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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Prescription Drug Benefits
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: June 30, 2010

    Medicare Data Book 2010.jpgMedPAC released its Medicare Data Book for 2010, with a wide range of useful information on Medicare spending, utilization, beneficiaries, providers, health plans, drug plans, access, and quality. The format is reader-friendly charts and tables with bulleted summaries.


    Specifically, the latest MedPAC Data Book includes information on:


  • Medicare spending, including Medicare spending compared to national health care spending.

  • Medicare beneficiary demographics.

  • Dual-eligible beneficiaries.

  • Medicare quality and access.

  • Medicare beneficiary cost sharing and other payer liability.

  • Medicare Part B drugs and biologics.

  • Medicare Advantage program, including Medicare Advantage plans, Special Needs Plans (SNPs), and enrollment figures.

  • Medicare Part D prescription drug program.

  • MedPAC also provides an array of charts and tables on Medicare providers and care settings, with data on Medicare spending, percent of beneficiaries using the service, number of providers, volume, length of stay, and, where available, profit margins, if
    applicable. Provider types covered include inpatient hospitals, outpatient hospitals, physicians, skilled nursing facilities, home health agencies, long-term care hospitals, inpatient rehabilitation facilities, ambulatory surgical centers, dialysis facilities, and hospice.


    MedPAC - the Medicare Payment Advisory Commission - advises Congress on Medicare policy.

    posted: May 4, 2010

    Health Reform Impact MA and PDP.jpgMedicare Advantage plans and Medicare Part D prescription drug plans face an extraordinary array of changes as a result of the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA). These include:


  • New payment benchmarks for Medicare Advantage (MA) plans, phased in and based on relative fee-for-service (FFS) costs.
  • Other payment related changes including bonuses for higher quality, minimum Medical Loss Ratio (MLR), and annual calculation of the MA coding intensity adjustment.
  • Benefit design changes, including changes to Part D drug coverage.
  • New requirements for MA Special Needs Plans (SNPs), including need for all SNPs to be NCQA accredited.

  • Following the legislation is tricky, since HCERA amends or replaces language Congress adopted a few days earlier in PPACA.


    Fortunately, Milliman actuaries Earl Whitney, Matt Chamblee, and Jian Yu just released an exceptionally clear and concise 7-page briefing paper on the PPACA and HCERA changes affecting Medicare Advantage plans and Medicare prescription drug plans (PDPs).


    Meanwhile, Troy Filipek and Brian Anderson, also from Milliman, have written an excellent summary of the changes made to the Part D drug benefit, including the closing of the coverage gap (donut hole) and elimination of federal tax deductibility of the retiree drug subsidy for employers. They nicely lay out the provisions and key implications.


    These two briefs may help to tide you over pending release of more detailed guidance and rule changes from CMS.

    posted: April 28, 2010

    AHDB March-April 2010.jpgThe latest issue of the journal American Health & Drug Benefits includes a valuable mix of studies and articles on economic, regulatory, and clinical issues of particular interest to payors, purchasers, and policymakers.


    Obesity: Effective Treatment Requires Change in Payers' Perspective by Rhonda Greenapple, MSPH and Jackie Ngai, MS, with Stakeholder Perspective by Jeff Januska, PharmD.


    Health Insurance Premium Increases for the 5 Largest School Districts in the United States, 2004-2008 by John R. Cantillo, MBA, with Stakeholder Perspective by F. Randy Vogenberg, PhD, RPh.


    Evolving Trends in Insulin Delivery: In Pursuit of Improvements in Diabetes Management by Firas Akhrass, MD; Nancy Skinner, RN, CCM; Kimberly Boswell, MD; and Luther B. Travis, MD, with Stakeholder Perspective by James V. Felicetta, MD.


    Healthcare Costs Associated with Switching from Brand to Generic Levothyroxine by Michael Katz, PharmD; Joseph Scherger, MD, MPH; Scott Conard, MD; Leslie Montejano, CCRP; and Stella Chang, MPH, with Stakeholder Perspective by Michael S. Jacobs, RPh.


    Pay-for-Performance Initiatives: Modest Benefits for Improving Healthcare Quality by Amit Sura, MD, MBA and Nirav R. Shah, MD, MPH, with Stakeholder Perspective by Steven T. Kmucha, MD, JD.


    Pharmacogenomics and Drug Development by Michael F. Murphy, MD, PhD.


    First Anti-Inflammatory Generic Drug Promising New Therapy for Diabetes by Dalia Buffery, MA, ABD.


    The Cardiovascular Pipeline: ACC 2010 Features Late-Stage Drugs by Wayne Kuznar.


    NCCN Panel Debates the Economics of Cancer Care by Caroline Helwick.


    PET Scans Not Recommended for Most Patients with Breast Cancer: Potential New Controversy in Breast Cancer Testing by Caroline Helwick.


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

    posted: April 25, 2010

    AHDB Wellness.jpgCreating a wellness-based healthcare system is the focus on a new series of articles published by American Health and Drug Benefits, a peer reviewed journal. They cover a wide spectrum of topics on how to build and support prevention and wellness, particularly for chronic conditions. The ideas and information are particularly timely given the array of prevention and wellness initiatives in the Patient Protection and Affordable Care Act (PPACA):


    The 5 Eras of Healthcare Finance: Wellness as a Clinical Model by Thomas McCarter, MD, FACP; Farrah N. Daly, MD, MBA; and Keri Cooper


    Epidemiology and Impact of Chronic Diseases: The Promise of Prevention by Nirav R. Shah, MD, MPH


    Bending the Curve, Changing Provider Organization: Implications for Wellness-Based Healthcare by Lawton Robert Burns, PhD, MBA


    Wellness-Based Healthcare: Economic Incentives and Benefit Design by Gene Reeder, RPh, PhD


    Wellness-Based Healthcare Policy: Medicare, Medicaid, and Private Insurance by Kip Piper, MA, FACHE


    FDA Policies and Wellness-Based Healthcare: Approving and Paying for Prevention by Scott Gottlieb, MD


    The Diabetes Ten City Challenge: Value-Based Benefit Design for Wellness-Based Care by Toni Fera, BPharm, PharmD


    The Role of Wellness for Large Corporations: Trends and Models by Wayne M. Lednar, MD, PhD


    Employers and a Culture of Health by Alberto M. Colombi, MD, MPH


    Healthcare Reform: Impacts on Business by F. Randy Vogenberg, RPh, PhD


    Pharmaceutical R&D Strategy and the Transition to Personalized Healthcare Planning by Michael F. Murphy, MD, PhD


    The Role of Health Plans in Prevention and Wellness by Gary M. Owens, MD


    Patient Engagement: From Medication Adherence to Health and Wellness by James T. Kenney, Jr, RPh, MBA


    The Geisinger Model: Research Is a Core Asset by
    Nirav R. Shah, MD, MPH; J.B. Jones, PhD, MBA; and Walter F. Stewart, PhD, MPH


    Click here to read or download the above collection on Wellness-Based Healthcare System of Chronic Diseases: Prevention, Intervention, and Innovation (PDF).


    Kip Piper is health policy editor of American Health and Drug Benefits. The journal's 30,000 subscribers include decision makers in health plans, drug plans, Medicare, and Medicaid.

    posted: March 18, 2010

    MedPAC March 2010.jpgThe Medicare Payment Advisory Commission (MedPAC) has released its Medicare payment recommendations to Congress for 2011. In addition to specific recommendations for payment updates for fee-for-service providers and Medicare Advantage plans, MedPAC's report includes interesting information and analysis on spending trends, consequences of rapid spending on Medicare and the overall health care system, and the process of assessing payment adequacy.


    MedPACs informative, 381-page report includes detailed Medicare reimbursement recommendations for:

    • Inpatient hospital services (Inpatient Prospective Payment System or IPPS)
    • Outpatient hospital services (Outpatient Prospective Payment System or OPPS)
    • Physician services
    • Ambulatory surgical centers
    • Outpatient dialysis services
    • Hospice services
    • Post-acute care providers: Skilled nursing facility services, home health services, inpatient rehabilitation facility services, and long-term care hospital services
    • Medicare Advantage plans (Medicare Part C)

    The report also includes:

    • Status report on the Medicare Part D prescription drug program.
    • Comparison of quality among Medicare Advantage plans and between Medicare Advantage and fee-for-service Medicare.

    To read or download the full report, click here (PDF). To select specific topics in the report, click here.

    posted: March 4, 2010

    AHDB Jan Feb 2010.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:


    Orphan Drug Pricing and Payer Management in the United States: Are We Approaching the Tipping Point? by Rebecca Hyde and Diana Dobrovolny, with Stakeholder Perspective by Kavita V. Nair, PhD.


    Physicians' Perceptions of Reimbursement as a Barrier to Comprehensive Diabetes Care by Alyssa Pozniak, PhD; Lois Olinger, MA; and Victoria Shier, MA, with Stakeholder Perspective by Gary M. Owens, MD


    Hypertension Management: An Update by Quang Nguyen, DO; Joann Dominguez, MD; Loida Nguyen, PharmD; and Nageshwara Gullapalli, MD.


    Competition from Biosimilars an Incentive for Innovation by Dalia Buffery, MA, ABD


    Emerging Trends in Breast Cancer Management by Caroline Helwick


    Rheumatology Pipeline Boasts Innovation, ID Line Is Drying Up: ACR/IDSA 2009 by Alice Goodman


    Cardiology Pipeline Is Promising: AHA 2009 by Wayne Kuznar


    Learn More:


    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.


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

    posted: February 4, 2010

    Health Spending to 2019.jpgThe Centers for Medicare and Medicaid Services' Office of the Actuary (CMS/OACT) has released its projections of U.S. health care spending for the ten years 2010 through 2019, with premliminary estimates of 2009 health spending. The projections, released each year around this time, offer a fascinating, detailed look at patterns and trends in public and private health spending across programs and provider types.


    Health Care Spending in 2009:


    In 2009, National Health Expenditures (NHE) is projected to have reached $2.5 trillion, up 5.7 percent from 2008. This compares to 1.1 percent GDP decline in 2009. Health spending grew by a slow rate of 4.4 percent in 2008.


    The health care share of GDP is expected to jump from 16.2 percent of GDP in 2008 to 17.3 percent in 2009 - the largest one-year increase in history.

  • National health spending accelerated in 2009 due to several factors, notably:

  • Fast grow in Medicaid, driven by higher enrollment in the recession. Medicaid grew by 9.9 percent in 2009, compared to the 4.7 percent increase in 2008.

  • Medicare spending growth of 8.1 percent.

  • Higher utilization of services by consumers seeking treatment for the H1N1 virus.

  • Increased take-up rate for COBRA coverage due to federal subsidies of COBRA premiums.

  • Medicare, Medicaid, and Private Health Insurance in 2009:


    In 2009, Medicare was projected at $507.1 billion, a 8.1 percent increase over 2008. Medicaid spending is estimated at $378.3 billion (federal and state funds), an increase of 9.9 percent.


    The fast grow in Medicare and Medicare compares to continued slow growth in spending on private health insurance premiums, again largely due to the poor economy and unemployment. CMS projects spending on private health insurance premiums at $808.7 billion in 2009, up 3.3 percent from 2008.


    Hospital, Physician, and Prescription Drug Spending in 2009:


    Estimating Health Spending.jpgIn 2009, hospital spending increased by 5.9 percent to $760.6 billion (inpatient and outpatient). Physician and clinical services spending is expected to have reached $527.6 billion or a 6.3 percent increase in 2009. Note that in 2008 hospital and physician spending increased at more moderate rates of 4.5 percent and 5.0 percent, respectively.


    Prescription drug spending increased by an estimated 5.2 percent, for total of $246.3 billion in 2009. Part of this increase was driven by higher use of antiviral drugs. Political perceptions and grandstanding notwithstanding, drug spending continues to grow more slowly than other, much larger components of health spending and has declined as a proportion of total health costs.


    Projected Health Care Spending in 2010:


    Assuming that Congress stops the 21.3 percent cut in Medicare physician payment rates required under the Sustainable Growth Rate (SGR) provisions of current law, total U.S. health care spending is projected to increase by 4.7 percent in 2010. If Congress fails to stop the physician rate cuts, overall NEHs would grow by a more modest 3.9 percent. Fixing SGR could easily cost over $300 billion but a fix is likely, especially given the enormity of the cuts and fact this is an election year.


    Private health care spending in 2010 is projected to grow by 2.8 percent because of declining private health insurance enrollment because of high unemployment and the expiration of federal subsidies for COBRA coverage.


    Out-of-pocket spending is expected to have slowed from 2.8 percent in 2008 to 2.1 percent in 2009, reaching $283.5 billion in 2009. The recession slowed the ultization of medical services, thereby slowing growth in out-of-pocket spending on co-payments and deductibles.


