer on the basics.


    Given the Medicaid program's shared federal-state funding and governance, underlying complexity, and variability across the respective states, Medicaid policy is set through several distinct vehicles, some federal and some state.


    Medicaid Policy Making by Federal Government:


    The primary federal policy making vehicles are:


    Federal Medicaid Statutes:


    Title XIX of the Social Security Act provides the federal statutory framework for Medicaid nationwide. Like its Medicare counterpart, Title XIX is extraordinarily complex and frequently amended by Congress. The federal Medicaid statutes are a mix of mandates and options for states. Medicaid legislative changes are often accomplished through budget reconciliation bills rather than separate stand-alone legislation. Short-term fixes may be made through appropriations bills.


    Federal Medicaid Rules:


    The vast bulk of federal Medicaid rules are promulgated by the Centers for Medicare and Medicaid Services (CMS). As with Medicare rules, CMS must follow the rulemaking process required by federal Administrative Procedures Act (APA) and the same clearance process. Most proposed and final rules affecting Medicaid are drafted by staff in CMS' Center for Medicaid and State Operations (CMSO), with legal advice from the HHS Office of General Counsel (OGC). Before publication in the Federal Register, proposed and final rules require approval of the HHS Secretary and White House Office of Management and Budget (OMB). OMB's Medicaid rule reviews are conducted primarily by the Medicaid Branch in OMB's Health Division but coordinated through OMB's Office of Information and Regulatory Affairs.


    Federal Medicaid Guidance:


    CMS uses several mechanisms to make or clarify Medicaid policy through "sub-regulatory guidance." This includes CMS' State Medicaid Manual and an important and influential ad hoc series of letters to State Medicaid directors - both issued by CMSO.


    Federal law requires formal rulemaking for most substantive policy making, including interpretations of federal statutes. However, CMS often sets policy administratively, either in lieu of or far in advance of formal rule making. For example, if Congress makes significant changes to Title XIX with a tight deadline for implementation, CMS often issue a guidance letter or directive months in advance of issuing necessary conforming regulations. CMS must perform a balancing act to comply with the intent of APA and still implement frequent changes enacted by Congress or expected by the White House or HHS Secretary.


    Officially, letters to State Medicaid directors (SMDs) are not intended to make policy per se but many states and experts believe some of these SMD letters make policy that requires formal rulemaking. Under a new Executive Order, OMB now has the authority to review and approve CMS guidance. This is consistent with its longstanding authority to review rules and waivers and a response to growing use of sub-regulatory issuances by agencies across the Executive Branch. OMB's new role continues to evolve.


    Federal Medicaid Waivers:


    Under sections 1115 and 1915 of the Social Security Act, the HHS Secretary may waive a variety of federal statutes and rules to permit state Medicaid programs to change benefit packages, eligibility, cost sharing, and care delivery in ways not permitted by current law. For my recent primer on federal Medicaid and Medicare waivers, click here.


    State%20Rules.jpgMedicaid Policy Making by States:


    The state-level policy making mechanisms in Medicaid are:


    Medicaid State Plan:


    Each state Medicaid program has its own "State Plan," which serves as the funding agreement between the state Medicaid agency and CMS. The State Plan specifies all of the state's key policies on Medicaid eligibility, benefits, cost sharing, reimbursement, managed care, quality assurance, utilization management, and program integrity. Here's an example of a Medicaid State Plan.


    State Plans are highly detailed (typically 1000-2000 or more pages in length) and subject to frequent revision to reflect changes in federal law or rules, CMS guidance, state policy choices, and court rulings. State Plan Amendments (SPAs) are drafted by the state Medicaid agency and submitted to CMS for approval. Many SPAs are routine, following "preprints" - boilerplate checklists that allow states to propose SPAs needed to conform the State Plan to federal mandatory policies or common practices already approved for other states. States don't have to follow the preprints but it makes routine SPAs much easier. The state publishes a prior public notice for each SPA.


    Routine SPAs are handled by the CMS regional offices but CMSO's central office staff in Baltimore handles all major and controversial SPAs. CMS may ask questions and may deny SPAs that it determines fail to comply with federal requirements. If an SPA rejected, the state may appeal CMS' decision to the HHS Departmental Appeals Board (DAB) and thereafter to the federal courts.


    State Statutes and Administrative Rules:


    Each state also sets some degree of Medicaid policy through state statutes and administrative rules. States vary widely in the degree to which state Medicaid policies are set forth in statutes or rules. Most states set eligibility, benefit packages, and cost sharing in statute and/or rules. Other policies, such as specific reimbursement methodologies and rates, are sometimes set administratively by the state Medicaid agency through manuals and instructions to providers. The basic parameters of hospital and nursing home payment formulars are often set in state statute. Still other policies are made through the state budget process or contracting mechanisms, such as managed care RFPs and Medicaid health plan contracts.


    However, some states, specify a considerable amount of Medicaid policy through rules. While state Medicaid rules are drafted and promulgated by the state Medicaid agency, some states require legislative committee review and approval of all rules. (Note that regardless what is addressed in state statutes or rules, the State Plan must reflect the latest policies.)

    posted: January 29, 2008

    Value%20Based%20Drug%20Benefits.jpgMore purchasers and payors are moving away from simplistic cost-driven drug benefit designs to formularies and cost sharing based on value. The impact of value-based drug benefit designs on manufacturers will depend on how quickly individual firms adapt their business thinking and communications strategies.


    Until recently, the path to success for a drug manufacturer was based largely on product novelty, physician-centric marketing, and revenue strategies balancing unit prices and concessions against formulary position.


    To maximize market share and margins in the world of value-based drug benefit designs, drug manufacturers will need to:


    (1) Demonstrate the clinical and economic case for each product and each therapeutic class with an indication,


    (2) Build absolute and comparative evidence on a continuous basis,


    (3) Develop new value-based pricing models and market partnerships, and


    (4) Communicate far more effectively with public and private payors.


    For many firms, this will require a significant, even scary change in thinking and tactics; payor-centric communications; comfort with a massive increase in transparency; and a greater willingness to partner. Therefore, while the financial risks of moving to a value-based world are daunting, ultimately the greatest challenges are intellectual.


    Value-based drug benefit designs will pose the greatest challenges to manufacturers with product lines (or pipelines) dominated "me too" drugs; rigid, risk-adverse organizational silos; and out-dated, prescriber-centric communications.

    posted: October 9, 2007

    Comparative%20Effectiveness%20Methods.jpgThe journal Medical Care has published series of outstanding articles on emerging methods and tools to compare the effectiveness of medical therapies, prescription drugs, and devices. The peer-reviewed articles are an outgrowth from a symposium on comparative effectiveness research sponsored by the Agency for Healthcare Research and Quality (AHRQ).


    Here are links to the individual articles in PDF format:


  • Emerging Methods in Comparative Effectiveness and Safety: Symposium Overview and Summary.

  • Medicare Part D Data: Major Changes on the Horizon.

  • Methodologic Challenges to Studying Patient Safety and Comparative Effectiveness.

  • Creating and Synthesizing Evidence With Decision Makers in Mind: Integrating Evidence From Clinical Trials and Other Study Designs.

  • Improving Depiction of Benefits and Harms: Analyses of Studies of Well-Known Therapeutics and Review of High-Impact Medical Journals.

  • Cluster Randomized Trials: Opportunities and Barriers Identified by Leaders of Eight Health Plans.

  • Design of Cluster-Randomized Trials of Quality Improvement Interventions Aimed at Medical Care Providers.

  • Designed Delays Versus Rigorous Pragmatic Trials: Lower Carat Gold Standards Can Produce Relevant Drug Evaluations.

  • Practice-Based Evidence Study Design for Comparative Effectiveness Research.

  • Studying Prescription Drug Use and Outcomes With Medicaid Claims Data: Strengths, Limitations, and Strategies.

  • Assessment of Adherence to and Persistence on Disease-Modifying Antirheumatic Drugs (DMARDs) in Patients With Rheumatoid Arthritis.

  • Out-of-Pocket Pharmacy Expenditures for Veterans Under Medicare Part D.

  • Developing Indicators of Inpatient Adverse Drug Events Through Nonlinear Analysis Using Administrative Data.

  • Real-Time Vaccine Safety Surveillance for the Early Detection of Adverse Events.

  • Evaluation and Overview of the National Electronic Injury Surveillance System-Cooperative Adverse Drug Event Surveillance Project (NEISS-CADES).

  • Using Inverse Probability-Weighted Estimators in Comparative Effectiveness Analyses With Observational Databases.

  • A Simulation-Based Evaluation of Methods to Estimate the Impact of an Adverse Event on Hospital Length of Stay.

  • Evaluating the Validity of an Instrumental Variable Study of Neuroleptics: Can Between-Physician Differences in Prescribing Patterns Be Used to Estimate Treatment Effects?

  • Heterogeneity and the Interpretation of Treatment Effect Estimates From Risk Adjustment and Instrumental Variable Methods: Surgery for Early-Stage Breast Cancer.

  • Increasing Levels of Restriction in Pharmacoepidemiologic Database Studies of Elderly and Comparison With Randomized Trial Results.

  • Use of Propensity Score Technique to Account for Exposure-Related Covariates: An Example and Lesson.

  • Using Propensity Scores Subclassification to Estimate Effects of Longitudinal Treatments: An Example Using a New Diabetes Medication.

  • Adjustments for Unmeasured Confounders in Pharmacoepidemiologic Database Studies Using External Information.

  • Comparison of Meta-Analytic Results of Indirect, Direct, and Combined Comparisons of Drugs for Chronic Insomnia in Adults: A Case Study.
  • posted: July 20, 2007

    ASP%20for%20Biologics.jpgThe well-regarded industry trade journal Biotechnology Healthcare has an excellent article by Patrick Mullen on The Arrival of Average Sales Price. In it, Mr. Mullen interviews several top industry experts (yes, including me) on the rationale for and impact of Average Sales Price (ASP) and how health plans are following Medicare's lead:


    Health plans are beginning to adopt the average sales price method of paying oncologists and other specialists for office-administered drugs. ASP is more transparent and has a smaller markup than its much maligned predecessor, average wholesale price. The speed of ASP uptake will affect everyone who makes, sells, prescribes, and takes these medications.