    Ten Year Projection Through 2019:


    For 2010 through 2019, the CMS team of actuaries and economists project:


  • Overall national health spending will grow by average annual rate of 6.1 percent (compared to projected GDP growth of 4.4 percent annually).

  • Medicare spending will grow at average annual rate of 6.9 percent.

  • Medicaid spending will grow at average annual rate of 7.5 percent.

  • Out-of-pocket spending will grow by an average 4.8 percent per year.

  • Hospital spending will increase by an average 6.1 percent per year.

  • Physician and related clinical spending will grow by average annual rate of 5.9 percent.

  • Perscription drug spending will grow by average 6.3 percent per year.

  • Not surprisingly, public sector spending on health care is projected grow faster on average than private spending for 2009 through 2019. Average annual growth rate of 7.0 percent for taxpayer financed health care versus 5.2 percent for private spending (by employers and individuals).


    Public health care programs (Medicare, Medicaid, CHIP, VA, TRICARE, et al) will account for half of all health spending by 2012.


    By 2019, CMS Office of the Actuary projects that U.S. health spending will reach $4.5 trillion or about 19.3% of the economy as measured by GDP. (Yikes!)


    Learn More About Health Spending Projections:


    The CMS Office of the Actuary projections for U.S. health spending are nicely summarized in a new article in Health Affairs. To read the article, click here (PDF).


    To learn more, check out CMS' projections, historical tables, and methodology here.

    posted: November 8, 2009

    AHDB Sept and Oct 2009.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:


    Predictive and Prognostic Models: Implications for Healthcare Decision-Making in a Modern Recession:

    F. Randy Vogenberg, RPh, PhD examines the role of predictive modeling in the healthcare decision-making process and its impact on clinical outcomes. Dr. Vogenberg discusses the difference in the value of modeling to patients, providers, employers, and health insurers. He describes how applying predictive modeling can enhance patients' and providers' ability to make the best clinical decisions. Dr. Vogenberg is principal, Institute for Integrated Healthcare, Sharon, MA; adjunct Instructor, University of Rhode Island College of Pharmacy; and senior fellow, Jefferson University School of Population Health, Philadelphia, PA.


    Estimates of Commercial Population at High Risk for Cardiovascular Events: Impact of Aggressive Cholesterol Reduction:

    Kathryn Fitch, RN, MEd; Sara W. Goldberg, FSA, MAAA; Kosuke Iwasaki, FIAJ, MAAA; Bruce S. Pyenson, FSA, MAAA; Andreas Kuznik, PhD; and Henry A. Solomon, FACP, FACC analyze the effects of statin therapies on working age people at high-risk for cardiovascular disease. Using a target population of between ages 35-69, the authors found that 4 percent of the target population generated 22 percent of the risk for coronary heart disease and stroke, and that aggressive cholesterol-lowering statins significantly reduced the potential for events and is cost-neutral for payers. Ms. Fitch is healthcare management consultant, Ms. Goldberg is consulting actuary, Mr. Iwaski is consulting actuary, and Mr. Pyenson is principal and consulting actuary, at Milliman. Dr. Kuznick is associate director of outcomes research and Dr. Solomon is medical director at Pfizer.


    Impact of Prescription Benefit Coverage Limits on Sevelamer Hydrochloride Adherence for Patients with ESRD:

    Bharati Bhardwaja, PharmD, BCPS; Nikki Carroll, MS; Eli Korner, PharmD; and Kavita V. Nair, PhD discuss a new study that assesses the effects of prescription benefit coverage on medication adherence among Medicare beneficiaries diagnosed with end-stage renal disease (ESRD) taking sevelamer hydrochloride. The authors draw on lessons learned from caps on total drug spending and its impact on medication adherence, and conclude that caps on adherence negatively impact adherence and healthcare costs. Dr. Bhardwaja is a nephrology clinical pharmacy specialist, Kaiser Permanente and clinical assistant professor, University of Denver School of Pharmacy. Ms. Carroll is biostatistician at Institute for Health Research, Kaiser Permanente. Dr. Korner was research investigator, Kaiser Permanente during this study and is currently medical liaison, virology and hepatology, Roche Laboratories. Dr. Nair is associate professor, School of Pharmacy, University of Colorado at Denver.


    Private Health Plans Perspectives: Electronic Personal Health Records and Electronic Prescribing:

    Nancy M. McGee, JD, MPH; Gene Reeder, RPh, PhD; Timothy S. Regan, BPharm, RPh, CPh; J.D. Kleinke; and Steve Arnold, MD, MS, MBA, CPE analyze the results of a survey of commercial payers representing 16 national plans and 80 million covered lives to better understand payer involvement in electronic personal health records (ePHR) and e-prescribing. While respondents were enthusiastic about ePHRs and have aggressively moved to implement them, there was also disappointment in members' low utilization of these electronic systems. The authors suggest that Americans' concern about their health data being used inappropriately may be at the root. Ms. McGee is senior vice president and chief operating officer, Lash Group, San Bruno, CA. Dr. Reeder is director of payer market research at Xcenda. Mr. Regan is executive director, customer insights, at Xcenda. Mr. Kleinke is chief executive officer, Mount Tabor Online Services, Portland, OR. Dr. Arnold is vice president and chief medical officer, Touchstone Health Plan, Lagangeville, NY.


    Debate on the Elderly and End of Life Care Under Health Reform:

    In The Politics of Epidemiology, by Robert E. Henry, and End-of-Life Choices Are Necessary in Any Healthcare Reform by Gary M. Owens, MD, the authors tackle the thorny issue of how to address the elderly and end-of-life, both in healthcare reform and as a society. Mr. Henry argues that it is not a part of America's fundamental character to adopt policies that would determine what kind of care a person gets based on age and infirmity and that the government should avoid mandating processes that might ultimately encourage terminally ill patients to die quickly and efficiently. Dr. Owens argues that meaningful conversations between physician and family members and patients about their wishes at the end of their lives are important and should be encouraged to avoid potentially aggressive treatments that the patients themselves may not want. While he agrees that a health system should support the health of citizens, it should also respect the values of those facing end-of-life decisions. Mr. Henry is editor-in-chief of American Drug and Health Benefits. Dr. Owens is president, Gary Owens Associates, Philadelphia, PA.


    Can Generics Help Heal Our Ailing Healthcare System:

    Dalia Buffery, MA, ABD discusses the current struggle in Congress over the role and place of biosimilars. Recent legislative skirmishes in the House Energy and Commerce Committee defeated the 5-year exclusivity period for biosimilars proposed by Chairman Henry Waxman in favor of a 12-year exclusivity period. She asserts that while generic oral drugs have saved over $734 billion in the last decade, it will be important to craft a bill on biosimilars that both encourages and rewards innovation while also reducing costs to the system in the long run. Ms. Buffery is editorial director, American Health and Drug Benefits.


    Learn More:


    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.


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

    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: August 8, 2009

    ARHQ CER Spending Plan.jpgThe HHS Agency for Healthcare Research and Quality (AHRQ) has announced plans for spending its $300 million share of the $1.1 billion Congress appropriated for comparative effectiveness research (CER) under the American Recovery and Reinvestment Act of 2009 (ARRA or Recovery Act for short). AHRQ plans to solicit grant applications this fall and award grants and contracts by spring 2010. The $300 million must be encumbered by end of FFY 2010.


    AHRQ Spending Plan for Comparative Effectiveness Research in 2010:


    New Grants ($198.5 million):


    $148 million for evidence generation, including prospective studies and patient registries:

    • $100 million for the Clinical and Health Outcomes Initiative in Comparative Effectiveness (CHOICE), a new national effort to establish a series of prospective pragmatic clinical comparative effectiveness studies that measure the benefits treatments produce in routine clinical practice. This will include novel study designs focusing on real-world and under-represented populations (children, elderly, racial and ethnic minorities, and other understudied populations).
    • $48 million for the establishment or enhancement of national patient registries that can be used for researching the longitudinal effects of different interventions and collecting data on under-represented populations.

    $29.5 million to support innovative translation and dissemination grants.


    $20 million to support training and career development.


    $1 million for other grants.


    New Contracts ($19.5 million):


    $9.5 million to establish an infrastructure to identify new issues for comparative effectiveness research.


    $10 million to establish a citizen's forum to engage stakeholders and to expand and standardize public involvement in the federal comparative effectiveness research program.


    Expand Existing Contracts ($79 million):


    $50 million for evidence synthesis.


    $24 million for evidence generation.


    $5 million for translation and dissemination.


    Administration ($3 million):


    $3 million for salary and benefits for new AHRQ staff to administer the CER program.


    Health Conditions Selected for Comparative Effectiveness Research:


    For the time being, AHRQ is going to use the same 14 priority conditions designated earlier by the HHS Secretary under the Medicare Modernization Act. The priority conditions were selected because of their high interest for Medicare, Medicaid, and the Children's Health Insurance Program (CHIP):

    1. Arthritis and non-traumatic joint disorders
    2. Cancer
    3. Cardiovascular disease, including stroke and hypertension
    4. Dementia and other brain and nerve conditions, including Alzheimer's Disease
    5. Depression and other mental health disorders
    6. Developmental delays, attention-deficit hyperactivity disorder, and autism
    7. Diabetes mellitus
    8. Functional limitations and disability
    9. Infectious diseases including HIV/AIDS
    10. Obesity
    11. Digestive system conditions (peptic ulcer disease and dyspepsia)
    12. Pregnancy including preterm birth
    13. Pulmonary disease and asthma
    14. Alcohol and drug abuse


    For more information on AHRQ's CER program, visit effectivehealthcare.ahrq.gov.

    posted: May 18, 2009

    AHDB_0509.jpgHere are articles from the latest issue of American Health & Drug Benefits. AHDB is the peer-reviewed journal for 30,000 decision makers in health plans, PBMs, Medicare, Medicaid, and the pharma and biotech industries:


    May 2009 Issue:


    The Paradox of Public Policy Reform: Change or Continuum?
    By Robert E. Henry


    Are You Kidding Me? Clinical Comparative Effectiveness or Evidence-Based Medicine
    By Thomas Kaye RPh, MBA, FASHP


    MIPPA: First Broad Changes to Medicare Part D Plan Operations
    By Jean D. LeMasurier and Babette Edgar, PharmD, MBA
    Stakeholder Perspective by Mark Newsom, MSc


    ProvenCare: Geisinger's Model for Care Transformation through Innovative Clinical Initiatives and Value Creation
    Interview with Ronald A. Paulus, MD, MBA


    Perspective: The Integrated Patient-Centered Medical Home: Tools for Transforming Our Healthcare Delivery System
    By Matias A. Klein


    Increased Patient Cost-Sharing, Weak US Economy, and Poor Health Habits: Implications for Employers and Insurers
    By Melinda C. Haren, RN; Kirk McConnell; Arthur F. Shinn, PharmD, FASCP
    Stakeholder Perspective by Paul Anthony Polansky, BSPharm, MBA


    New Legislations on Generics and Biosimilars Brewing in Congress
    By Dalia Buffery, MA, ABD


    Paying for Cancer Care: Economic Models Start to Emerge, Dovetailing Healthcare Reform
    By Caroline Helwick


    Read Current and Past Issues:


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


    AHDB also published web exclusives, available for reading here.


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

    posted: February 17, 2009

    Medicare%20Changes%20for%202009.jpgAs the new Obama Administration and the 111th Congress focus on health care issues, here is a quick list of some of the Medicare policy changes Democrats will likely seek in 2009-2010:


    Likely Changes in Medicare Advantage:


    1. Phase-out of difference between Medicare Advantage plan rates and Medicare fee-for-service:


  • Some Medicare Advantage (MA) plans will see lower annual increase. Others a net decrease in rates.

  • The private fee-for-service (PFFS) plans, which tend to serve rural areas, will see the biggest hit.

  • Of course, because of the unique characteristics of Medicare Advantage bidding and ratesetting process, beneficiaries will see the biggest hit. That's because the rate difference goes mostly toward lower cost sharing and greater benefits for those beneficiaries deciding to receive their Medicare Part A and Part B services through plans instead of traditional fee-for-service.

  • Likely a three to five-year phase down period. Perhaps starting in 2010, especially if Congress acts before the bids arrive in June, 2009.

  • Congress will use savings (~$60 billion over five years) to help fix physician payment formula.

  • 2. Significant increase in MA plan oversight, especially on marketing, quality, data reporting, and process compliance. Expect new CMS requirements via both rules and guidelines, plus tighter audits and faster action on plan sanctions.


    3. Special Needs Plan (SNP) law sunsets on December 31, 2010. Reauthorization prospects depend largely upon:


  • How well SNPs work with state Medicaid programs.

  • If SNPs stay focused on their target market segments (especially dual eligibles), build more enrollment (increase from current ~1.3 million), and better differentiate themselves (politically and otherwise) from other Medicare Advantage plans.