    Average Sales Price and Drug Reimbursement:

    In 2005, as part of the Medicare Modernization Act (MMA), the way Medicare Part B reimbursed physicians and clinics for biologics and other physician-administered injectable drugs changed fundamentally. Medicare Part B, the nation's largest payor of injectable drugs, started using Average Sales Price (ASP) to base payments for most drug products covered by Part B fee-for-service.


    Using a new, tighter, and more accurate definition of ASP, drug manufacturers must report the Average Sales Price of each of their products. CMS, through its Part B claims processing contractors, reimburses physicians for covered drug products administered to Medicare benies at 106% of ASP, adjusted for volume.


    Wide Ranging Impact of ASP in Marketplace:


    Physician offices, particularly oncologists, have seen significant drops in Medicare revenue. While the impact on drug makers is mixed, overall the switch to ASP has tightened profit margins and required many manufacturers to revise projections.


    Also, like the move of Medicaid to a new and publicly reported version of Average Manufacturer Price (AMP), the ASP reforms are another way drug prices are becoming transparent and flatter or less variable. The transformative effect on business practices and strategy should not be underestimated.


    For Medicare Part B, the switch to ASP-based payment has saved billions of dollars and dramatically slowed the growth in Part B prescription drug spending. Beneficiaries have benefited as well, since they are paying the 20% Part B copay on lower prices. However, there is some evidence that some docs are switching drug therapies (which may or may not be clinically optimal for patients) or forcing patients to receive injections from other settings, such as outpatient hospitals. The behavioral effect on physician practices is still hard to discern beyond the realm of anecdote but is something worth monitoring closely, especially in light of low Medicare rates for professional fees.


    To Learn More About ASP:


    In addition to the article in Biotechnology Healthcare mentioned above, here are some MedPAC resources to understand ASP, Medicare spending on drugs and biologics, and Medicare reimbursement of physician services:


  • MedPAC Report on Impact of Changes in Medicare Payments for Part B Drugs.

  • MedPAC Data Book Chapter on Medicare Drug Spending and Utilization.

  • Primer on Medicare Part B physician payment.

  • posted: July 17, 2007

    AMP%20and%20Medicaid%20Pharmacy%20Rules.jpgIn the Deficit Reduction Act (DRA), Congress made major, controversial, and technically complex changes to Medicaid prescription drug pricing and pharmacy reimbursement. The policy changes, which are expected to save the feds and states $8.4 billion over the next five years, present significant challenges to both drug manufacturers and retail pharmacies.


    To implement the DRA changes, the Center for Medicare and Medicaid Services (CMS) issued final rules that, most notably: (a) revise the definition of average manufacturer price (AMP), (b) create a new formula for calculating Federal Upper Limits (FULs) on multisource drugs, (c) require rebates for certain physician-administered drugs, and (d) clarify rebate liability for authorized generic drugs.


    Significant Implications:


    For pharmacies, the DRA changes represent significant cuts to Medicaid reimbursement - unless states act to mitigate the changes or increase dispensing fees to compensate for lower product reimbursement. While CMS tried to mitigate the impact on pharmacies, studies by GAO, OIG, and pharmacy trade groups suggest that pharmacies could easily lose money with many drugs dispensed under Medicaid, with the biggest loss in generic drugs.


    The changes also hold major implications for pharmaceutical companies. The new policies create new financial, operational, and compliance challenges. They will require most drug makers to rethink pricing strategies and access the impact across all their classes of trade. Average Manufacturer Price (AMP), a calculation that has been a closely held secret under the law since 1991, will become transparent through monthly public reporting of AMP-based prices of every drug on sale in the U.S. You may expect this to have some interesting effects on marketplace behavior and payor negotiations. And, of course, the changes will increase rebate payments to states.


    States will benefit from the resulting cost savings. However, state Medicaid directors face strong pressure from community and chain pharmacies to compensate for lost revenue. States also have concerns about the reliability of CMS and pharma industry data, especially in the first couple years given the big change in methodology, scope, and frequency of data reporting. States must also make a variety of systems changes under short notice.


    Across the health care system, the DRA changes are further evidence of the increasing power of government policy on the pharmaceutical supply chain. Now that taxpayer-funded health programs pay for the majority of drugs, changes in Medicaid or Medicare drug policy are no longer limited to affected program. Federal changes ripple throughout the industry, forcing changes in commercial practices and business strategy.


    Finally, the new rules put a few more nails in the coffin of Average Wholesale Price (AWP) or published prices.


    Average%20Manufacturer%20Price.jpgAverage Manufacturer Price:


    In concept, Average Manufacturer Price (AMP) is the average unit price paid to the manufacturer for the drug in the U.S. by wholesalers for drugs distributed to the retail pharmacy class of trade. (Try to repeat that ten times fast.) However, how this plays out has been highly controversial, leading to inconsistencies across manufacturers, numerous highly critical studies by the HHS Office of the Inspector General (OIG) and Government Accountability Office (GAO), allegations of gaming, and countless law suits against drug makers by U.S. attorneys and state attorneys general.


    Following the statutory changes made by the DRA, CMS' final rule makes several fundamental changes to AMP. Most notably, the final rule:


  • Excludes customary prompt pay discounts to wholesalers from the calculation of AMP.

  • Clarifies definition of retail class of trade and wholesaler and how to treat sales reimbursed by third party payors.

  • Defines what prices should be included in or excluded from the determination of a drug's AMP.

  • Excludes sales to nursing homes and discounts, rebates, or prices to PBMs (except when PBMs act as mail order pharmacies - an exception very controversial with retail pharmacies).

  • Defines many key terms for purposes of the Medicaid drug rebate program. Newly defined terms include retail pharmacy class of trade, customary prompt pay discounts, administrative and service fees, returned goods, average unit price, bona fide service fee, bundled sales, net sales, and manufacturer coupons.

  • Clarifies how manufacturers should account for price reductions and other pricing arrangements in calculating AMP.

  • Prior to the DRA, sales by a manufacturer of covered outpatient drugs below 10% of AMP were defined as "nominal sales" and generally excluded from Medicaid best price. While the final rule continues to define nominal sales as those sales at less than 10% of AMP, the best price exemption will now be limited to sales to: 340B covered entities, intermediate care facilities for the mentally retarded (ICF-MRs), and state-owned or operated nursing facilities.


    Federal%20Upper%20Limit%20on%20Drugs.jpgFederal Upper Limits:


    For twenty years, the federal rules have limited the amount state Medicaid programs may reimburse pharmacies for generic drugs. Using a Federal Upper Limit (FUL) for each affected drug product, the idea is to help ensure the government is a prudent buyer and pays close to market levels. Before the DRA, the FUL was set at 150% of the published price for the least costly therapeutic equivalent using all available national price compendia.


    However, that never worked well. Over time, the old FUL system became very costly to states and problematic for nearly everyone involved.


    As a result, the DRA changed the methodology used to establish a FUL on multiple source drugs:


  • A FUL will be established for each multiple source drug for which the FDA has rated two or more products as therapeutically equivalent, regardless of other formulations.

  • Multiple source drug now means a drug for which there is at least one other drug product rated as therapeutically equivalent.

  • FUL for multiple source drugs are now based on 250% of AMP. (Note that this has the added effect of making another powerful party - pharmacies - keenly interested in how well drug makers report their product AMPs.)

  • Outlier AMPs are excluded from the FUL calculation process. However, CMS is seeking public comments on the new outlier policy.

  • Requirements for Drug Manufacturers:


    To accomplish all these changes in AMP and FUL, the law creates new requirements for pharmaceutical manufacturers. As I discussed in an earlier post, these new requirements, when coupled with the new approach to AMP, create significant financial, operational, and compliance challenges to pharma companies.


    Most notably, pharma companies must:


  • Report pricing data to CMS on a quarterly basis, including AMP, best price, customary prompt pay discounts, and nominal price.

  • Submit monthly AMPs, calculated the same manner as the quarterly AMP, except the period is one month. Drug manufacturers must use 12-month rolling average to estimate lagged price concessions. Companies may recalculate and report their base date AMPs to CMS during the first four quarters after publication of the final rule. The rule allows manufacturers to recalculate their base date AMPs on a product-by-product basis if auditable.

  • Retain records used in calculating the customary prompt pay discounts and nominal prices reported to CMS.

  • Certify their quarterly and monthly pricing reports. Must be certified by the manufacturer's CEO or CFO or designee. (Bet they'll just love doing that.)

  • Rebates on Physician-Administered Drugs:


    Before DRA, most States did not collect rebates on physician-administered drugs. Physician drug claims typically did not contain the National Drug Codes (NDCs) necessary for state to invoice drug manufacturers for rebates. Per the DRA, the CMS rule requires states to collect NDC numbers from providers to enable rebate collection on biologics and other physician-administered drugs in Medicaid.


    This year, state Medicaid agencies must require providers to submit claims for single source, physician-administered drugs using HCPCS codes or NDC numbers that allow states to bill for rebates. Starting next year, states must require providers to submit claims for single source physician-administered drugs and 20 Secretary-specified, multiple source physician-administered drugs using NDC numbers. States that require additional time to comply may ask for a hardship waiver.

    posted: April 16, 2007

    Case%20for%20Product%20Reimbursement.jpgAs they move corporate resources from sales to R&D and attempt to adapt to new business dynamics, pharma and biotech companies must become far smarter in building the case for coverage and reimbursement. Increasingly, drug makers are understanding the need to build the case early in drug discovery and development, demonstrate the value proposition, and effectively communicate - or even partner - with payors (health plans, drug plans, PBMs) and purchasers (Medicare, Medicaid, employers).


    To learn more, please listen to Mark Senak's latest podcast. In it, I briefly explain the need to build value-driven, payor-friendly cases for drug coverage and reimbursement and to do so early.


    Eye on FDA is Mark Senak's popular blog on drug industry regulation, the FDA, and strategic communications strategies. In addition to providing thoughtful analyses and useful resources in his blog, Mark also podcasts interviews with industry executives, FDA officials, and top thought leaders.

    posted: March 22, 2007

    Enhancing%20Drug%20Safety.jpgThe Enhancing Drug Safety and Innovation Act of 2007 (reintroduced as Senate Bill 484), sponsored by Senator Mike Enzi (R-WY) and co-sponsored by Senator Ted Kennedy (D-MA), is worth watching as the new Congress contemplates pharmaceutical industry legislation.