  • Likely Changes in Medicare Part D Drug Benefit:


    1. Federal negotiation of prescription drug prices in Medicare Part D. Political symbolism with no budget savings unless feds unwisely use the authority to:


  • Create a national drug formulary (like VA) or preferred drug list (like some state Medicaid programs), thereby limiting access to drive better rebate deals.

  • Regulate prices. May include further use of AMP and/or ASP to set baseline for drug and biologic prices in U.S. market.

  • Mandate minimum rebates (see below).

  • 2. Create a "Public Plan" option in Part D. This would be a government-run Part D drug plan to compete with commercial plans (MA-PDs and PDPs). Would mean federal government getting far more and directly involved in marketplace and key decisions over formularies and pricing. Huge implications for health plans, drug plans, PBMs, pharma manufacturers, and pharmacies.


    3. Require Medicaid-like best price drug rebates in the Medicare Part D benefit. Initially, this will likely apply only to prescription drugs used by dual eligibles. However, in future, it will likely extend to all of Part D. The political temptation will be too great.


    4. Like with Medicare Advantage plans (for Part A and Part B services), increased federal compliance oversight of MA-PDs and PDPs for Part D benefits.


    Other Likely Changes in Medicare Program:


    1. Development of new payment models in Medicare, notably demos of bundled hospital-physician payments, episode-based payment, and gainsharing. These reform will create new opportunities, realign incentives in the marketplace, and could help focus federal policy makers on fixing the biggest drivers to high costs.


    2. More transparency. Public reporting of prices, quality, and safety. Reporting will be increasingly tied to payment penalties for non-reporting. Policy makers are losing patience with provider trade groups balking at disclosure.


    3. Promote use of patient-centered care models and medical home concept, especially for the chronically ill.


    4. Reform Medicare physician payments, either another temporary fix or permanent change. Otherwise, docs face an automatic 20% rate cut in 2010. The current system is absurd but permanent fix will cost $262 billion to $460 billion over ten years (depending on whether rates are frozen or docs get modest annual increases).


    The changes described here range from the necessary to the useful, from the shortsighted to the unwise. But the Obama Administration and Dem leaders in the House and Senate have a long, ambitious wish list of changes for Medicare. And it is still unclear how the tough economy, budget realities, and larger health reforms will affect their Medicare agenda. Regardless, buckle up for a wild ride.

    posted: December 23, 2008

    Drug%20Use%20in%20SNP%20and%20MAPD.jpgMedicare beneficiaries in Special Needs Plans (SNPs) have higher Part D prescription drug utilization and costs than enrollees in other Medicare Advantage Prescription Drug Plans (MA-PDs) do. This is no surprise since, by design, Special Needs Plans serve higher-risk Medicare patients, including many dual eligibles. However, despite higher drug utilization rates in SNPs, SNP enrollees and other MA-PD enrollees have similar rates of inappropriate drug pairs (therapeutic duplications and drug-drug interactions).


    Compared to enrollees in other (non-SNP) Medicare Advantage drug plans, SNP enrollees fill 11% more scripts. The average annual prescription cost per SNP beneficiary is 49% higher compared to that of other MA-PD beneficiaries. The difference in per capita drug costs between SNPs and other MA-PDs appears due to a combination of factors: SNP beneficiaries' higher utilization, use of costlier drugs, lower utilization of 90-day prescriptions, and SNPs paying more for some highly utilized drugs.


    While SNP beneficiaries fill more prescriptions on average than other MA-PD beneficiaries, SNP and other MA-PD beneficiaries are exposed to potentially inappropriate drug pairs at similar frequencies. However, at higher levels of drug utilization, SNP beneficiaries are less likely to be exposed to a potentially inappropriate drug pair than other MA-PD beneficiaries.


    Most inappropriate drug pairs (65%) in SNPs and MA-PDs are drug-drug interactions. Of these, 83% presented a moderate risk and 17% a serious or severe risk of an adverse drug event. The remaining potentially inappropriate drug pairs (35%) are therapeutic duplications. The majority of inappropriate drug pairings - in both SNPs and other MA-PDs - recur and involve drugs prescribed by the same physician and filled by the same pharmacy.


    These findings, from a new analysis of 2006 data by the HHS OIG, provide further evidence for the urgent need of e-prescribing nationwide. There is also a need for genuine medication therapy management programs and more information and decision support tools for physicians and pharmacists - as well as sharpened accountability for those relatively small number of prescribers and dispensers who apparently generate the majority of potentially dangerous drug pairings.

    posted: December 16, 2008

    MedPAC%20Primers.jpgMedicare reimbursement policies are highly complex. Yes, that could be the litotes of the decade. Thankfully, the outstanding staff at the Medicare Payment Advisory Commission (MedPAC) produce and routinely update a series of basic primers on Medicare payment methodologies for hospitals, physicians, other providers, Medicare Advantage plans, and Part D prescription drug plans.


    MedPAC's primers are reader friendly and crafted for a general audience. Typically 2 to 4 pages in length, they summarize the basic elements of each given payment methodology, with some history, policy context, and a flow chart(s) diagramming how payments are generally calculated.


    Here are the latest primers on the basics of Medicare payment methods:


    Medicare Hospital Services:


  • Acute inpatient hospital services (inpatient PPS)

  • Critical access hospitals

  • Outpatient hospital services

  • Psychiatric hospital services

  • Medicare Outpatient Services:


  • Physician services

  • Geographic practice cost indexes for physician rates

  • Ambulatory surgical centers (ASCs)

  • Clinical laboratory services

  • Dialysis center services (ESRD facilities)

  • Outpatient therapy services

  • Durable medical equipment (DME)

  • Oxygen and oxygen equipment

  • Payment to physicians for professional liability insurance

  • Medicare Post-Acute and Related Services:


  • Skilled nursing facility services

  • Home health care services

  • Inpatient rehabilitation facilities

  • Long-term care hospitals

  • Hospice services

  • Medicare Health Plans and Prescription Drug Plans:


  • Medicare Advantage plans (HMOs, PPOs, PFFS plans)

  • Prescription drug plans (PDPs and MA-PDs)
  • 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: October 5, 2007

    Medicare%20Payment%20Policy%20Primers.jpgThe Medicare Payment Advisory Commission (MedPAC), the savvy nonpartisan shop that advises Congress on Medicare program issues, has updated its excellent series of primers. Extremely complex and changing constantly, Medicare payment policy will drive $479 billion in health spending in 2008. MedPAC's primers, typically four crisply-written pages, explain the basic steps and methodologies Medicare uses to reimburse fee-for-service providers, Medicare Advantage plans, and Medicare prescription drug plans.


    Here are MedPAC's updated primers on the basics of Medicare reimbursement policy (click on links to open in PDF format):


    Medicare Hospital Reimbursement:


  • Hospital acute inpatient services payment system (inpatient prospective payment system or IPPS)

  • Outpatient hospital services payment system (outpatient prospective payment system or OPPS)

  • Critical access hospital payments

  • Psychiatric hospital services payment system

  • Medicare Post-Acute Provider Reimbursement:


  • Skilled nursing facility services payment system

  • Inpatient rehabilitation facilities payment system

  • Long-term care hospitals payment system

  • Home health care services payment system

  • Medicare Physician Reimbursement:


  • Physician services payment

  • Medicare payment to physicians for professional liability insurance

  • Geographic practice cost indexes

  • Medicare Managed Care (Part C and Part D):


  • Medicare Advantage plan payment system

  • Medicare Part D payment system (PDPs and MA-PDs)

  • Other Medicare Reimbursement Policies:


  • Outpatient dialysis services payment system (ESRD facilities)

  • Durable medical equipment payment system (DME reimbursement)

  • Oxygen and oxygen equipment payment system

  • Ambulatory surgical centers payment system

  • Clinical laboratory services payment system

  • Outpatient therapy services reimbursement

  • Hospice services reimbursement

  • 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 28, 2007

    Effective%20Health%20Care%20Program.jpgNormally, $15 million a year doesn't buy you much in the federal government. A notable exception is the Effective Health Care Program at the Agency for Healthcare Research and Quality (AHRQ). Drug manufacturers, device makers, health plans, state Medicaid agencies, Wall Street analysts, physicians, and patient groups should all follow it closely.


    The Medicare Modernization Act of 2003 (MMA) authorized AHRQ to conduct and support research on outcomes, comparative clinical effectiveness, and appropriateness of pharmaceuticals, devices, and health care services. With a modest budget, a tiny but dedicated staff, and partnerships with top research institutions, AHRQ's Effective Health Care Program involves three approaches to research the comparative effectiveness of different medical treatments, drug therapies, and clinical practices:


    1. Review and Synthesize Knowledge: AHRQ's network of 12 Evidence-based Practice Centers systematically review published and unpublished scientific evidence on what is known. Given the huge volume of studies and journal articles produced every year, it is next to impossible for providers, payors, and other key decision makers to keep up and even harder for them to thoughtfully weigh the evidence. AHRQ and its research partners synthesize the science and build a meaningful evidence base.


    2. Promote and Generate New Knowledge: The DEcIDE Research Network studies new scientific evidence and analytic tools in an accelerated and practical format. DEcIDE stands for "Developing Evidence to Inform Decisions about Effectiveness." Comprised of 13 university research centers and think tanks, the DEcIDE network conducts accelerated practical studies about the comparative clinical effectiveness, safety, and appropriateness of specific health care services, drugs, and devices. In other words, what works best for patients.


    3. Compile Findings and Translate and Disseminate Knowledge to Decision Makers: AHRQ's John M. Eisenberg Clinical Decisions and Communications Science Center takes the research results and transform them into into a variety of useful, actionable formats for stakeholders (e.g., providers, payors, purchasers, patients, manufacturers). Specifically, these include (a) consumer guides (short summaries of health care research that can help with decisions about treatments), (b) clinician guides (brief evidence summaries to assist clinical decision making), (c) policymaker guides (short reports of research evidence for use in health care policy making), and (d) white papers on state-of-the-art concepts in health communication.


    The past couple years, the initiative has focused on ten priority health care conditions, selected because of their high impact on Medicare, Medicaid, SCHIP, and other federal health programs:


  • Arthritis and non-traumatic joint disorders

  • Cancer

  • Chronic obstructive pulmonary disease and asthma

  • Dementia including Alzheimer's disease

  • Depression and other mood disorders

  • Diabetes mellitus

  • Ischemic heart disease

  • Peptic ulcer disease and dyspepsia

  • Pneumonia

  • Stroke and hypertension

  • Later this year, AHRQ will entertain nominations for other priority conditions.


    Here's a sampling of the excellent work already generated. For a directory of these reports, with free access in PDF format, click here:


  • Medication Therapy Management Programs in Medicare Part D Prescription Drug Plans

  • Comparative Effectiveness of Second-Generation Antidepressants in the Pharmacologic Treatment of Adult Depression

  • Efficacy and Comparative Effectiveness of Off-Label Use of Atypical Antipsychotics

  • Comparative Effectiveness of Management Strategies for Renal Artery Stenosis

  • Comparative Effectiveness and Safety of Analgesics for Osteoarthritis

  • Comparative Effectiveness of Epoetin and Darbepoetin for Managing Anemia in Patients Undergoing Cancer Treatment

  • Effectiveness of Noninvasive Diagnostic Tests for Breast Abnormalities

  • Comparative Effectiveness of Management Strategies for Gastroesophageal Reflux Disease

  • The Effective Health Care Program has 40 other reports in the works, covering a wide range of topics. These include more comparative effectiveness reviews of specific drugs as well as tools to measure quality, reduce errors, and monitor therapies. To get notified when new research becomes available, sign up for AHRQ's email list.

    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: March 3, 2007

    Office%20of%20Management%20and%20Budget.jpgUnder a new Executive Order, President Bush has significantly expanded the authority of the White House Office of Management and Budget (OMB) over policymaking by the Centers for Medicare and Medicaid Services (CMS) and the Food and Drug Administration (FDA).


    Specifically, OMB now has the authority to review and approve a vast array of written guidance issued day-to-day by CMS and FDA. The expansion of OMB's oversight authority has far-reaching implications for Medicare and Medicaid policy and the regulation of the drug and device industries.


    In recent years, an increasing amount of agency policymaking has come in the form of "sub-regulatory guidance." That is, written guidance that does not go through the formal rulemaking process. In the case of CMS, this written guidance shows up, for example, as memorandums to health plans, letters to state officials, and manuals or other instructions. In its role administering the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA has its own system of guidance documents.


    While the FDA approach to sub-regulatory guidance has its own critics and limitations, the FDA approach is better organized and managed than CMS' approach. FDA has been at it longer than CMS but also has (relatively speaking) a narrower, more explicit scope of work. The FDCA and all its amendments is no walk in the park, but Titles 18, 19, and 21 of the Social Security Act are exercises in pure legislative surrealism.


    President Bush's new Executive Order means that much of this written guidance is now subject to prior review and approval by OMB. While OMB has always been a key player, particularly in Medicare and Medicaid policy, the E.O. greatly increases OMB's influence and may result in a substantial power shift in many day-to-day issues affecting providers, health plans, drug manufacturers, states, and other stakeholders. (In the interest of full disclosure, my career includes service on OMB's Medicare and Medicaid team.)


    For those interested in more background, below is a quick overview of the rulemaking process and the increasing role of written guidance in lieu of rules.


    OMB%20Rule%20Review.jpgBackground on OMB Regulatory Review:


    Virtually all CMS and FDA proposed and final rules are subject to prior review and approval of the Office of Management and Budget (OMB), the powerful policy management arm of the White House. (It's important to note that OMB also reviews Medicare and Medicaid waivers, agency budget requests and legislative proposals, and written testimony to Congress.) OMB's regulatory oversight was created by Presidential Executive Order in the Reagan Administration and modified but retained by the Clinton Administration.


    The basic idea is to help ensure that agency rulemaking activities follow the sitting President's policy objectives to the extent possible under the laws passed by Congress. OMB oversight also allows for a more thoughtful and disciplined approach to regulations, to keep track of the impact of agency rules on individuals, businesses, and states and guard against such things as unnecessary or excessive regulations and conflicting rules across different federal agencies.


    In principle, the rulemaking process is designed to (1) inform the public of planned rules in detail; (2) give the public, including stakeholders and experts, an opportunity to comment, provide new information, and suggest alternatives; (3) ensure the rulemaking agency considers and responds to public comments before issuing final rules; (4) ensure that all federal rules can be found in a central publication (published in the Federal Register and formally codified in the Code of Federal Regulations); and (5) provide a comprehensive public record for use by the courts, Congress, and the news media in overseeing an agency's use of power and interpretation of statutes.


    Written Guidance Instead of Formal Rules:


    In other words, the formal rulemaking process provides for far more thoughtful, documented, and transparent policymaking than the so-called sub-regulatory guidance. However, developing proposed and final rules is a laborious process taking months and sometimes even years. And CMS faces the imperatives of implementing massive pieces of legislation, such as the Deficit Reduction Act (DRA) and the Medicare Modernization Act (MMA). Even if CMS always had the necessary staff, expertise, systems, and budget to implement the avalanche of Medicare and Medicaid legislation on time (it never does, unfortunately), there are just not enough hours in the day to promulgate all the necessary rules to meet statutory deadlines.


    Therefore, much of CMS policymaking is done through written guidance, letters, memos, and memos - and not regulations. While it's easy to understand the practical pressures, many legal observers seriously question CMS's compliance with the Administrative Procedures Act (APA). The APA, originally enacted in 1946, governs when and how agencies must go through the formal rulemaking process.


    Privately, several players have told me how CMS's informal approach to many Medicare and Medicaid policies would likely not stand up in federal court. However, trade groups, states, and other stakeholders don't want to anger the increasingly powerful agency - and, in many cases, written guidance today is better than waiting months or even years for a rule.


    Like its sister agency CMS, the FDA is increasingly using sub-regulatory guidance in lieu of formal rules. Given the demands facing the FDA, including a variety of reforms and pending legislative changes, this is expected to increase. To get a flavor, check out the list of guidance documents from the FDA's Center for Drug Evaluation and Research (CDRR). You'll see it includes various backgrounders mixed with policy statements and instructions.

    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: January 10, 2007

    Drug%20Price%20Negotiations%20Continued.jpgWith sound, furry, and a fair quota of sound bites and photo opps, House Democrats are pushing for quick adoption of H.R. 4, the Medicare Prescription Drug Price Negotiation Act of 2007. The bill would require the Secretary of HHS to negotiate with pharmaceutical manufacturers on drug prices in Medicare Part D.


    As I explained in an earlier post, federal drug price negotiations would not generate savings above what are already achieved via the marketplace - unless Congress wants to severely limit the number of new and existing drugs available to seniors. However, the conclusion is counter intuitive to the uninitiated, especially given media hype and partisan palaver.


    Today, the Congressional Budget Office (CBO) told Rep. John Dingell, new Ways and Means Committee chairman, that federal drug price negotiations under H.R. 4 would save nothing. Here are the salient points of CBO's official estimate:


    CBO estimates that H.R. 4 would have a negligible effect on federal spending because we anticipate that the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law. Since the legislation specifically directs the Secretary to negotiate only about the prices that could be charged to PDPs, and explicitly indicates that the Secretary would not have authority to negotiate about some other factors that may influence the prescription drug market, we assume that the negotiations would be limited solely to a discussion about the prices to be charged to PDPs. In that context, the Secretary's ability to influence the outcome of those negotiations would be limited. For example, without the authority to establish a formulary, we believe that the Secretary would not be able to encourage the use of particular drugs by Part D beneficiaries, and as a result would lack the leverage to obtain significant discounts in his negotiations with drug manufacturers.


    Instead, prices for covered Part D drugs would continue to be determined through negotiations between drug manufacturers and PDPs. Under current law, PDPs are allowed to establish formularies - subject to certain limits - and thus have some ability to direct demand to drugs produced by one manufacturer rather than another. The PDPs also bear substantial financial risk and therefore have strong incentives to negotiate price discounts in order to control their costs and offer coverage that attracts enrollees through features such as low premiums and cost-sharing requirements. Therefore, the PDPs have both the incentives and the tools to negotiate drug prices that the government, under the legislation, would not have. H.R. 4 would not alter that essential dynamic.


    To read CBO's letter to Chairman Dingell, click here (PDF). To learn more about the issue, please check out my earlier story.

    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: 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: June 5, 2006

    Medicaid%20Benchmark%20Plans.jpgUsing new flexibility created by the Deficit Reduction Act (DRA), states may restructure Medicaid benefits. States may now customize Medicaid health care benefits to specific populations, model some benefit package after commercial-like health plans, and offer additional benefits as incentives to reward healthier patient behavior.


    Based on the concept of benchmark benefit packages first used in the State Children's Health Insurance Program (SCHIP), the new restructuring options are expected to save $11 billion over the next ten years (about $6 billion federal savings, $5 billion state savings) and ultimately affect 1.6 million Medicaid beneficiaries.


    Kentucky, West Virginia, and Idaho are the first states to use the new options. With help from leading consultants, other states are exploring ways to use DRA flexibility to reform some benefit packages and section 1115 waivers to modernize Medicaid, contain costs, and expand coverage.


    Here is a quick briefing on Medicaid benchmark coverage permitted under the DRA:


    1. Through the state plan amendment (SPA) process, states may provide Medicaid benefits through benchmark or benchmark equivalent packages for children and some non-disabled adults. The benchmark packages would replace existing Medicaid benefits for the targeted populations.


    2. The newly designed benefit packages may include wrap-around services or additional benefits not now covered by the state's Medicaid program. Every benchmark benefit package must cover Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services for children under 19, federally qualified health center (FQHC) services, and rural health clinic services.


    3. Benchmark coverage means the same health benefit package offered by (a) the state for state employees, (b) standard Blue Cross Blue Shield Plan offered under the Federal Employee Health Benefits Plan (FEHBP), (c) the state’s largest commercial HMO, or (d) other models approved by the HHS Secretary.


    4. Benchmark-equivalent coverage means a package with the same actuarial value as one of the benchmark plans. If a state uses this route, benchmark-equivalent coverage must include (a) inpatient and outpatient hospital services, (b) physician services, (c) lab and x-ray services, (d) well child care and immunizations, and (e) other preventive services designated by the Secretary. For prescription drugs, mental health services, and hearing and vision services, a benchmark-equivalent package must provide at least 75 percent of the actuarial value of coverage. States must use generally accepted actuarial principles and methodologies.


    5. States may only use benchmark or benchmark-equivalent packages to beneficiary groups already covered under the state Medicaid plan. Therefore, by itself, the DRA benchmark package option cannot be used to expand health coverage to new populations.


    6. In addition, many beneficiary groups are exempt from benchmark coverage, including (a) dual eligibles, (b) persons with disabilities or special health care needs, (c) beneficiaries needing long-term care services, (d) foster care children, (d) pregnant women with federally mandated coverage, and (e) individuals eligible for Medicaid via the TANF welfare reform law.

    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: April 5, 2006

    Part%20D%20Risk%20Mitigation.jpgBeing a Medicare prescription drug plan can be a profitable business. For the smart players, it will be highly profitable over time and indispensable to market position. But Medicare Part D can also be financially risky and volatile - particularly given:


  • Complexities of the Medicare population
  • Inherent uncertainties of a radically new and complex government program
  • Vagaries of drug pricing and utilization management
  • Stiff competition among plans
  • Multitude of benefit designs
  • High start-up costs
  • Inexperience of some of the players
  • Unpredictable enrollment (aggregate and mix)


    That's why Medicare Part D includes three separate mechanisms to mitigate the financial risks of Medicare drug plans. The mechanisms created under the Medicare Modernization Act (MMA) - risk corridors, risk adjustment, and federal reinsurance - apply to both the stand-alone Prescription Drug Plans (PDPs) and the Medicare Advantage prescription drug plans (MA-PDs).


    Each of the three methods mitigates different kinds of risk. While they help stabilize the drug plan market and facilitate market entry, they also benefit Part D enrollees in important, sometimes subtle ways.


    Risk Corridors for Profit and Loss:


    Using a system of risk corridors that compares actual incurred drug benefit costs to estimated costs submitted in bids, Medicare limits the profits and losses of Part D drug plans.


    Specifically, if a Medicare drug plan's actual benefit costs exceed expected (bid) levels by a sufficient degree, the plan will receive an additional federal payment to cover a portion of the loss. However, if a drug plan's actual spending falls sufficiently below projections, the plan must share some of the profit with the feds. Risk corridors apply to actual and expected drug benefits costs but exclude plan administrative costs and federal reinsurance payments.


    Risk corridors partially protect prescription drug plans from dramatic changes in drug spending, including the unexpected cost of new medications. Estimating per capita drug costs is also tough, particularly for a brand new benefit of unprecedented size and complexity. Therefore, the corridor mechanism also helps protect drug plans from this uncertainty.


    Here's how it works. After each contract year, CMS will would compare each drug plan's expected and actual benefit costs. The thresholds (when the mechanism kicks in) and the proportions of profit and loss shared vary.


    For 2006 and 2007, Medicare drug plans will bear all gains and losses that fall within 2.5 percent of their expected costs. If costs differ from expectations by more than 2.5 percent but less than 5 percent, the risk corridor payment will cover 75 percent of the amount in that range. If actual and expected costs differ by more than 5 percent, the risk corridor payment will cover 75 percent of the amount between 2.5 percent and 5 percent and 80 percent of the amount in excess of 5 percent. If a sufficient number of plans serving a substantial majority of enrollees receive risk corridor payments for a given year, the feds will cover 90 percent of costs falling within the corridor (instead of 75 percent).


    For 2008 through 2011, the risk corridor thresholds will double. The assumption is that by then the private drug plans will have sufficient experience in bidding and projecting costs. Specifically, the 2.5 percent factor goes to 5 percent and 5 percent is replaced by 10 percent. Within these new, wider corridors, the federal share covered by the risk corridors drops from 75 percent to 50 percent. For cost deviations exceeding 10 percent, the federal share will remain at 80 percent.


    For contract years 2012 and beyond, CMS has the authority to further increase the risk corridor thresholds provided they are structured symmetrically.


    Risk Adjustment:


    Risk adjustment is designed to adjust a drug plan's monthly premium from the government to account for differences in beneficiaries' expected drug spending. The adjustment methodology is based on a few readily available factors - notably age, sex, and health status. While not perfect predictors by any means, these factors are reasonably effective in grouping large numbers of beneficiaries in terms of likely relative differences in expected drug spending.


    Using the risk adjustment factor applied prospectively to the federal share of the plan's monthly premium, CMS pays Medicare drug plans more for sicker beneficiaries who are expected to incur higher drug costs and less for healthier enrollees who are expected to have lower drug spending. (For most Part D enrollees, taxpayers subsidize 75 percent of drug plan premiums, with enrollees paying the other 25 percent. For dual eligibles, federal and state taxpayers pay 100 percent of the premium. For benies who qualify for the low-income subsidy, the federal share of the premium varies from 75-100 percent based on a sliding scale.)


    Like risk adjustment systems used elsewhere in Medicare and Medicaid, the Part D risk adjustment mechanism is intended to vary the federal share of premiums based on factors that are beyond the control of the drug plan. That is, given the widely varying prescription drug needs of the Medicare population, it helps mitigate the risk of adverse selection.