    As proposed, The Enhancing Drug Safety and Innovation Act of 2007 has five components:


    1. Amends the Federal Food, Drug, and Cosmetic Act to require an application for approval for a new drug or biological product to include a proposed Risk Evaluation and Mitigation Strategy (REMS). Designed to be an integrated, flexible mechanism to acquire and adapt to new safety information about a drug, REMS would require (a) labeling for the drug for use by health care providers; (b) submission of reports for the drug; and (c) a statement as to whether the analysis and surveillance are sufficient to assess the serious risks of the drug. REMS is modeled after the risk management approach taken by the European Union.


    2. Establishes a Drug Safety Oversight Board.


    3. Requires the Secretary of Health and Human Services to establish the Reagan-Udall Institute for Applied Biomedical Research as a nonprofit corporation to advance the Critical Path Initiative to modernize medical product development, accelerate innovation, and enhance product safety. Requires the Institute to have a Board of Directors. Allows the Board to coordinate and collaborate with other entities to conduct research, education, and outreach and to modernize the sciences of developing, manufacturing, and evaluating the safety and effectiveness of diagnostics, devices, biologics, and drugs.


    4. Amends the Public Health Service Act to require the Secretary, acting through the Director of the National Institutes of Health (NIH), to establish and administer a clinical trial registry database and a clinical trial results database. Requires a responsible party for a clinical trial to submit clinical trial information to the NIH Director for inclusion in the databases.


    5. Requires each individual under consideration for a term on an FDA advisory committee providing advice or recommendations to the Secretary regarding FDA activities to disclose industry financial interests.


    To learn more, check out the Senate Committee on Health, Education, Labor, and Pensions' hearing on the bill.

    posted: February 17, 2007

    Science%20Business%20Book%20Cover.jpgScience Business: The Promise, the Reality, and the Future of Biotech


    Summary: Why has the biotechnology industry failed to perform up to expectations - despite all its promise? In Science Business, Gary P. Pisano, Ph.D. answers this question by providing an incisive critique of the industry. Dr. Pisano not only reveals the underlying causes of biotech's problems; he offers the most sophisticated analysis yet on how the industry works. And he provides clear prescriptions for companies, investors, and policymakers seeking ways to improve the industry's performance. According to Dr. Pisano, the biotech industry's problems stem from its special character as a science-based business. This character poses three unique business challenges: (1) how to finance highly risky investments under profound uncertainty and long time horizons for R&D, (2) how to learn rapidly enough to keep pace with advances in drug science knowledge, and (3) how to integrate capabilities across a broad spectrum of scientific and technological knowledge bases.


    Business%20of%20Healthcare%20Innovation.jpgThe Business of Healthcare Innovation


    Summary: Robert Lawton Burns, Ph.D., MBA focuses on the key role of the 'producers' as the main source of innovation in this wide-ranging analysis of business trends in the manufacturing branch of the health care industry. Written by industry academics and executives, the book provides a detailed overview of the pharmaceutical, biotechnology, genomics / proteomics, medical device, and information technology sectors. Most importantly, it describes the growing convergence between these sectors and the need for executives in one sector to increasingly draw upon trends in the others.


    Overdose%20by%20Richard%20Epstein.jpgOverdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation


    Summary: This book is the first to offer a comprehensive examination of the pharmaceutical industry by following the tortuous course of a new drug as it progresses from early development to final delivery. Richard A. Epstein looks closely at the regulatory framework that surrounds all aspects of making pharmaceutical products today, and he assesses which current legal and regulatory practices make sense and which have gone awry. While critics of pharmaceutical companies call for ever more stringent controls on virtually every aspect of drug development and approval, Professor Epstein cautions that the effect of such an approach will be to stifle pharmaceutical innovation and slow the delivery of beneficial treatments to the patients who need them.


    The%20New%20Medicines.jpgThe New Medicines: How Drugs are Created, Approved, Marketed, and Sold


    Today, most people use prescription medications. Every year, the multi-billion dollar pharmaceutical industry produces new medicines that treat everything from arthritis to AIDS, from high cholesterol to depression. But, despite recent controversies regarding the safety of drugs, consumers know little about the medications that they ingest and inject. How are these new medicines invented? How do consumers know that drugs are safe and effective? How are they tested? Who regulates their production - and who watches the regulators? How do drug companies produce the vast quantities needed for the marketplace, and why do they market their drugs as they do? The New Medicines (by Bernice Schacter, Ph.D.) leads the reader through the maze of the modern drug industry - from bench to bedside - and provides consumers with a step-by-step understanding of how new medicines are created, approved, marketed, and sold.


    Inside%20the%20FDA.jpgInside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat


    Because of the importance of what it regulates, the FDA comes under tremendous political, industry, and consumer pressure. But the pressure goes far beyond the ordinary lobbying of Washington trade groups. Its mandate - one quarter of the national economy - brings the FDA into the middle of some of the most important and contentious issues of modern society. From "designer" babies and abortion to the price of prescription drugs and the role of government itself, Inside the FDA takes readers on an intriguing journey into the world of today's most powerful consumer agency. In a time when companies continue to accuse the FDA of nitpicking and needlessly delaying needed new drugs, and consumers are convinced that the agency bends to industry pressure by rushing unsafe drugs to market, Inside the FDA digs deep to reveal the truth. Through scores of interviews and real-world stories, author Fran Hawthorne (senior contributing editor of Institutional Investor) also shows how and why the agency makes some of its most controversial decisions as well as how its recent reaction to certain issues - including the revolutionary cancer drug Erbitux, stem cell research, and bioengineering of food - may jeopardize its ability to keep up with future scientific developments.


    More Excellent Books on Pharma and Biotech:


    For additional reading on the pharmaceutical industry, biotechnology, and prescription drug issues, please check out my recommended reading lists:


  • Pharmaceutical Industry Bookshelf
  • Pharmaceutical Marketing
  • Drug and Medical Device Regulation
  • Drug Discovery and Development

  • Best Blog on FDA and Pharma Industry Communications:


    For insightful, industry-savvy advice on the FDA, drug regulation, and pharma strategic communications, please visit Eye on FDA - the excellent blog by my friend and colleague Mark Senak, JD, senior vice president at Fleishman-Hillard.


    posted: December 18, 2006

    DRA%20Changes%20to%20AMP%20and%20Best%20Price.jpgIn the Deficit Reduction Act (DRA), Congress made a series of significant changes to pharmaceutical pricing, Medicaid best price rebates, and Medicaid payments to pharmacies for prescription drugs. The new policies, which are expected to save the feds and states $8.4 billion over the next five years, create major challenges to both pharmaceutical manufacturers and pharmacies.


    DRA Drug Pricing Changes in a Nutshell:


    While the DRA has many moving parts, in general the new policies will:


    1. Drive more Medicaid drug spending toward generics and reduce the market advantages of authorized generics.


    2. Make Average Manufacturer Price (AMP) - a key measure of drug prices in the marketplace and the metric used in determining Medicaid rebates - transparent to the public. Previously, AMP was confidential and known only to government officials.


    3. Lower AMP on many prescription drugs, putting drug makers under increased cost pressures and increasing Medicaid rebates to states.


    4. Increase the compliance risks of drug manufacturers.


    5. Reduce Medicaid reimbursement to pharmacies.


    6. Put another nail in the coffin of Average Wholesale Price (AWP) by moving Medicaid pharmacy reimbursement systems from AWP to AMP.


    Federal Proposed Rules:


    DRA%20Drug%20Rules.jpgToday, the Centers for Medicare and Medicaid Services (CMS) released proposed rules on implementing the DRA drug pricing policies. Final rules are expected in June 2007.


    However, because key provisions are effective on January 1, 2007, pharma companies must come into compliance based on incomplete guidance and be prepared to make major changes again this summer.


    DRA Changes to Average Manufacturer Price (AMP) and Medicaid Best Price:


    The law requires significant changes to how drug manufacturers calculate Average Manufacturer Price (AMP) and Medicaid Best Price (BP), reducing the market power of some key price concessions used by manufacturers:


  • AMP must exclude prompt pay discounts to wholesalers.

  • Fewer nominal price arrangement excluded from BP calculation.

  • Authorized generics are included in calculation of AMP and BP.

  • Drug sales to children's hospitals are now exempt from BP calculation.

  • Drug manufacturers must report AMP on a monthly basis starting January 2007. More importantly, average manufacturer prices on all drugs will publicly posted on CMS' website starting Spring 2007 after CMS resolves some data and systems issues. Previously, reporting was quarterly and confidential by law.


    DRA also mandates significant changes to the federal upper payment limit (FUL) for multiple source drugs. The feds are widening the definition of what is a multiple source drug and setting FUL at 250% of AMP. Previously, FUL was set at 150% of the Average Wholesale Price (AWP). This will further increase pricing pressure on brand drugs when generics are available.


    Operational Challenges of DRA for Pharmaceutical Industry:


    Challenges%20to%20Pharma%20Industry.jpgThe drug industry faces many practical, operational challenges in meeting the new requirements for 2007:


    1. Incomplete federal guidance. Until the final rules arrive, the drug industry must implement the DRA changes with limited federal guidance. Key factors still unclear include class of trade designations, treatment of administrative and service fees, adjusting for lagged price concessions and returned goods, correcting and restating AMP, and a variety of baseline AMP issues.


    2. Moving from quarterly to more complex monthly reporting, plus adjusting for each month's transactions.


    3. Adapting data, systems, staff, and reporting to accommodate different pricing methodologies required by CMS. For example, calculating and reporting AMP under Medicaid vs. calculating and reporting Average Sales Price (ASP) under Medicare Part B.


    Financial Challenges of DRA for Pharmaceutical Companies:


    The new DRA policies also pose significant financial challenges for pharma companies. For example:


  • Transparency of AMP (and ASP) will substantially increase pricing and political pressures.

  • Frightening but inevitable expansion of regulated drug pricing by government (Dr. Faust, please call your office).

  • Increased pressure on brand-name drugs and authorized generics and further fuel for market shift to generics.

  • More parties now have strong financial interest in AMP - especially pharmacies.

  • Impact of exclusion of prompt pay discounts, most nominal pricing, and other class of trade discounts.

  • Major investment in systems, data, compliance, legal, and PR resources.