    Risk adjustment will also help protect beneficiaries with high drug needs by increasing federal subsidies. And low cost, healthier enrollees are protected from paying higher premiums if they happen to select a drug plan with a disproportionate number of sicker members.


    Federal Reinsurance:


    Federal reinsurance payments to Medicare drug plans will kick in when an enrollee's actual drug spending reaches Part D's annual catastrophic threshold (commonly called the "doughnut hole"). For Part D beneficiaries who are not dual eligibles or receiving the low-income subsidy, Federal taxpayers will cover 95 percent of any drug costs above the doughnut hole ($5,100 in 2006). (Dual eligibles and benies qualifying for low-income subsidy pay only nominal co-payments [$2-$5]. As a result, federal reinsurance is effectively 100 percent.)


    Paid to the drug plans on a retrospective basis, federal reinsurance payments will serve to limit the risk that plans face in serving the highest-cost beneficiaries. Because a plan's costs of providing drug coverage above the catastrophic threshold will likely correlate with fluctuations of average drug prices and utilization patterns, reinsurance payments should also provide plans with some protection against uncertainty about future drug costs. However, because reinsurance is retrospective by nature, the mechanism will not address the financial risks involved in providing the front-end portion of the benefit.

  • posted: March 20, 2006

    Transparency%20of%20Medical%20Prices.jpgIt is an immutable truth of economics. Transparency is an essential ingredient for a market to function with any semblance of efficiency or effectiveness. Lack of transparency - what economists call asynchronous information - leads to rapid inflation, gross inefficiency, gaming and abuse, ignorant consumers, poor quality, rampant error rates, and misaligned resources. In other words, you get America's $1.9 trillion health care system.


    After years of behind the scenes work by top health care thought leaders, the White House and key Congressional leaders are jumping on board and calling for reforms to ensure transparency (read public reporting) of health care provider prices. While prices are only part of the information needs of patients, purchasers, and payors, nationwide transparency of medical prices is essential. Health Savings Accounts and other consumer-driven health reforms such as Medicaid Health Opportunity Accounts are largely pointless in a health care system otherwise rooted in incomplete, inaccurate, and inaccessible information.


    As leaders contemplate specific measures to promote transparency of prices, they should also consider sending every Medicaid and Medicare beneficiary a quarterly report on the cost of their care. (I am not talking about Explanation of Benefits [EOB] notices. EOBs don't give a picture of their overall costs or utilization and offer no comparative, trend, or historical information.)


    Using simple, colorful charts and tables and an emphasis on decision relevant information, a well-designed report would show them what care they received, what providers charged, what public programs paid, how much they paid in cost sharing, and how their medical costs compare to their peers (age group, sex, health status, and geography).


    For Medicare beneficiaries, the reports could help bust a core myth of Medicare financing by showing what Medicare has paid for their care compared to what as an individual they paid in Medicare taxes and cost-sharing to date. In Medicaid, the reports would be invaluable to state efforts to move toward consumer-directed models where chronically ill or disabled patients and their families take active control of their medical lives. It would also help low-income families better understand the health care system. For dual eligibles - the 6.3 million Americans with annual health costs of a quarter trillion dollars - these personalized reports would be truly eye opening for patients and their families.


    Over time, the reports could help Medicaid and Medicare beneficiaries see how their providers, health plans, and drug plans compare on measures of quality, errors, and cost effectiveness. And they could include simple health reminders.


    Of course, not every benie would read the reports much less change their behavior based on the information. But the vary act of creating the reports would require Medicare and Medicaid to modernize information systems, turn transaction data into genuine decision-relevant information, and begin thinking of program beneficiaries as consumers in need of more than monstrously dull doorstops masquerading as handbooks.


    Americans, including Medicaid and Medicare beneficiaries, are not stupid. But when it comes to health care costs, they are too often ignorant or oblivious. That must stop. Yes, there is a learning curve and some people prefer the bliss of ignorance to the dilemmas of judgment. Nonetheless, as consumers, as Americans, as human beings we are entitled to the information we need to make decisions. Keeping Medicare and Medicaid beneficiaries and their families in the dark is as costly as it is insulting.

    posted: March 16, 2006

    Competitive%20Acquisition%20Program.jpgComing on the heels of Medicare Part D and the new Part B drug-pricing schema based on Average Sales Price (ASP), the new Competitive Acquisition Program (CAP) for Medicare Part B drugs and biologics represents yet another major change to the pharmaceutical supply chain. While it is too early to reliably predict the impact or even viability of CAP, it's critical for players to understand the initiative. Ultimately, CAP may have a dramatic impact on drug manufacturers, distributors, physicians, and beneficiaries.


    Road to Average Sales Price (ASP):


    While Medicare Part B drug coverage is complex, generally speaking Part B drug coverage is limited to physician-administered drugs and therefore primarily injectibles. Prior to the Medicare Modernization Act of 2003, Medicare reimbursed physician offices for Part B drugs based on percentages of Average Wholesale Price (AWP). Physicians would buy what they need, administer drugs to patients as necessary, charge beneficiaries for their deductible and 20% Part B co-payment, and bill Medicare for the drug and the office visit.


    This approach was widely criticized by MedPAC, GAO, and the OIG as well as outside experts. Under the AWP-based system, Medicare drug payments were far higher than other payors. It also meant higher patient co-payments. However, in fairness to physicians, in many ways the higher drug reimbursement helped make up for Medicare's below-market office visit rates.


    Under MMA, Congress changed that way Medicare reimburses physicians for drugs and biologics covered under Medicare Part B. Since January 2005, Medicare reimburses physicians using a new formula based on Average Sales Price (ASP). For most Part B drugs, physician offices are now paid 106% of ASP.


    In brief, ASP is what a pharma or biotechnology company makes on a given product, net of rebates and other price concessions. The Centers for Medicare and Medicaid Services (CMS) calculates ASP using net sales data provided by drug makers. Medicare adds 6% to help cover physicians' costs of buying, storing, and billing. The new ASP-based payment system results in substantial savings to Medicare but of course also lower revenues for physicians.


    Basics of the Competitive Acquisition Program (CAP):


    Starting in July 2006, physicians will have an alternative to buying and billing for Part B drugs and ASP-based payment. The upcoming Competitive Acquisition Program (CAP) will give physicians the option of obtaining most Part B drugs needed by Medicare patients from vendors selected by CMS. Medicare physicians may elect to participate in CAP on an annual basis.


    The CMS-approved vendors, selected through competitive bidding, will negotiate with manufacturers, buy and distribute supplies to physicians, bill beneficiaries for any applicable deductible and coinsurance, and bill Medicare's designated national carrier for drug costs. The carrier will pay the CAP vendor after verifying that the physician administered the drug. To do this, the carrier will match the CAP vendor's claim for the drug with the corresponding physician claim for drug administration. Following this verification, the CAP vendor will bill the beneficiary (or the beneficiary's Medigap policy or other third party insurance) for applicable cost sharing.


    For the Part B drug categories they have selected, physicians opting for CAP will receive all of those drugs (used for Medicare patients) from the approved CAP vendor. Physician offices participating in CAP will continue to bill Medicare as usual for the drug administration fee and other office fees.


    Under certain conditions, a participating CAP physician may provide a drug to a Medicare beneficiary from his or her own stock and obtain the replacement drug from the CAP vendor. There is also an exception for "furnish as written" situations when the physician specifies that a certain brand of a drug is medically necessary and that drug is not available from the CAP vendor. In those cases, the participating CAP physician may buy the drug, administer it to the beneficiary, and bill Medicare using the ASP system.


    CAP Bidding and Contracting:


    Every three years, CMS will solicit bids from qualifying vendors - primarily major distributors and specialty pharmacy shops. MMA gives CMS the authority to select drugs or categories of drugs that will be included in the program. Drugs may be excluded from the CAP if competition will not result in significant savings compared to the ASP system or when necessary to avoid disruption in access to a drug.


    In April, CMS is expected to announce the CAP vendors for the program's July 1, 2006 start.


    Market Implications of CAP:


    In an upcoming story, I will comment on the implications of CAP for drug manufacturers, drug distributors, and physicians.

    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: February 3, 2006

    Navigating%20Medicare%20Drug%20Coverage.jpgFor outpatient prescription drugs, Medicare has two distinct programs with a maze of complex policies. Physicians, Medicare patients, retail pharmacies, Medicare drug plans, Medicare Advantage health plans, nursing homes, and long-term care pharmacies are all struggling with how to navigate Medicare drug coverage under Part B and Part D. To help you, here's an overview:


    Basics of Medicare Part B Drug Coverage:


    Drug coverage applies under Part B under this basic situations:


    1. Drugs billed by physicians and provided incident to physician service for that patient (e.g., chemotherapy drugs).


    2. Drugs billed by pharmacy suppliers and administered through durable medical equipment (DME) benefit (e.g., respiratory drugs given via nebulizer).


    3. Some drugs billed by pharmacy suppliers and self-administered by the patient (e.g., immunosuppressive drugs, some oral anti-cancer drugs).


    4. Separately billable drugs provided in hospital outpatient departments. Increasingly, Medicare is bundling drug costs within outpatient hospital payment rates.


    5. Separately billable End Stage Renal Disease (ESRD) drugs (e.g., erythropoietin). Increasingly, Medicare is bundling ESRD drug costs within ESRD facility payment rates.


    Medicare Part B Drug Coverage in Physician Offices:


    For Medicare Part B drug coverage in a physician's office, here are the basics:


    1. Must be furnished "incident to" a physician service. Normally, this means the drug is physician prescribed and dispensed or physician prescribed and administered during a patient office visit.


    2. As a result, Medicare Part B drug coverage is usually limited to drugs or biologicals administered by injection or infusion.


    3. If the injection is generally self-administered it is not covered under Part B (e.g., Imitrex). That is, in most cases Part B coverage of a specific drug stops if more than half of Medicare beneficiaries on the drug self-administer it.


    4. Medicare uses mix of local and national coverage decisions. Therefore, in absence of a national coverage decision by CMS, local coverage decisions are made my individual Medicare contractors (Part B claims processors, commonly called "carriers"). Therefore, regional differences can and do occur. That is, a specific drug could be covered in one state and not another.


    Formulary Basics in Medicare Part D Drug Benefit:


    1. While Medicare drug plan formularies are subject to CMS review during the annual bidding process, the Medicare Modernization Act (MMA) gives Medicare prescription drug plans (PDPs and MA-PDs) wide latitude.


    2. There is no national drug formulary or mandated formulary. Most Medicare drug plans use commercial-like drug formularies.


    3. Regarding therapeutic classes or categories used to structure a formulary, Medicare drug plans may use USP model guidelines or use their own structure. The USP model is not a formulary and not mandated.


    4. Medicare drug plans must use P&T committees for formulary decisions.


    5. For most drug classes, PDPs and MA-PDs must cover at least two drugs. CMS reviews each formulary to make sure Part D plans are not cherry picking or otherwise discriminating against certain kinds of patients.


    6. Plans must cover "all or substantially all" of the drugs in six classes: Antidepressant, Antipsychotic, Anticonvulsant, Anticancer, Immunosuppressant, and HIV / AIDS.


    7. Step therapy, prior authorization and cost tiers are allowed. Many Medicare drug plans are using four tiers in their benefit designs.


    Coverage of Non-Formulary Drugs Under Medicare Part D:


    1. The Medicare Modernization Act (MMA) requires Medicare drugs plans to ultimately cover any drug (not otherwise excluded under Part D) if "medically necessary" and "medically accepted", regardless of formularies.


    2. Drug plans are not required to list off-label on formularies, but physicians may still prescribe off-label drugs for medically accepted indications. Physicians must justify off-label use and the indication must be listed one of four compendiums accepted by CMS (e.g., DRUGDEX, USP).


    3. To justify off-label coverage for a medically necessary, medically accepted drug, the physician must determine that all drugs on plan's formulary for the treatment of the same condition (a) would not be as effective and/or (b) have adverse effects for patient. The same applies to justify an exception from a higher tier co-payment.


    4. A multi-step appeal process is available to beneficiary to seek coverage of a non-formulary drug or an exception from a tier. Steps include drug plan review, independent review, administrative law judge, HHS department appeals board, and the federal courts. The exceptions and appeals process may be initiated by the beneficiary, their physician, or another person designated by the patient.


    Prescription Drugs Excluded from Medicare Part D:


    1. The following kinds of drugs are not covered under Part D:


    - Weight-related, fertility, cosmetic, symptomatic relief cough or colds, vitamins (except prenatal), barbiturates, and benzodiazepines.


    - Over-the-counter (OTC) drugs, unless through a CMS-approved step therapy program and then only if free using the drug plan's non-benefit dollars. Few Medicare plans are covering OTCs this year.


    - Drugs covered by Medicare Part A or Part B for that individual in that instance.