  • Compliance Challenges of DRA for Drug Manufacturers:


    The DRA changes present new or expanded compliance challenges for drug manufacturers. Given the frequency, changes, and overall complexity, there are many ways to inadvertently screw up federal reporting. Ensuring compliance will require heavy reliance on other parts of company and on external partners. Transparency of pricing will likely lead to new regulations, audits, and Congressional hearings. Finally, while over time DRA reporting may make it easier to defend against suits, companies should expect dramatic increase in whistleblower suits under federal and state False Claims Acts.


    Learn More:


    For the DRA statutory changes affecting drug pricing, click here (PDF).


    For the proposed rule, click here (PDF). For CMS' fact sheet on the proposed rule, click here (PDF).


    Read the OIG's recommendations to the HHS Secretary on DRA implementation issues. The OIG report includes useful background information.


    For more information or a briefing, feel free to contact me.

    posted: December 9, 2006

    Negotiating%20Drug%20Prices.jpgThere's a lot of truth in the old joke about the problem with Republicans and Democrats: Republicans need a heart and Democrats need a brain. As Democrats prepare to take control of Congress, they appear eager to prove the joke by pursuing legislation to require government "negotiations" on prescription drug prices in Medicare Part D.


    The idea has emotional appeal, so let's see if there is any evidence to support the idea. (If you come from the Bumper Sticker School of Health Policy, stop here. The facts will only confuse you and don't easily make for emotive talking points.)


    Non-Interference Requirement in MMA:


    Price%20Negotiations.jpgIn the Medicare Moderation Act, the massive 2003 legislation that created the Medicare Part D drug benefit among other Medicare reforms, Congress prohibited the Centers for Medicare and Medicaid Services (CMS) from interfering with drug pricing in the competitive market. Part D prescription drug plans - Medicare Advantage drug plans (MA-PDs) and prescription drug plans (PDPs) - would battle among themselves to cut the best deals with pharmaceutical manufacturers and pharmacies and openly compete for enrollees.


    The statute at controversy, found at section 1860D-11(i) of the Social Security Act, is short and sweet:


    (i) NONINTERFERENCE. In order to promote competition under this part and in carrying out this part, the Secretary:

    (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and

    (2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.


    Estimated Savings of Federal Drug Price Negotiations:


    Drug%20Savings%20Unlikely.jpgSupporters of federal staff negotiating drug prices argue that it would generate billions of dollars in savings for taxpayers and seniors. However, the Congressional Budget Office (CBO) - the highly respected, non-partisan fiscal advisor to both houses of Congress and the agency that officially scores the cost and savings of all legislative proposals - agrees with top health economists and Medicare experts that federal price negotiations will save precisely zip.


    Following passage of MMA, Senate leaders asked CBO to examine the effect of striking the 'noninterference' provision. CBO reported:


    We estimate that striking that provision would have a negligible effect on federal spending because CBO estimates that substantial savings will be obtained by the private plans and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree. Because they will be at substantial financial risk, private plans will have strong incentives to negotiate price discounts, both to control their own costs in providing the drug benefit and to attract enrollees with low premiums and cost-sharing requirements.


    CBO was then asked if the federal government could save anything if CMS centrally negotiated prices with makers of single-source drugs. (Single-source prescription drugs are brand-name drugs that have no generic equivalent on the market and are generally available from only one manufacturer.) Again, CBO concluded that savings are unlikely, unless of course federal officials are willing to play hardball and restrict patient access to therapeutically unique drugs until the manufacturers agree to government price demands:


    Most single-source drugs face competition from other drugs that are therapeutic alternatives. CBO believes that there is little, if any, potential savings from negotiations involving those single-source drugs. We expect that risk-bearing private plans will have strong incentives to negotiate price discounts for such drugs and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree.


    Nevertheless, there is potential for some savings if the Secretary were to have the authority to negotiate prices with manufacturers of single-source drugs that do not face competition from therapeutic alternatives. Private plans offering a prescription drug benefit to Medicare beneficiaries will have less leverage in negotiating discounts for drugs without therapeutic alternatives than they have in price negotiations for drugs that do face such competition. (In that regard, the Medicare plans will be no different than private health plans that offer prescription drug coverage to other populations.)


    Under current law, there already are significant pressures that limit the prices that manufacturers charge for drugs - whether those drugs face competition from therapeutic alternatives or not. Those pressures include the prospects that plans will not cover a drug (or will substantially limit the amount they pay for a drug) and that manufacturers will provoke a backlash (potentially including legislation) if they set prices too high. Moreover, the creation of the Medicare drug benefit has given federal officials greater opportunity and incentive than under prior law to bring pressure on manufacturers - for example, by influencing public opinion and policy makers--if the prices that manufacturers set for single-source drugs that are not subject to competition from therapeutic alternatives are perceived as being too high. Giving the Secretary an additional tool--the authority to negotiate prices with manufacturers of such drugs - would put greater pressure on those manufacturers and could produce some additional savings.


    Ample Evidence Against Federal Drug Price Negotiations:


    Not only would federal price negotiations save little or nothing compared to the increasingly competitive private marketplace, there are host of other arguments against the idea.


    In a fascinating new study - The Human Cost of Federal Price Negotiations: The Medicare Prescription Drug Benefit and Pharmaceutical Innovation - Benjamin Zycher, Ph.D., an economist and senior fellow at the Manhattan Institute's Center for Medical Progress, carefully "estimates the impact that federal negotiation of prescription drug prices would have on pharmaceutical research and development (R & D) investment through 2025."


    Dr. Zycher concludes that, while federal price negotiations could save some Medicare dollars, "the longer-term human costs of government price-negotiation...are likely to be large and adverse." Most notably, the data show government mandated negotiations would dramatically reduce the development of new, life-saving drugs (about a dozen annually), resulting in "...a loss of 5 million expected life-years annually, an adverse effect that can be valued conservatively at about $500 billion per year, an amount far in excess of total annual U.S. spending on pharmaceuticals."


    In Compromising Quality: The High Cost of Government Drug Purchasing, Edmund F. Haislmaier provides a crisp, devastating critique of the idea of federal drug price negotiations. He disects the core myths and outlines how it would only serve to threaten quality and access.


    Proponents of government price negotiations assume that Medicare has more bargaining leverage than the private sector. In Why the New Congress Should Not Fix Drug Prices, researcher Greg D'Angelo does a nice job dismantling this faulty assumption.


    Wait, It Gets Worse:


    VA%20Drug%20Formulary.jpgMany advocates of federal negotiations point to the VA's prescription drug program as an example of how to reduce drug prices. As I have explained to many audiences, comparing the VA approach to Medicare Part D is not even an apples to oranges comparison. It's more like comparing apples and poodles - and makes as much sense.


    A groundbreaking study, by Frank R. Lichtenberg, Ph.D. of the Columbia School of Business, should put such comparisons to rest. In Older Drugs, Shorter Lives? An Examination of the Health Effects of the Veterans Health Administration Formulary, Dr. Lichtenberg shows the VH approach is not about prices or genuine negotiations. With the VA's tight budget, it is all about restricting veterans' access to new (and many old) medications to save dollars and hit budget targets.


    The VA's highly restrictive national formulary excludes 62% of drugs approved by the FDA during the 1990's and 81% of new medications approved since 2000. Even worse, the drug benefit designed for our nation's veterans does not pay for a staggering 78% of new, high-priority prescription drugs approved by the FDA on an expedited basis since 1997 because of their life-saving impact. By comparison, commercial health plans, Medicare Part D drug plans, and state Medicaid programs cover the vast majority of new drugs and move quick to add coverage for most drugs given fast-track by the FDA.


    Dr. Lichtenberg's 2005 study shows that the VA's prescription drug system - seen by many as the "model" for Medicare Part D - reduced the life span and survival rates of vets since its 1997 introduction. Note to Congress: Death is always cheaper than life but rarely preferable.


    Recap:


    Dangers%20of%20Price%20Controls.jpgSo, let's recap. Even putting aside the dangers of a massive increase in government power, fact it would dramatically reduce consumer and physician decision making, fact it would shift costs to other payors, and fact it would inevitably lead to economically disastrous price controls, the federal government negotiating drug prices will likely save little or nothing - unless Congress wants to severely restrict patient access to new and existing medications, thereby shortening lives, reducing quality of life, and increasing costs well beyond any savings. And that's if it's even feasible for CMS to do it. Trust me, it's not.

    posted: October 2, 2006

    OIG%20Medicaid%20Work%20Plan.jpgThe Office of the Inspector General (OIG) at HHS has released its 93-page work plan for FY 2007. The OIG plans to examine nearly 100 issues in Medicaid, with particular attention on:


    1. Medicaid reimbursement of hospitals, nursing homes, managed care organizations, home and community-based care, and mental health providers.


    2. Medicaid prescription drug benefit issues, including pharmaceutical industry practices affecting pricing and rebates.


    3. Financing practices used by states, most notably provider taxes, certified public expenditures, and upper payment limit issues.


    4. Budget neutrality of Medicaid waivers, specifically Section 1115 Medicaid reform waivers and Section 1915 waivers for managed care or home- and community-based care programs.


    Role and Influence of OIG in Medicaid:


    The federal government has significantly increased staffing at both CMS and the OIG to review or audit state Medicaid agencies, Medicaid providers, drug manufacturers, and Medicaid managed care organizations. This, in turn, has increased the number, diversity, and complexity of Medicaid issues under review by the two federal agencies.


    OIG studies and evaluations often help states learn about ways to improve Medicaid program efficiency. They also help CMS target its limited resources. OIG reports also provide valuable insights on best practices and program innovations. And, of course, OIG reports can lead to recommendations that CMS recover federal funds from states or recoup payments from providers.


    Part of the OIG's work plan focuses on checking to ensure that CMS, states, or providers are compliant with newly enacted or even long standing federal requirements. Other projects will look to see whether inappropriate or questionable practices recently found in a few locations are isolated cases or indications of a broader, national problem in Medicaid.


    However, several of the OIG's Medicaid related projects for 2007 will look at controversial Medicaid policy issues such as whether waivers approved by the Secretary of HHS are budget neutral and if some states are using Medicaid to pay for non-emergency care for illegal immigrants.


    Medicaid Hospital Payments:


    In the hospital arena, the OIG will look at the reasonableness of cost outlier payments for inpatient admissions, state compliance with OBRA '93 limits on disproportionate share hospital payments, and whether states are correctly determining hospital eligibility for disproportionate share payments.


    Medicaid Long-Term Care Services:


    The OIG intends to look more closely at home and community-based services. For example, the OIG will examine whether states are inadvertently paying for home and community-based services after a beneficiary's death or during a hospitalization. They are also looking at whether certain states are improperly claiming federal match on state costs of administering home and community-based waiver programs. As I mentioned earlier, they are also evaluating whether home and community-based waiver programs are budget neutral. That is, whether they are no more costly than nursing home care.


    Elsewhere in Medicaid long-term care, the OIG plans to study state determinations of nursing home eligibility and the adequacy of state safeguards against improper asset transfers. They also want to know if states are recovering funds from estates as required by federal law. In addition, they plan to study possible duplicate payments to nursing homes and hospitals. Specifically, they want to get a handle on whether some hospitals are being paid for patients already discharged to a nursing home and if nursing homes are being paid while a beneficiary is a hospital inpatient. Further, the OIG plans to see if some home care providers were improperly paid for care provided to residents of assisted living facilities. The OIG also has projects to examine the appropriateness of Medicaid payments to personal care providers and physical and occupational therapists.


    Mental Health and Substance Abuse Services:


    Mental health and substance abuse services and providers are also coming under greater scrutiny. For example, the OIG is looking at the appropriateness of Medicaid payments for community mental health centers, outpatient clinics, day treatment programs, inpatient and outpatient alcohol and drug treatment, and community residencies for persons with mental disabilities.


    Medicaid Drug Costs:


    The OIG work plan for FY 2007 naturally includes a long list of projects looking at Medicaid prescription drug costs. This includes reviews of how drug companies determine average manufacturer price (AMP) and the adequacy of CMS' oversight of Medicaid drug rebates. Other OIG studies will assess drug price fluctuations and whether states overpay for drugs to treat HIV.


    Medicaid Managed Care:


    The OIG work plan also calls for several evaluations of issues affecting Medicaid managed care organizations (MMCOs). For example, the OIG wants to know if some states are inappropriately paying Medicaid MCOs for dual eligibles and if states are paying fee-for-service claims for beneficiaries covered under Medicaid health plans. The OIG also intends to examine the completeness and accuracy of encounter data submitted by Medicaid MCOs.


    State Administration of Medicaid:


    The Office of the Inspector General is also eager to evaluate a wide range of issues regarding day-to-day administration of Medicaid by states. Again, the list of target issues is long. For example, the OIG work plan includes projects to examine state administrative costs, program integrity efforts, information systems, administrative claiming by counties, state overrides of claims system edits and audits, revenue maximization practices, and third party collections.


    To Learn More:


    Those are just some of the Medicaid related topics the OIG plans to study in FY 2007. Most of the OIG projects will likely result in a public report in 2007. To read the full work plan, click here (PDF).

    posted: September 3, 2006

    Medicaid%20Integrity%20Program.jpgWith far-reaching implications for states, providers, and health plans, the Deficit Reduction Act (DRA) dramatically increased the role of the federal government to combat Medicaid fraud and abuse. Together with a substantial increase in funding for federal contractors and staff, the DRA gives the Centers for Medicare and Medicaid Services (CMS) new, potentially massive authority in areas previously managed exclusively by state Medicaid agencies.


    New Federal Authority in Medicaid:


    Under the DRA, Congress mandates that "States must comply with any requirements determined by the Secretary (of Health and Human Services) to be necessary for carrying out the Medicaid Integrity Program...." This new, open-ended authority to impose directives on state Medicaid agencies - and, via states, on health plans, health care providers, and Medicaid fiscal agents - will be implemented by CMS through new rules and instructions.


    Key Components of Medicaid Integrity Program:


    The Medicaid Integrity Program (MIP) includes:


  • New Congressional appropriation starting at $5 million this year, $50 million a year in FY 2007 and 2008, and $75 million annually thereafter.

  • Creation of the Medicaid Integrity Group (MIG) within CMS' Center for Medicaid and State Operations (CMSO), with 100 new federal staff. This is in addition to 100 auditors CMS added recently to crack down on controversial state financing practices.

  • A series of new federal contractors, collectively known as Medicaid Integrity Contractors (MICs), to audit Medicaid providers and health plans, identify inappropriate payments, and educate providers and plans on proper claiming.

  • CMS, after consulting with the National Association of State Medicaid Directors (NASMD), developed a 37-page plan detailing the initiative.


    The DRA also boosts Medicaid anti-fraud funding for the HHS Office of the Inspector General and the Program Integrity Group in CMS' Office of Financial Management (OFM). The OIG gets an additional $25 million a year from FY 2006 through 2010. The DRA also created a new position of Medicaid chief financial officer within CMS.


    The Medicaid Integrity Program is in addition to the Medicaid Payment Error Rate Measurement (PERM) initiative I reported on last week.


    Perspective:


    Overall, the Medicaid Integrity Program holds the promise of saving taxpayer dollars. Like much of American health care, Medicaid is certainly rife with waste, fraud, and abuse. And it's reasonable for the federal government, which covers about 55% of Medicaid costs nationally, to take a more hands on role in combating Medicaid fraud and abuse. However, the MIP creates many challenges for CMS and states, with a high risk of conflict, confusion, overlapping bureaucracy, and worse. This is especially so if CMS fails to work with states as genuine partners and leverage the expertise of state staff.


    Learn More:


    The Kaiser Commission on Medicaid and the Uninsured recently released an excellent report on key issues raised by the Medicaid Integrity Program. This report, which will be followed by a more detailed study later this year, does a good job describing many of the challenges, conflicts, and potential unintended consequences of the MIP.


    The Government Accountability Office (GAO) has long been critical of both CMS and states on issues involving Medicaid financial management. After passage of the DRA, the GAO released its ideas for how CMS should implement the Medicaid Integrity Program and make best use of staff and contractors. A June 2006 GAO report assessed CMS' ability to "identify and address emerging issues that put federal Medicaid dollars at risk."

    posted: August 3, 2006

    Medicaid%20Transformation%20Grants.jpgIn the Deficit Reduction Act (DRA), Congress authorized the new $150 million Medicaid Transformation Grant Program to help states design and implement reforms to increase quality and efficiency of Medicaid. This is a unique opportunity to help states restructure and modernize Medicaid, save taxpayer dollars, and improve services. But states must act fast to take advantage.


    State Medicaid agencies may submit grant proposals to CMS by September 15, 2006. For grants, CMS has a total budget of $75 million in FFY 2007 and another $75 million in FFY 2008. The amount of each grant will vary and will depend on the number of applications received. State matching funds are not required.


    While states have wide discretion in proposing projects and may propose multiple projects in a single grant application, CMS is encouraging states to look at ways to improve Medicaid program operations and efficiency.


    In the area of improving Medicaid program efficiency, CMS is particularly interested in grant projects to:


  • Reduce waste, fraud, and abuse under Medicaid.

  • Improve collection rates in Medicaid estate recovery programs.

  • Reduce Medicaid prescription drug spending, especially for high cost drug categories, through education, incentives, and greater use of generic drugs.

  • CMS is also interested in projects to improve the effectiveness of Medicaid. Examples include projects on:


  • Reducing medical error rates and improving patient safety.

  • Advancing the use of electronic health records, clinical decision support tools, e-prescribing programs, and other system improvements.

  • Improving coordination of care through care management programs and other efforts to prevent complications and avoid duplicative or unnecessary services.

  • Pay for performance (P4P) programs or other performance-based incentives to reward and support high quality, evidenced-based care.

  • In the arena of improved care delivery, CMS is particularly interested in grant proposals to:


  • Promote personal control over services, with greater emphasis on prevention steps.

  • Improving access to primary and specialty physician care for the uninsured using integrated university-based hospital and clinic systems.

  • This is a unique, one-time opportunity for states but, with grant applications due in six weeks, the timeline is tight. States needing help or advice in writing an application may contact me or my friends at Sellers Feinberg for assistance.

    posted: July 13, 2006

    Medicaid%20Budget%20Projections.jpgThe White House Office of Management and Budget (OMB) released new Medicaid spending projections, showing a significantly lower rate of growth. Nationally, while federal Medicare costs continue to rise dramatically and far faster than medical inflation, Medicaid spending growth has moderated considerably.


    Twice each year, OMB releases its latest projections of federal revenues and expenditures. Projections are announced in February as part of the President's proposed budget and updated in July as part of what's called the Mid-Session Review. Falling in the middle of each year's Congressional session, the Mid-Session Review gives Capitol Hill the Administration's latest fiscal projections.


    For Medicaid, OMB works with CMS budget staff and actuaries to update estimates of federal Medicaid spending in the current fiscal year and for the next five years. They rely heavily on spending estimates and enrollment reports prepared by state Medicaid agencies.


    From FY 2002 through FY 2005, the federal share of Medicaid grew at an average annual pace of 7.2 percent. Federal Medicaid spending is now expected to grow by a modest 1.8 percent this year (FY 2006) and by 4.6 percent in FY 2007.


    Compared to earlier estimates, aggregate federal spending on Medicaid is now expected to be 8 percent lower. Specifically, the new projections of federal Medicaid spending for FY 2007 through FY 2016 are $53.3 billion lower than the projections contained in the President's 2007 Budget.


    Naturally, Medicaid spending growth varies widely from state to state. However, 16 states now expect to spend less on Medicaid this year than last year. States with flat or negative Medicaid spending growth this year include Georgia, Maryland, Michigan, New Hampshire, Nevada, South Carolina, South Dakota, Texas, and Wisconsin. Medicaid spending in large states - most notably Florida and California - continues to grow but at a much lower pace.


    While some of this slowed growth in the federal share of Medicaid is an artifact of the shift of prescription drug benefits for dual eligibles from Medicaid to Medicare Part D, slower spending growth is a byproduct of a variety of factors. These include improved economic conditions, cost containment initiatives, new waiver-based programs, greater use of private health plans, increased use of generic drugs, and the steady shift away from nursing homes to home and community-based programs.


    As we reported earlier, CMS is considering new rules to restrict state use of provider taxes and cut back on Medicaid payments to publicly owned providers and facilities. The new OMB figures give states, provider groups, and advocates new ammunition to oppose this and other Bush Administration efforts to cut federal Medicaid spending. It also highlights the effectiveness of state-based initiatives to reform Medicaid - that is, reforms that are initiated by states themselves but with federal support and cooperation.