    2. For dual eligibles, Medicaid may cover drugs not covered by Part D. State Medicaid programs must cover if drug is covered for non-dual Medicaid population (e.g., OTCs). This means dual eligibles will obtain drugs through multiple programs.


    Naturally, this is a high-level overview and is neither comprehensive or an official statement of federal policy. For more details, click here to read CMS' draft guidance explaining differences between Part B and Part D drug coverage. There are many nuances, twists and turns. So please be careful and closely monitor guidance from CMS and OIG.

    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 29, 2005

    Reality Check for Big Pharma and Medicare Part D.jpgIn retrospect, will the pharmaceutical industry's support of the Medicare drug benefit be revealed as a modern-day Faustian bargain?


    Conventional wisdom, particularly inside the Beltway, says that the Bush Administration is in the pocket of pharmaceutical manufacturers. Indeed, this knee-jerk assumption is a virtual article of faith among health policy wonks, the media, and others on the Left. They immediately point to the Medicare prescription drug benefit as their "evidence."


    But is this accurate? Will the Medicare drug benefit ultimately help or hurt the pharmaceutical industry? Or is Medicare Part D merely a lesser of two evils for the manufacturers?


    Not if you look at how the Medicare drug benefit is playing out. Every day, as we get closer to launch of the massive new $800 billion program, pharma companies face significant new challenges.


    In January 2006, Medicare as a purchaser will jump from about 2 percent of the prescription drug market to over 25 percent. By 2008, the government - Medicare and Medicaid combined - will buy over half of all prescription drugs. If you take into account beneficiary cost-sharing and federal drug benefit subsidies to employers, the government will drive about three-quarters of the drug supply chain by 2008.


    If the history of Medicare teaches us anything, Congress will not be able to resist the temptation to regulate, micromanage, and administer prices. Unfortunately, the pharma industry faces an inevitable increase in government regulation.


    History also tells us that Medicare will cost shift to commercial buyers of prescription drugs, including employers, hospitals, and the uninsured. Again, bad but likely inevitable.


    Notwithstanding the downsides of regulation and bureaucracy, some pharma players will win in this new environment, particularly in the early years. This includes generic drug makers as at-risk Medicare drug plans drive seniors from brand drugs to low-cost generics.


    Other winners will likely include manufacturers specializing in drugs for diabetes, heart failure, hypertension, and high cholesterol - areas where Medicare Part D will unleash pent-up demand. And drug makers with robust pipelines will win, provided it is a pipeline of vale-added products and not more "me-too" drugs.


    Ultimately, to win the new world of government-driven drug benefits, pharma manufacturers will need to understand the market is changing. The old rules, strategies, and tools are no longer enough.

    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 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 16, 2005

    Retiree Drug Subsidy.jpgUnder the Medicare Modernization Act, employers will receive about $124 billion in tax-free subsidies to encourage them to continue prescription drug coverage for retirees. Because of a long history of taxpayer-funded health benefits "crowding out" employer-sponsored coverage, Congress wanted to reduce the incentive for employers to drop retirees into the new Medicare drug benefit (Medicare Part D).


    The subsidy works out to roughly 28 percent of what Medicare would pay under the Part D benefit and is available as long as the employer can show that their retiree drug coverage is actuarially equivalent or better than the federal program. Per retiree, it'll work out to $668 on average in 2006. According to a survey of large employers by Mercer Human Resource Consulting, about 60 percent of employers plan to take the subsidy.


    While the subsidy payments are exempt from federal taxation, nothing stops a state from considering it as taxable income. Looks like some states are noodling about it. Nationwide, it could generate several billion dollars in new state tax revenue over the next ten years. And it might serve as modest form of policy revenge for the $100 billion clawback. However, it may encourage employers to cost shift retiree drug costs to federal taxpayers and retirees themselves...at least faster than they would otherwise.

    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 19, 2005

    Medicare Clawback Headed for US Supreme Court.jpgIt looks increasingly likely that several states will challenge the constitutionality of a key element of Congress' financing of the new Medicare prescription drug benefit (also known as Medicare Part D).


    To help fund the massive new Medicare drug benefit, Congress mandated that state governments send monthly checks to the federal treasury. The so-called "clawback" - amounting about $100 billion over the next ten years - is intended to cover a big chunk of the drug costs of dual eligibles.


    In addition to being an unprecedented exercise of federal power that many experts believe is unconstitutional on its face, the clawback raises a mix of troubling policy issues. For example, it means state governments must pay for costs of federal beneficiaries in a federally created and operated entitlement. States are already grumbling that, because of a long history of federal cost shifting to state taxpayers, over 40 percent of state Medicaid spending this year will go to cover the health care costs of federal Medicare beneficiaries.


    The clawback also comes at a time when Congress plans to cut $10 billion from federal Medicaid spending. And states are facing new costs created by the Medicare Modernization Act.


    As a matter of law, states cannot let the clawback go unchallenged. Regardless of the many positive aspects of the new Medicare drug benefit, the clawback simply raises too many fundamental issues to be left unexamined by the Supreme Court.

    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.

    posted: August 4, 2005

    Physician Administered Drugs in Medicare Part B.jpgIn response to criticism from major drug distributors and lackluster response to a request for bids, the Centers for Medicare and Medicaid Services (CMS) is delaying implementation of the Competitive Acquisition Program (CAP) for physician-administered drugs paid under Medicare Part B. Originally scheduled to launch January 2006, CAP will now start July 2006 " provided CMS modifies the proposed requirements to make the program workable and sufficiently profitable for distributors.


    Part of the series of reforms enacted by Congress in the Medicare Modernization Act (MMA) of 2003, the Competitive Acquisition Program is designed to help Medicare leverage its market share to reduce prices for injectable drugs and save money for taxpayers and beneficiaries. However, both CMS and the major drug distributors face huge, albeit different learning curves.


    The feds are learning the complex, less than transparent ways and means of the pharmaceutical supply chain ' all while also trying to implement the massive new Medicare Part D outpatient drug benefit. Moreover, given the politics of Medicare, historically it has been tough for CMS to introduce competition to the program.


    Meanwhile, the prospective players in CAP ' likely including the four big drug distributors ' are learning about their own complex new world ' the often-inscrutable, always Byzantine domain of Medicare, CMS, federal rulemaking, and government procurements.


    And physicians ' who will need to decide whether to participate in CAP and select among wholesalers under contract with CMS ' are none too happy these days. Earlier, MMA reduced what Medicare reimburses docs for Part B drugs. While the new pricing is defensible and more in line with the market, it reduced physician office revenues, particularly for oncologists. In addition, unless Congress acts this fall, physicians face unsupportable fee cuts of 5 percent a year for several years.


    The Part B Competitive Acquisition Program is a major change to Medicare and the multi-billion dollar market for physician-administered, injectable drugs. It'll be interesting to watch if Medicare can make it work.

    posted: June 28, 2005

    Medicaid Drug Coverage.jpgAs part of the HHS appropriations bill for FY 2006, Congress is moving fast to drop federal funding for erectile dysfunction (ED) drugs in Medicaid, Medicare, and other federal health programs. This makes sense but there is a catch, albeit an unintentional one. Federal law will still require state Medicaid programs to pay for ED drugs. They'll just will have to do it with 100% state dollars.


    Because this is being done as a rider to the appropriation, it does nothing to change the statutory mandate that states must cover ED drugs like any FDA-approved drug when medically necessary. Under OBRA '90, amended in 1993, if a state decides to cover prescription drugs for the Medicaid population and accept rebates from manufacturers, they must cover virtually all drugs when medically necessary. Every state opts to provide a Medicaid Rx benefit.


    The other big policy done this way is the Hyde Amendment on Medicaid coverage of abortions. This too is done through the appropriation and not the statute. Federal matching dollars are available only for pregnancy terminations that are the result of rape or incest, but many states still must provide other "medically necessary" abortions with 100% state funds - all battled out via messy court challenges.


    Medicaid spending on erectile dysfunction drugs is modest but the problem is symbolic of how byzantine Medicaid has become. And it's further evidence of the need for national reform to modernize the $333 billion program and allow states the flexibility to manage it.

    posted: June 28, 2005

    Medicare Drug Benefit Clawback.jpgFor cash-strapped state governments, the "clawback" is the most controversial and costly provisions of the Medicare Modernization Act (MMA) and the new Medicare prescription drug benefit.


    Now, as state begin new fiscal years and grapple with the latest Medicaid spending projections, some state leaders are balking at paying the federal treasury $124 billion over the next ten years to cover the drug costs of a federal benefit. Most state fiscal gurus also predict MMA will impose other costs on state taxpayers. California, for example, projects that Medicare Part D will cost the state $215 million more next year. And many legal experts believe the clawback is simply unconstitutional.


    The feds maintain that MMA will save states money but to achieve any savings states must drop drug coverage for their retirees - this is only possible for states that make direct contributions to fund Rx coverage and if the state decides to renege on union contracts. This scenario is not available or practical for many, perhaps most, states.


    Is Medicare facing a modern-day version of the Boston Tea Party? Leaders in Texas and New Hampshire reportedly intend to not pay the clawback. And the National Governors' Association's national Medicaid reform proposal calls on Congress to modify MMA, saying that "The clawback provisions should not be a further financial burden on states..."


    The fireworks have just begun.

    posted: May 30, 2005

    Winners and Losers in Medicare Drug Benefit.jpgThe Medicare prescription drug benefit (aka, Medicare Part D) is biggest thing to hit American health care in decades. The massive, costly, and extraordinarily complex new program will likely realign the entire pharmaceutical supply chain and create a raft of new winners and losers in the marketplace. Looking into my crystal ball, here are some likely winners:


    ● Low-Income Medicare Beneficiaries Without Prescription Drug Coverage: Over two-thirds of the 41 million Medicare beneficiaries already have prescription drug coverage and many of those without drug coverage are wealthy or healthy enough to not worry. However, several million beneficiaries will benefit from the heavy subsidies offered for low-income, low-asset enrollees in Part D. Countless thousands will live longer, healthy, happier lives as a result. In addition, the process of enrolling in the Part D low-income sudsidy will likely increase the number of beneficiaries taking advantage of the Medicare savings programs. This is where state Medicaid programs pick up some or all of Medicare cost sharing.


    ● Employers Offering Retiree Drug Coverage: With nearly $100 billion in new taxpayer subsidies and a range of new options to cost shift retiree drug coverage to taxpayers, public and private employers are big winners over the long run.


    ● Generic Drug Manufacturers: Under Medicare Part D, drug benefits will be delivered by private drug plans at risk for drug spending. Most Part D enrollees will be served by a totally new creature in the marketplace - stand-alone prescription drug plans (PDPs) at risk only for unit cost and utilization. Using their relatively wide discretion in setting formularies and benefit designs, drug plans will work hard to drive patients to low-cost generic versions of medications.


    ● Beneficiaries in Medicare Advantage Health Plans: The new Medicare Advantage health plans are a boon to beneficiaries. Compared to the often dysfunctional and perpetually outdated Medicare fee-for-service system, Medicare Advantage (aka, Medicare Part C) offers seniors a range of voluntary HMO and PPO plans, lower cost sharing, higher quality, less paperwork, and often more benefits.


    ● Large, National Insurers: To successfully compete as a Medicare drug plan and establish a strong beachhead, players need deep pockets to manage risk, a sophisticated and scalable infrastructure, Medicare-savvy marketing, a stomach for the government contracting, and a recognized, positive brand. While many players are seriously overconfident and dangerously naive about the Part D business (sorry, guys), large national players have a shot at winning early on. If they play it smart, the large insurers can leverage the new market opportunities of both Medicare Part D and Medicare Part C. Of course, the federal government is not the most reliable purchaser and Congressional action can change winners to losers darn quick.


    ● Administrative Services Contractors: To survive and ultimately succeed in the Medicare drug benefit business, players will need a range of new or expanded capacities, including call centers, claims processing, drug utilization review systems, decision support tools, and medication therapy management (MTM) programs.


    ● Consultants, Actuaries, and Lobbyists: Last but not least, demand for consultants and actuaries is already through the roof. Right now, the biggest demand is for specialists who help drug plans prepare bids to Medicare. Later this fall, demand will grow for experts in marketing to and managing the complex Medicare population, including dual eligibles - who will ultimately make or break many drug plans in 2006 and 2007. Moreover, the business of pharma industry consultants, Medicare/Medicaid gurus, and public affairs specialists will undoubtedly rise dramatically as drug manufacturers begin to realize that strategically and tactically Part D is a whole new ballgame.


    What about the losers, you ask? There are plenty. Stay tuned for my list of the likely losers under the brave new world of Medicare Part D.

    posted: May 27, 2005

    Inside the Food and Drug Administration (FDA).jpgInside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat is a thoughtful, balanced, and well-researched look inside controversial and troubled Food and Drug Administration.