    While OMB's new Medicaid projections are good news for states and the feds, the new Medicare projections show faster spending growth in Medicare Part A and Part B. The five-year cost estimate for Medicare Part A (inpatient hospital and post-acute care) is $17 billion higher. The five-year cost estimate for Medicare Part B (physician and other outpatient services) is $30 billion higher. The jump in Medicare Part A and Part B growth rates are largely attributable to rapid increases in per capita use of services.


    However, because of stiff price competition among drug plans and a slower than expected sign-up rate, the five-year cost estimate for Medicare Part D is $34 billion lower than the projections last February. For FY 2006 through FY 2016, the projected cost of the new Medicare drug benefit is $76 billion lower.


    Medicare's high growth rate increases pressure on Congress and the White House to reform Part A and Part B. In addition to putting greater pressure on the federal budget, higher Medicare costs also mean big, politically tough jumps in beneficiary cost sharing (e.g., the 11% increase in Part B premiums for 2007). And of course, state Medicaid programs are on the hook to pay for Medicare cost sharing for dual eligibles and other low-income Medicare beneficiaries. Bottom line: because so much of state Medicaid budgets are now driven by the health care costs of dual eligibles, higher Medicare costs and utilization can increase state Medicaid costs.


    For better or worse, a byproduct of Medicare's problems may be to divert attention from Medicaid inside the Beltway. However, federal money is fungible (especially in the hunt for budget savings) and states continue to press for greater flexibility. For many on Capitol Hill and in the Bush Administration, fiscal frustrations with Medicare are part of larger frustrations with federal entitlements. So even with slow growth in the near-term, Medicaid remains in the spotlight.

    posted: June 3, 2006

    OTC%20Drugs%20in%20Medicare%20Part%20D.jpgMedicare drug plans will dramatically increase coverage of over-the-counter (OTC) drugs in 2007 based on new guidance from the Centers for Medicare and Medicaid Services (CMS).


    In creating Medicare Part D, the Medicare Modernization Act (MMA) excluded OTCs from coverage. Taxpayer dollars could not be used to pay for OTC products even when clinically appropriate and cost effective. This was in sharp contrast to pharmacy benefit designs common in commercial coverage and Medicaid, where employers, states, health plans, and PBMs try to take advantage of new, inexpensive OTC alternatives to popular prescription drugs.


    For 2006, CMS allowed Medicare prescription drug plans (PDPs) and Medicare Advantage drug plans (MA-PDs) to cover OTCs under narrow circumstances. For example, OTC coverage was limited to federally approved step therapy programs, with no prior authorization for the OTC. To pay for OTC products, drug plans must use administrative dollars and not federal benefit dollars.


    For 2007, CMS is loosening restrictions on PDP and MA-PD coverage of safe, effective over-the-counter drugs that are less expensive than prescription alternatives in the plan's formulary. Medicare drug plans must still use administrative dollars because of the statutory limit. However, OTC products may be covered outside of a step therapy program. To ensure Part D enrollees have continued access to prescription versions, drug plans that decide to cover OTCs outside a federally-approval step therapy protocol may not use prior authorization or other tools to require OTC use before a formulary legend drug is covered. Plans must also educate enrollees on differences between the prescription and non-prescription available for a given need.


    Compared to their prescription alternatives, OTCs often represent savings of 60-70 percent or more. Seniors tend to be heavy users of proton pump inhibitors (PPI), non-steroidal anti-inflammatory drugs (NSAIDs), and antihistamines - categories with low-cost OTC alternatives likely appropriate for many patients. Therefore, next year many Medicare drug plans will likely offer free OTCs to drive utilization, reduce costs, ease the doughnut hole, and improve enrollee satisfaction and retention.


    In addition to reducing costs for drug plans and many beneficiaries, wider access to OTCs in Part D may also reduce state Medicaid spending. Under MMA, 6 million dual eligibles were moved from Medicaid to Medicare for purposes of most drug coverage. However, Medicaid drug coverage is broader than Medicare Part D in many states. To save dollars, most states cover some OTCs. If a state Medicaid program covers an OTC for one group of Medicaid recipients, federal law requires the state to cover the OTC for all, including dual eligibles. The continued overlap of Medicare and Medicaid drug coverage for duals creates opportunities for confusion, cost shifting, even gaming. But the new OTC coverage options in Part D should allow states to save some Medicaid pharmacy dollars - provided CMS is proactive in working cooperatively with states, drug plans, and pharmacies on the issue.


    While drug plans and beneficiaries will win - and states may win - from the new OTC coverage guidance, pharmacies will lose because of lower product and dispensing fee revenue. Some pharmaceutical manufacturers will also lose, notably those prescription drug makers facing competing OTCs in hot categories like proton pump inhibitors.

    posted: March 3, 2006

    OIG%20and%20Drug%20Benefits.jpgThe HHS Office of the Inspector (OIG) is studying a long list of issues related to Medicare Part B physician-administered drugs, the new Medicare Part D outpatient prescription drug benefit, and state Medicaid pharmacy benefits. In addition to its investigative and audit function, the talented staff at the HHS OIG also conduct analyses and evaluations, typically resulting in public reports. Below are the drug benefit-related topics that the OIG selected for close examination this year. Some were mandated by Congress, others requested by CMS or OMB. Think of it as a useful sentinel of upcoming hot issues and controversies.


    Medicare Part B Physician-Administered Drugs:

  • Drug Manufacturers' Methodologies for Computing Average Sales Price (ASP)
  • CMS' System for Collecting and Maintaining Average Sales Price Data from Drug Manufacturers
  • Effectiveness of Average Sales Price Cost Controls
  • Medicare Payments for Oral Anti-Emetic Medications
  • Monitoring of Market Prices for Part B Drugs
  • CMS' Ability to Prevent Duplicate Payments for Part B Drugs under the Competitive Acquisition Program (CAP)
  • Medicare Reimbursement for End Stage Renal Disease (ESRD) Drugs
  • Adequacy of Reimbursement Rate for Drugs under the Average Sales Price (ASP), with Focus on Hematology and Oncology Practices

  • Medicare Part D Prescription Drug Benefit:

  • CMS Program Integrity Safeguards for Medicare Drug Plan Applicants
  • Beneficiary Awareness of the Medicare Part D Low-Income Subsidy
  • Tracking Beneficiaries True Out-of-Pocket (TrOOP) Costs for Part D Prescription Drug Coverage
  • Prescription Drug Plan Marketing Materials
  • Auto-Enrollment of Dual Eligibles into Medicare Part D Plans
  • Medicare Prescription Drug Benefit Pharmacy Access in Rural Areas
  • Monitoring Fluctuation in Drug Prices under Stand-Alone Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs)
  • Coordination and Oversight of Medicare Part B and Part D to Avoid Duplicate Payments for Drugs
  • Enrollee Access to Negotiated Prices for Covered Part D Prescription Drugs
  • Prescription Drug Plans' Use of Formularies and Compliance with Federal Requirements Regarding P&T Committees, Breath and Depth of Formularies, and Beneficiary Appeal Rights
  • Coordination Between State Pharmaceutical Assistance Programs (SPAPs) and Medicare Part D
  • Implementation of Required Programs to Deter Fraud, Waste, and Abuse
  • CMS Capacity to Administer Employer Drug Subsidies
  • Adequacy of Medicare Part D Drug Benefit Payment System, Fiscal Controls, and CMS Procedures
  • Calculation of State Clawback Payments to Medicare
  • Medicare Part D Risk-Sharing Payments and Recoveries, Particularly the Adequacy of CMS Systems and Controls

  • State Medicaid Prescription Drug Benefits:

  • Average Manufacturer Price and Average Wholesale Price
  • Adequacy of Drug Manufacturers' Methodologies for Computing Average Manufacturer Price and Best Price
  • Potential Savings from Indexing the Generic Drug Rebate
  • Drug Rebate Impact from Drugs Incorrectly Classified as Generic
  • Prescribing Patterns for Oxycontin, Hydrocodone, Xanax, Diazepam, and Soma
  • Effect of Nominal Pricing on Medicaid Drug Rebates
  • Medicaid Reimbursement of Drugs for Long Term Care Pharmacies
  • Effect of Authorized Generic Drugs on Medicaid Drug Rebates
  • Medicaid Payments for HIV Drugs and Possible Inappropriate Pharmacy Practices
  • State Collection of Rebates for Drugs with Zero Dollar Unit Rebate Amounts
  • Dispute Resolution in the Medicaid Prescription Drug Rebate Program
  • Medicaid Generic Drug Utilization Among States
  • States Compliance with Federal Upper Limit Requirements for Certain Generic Drugs
  • Medicaid Drug Pricing in State Maximum Allowable Cost (MAC) Programs

  • Naturally, the list is subject to change and should not be considered as the only topics under review. The OIG changes its work plan to accommodate new problems and changing conditions. Therefore, the topics will fluctuate. For more information, including past studies and reports, visit the OIG site.

    posted: January 15, 2006

    Pharma%20Industry%20Can%20Help%20States.jpgWhile the feds work to fix a series of technical problems plaguing the new Medicare Part D drug benefit, governors are stepping in to help ensure dual eligibles and other vulnerable beneficiaries have access to prescription drugs. As a result, states are incurring millions of dollars of costs. They shouldn't have to - by federal law, drug coverage for these patients is now the sole responsibility of CMS and the prescription drug plans. However, governors of both parties are doing the right and necessary thing. Of course, Congress should be the one doing this. But Congress is too distracted to act quickly and the Bush Administration has been adamant in opposing changes to Part D until well after implementation.


    The crisis creates a great opportunity for the pharmaceutical industry to step in and help make Part D work. As I've pointed out before, drug makers have a lot riding on the success of Part D. No, it's not that they will make more money. In fact, it's more likely that most brand manufacturers will see lower margins under Medicare. It's because failure of Part D - whether real or imagined - will undoubtedly lead to more government regulation of the industry and a new push for price controls. And the much-maligned industry needs all the good will it can get.


    Pharma manufacturers should act immediately to offer to make states whole for the cost of temporary drug coverage for dual eligibles. Specifically, drug makers should work with the National Governors Association (NGA), National Association of State Medicaid Directors (NASMD), and the HHS Office of the Inspector General (HHS) to create a private trust fund that reimburses states for all of their costs associated will filling the gaps while CMS and the drug plans get things fixed. The trust fund can be set up through a non-profit and be totally neutral as to the drug products being reimbursed. The point is to step in, help make it work, create good will, and avoid further pain and frustration.

    posted: January 14, 2006

    Medicare%20Part%20D%20Problems.jpgRube Goldberg believed there were two ways to do things - the simple way and the hard way. And that, for some inexplicable reason, many people preferred doing things the hard way. His famous cartoons illustrated the tendency of human beings to exert maximum effort to achieve minimal results.


    Notwithstanding the best of intentions, an influx of a mountain of taxpayer cash, the savings available to many low-income seniors, and the hard work of unfairly maligned federal staff, the Medicare drug benefit has become a Rube Goldberg cartoon.


    Since passage of the Medicare Modernization Act (MMA) in December 2003, I have been warning about predicable surprises and inevitable consequences. The good news is I am batting 1000 on predictions. The bad news is I am batting 1000 on predictions. If it were not for the fact real people are affected, I'd be happy to sit back and gloat about my prescience. Or perhaps hire a skywriter to paint "I Told You So" high above Security Boulevard.


    But truth is, this was easy to see and I was far from alone. While there are many flaws in the design of MMA and lost opportunities in the implementation, the most troubling problems revolve around the chaos and risks of transferring over six million vulnerable dual eligibles from Medicaid drug coverage to Medicare Part D. Virtually all of the other problems of Part D implementation can be ironed out with some more time, experience, and legislative tinkering.

    posted: December 10, 2005

    Losers in Medicare Drug Benefit.jpgAs promised, here's my list of likely losers under the new Medicare prescription drug benefit:


    ● Dual Eligibles: These 6.5 million highly vulnerable beneficiaries will lose their Medicaid drug benefit and be enrolled in the less generous, slightly more expensive, far more complex Medicare drug benefit. They also face the likelihood of a dangerous transition in drug therapy. If there is a silver lining here, it's the prospect of Medicare Advantage Special Needs Plans (MA-SNPs). That is, the hope that over time dual Medicare-Medicaid beneficiaries will sign up to get all their Medicare benefits from health plans tailored to their needs. Even better states work with MA-SNPs to bundle all Medicaid services with Medicare Part A, Part B, and Part D. See my earlier post on this idea and other stories on dual eligible issues.


    ● Retirees with Employer-Sponsored Drug Coverage: The trend has certainly been toward employers reducing retiree health coverage. With $100 billion in new taxpayer-financed incentives and an array of options to cost shift, Medicare Part D ensures that millions of retirees will move - slowly but inevitably - from relatively generous employer-sponsored drug coverage to more limited, more costly taxpayer-subsidized coverage. Employers are in a bind, to be sure, so don't blame them for taking advantage of this gift horse. It's anyone's guess whether Part D and the $100 billion in subsidies for employers will serve to slow or hasten the death of employer-sponsored drug coverage for retirees.


    ● States: Because of the now notorious "clawback" and variety of other factors, including a likely strong woodwork effect, loss of supplemental rebates, and unfunded mandates, drug benefits for dual eligibles will cost cash-stripped state governments more under federal management. Under Part D and the resulting fragmentation of benefits across multiple, uncoordinated programs, state Medicaid programs also lose critically important data and face greater challenges to managing the health costs of the most expensive, most vulnerable Medicaid beneficiaries. Since it's highly likely that many dual eligibles will have problems getting their prescriptions in the early months of Part D, states may be forced to step in and use their own money to cover drugs as the bugs are worked out.


    ● Community Pharmacies: The shift of dual eligibles to Medicare for their prescription drugs also means a large chunk of retail pharmacy business is moving from Medicaid (which, in most states, is the highest payor of pharmacy services) to private drug plans (which are the lowest payors). Specifically, state Medicaid programs commonly pay much higher dispensing fees and pay a higher rate for a pharmacy's drug acquisition costs. Commercial insurers, including those offering Medicare drug plans, are just the opposite. States do get better deals from drug manufacturers because of rebates and the Medicaid "best price" law, but those dollars are on the backend and pharmacies don't benefit. The large drug store chains have some flexibility to juggle the business impact of Part D. However, many small independent pharmacies face significant financial losses.


    ● Big Pharma: Some, perhaps most, pharmaceutical manufacturers will see a temporary boost in their top lines. Yet, most will experience a significant and likely steady, long-lasting hit to the bottom line. Yes, some drug makers will benefit from the pent-up demand released by the Medicare drug benefit. But the potential for increased sales in the short term is nothing compared to pricing pressures generated by the confluence of market dynamics, including drug plan competition, price transparency, and price sensitivity of at-risk drug plans. Add to this the likelihood of a massive increase in government oversight, substantially higher compliance risks, and challenges of shifting from a sales-based to research-based strategy. Some drug makers will win but it will depend on how quickly and deftly they can adapt to a brave new world of Part D.


    Please check out my previous post on the Medicare drug benefit, including post on the likely winners in the business of Part D.

    posted: November 20, 2005

    Marketing to Diverse Medicare Population.jpgThe new Medicare prescription drug benefit presents major marketing challenges for both the competing drug plans and officials at CMS and SSA. While the feds must conduct a massive outreach campaign to educate 43 million Medicare beneficiaries about the complex program, the drug plan sponsors must market their plan designs, which vary widely in delivery, cost sharing, and formularies.


    With over 2,000 drug plan options across the country and each beneficiary having to select among 40-50+ plan designs in their own regions, the marketing challenges are extraordinary. Add to this the intricate, anti-intuitive program design set up by Congress in the Medicare Modernization Act and how Part D handles the dual eligibles, low-income seniors, retirees with employer sponsored drug coverage, veterans, and others all differently - and, well, you have the makings of quite a mess.


    Yet, the challenges don't end there. The Medicare population is not homogeneous, media stereotypes notwithstanding. Beneficiaries vary widely by income, assets, age, disability status, setting, ethnicity, and existing drug coverage. Almost 70 percent already have prescription drug coverage without Part D. Those without drug coverage are a diverse mix of rich and poor, healthy and sick, active and isolated, urban and rural. As a group, American seniors are one of the wealthiest cohorts in world history but among them, there are many low-income seniors struggling every day.


    In terms of race and ethnicity, African Americans and Latinos make up 15 percent of Medicare's beneficiaries ages 65 and older and 27 percent of Medicare's under-65 disabled beneficiaries. However, while less than a third of white beneficiaries are sufficiently low in income to qualify for federal drug subsidies, over 60 percent of African Americans and Latinos on Medicare may qualify for the low-income subsidy. While a sizable majority of all Medicare beneficiaries have access to drug coverage without Part D, African American and Latino beneficiaries are more likely to have no drug coverage now. In addition, the vulnerable dual eligible population, with its 6.5 million souls, is disproportionately African American or Latino beneficiaries.


    Traditional, television-centric marketing tactics are necessary but not sufficient to reach Medicare's diverse population and offer the benefits of Part D, particularly the substantial savings available through the low-income subsidy. To differentiate themselves in a crowded market and maximize both enrollment and retention, Medicare prescription drug plans need to adopt a more sophisticated, multi-facetted array of marketing tactics and mediums. Among them, viral or word-of-mouth marketing is essential. In addition to being extremely effective in situations like this, the costs and risks are low.

    posted: October 22, 2005

    Medicare Prescription Drug Data Sharing.jpgSophisticated health care purchasers and health plans know the value of prescription drug data. When analyzed with paid claims data from physicians and hospitals, data from pharmacy claims can be used to identify, understand, and track a wide range of issues.


    Starting January 2006, when the 6.5 million dual eligibles move from Medicaid to Medicare for their prescription drug benefits, state Medicaid agencies will no longer have access to data on drug use by these extremely expensive, at-risk beneficiaries - patients who drive over 40 percent of Medicaid costs. As a result, Medicaid managers will lose an invaluable source of information, severely handicapping the ability of states to monitor quality, access, and costs and catch waste, fraud, and abuse.


    The Centers for Medicare and Medicaid Services (CMS) lacks the legal authority to require Medicare prescription drug plans (PDPs and MA-PDs) share data with Medicaid. However, nothing precludes voluntary Rx data sharing between Medicare drug plans and states.


    Voluntary data sharing would be an easy, inexpensive way for Medicare drug plans to gain goodwill among states and advocates, generate positive publicity, and differentiate themselves from the mass of competitor plans. In addition, because dual eligibles may switch plans any time and multiple times each year, two-way data exchanges with states would aide drug therapy transitions, utilization review, and medication therapy management. Stand-alone PDPs, which are at risk only for drug costs and therefore will not have access to any non-drug data, could greatly benefit from data from state Medicaid programs (e.g., diagnoses, prescription history, providers seen)


    To help make this happen:


    - A major pharmaceutical manufacturer should offer to fund a national initiative to show the business and clinical case for information exchange, develop data sharing agreements, iron out any technical obstacles (e.g., data safeguards), and cover the modest start-up costs (e.g., systems changes). In addition to generating goodwill, this would help minimize disruption in drug therapy, quality problems, and errors - and reduce lost revenue and bad publicity that will inevitably result if duals have problems accessing vital medications.


    - In their standards for a Medicare drug plan to be designated as a preferred plan for low-income beneficiaries, State Pharmaceutical Assistance Programs (SPAPs) should require that preferred drug plans to exchange duals' Rx data with states.

    posted: September 24, 2005

    Medicare Advantage Special Needs Plans.jpgMedicare Advantage is the new name for voluntary managed care options in Medicare (also know as Medicare Part C and formerly "Medicare+Choice"). Medicare Advantage plans are now available in nearly every area of the country. Beneficiaries who select a MA plan elect to receive all Medicare benefits through the health plan (HMO or PPO). This includes all Part A and Part B services, plus the new Part D drug benefit as an optional add-on.