    Author Fran Hawthorne is an experienced business journalist and her skills are evident here. Digging into the FDA�s complex and conflicting world, the book provides an informative picture of FDA�s bureaucratic, political, and scientific drivers. Ms. Hawthorne does a nice job of laying out what the FDA is suppose to do, what is really does, and where and why it fails.


    Inside the FDA helps us understand the recent raft of problems surrounding the over- and mis-regulation of prescription drugs. It makes for a great read. To read a excerpt, click here.

    posted: May 15, 2005

    Business Partners in Medicare Drug Benefit.jpgThe new Medicare prescription drug benefit requires a new, complex mix of specialized services. The smart players recognize the old rules and strategies no longer apply. They are looking outside their organizations for the skills, infrastructure, and Medicare-specific savvy needed to succeed in Part D.


    Heres an example of smart partnering in Part D: The newly announced strategic alliance between CIGNA HealthCare and NationsHealth.


    CIGNA HealthCare (NYSE: CI), with about $20 billion in revenues and some 9 million members, has applied to become a national Medicare prescription drug plan provider. To Part D, CIGNA brings size, a well-developed pharmacy benefit portfolio, and an array of clinical management tools.


    However, to succeed Medicare prescription drug plans (PDPs) need a lot more. Enter NationsHealth (NASDQ: NHRX, NHRXW, NXRXU). This nimble, fast-growing player demonstrated its chops by successfully enrolling and servicing over two million seniors in Medicare drug discount cards. No small feat. Sharad Mansukani, MD, NationsHealth's new chief strategic officer and a business-savvy authority on Part D, was most recently a senior advisor to Medicare Administrator Mark B. McClellan, MD, PhD.


    By teaming with NationsHealth, the folks at CIGNA are showing the market they understand the critical importance of having a enrollment and customer service infrastructure that is flexible, scalable, AND Medicare savvy.


    We'll see a wide range of new partnerships forming to address the massive market opportunities - and risks - created by Part D. Some smart, some perhaps downright foolish. While its early in the game, the CIGNA - NationsHealth partnership is one to watch as a possible model.

    posted: May 1, 2005

    Elderly Woman in Wheelchair in a Sunny Room.jpgThe new Medicare prescription drug benefit presents many challenges to the nation's seven million dual Medicare-Medicaid eligibles. On January 1, 2006 they must move from broader, more flexible Medicaid drug coverage to the narrower, extraordinarily complex Medicare drug benefit. Among those in jepordy are about a half million frail seniors and severely disabled persons served by state home- and community-based waiver programs.


    State Medicaid programs offer a range of home- and community-based services to help frail seniors and severely disabled individuals avoid costly institutionalization. Of course, adequate drug coverage is essential to this effort. Most individuals enrolled in these programs are dual eligibles and thus face dramatic changes in their drug benefits.


    An excellent new report discusses the impact of Medicare Part D on this subset of dual eligibles. The author, Chuck Milligan, JD, MPH, is a highly respected Medicaid and long-term care guru. Formerly vice president at The Lewin Group and New Mexico Medicaid director, he's executive director of the Center for Health Program Development and Management at the University of Maryland, Baltimore County (UMBC). Chuck offers several thoughtful recommendations:


    ● Allow states to dispense 90-day prescriptions in December 2005 with full federal matching funds.

    ● Allow Medicaid to share drug information with the Medicare prescription drug plan as soon as auto-enrollment is finalized.

    ● Require Medicare prescription drug plans to honor a beneficiary?s existing pharmacy regimen until an in-network physician develops a new care plan.

    ● Require Medicare prescription drug plans to offer dual eligibles open formularies or Medicaid-equivalent formularies during the first six months to a year.

    ● Allow states to pick up the cost of noncovered drugs with full federal matching funds and be eligible for a credit to the state ?clawback.?

    ● Lengthen the period for auto-enrollment.


    Please also check out the Piper Report's recent story on the risks of Part D to nursing home residents.

    posted: May 1, 2005

    HIV - Illustration of Virus.jpgMany Americans living with HIV/AIDS receive critically important prescription drug coverage from state Medicaid programs. For these beneficiaries, Medicaid typically offers broad formularies, low cost sharing, and access to a large network of pharmacies.


    However, about 50,000 to 60,000 persons with HIV/AIDS will be losing Medicaid drug coverage on January 1, 2006. These dual eligibles will required to enroll in the new Medicare prescription drug benefit (Medicare Part D). In Medicare D, these beneficiaries face more restrictive drug formularies, narrower pharmacy networks, the possibility of higher cost sharing, and private drug plans inexperienced the needs of large numbers of persons with life-threatening chronic conditions.


    State AIDS Drug Assistance Programs (ADAPs) are another critically important lifeline for persons living with HIV and AIDS. ADAPs provide HIV/AIDS-related prescription drugs to about 30 percent of Americans with HIV/AIDS who are receiving care. Operating in every state with a mix of $1.2 billion in federal and state funding, each ADAP has different eligibility criteria. Drug formularies, also set by the states, vary widely.


    The National ADAP Monitoring Project, an initiative of the Kaiser Family Foundation and the National Alliance of State and Territorial AIDS Directors, provides a wealth of useful information, including:


    Fact sheet on ADAPs. Many other fact sheets on HIV/AIDS policy issues are also available.


    Comprehensive annual report with the latest on state ADAPs. An executive summary is also available.


    ● Details on state HIV/AIDS drug formularies.


    State-level data on HIV/AIDS, spending, and programs.

    posted: April 22, 2005

    Blue-White Pills on White Background.jpgIn 2005, state Medicaid programs will pay for over 18 percent of the nation's quarter trillion dollar pharmaceutical market. Thanks to an excellent new analysis by Jim Verdier and colleagues at Mathematica Policy Research, we have new insights into cost and use patterns in Medicaid.


    Some highlights:


    ● Average monthly Medicaid fee-for-service (FFS) pharmacy reimbursement for all beneficiaries nationally was $69, ranging from $43 in South Carolina to $165 in Connecticut.


    ● The monthly average was $154 for disabled beneficiaries, $129 for aged beneficiaries, $31 for non-disabled adults, and $12 for children.


    ● Generics accounted for 46 percent of all Medicaid FFS prescriptions nationally, ranging from 37 percent in New York to 52 percent in Utah.


    ● Anti-psychotics accounted for nearly 11 percent of total Medicaid drug spending, with antidepressants accounting for 7 percent. Anti-psychotic drugs were the top-ranked drug group in terms of total in 38 states, and ranked second in 9 other states and the District of Columbia.


    Mathematica's work, which was sponsored by the Centers for Medicare & Medicaid Services (CMS), also provides interesting information on the prescription drug use and costs of dual eligibles:


    ● Disabled Medicaid beneficiaries accounted for 58 percent of total Medicaid FFS reimbursement nationally, aged beneficiaries 28 percent, non-disabled adults 6 percent, and children 8 percent.


    ● Average national monthly FFS reimbursement for dual eligibles was $157, ranging from $109 in New Mexico to $315 in Colorado.


    Dual eligibles accounted for 56 percent of Medicaid FFS pharmacy reimbursement in 1999, ranging from 39 percent in West Virginia to 90 percent in New Mexico.


    ● Average annual FFS pharmacy costs nationally for disabled dual eligibles under age 65 was $2,143. It was $1,431 for duals age 65 to 74, $1,447 for duals age 75 to 84, and $1,247 for duals age 85 and older.


    ● Dual eligibles in nursing homes accounted for 14 percent of Medicaid FFS pharmacy reimbursement, with the percentage ranging from 2 percent in South Carolina to 30 percent in Maryland.


    ● Medicaid residents in nursing homes received an average of 5 prescriptions per month, with the number ranging from 1 percent in the District of Columbia to 13 percent in Colorado.


    To learn more, read Mathematica's thoughtful issue brief (PDF) or check out the data tables.

    posted: April 2, 2005

    Prescription Pick Up Counter.jpgMedicare observers expect heavy competition for drug plan contracts with the Centers for Medicare & Medicaid Services (CMS). It now appears CMS will receive several hundred applications, including applications from major insurers offering drug benefit packages in every state.


    Since adoption of the Medicare Modernization Act (MMA), most observers - most notably CMS itself - feared inadequate competition for 2006 contracts. Only a few wonks, including your humble editor, believed the Medicare business, while complex and unprecedented, is too strategic and lucrative for insurers to ignore.


    Prospective drug plan sponsors skillfully played up CMS? fear and perceived inexperience, consistently warning against policies that might restrict the discretion of drug plans. In addition, CMS has a long tradition of taking a ?light touch? to health plan contracting under Medicare+Choice (now called Medicare Advantage).


    The result is Medicare?s drug plan rules, guidelines, and application procedures are highly deferential to drug plan bidders. Add to this (a) the captive market of nearly seven million dual eligibles, (b) the financial safety valves of risk corridors and risk adjustment, and (c) strategic imperatives of a quickly changing pharmaceutical supply chain ? and you have market opportunities that are hard, if not foolish, to refuse.


    This, of course, merely indicates there will be heavy competition. However, do not confuse this with smooth implementation, profitable operation, or a successful drug benefit. Stay tuned for ongoing commentary on the predictable surprises of the Medicare prescription drug benefit.

    posted: March 17, 2005

    Chrome Plated Chain Links.jpgThe supply chain for prescription drugs is as complex as it is important. It represents a fascinating, continuously evolving maze of players, relationships, and processes from manufacturers all the way to individual patients.


    With Medicare's new approach to Part B drug reimbursement, the upcoming Medicare Part D drug benefit, increasing transparency of prices, and new demands from increasingly savvy employers and Medicaid agencies, the pharmaceutical supply chain faces dramatic change. For example:


    - Despite the naive views of some Wall Street analysts, many pharmacy benefit management companies (PBMs) will encounter new challengers and the increasing commodization of core functions. To get a sense of the new world, look to the partnering of UnitedHealth Groups Ovations subsidiary and Walgreens Health Initiatives in the Medicare drug benefit.


    - Wholesale distributors, already a heavily consolidated part of the supply chain, must balance what amounts to two very different business models. That is, maintain their position in the low-margin logistical enterprise of distribution, while positioning an array of new value-added clinical and IT-driven services.


    To better understand the pharmaceutical supply chain, including the key players and financial relationships, check out a new report by the Health Strategies Consultancy for the Kaiser Family Foundation. Dan Mendelson and his colleagues provide a clear framework for understanding the quarter trillion dollar supply chain. To read the report, click here (PDF).

    posted: March 7, 2005

    Prescription Pills on Pharmacy Counter.jpgNew evidence on the high incidence of preventable, often deadly drug errors in nursing homes raises serious implications for the new Medicare prescription drug benefit.


    Each month, one in ten nursing home residents suffer a medication-related injury, according to a new study in the American Journal of Medicine. The lead author, Jerry H. Gurwitz, MD from the University of Massachusetts Medical School, is a top expert on the safe use of drugs by seniors.


    Extrapolating to the 1.6 million nursing home residents, the study suggests a staggering 1.9 million medication errors each year - including over 86,000 fatal or life-threatening mistakes. These scary new figures, still considered conservative, indicate the problem is five times worse than previously believed. To read the study, click here (PDF).


    Under the new Medicare prescription drug benefit, most nursing home residents face dramatic changes to their drug benefits starting January 1, 2006. While some aspects of the Medicare drug benefit may ultimately help improve care, the highly complex Medicare program will likely exacerbate the problem of medication errors.


    Some key factors to consider:


    1. More restrictive formularies: The drug formularies offered by the Medicare drug plans will be far more restrictive than state Medicaid formularies. For many nursing home residents, this will mean changes to drug therapy regimens.


    2. More complex drug management: It's unlikely that all of a facility's residents will be enrolled in the same drug plan. Therefore, nursing homes face the challenge of navigating multiple formularies and benefit procedures. In addition, the Medicare drug plans will likely force significant changes to nursing home?s long-established relationships with the specialty pharmacies that know and serve this market.


    3. Misaligned financial incentives: Most Medicare beneficiaries in nursing homes will be enrolled in brand-new kind of creature, i.e., stand-alone drug plans that are at financial risk only for the drugs. This is in sharp contrast to health plans (HMOs, PPOs) which are at risk for all care and therefore have a built-in incentive to maintain a safe, therapeutically sound drug benefit to guard against hospitalizations and other more costly events. Because of the serious misalignment of incentives and the potential for cost-shifting and other gaming, no employer or Medicaid program would ever consider a similar at-risk carve out of drug benefits.

    posted: February 18, 2005

    Drugs from Rx Bottle.jpgWhen the Medicare prescription drug benefit begins on January 1, 2006, about seven million beneficiaries face more restricted drug formularies. Currently, these "dual eligible" individuals receive their drug benefit through state Medicaid programs, which offer more liberal formularies than what will be expected of the new Medicare drug plans.