    The Medicare Modernization Act (MMA) created a Medicare Advantage option called "specialized MA plans for special needs individuals" ("special needs plans" or "SNPs"). These Medicare health plans limit their enrollment to special needs beneficiaries (or disproportionate percentage of special needs beneficiaries). The idea is to encourage greater access to Medicare Advantage plans for special needs individuals and allow plans to tailor programs to meet unique needs. MMA also created risk adjustment, removing a major disincentive to serve high-cost populations. Two groups of special needs individuals are specified in MMA: (1) beneficiaries who are institutionalized and (2) dual eligibles. CMS may also establish other "special needs" groups among beneficiaries with severe or disabling chronic conditions. Like other Medicare Advantage plans, special needs plans have the ability to lower beneficiary cost sharing and cover services not available to beneficiaries in fee-for-service Medicare.


    This creates a new opportunity for state Medicaid programs to extend the benefits of managed care to dual eligibles, who nationwide account for over 40 percent of Medicaid costs. Because of a labyrinth of conflicts between federal Medicare and Medicaid laws, it has been very hard for states to implement large-scale programs to improve care delivery for their highest cost, most vulnerable beneficiaries. The result has been high costs, extraordinary inefficiency, frustration for patients and their families, and higher risk for poor quality.


    Working with CMS and Medicare Advantage special needs plans (MA-SNPs) operating in the state, a state Medicaid agency could offer to capitate all Medicaid services to any MA-SNP with dual eligible enrollees. The MA-SNP would then be responsible for all Medicare and Medicaid benefits, including all long-term care and prescription drug benefits. To ensure appropriate payment and oversight, the state would risk adjust the Medicaid side of the capitation and MA-SNPs would have one set of quality standards and grievance procedures (presumably based on the more stringent Medicaid protections). Enrollment would remain voluntary like it is for other Medicare beneficiaries, but states could create powerful incentives for duals to enroll in MA-SNPs. For example, the state could limit coverage of home- and community-based services (HCBS) to MA-SNP enrollees when two or more MA-SNPs are available.


    Beneficiaries would benefit from higher quality, better access (in real terms), modern care coordination, less paperwork, closer oversight of their rights, and likely more services. States would win from a range of benefit and administrative savings, plus more predictable spending.


    For a fact sheet on Medicare Advantage, click here. To learn about plans, enrollment, and other key issues, click here.

    posted: September 19, 2005

    The Business of Healthcare Innovation.jpgThe market dynamics, business models, and corporate strategies of pharma, biotech, genomics, medical device development, and health care information technology are converging. And you better get ready.


    Written by business gurus at the Wharton School and health industry executives, The Business of Healthcare Innovation provides an invaluable analysis of key business trends in the manufacturing side of health care. Editor Lawton R. Burns, Ph.D. and contributors focus on the producer side of health care and demonstrate how manufacturers serve as the principal drivers of health care innovation.


    Specifically, The Business of Healthcare Innovation:


    · Provides an insightful, detailed overview of the most influential players - namely, the pharmaceutical, biotechnology, genomics/proteomics, medical device, and information technology sectors.


    · Describes and assesses the market structures, business models, and corporate strategies of each of these six sectors.


    · Shows how the six sectors are converging, drawing increasingly on the trends, tools, and solutions of each other.


    A compelling, business-savvy look at the manufacturing side of health care, The Business of Healthcare Innovation is highly recommended for executives, policy makers, investors, and consultants to business and government decision makers.

    posted: September 17, 2005

    Physician Drug Prescription.jpgOnce the Food and Drug Administration (FDA) approves a new prescription drug for one medical indication, physicians are free to prescribe it for virtually any condition. While there are downsides of prescribing drugs "off-label," it allows patients and payors to benefit as physicians test drugs under real-world conditions and identify new applications.


    Because formal clinical trials and the FDA review process can take years, valuable new uses of a drug may be validated by studies in peer-reviewed medical journals years before the new indication becomes officially approved. And because of research and regulatory costs, drug makers cannot justify pursuing FDA approval for new indications, even when a new indication is highly cost-effective for purchasers, plans, and patients. Indeed, some diagnoses have no "on-label" drugs and are treated entirely on an off-label basis.


    With the new Medicare drug benefit (Medicare Part D), the federal government will become the world's largest buyer of prescription drugs. In Part D, a prescription drug is coverable by a Medicare drug plan (PDP or MA-PD) only if it is prescribed for a medically accepted indication as defined under federal Medicaid law. This includes uses that are approved by the FDA or supported by a citation in one of four drug compendia:


    · American Medical Association Drug Evaluations
    · American Hospital Formulary Service Drug Information
    · DRUGDEX Information System
    · United States Pharmacopeia Drug Information


    Because of this restriction in the Medicare Modernization Act, indications that are supported in peer-reviewed medical literature but not yet approved by the FDA or accepted in one of the compendia are not "medically accepted" by Medicare. In such cases, the Medicare drug plans may not pay for the drug.


    While this helps Medicare drug plans manage their financial exposure and allows them to crack down on inappropriate drug therapy, it also means that it'll be harder for physicians to identify valuable new uses of medications. As we loose this critically important path to expanding our evidence base, patients and the economy will suffer.


    This is yet another reason why we need a comprehensive approach to post-market surveillance and assessment of prescription drugs, continuous improvement of the evidence base of what works, and more effective ways to bring that evidence to day-to-day clinical practice.

    posted: September 5, 2005

    FDA and Plan B Drug.jpgRegardless where you come down on the issue of contraception and availability of the new Plan B "morning after" pill, the Food and Drug Administration's handing of Plan B provides ample evidence against expanded regulation of the pharmaceutical industry.


    Plan B, an emergency contraction drug, was approved for sale by prescription in 1999 "indicated to prevent pregnancy following unprotected intercourse, a known or suspected contraceptive failure, or in cases of sexual assault." When taken within 72 hours of unprotected intercourse, it reduces the chance of pregnancy by 84 percent. Plan B is not RU-486, the so-called abortion pill. It doesn't not work if the woman is already pregnant, although reportedly it sometimes prevents a fertilized egg from implanting in the uterus.


    Because Plan B is more effective the sooner it is taken, an FDA advisory panel voted overwhelmingly to recommend the drug for sale over the counter (OTC). Concerned that women under 16 may not understand the label instructions, the FDA rejected the committee's recommendation.


    To accommodate the FDA's concerns, the drug's maker, Barr Pharmaceuticals (NYSE: BRL), asked the FDA to allow OTC access to Plan B for women age 16 and older. A prescription would still be required for those 15 and younger. For many, that seemed like a reasonable approach, although of course it wouldn't satisfy radicals on the Left or the Right. Now, contrary to the statutes governing the FDA and the FDA's own rules, the matter is again on hold.


    Plan B is a political football to be sure and the FDA Commissioner, Lester M. Crawford, is in a tough spot. Any discussion of contraception " particularly an entirely new method designed to help reduce the chance of a pregnancy after intercourse " brings out both sides, particularly the Far Left and the Far Right.


    However, the FDA's job is not to make the nation's social policy or, for that matter, the nation's health policy. Its sole job " and therefore sole authority " is to determine whether Plan B is safe and effective. It already made that decision in the affirmative. Federal law " and the FDA commissioner's promises to Congress " dictates that Barr's request for OTC status be approved. If elected lawmakers are concerned about women's or girls' access to contraceptives (either because they see it as too restrictive or too loose), then they are free to debate it to their heart's content and the rest of us can watch them on C-SPAN. However, the FDA is an administrative agency charged with a specific scientific mission.


    The FDA's mishandling of Plan B does have a positive aspect. It provides an excellent case study in why we must guard against over regulation of health care, whether of pharmaceuticals or medical services. Just as it's important to make sure our courts not legislate, it's also important that executive branch agencies stick to their knitting.


    With the new Medicare drug benefit, the federal government will soon become the world's largest buyer of prescription drugs. Taxpayer-funded programs " notably Medicaid and Medicare " already account for just under half of the nation's health spending. With more and more medical dollars in the hands of the government (gulp), lawmakers will be overcome with an urge to legislate and regulate. We must guard against this terribly perverse, inherently counterproductive instinct.


    With so much public money in the mix, it is not realistic to assume a complete separation of science and politics. But that's why we have a system of laws, due process, transparent decision-making, and limited, precise delegation of authority. The situation of Plan B and the FDA shows how this can quickly brake down if we are not watching.

    posted: August 6, 2005

    Medicare Part D Low Income Subsidy.jpgIt's still early in the nationwide push to get millions of low-income Medicare beneficiaries to sign up for the subsidy that could cover the bulk of their prescription drug expenses. But, as many of us expected, applications are coming in at a trickle.


    The low-income subsidy is one of the most positive aspects of the new Medicare prescription drug benefit (aka, Medicare Part D). Of the 43 million Medicare beneficiaries, up to seven million may be eligible for the generous, taxpayer-financed subsidies of most of their drug costs. However, they must apply for the subsidy, navigate the application form, meet the income and asset tests set by Congress, and later sign up for the drug benefit and pick a drug plan.


    Experience from other subsidy programs tells us that it's tough to get low-income seniors to apply for benefits. They are hard to reach and risk adverse. They don't like the idea of signing up for what is seen as a welfare benefit. In addition, they are often struggling with multiple health issues and low health literacy. Ultimately, you can lead people to a subsidy but you can't make them take it.


    The Medicare savings programs are a good case in point. For low-income Medicare beneficiaries who do not otherwise qualify for full Medicaid benefits, the feds mandate that state Medicaid programs pay some or all of the individual's Medicare cost sharing. But, after years of outreach efforts, perhaps only 30 percent of eligible beneficiaries are enrolled.


    Inside the Beltway, a host of players is worried that signup for the low-income subsidy will be painfully slow. Even putting aside the primary objective of ensuring access to needed medications, response to the low-income subsidy will drive perceptions of whether Part D is a success or failure.


    Like virtually every aspect of Medicare Part D, it will take time, effort, money, creativity, partnerships, luck, and patience to make the low-income subsidy a success. However, whether we like it or not, this is a public program, operating in a media and politically driven fish bowl - and expectation are foolishly unrealistic. We need to show patience, but ultimately perceptions will rule reality. And if, come January 2006, only a small portion of eligible beneficiaries sign up for the subsidy, expect a lively blame game.


    To read other stories on the Medicare drug benefit, click here.

    Consider This
    In ancient China, physicians were paid only when their patients were kept well and often not paid if the patient got sick. If a patient died, a special lantern was hung outside the doctor's house. Upon each death, another lantern was added. This is the first known use of the two most powerful drivers for health care performance - incentives and transparency.
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