    In addition, most of these high-risk patients will be enrolled in stand-alone prescription drug plans (PDPs) at risk for drug costs only. Unlike health plans, which are at risk for the full spectrum of care, PDPs will have no financial incentive to use drugs to avoid costlier hospitalizations.


    A new report sponsored by the American Society of Consultant Pharmacists (ASCP) describes a variety of health risks to seniors and disabled persons (particularly those in nursing homes) posed by drugs excluded under the Medicare drug benefit.


    The author, Dr. Richard G. Stefanacci, executive director of the Health Policy Institute at the University of Sciences in Philadelphia, concludes:

    While the magnitude of the change from the current Medicaid coverage of many medications for dually eligible residents is enormous, the real costs may not be realized for some time. These will come in the form of costly medication substitutions, potentially avoidable emergency room visits and admissions and, even worse, untimely deaths.
    posted: February 7, 2005

    Handcuffed to Money.jpgSome legal gurus are questioning the constitutionality of a key provision of the Medicare prescription drug benefit: the so-called "clawback" provision that requires states to send the federal government cash to help cover the cost of drugs for dual eligibles. The mandatory payments are enormous - $6 billion in 2006 and over $48 billion (likely much more) during the first five years. And controversial idea of making states pay for a federal program benefit has generated strong criticism from governors and state Medicaid directors.


    Recent decisions by the U.S. Supreme Court and appeals courts have placed new restrictions on the ability of Congress to use its spending power to "encourage" state action. The clawback - and the consequences of late payment - would appear to cross the line. When Congress attaches conditions to federal funding, the Supremes say "the financial inducement offered by Congress might be so coercive as to pass the point at which pressure turns into compulsion."


    No doubt some states will go to court to challenge the clawback. It may be hard for the feds to argue in court that states, by signing up for the federal-state Medicaid partnership, somehow waived their sovereignty and agreed to remit state cash to the Centers for Medicare and Medicaid Services to pay for a federal program.


    For more on this, check out an excellent article by James N. Gardner, JD, in the January 2005 issue of State News, published by the Council of State Governments. Mr. Gardner, a former Oregon state senator, also served as a law clerk to Justice Potter Stewart.

    posted: January 19, 2005

    Four Pills Around Cross.jpgThe Centers for Medicare & Medicaid Services (CMS) today released the final rule governing the new Medicare prescription drug benefit.


    To help folks understand the 1,162-page final rule, CMS created a variety of fact sheets, timelines, and other background materials to help stakeholders understand the extraordinarily complex drug benefit:


    Overview of the new rule, with helpful descriptions of key aspects of the drug benefit.


    Summary of how the final rule differs from the proposed rule, as well as a handy table showing the key changes.


    ● Basic timelines for states, drug plans, and employers.

    posted: December 24, 2004

    Senior Holding Prescription Bottles.jpgCongress could improve the newly created Medicare prescription drug benefit by applying the lessons of welfare reform, according to an excellent new article by Paul Barringer.


    In American Outlook, the Hudson Institute's quarterly journal, Mr. Barringer lays out what made welfare reform successful:


    Pay for performance: bonuses for performing well across a spectrum of quality measures.

    ● Encouraging partnerships with local organizations and key players.

    ● Administrative flexibility.

    ● Block grant approach to finances.

    ● Emphasizing evidence-based practices.


    In a great example of out-of-the-box thinking, Paul Barringer makes a thoughtful, persuasive case for applying these same reforms to make the Medicare drug program more beneficial for seniors and taxpayers.

    posted: December 10, 2004

    Financial Risk - Dice - 2.jpgPrescription drug utilization varies dramatically among individuals. To make sure Medicare payments to Prescription Drug Plans (PDPs) reflect the health status of enrollees, the Centers for Medicare & Medicaid Services (CMS) is developing a risk adjustment methodology. Risk adjustment is a statistical process used to identify and adjust for variation in patient costs that stem from differences in key risk factors - each a demographic or diagnostic characteristic of the patient.


    The CMS methodology, which is mandated by the Medicare Modernization Act (MMA), will use various inputs ? age, sex, disability status, and diagnoses ? to create a reasonable estimate of a PDP?s cost liability. Risk adjustment will result in more fair and accurate drug plan payments and help ensure access for the most vulnerable beneficiaries.


    For PowerPoint slides on CMS? planned approach, click here.

    posted: December 3, 2004

    Pills Spilled.jpgUnder the new Medicare prescription drug benefit, drug plans will have a fair amount of discretion in setting formularies. The idea is to encourage competition among drug plans and offer Medicare beneficiaries choice. The Centers for Medicare & Medicaid Services (CMS) will review the benefit designs of drug plan bidders to ensure the beneficiaries have appropriate access to needed drugs.


    CMS has released draft guidelines for reviewing prescription drug plan formularies. CMS' strategy for drug benefit review is designed to promote "appropriate operation of beneficiary protections and formulary oversight that includes access to all Part D covered drugs, while providing flexibility in plan design as expected under the Medicare Modernization Act (MMA)." Public comments are due by Thursday, December 30, 2004.


    CMS also released a helpful fact sheet that summarizes the formulary review process.

    posted: November 23, 2004

    Cash in Prescription Bottle.jpgA new report projects the savings to Medicare beneficiaries who sign up for Medicare's new prescription drug benefit in 2006. Prepared by the Actuarial Research Corporation (ARC) for the Kaiser Family Foundation, the report estimates that:


    - Low-income beneficiaries who sign up for Medicare drug plans and receive the new federal subsidies (about 8.7 million seniors and persons with disabilities) will pay about 83 percent less for prescription drugs in 2006 than they would have spent if the Medicare drug law had not been enacted.


    - Those who enroll in the new drug benefit but do not receive the low-income subsidies (about 20.3 million beneficiaries) will pay on average 28 percent less out of pocket for their prescription drugs.


    For more information:

    - Executive summary of the report (PDF)
    - Full report (PDF)
    - Overview in a Powerpoint presentation

    posted: November 6, 2004

    Cost of Drugs on Fifty Dollar Bill.jpgIn a thoughtful article in The New Yorker, Malcolm Gladwell debunks common assumptions about prescription drug prices. Gladwell, bestselling author of The Tipping Point, cuts through the faulty thinking of the pharma bashers. His 4,000-word piece makes for interesting reading. Known for getting to the heart of matters, Gladwell says it all: "For sellers to behave responsibly, buyers must first behave intelligently."

    posted: November 4, 2004

    Pharmacy benefit managers (PBMs) already administer Rx benefits for most employers and several Medicaid programs. Medicare's voluntary prescription drug benefit, set to begin in 2006, creates a huge new market opportunity for PBMs. However, the Medicare drug benefit will also create significant new challenges to PBMs and other organizations bidding to cover Medicare beneficiaries. And the PBM industry is under increasing scrutiny by regulators and state attorneys general.


    Bob Atlas, a leading managed care consultant and former president of The Lewin Group, explores these business challenges in an excellent new article in Health Affairs. Atlas examines the history and business practices of PBMs and the role PBMs may play in the new Medicare drug benefit. He observes that PBMs appear to have "both the capacity and the technical capability to deliver the benefits, although many PBMs will likely partner with others more comfortable taking risk: insurers or the government itself."

    posted: November 2, 2004

    Calculating.jpgUnder Medicare's new prescription drug benefit, employers will have several options for maintaining drug coverage for their retirees. Staff at the Centers for Medicare & Medicaid Services (CMS) created a detailed briefing for employers, unions, health benefit consultants, and others interested in understanding the options, including the new retiree drug subsidy.


    For the CMS briefing in PDF format, click here. For it in PowerPoint format (1 Mb), email the editor.

    posted: October 15, 2004

    Cost of Drugs.jpgTo help organizations planning to submit bids to serve beneficiaries under the new Medicare prescription drug benefit, the Centers for Medicare & Medicaid Services (CMS) has posted a wealth of valuable new information on it's website.


    Designed to help potential drug plan bidders better understand and estimate the Medicare population's use of prescription drugs, the new data sets include:


    - Drug utilization by seniors enrolled in the Federal Employee Health Benefit national Blue Cross Blue Shield plan: annual per capita utilization by state, broken down by spending, prescriptions filled, and supply days, and separately reported for total sales, retail sales and mail order. In Zip file.


    - Distributions of prescription drug expenses based on the Medicare Current Beneficiary Survey (MBCS).


    - Demographic characteristics such as age and sex, insurance characteristics (including existence of prescription drug coverage), summary Medicare Part A and Part B use and expenditures, and annual prescription drug expenditure (by various payer categories, including consumer payments).


    Earlier, CMS released detailed information on Medicaid drug spending and use, including data on seven million dual Medicare-Medicaid eligibles.

    posted: October 9, 2004

    Cash in Rx Bottle.jpgState Medicaid programs are the nation's largest buyers of prescription drugs, serving over 50 million Americans, including the most vulnerable and costly patients. However, Medicaid drug benefits are complex and vary from state to state and among the diverse populations served.


    We now have an wealth of new information on Medicaid drug spending and utilization, thanks to excellent work by Mathematica Policy Research under a project for the federal Centers for Medicare and Medicaid Services (CMS).


    For the first time, CMS is able to provide state-by-state and national data on the use of and reimbursement for prescription drugs in Medicaid. Available free on CMS' website in both PDF and Excel spreadsheet formats, the data breakdown use and costs by:


    - Beneficiary demographic characteristics (age, sex, and race).

    - Basis of eligibility (children, adults, disabled, and aged).

    - Medicare-Medicaid dual eligible status.


    There are detailed tables for all Medicaid beneficiaries combined, plus separate tables for dual eligibles and for full-year residents of nursing facilities. The tables show prescription drug use and spending by:


    - Brand status (patented brand name, off-patent brand name, and generic).

    - Therapeutic category (cardiovascular agents, central nervous system drugs, etc.).

    - Drug group (anti-psychotics, anti-depressants, ulcer drugs, etc.).


    Starting in 2006, seven million dual eligibles will receive their drug benefits under the new Medicare Part D program. Prospective Medicare drug plans will find this new information incredibly helpful in understanding the drug needs of this unique population.


    Congratulations to Jim Verdier and colleagues at Mathematica for this outstanding work. And thanks to CMS' outstanding, foresighted research office for making this happen.

    posted: September 25, 2004

    Exec with Puzzle.jpgUnder the Medicare Modernization Act (MMA), the new Medicare prescription drug benefit (aka, Medicare Part D) includes a retiree subsidy to encourage the continuation of employer-sponsored drug plans for retired Americans.


    Here are some excellent resources to help employers understand the Medicare retiree subsidy:


    - White Paper on Retiree Drug Coverage Under Medicare. From Centers for Medicare and Medicaid Services (CMS). CMS also provides a brief summary of the purpose of the retiree subsidy.


    - Covington & Burling provides an excellent, reader-friendly summary of the retiree subsidy and the relevant provisions of the CMS proposed rule (PDF).


    - Hewitt Associates has an detailed overview and analysis of the retiree drug subsidy (PDF).


    - Aon Consulting Worldwide offers a brief summary of the issues for employers (PDF).


    - Last year, the American Academy of Actuaries and the Society of Actuaries held an excellent briefing for Congressional staff on how to determine the actuarial equivalence of Medicare prescription drug plans (PDF).


    - For folks needing background on the bigger picture, the National Business Coalition on Health (NBCH) provides an excellent guide for employers on managing prescription drug benefits (PDF) and an informative white paper on trends in pharmaceutical benefits (PDF).

    posted: June 26, 2004

    Pharmacist with Mouse.jpgThe new Medicare prescription drug benefit, enacted in the Medicare Modernization Act of 2003 and set to begin in January 2006, is the most significant and complex expansion of benefits since the creation of Medicare and Medicaid in 1965.


    For an insightful portrait of the forty years of ideological conflict leading to the Medicare drug benefit, check out "A Political History of Medicare and Prescription Drug Coverage," an article in the June issue of The Milbank Quarterly, by Thomas R. Oliver and colleagues.

    posted: May 22, 2004

    Canadian Flag.jpg The Congressional Budget Office (CBO) estimates that re-importing prescription drugs from Canada will save virtually nothing.


    Many will find this counter intuitive, especially in light of all the misinformation and political rhetoric - and the uneven reporting on the issue. As with so many of the "Taste Great vs. Less Filling" debates in health policy, perceptions are overly simplistic and out of touch with economic reality.


    CBO - an independent, skilled, and studiously nonpartisan arm of Congress - examined the real-world economic dynamics. Read the CBO report here (PDF). It's a quick, eye-opening read.

    posted: May 22, 2004

    Cash in Rx Bottle.jpg The new Medicare drug discount cards will save seniors a whopping $6.4 billion, according to a study commissioned by The Business Roundtable.

    Consider This
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