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Rx Cost Shifting

Editor’s note: They roll out the camera, arrange the reporters and make pronouncements about all the savings that the pharmaceutical industry has volunteered. Yeah, right. Our government officials are smarter than this. So what’s in it for them? One thing you can be sure, the tax payer, the consumer will be paying more. It is an elaborate cost shift.


$80 Billion in Part D Concessions May Drive Up Health Plan Drug Costs

Drug Benefit News – July 13, 2009
Some analysts predict that Medicare Part D plans will see higher drug costs and possibly higher brand-name utilization as a result of the $80 billion pledge made by trade group Pharmaceutical Research and Manufacturers of America (PhRMA) to defray seniors’ drug expenses in the Medicare Part D “doughnut hole” coverage gap. But others say the impact will be negligible, since Part D plans bear a low share of catastrophic drug costs.
PhRMA on June 20 said its member pharmaceutical and biotechnology companies have agreed to provide most beneficiaries with a 50% discount on covered brand-name drugs when purchased in the doughnut hole, which in 2009 starts when total drug spending reaches $2,700 and ends when out-of-pocket expenses reach $4,350. Beneficiaries are responsible for 100% of drug costs while in the doughnut hole. Once catastrophic coverage kicks in, the beneficiary is responsible for only a small copayment or coinsurance, while CMS and the Part D plan split the remaining cost, with CMS bearing 85% and the plan covering 15%.
Under the agreement – which would take effect only if comprehensive federal health care reform legislation is enacted – the entire negotiated cost of the covered drug would count toward the beneficiary’s total out-of-pocket costs, thus moving the member more quickly through the coverage gap.
“Where you give people more coverage, utilization tends to go up – and with pharmaceuticals, that increase can be pretty sharp,” says Kemp Dolliver, a managing director at Avondale Partners, LLC. “I would think the plan sponsors would try to build some assumptions into their modeling for bidding, but it is going to add a layer of complexity.”
PBMs could respond by reducing benefits, although they will be restricted by CMS rules governing the minimum benefit package, Dolliver notes. He adds that “a more significant limitation will be what the competition does. We’ve certainly seen that numerous times now since the program started. There has consistently been somebody out there that aggressively bids a product that turns out to be more expensive than they thought.”

Deal Could Add $1 to $2 PMPM

The change in benefits “will increase the overall cost of the product, which will have an impact on premiums,” says Stephen Wood, senior vice president of government programs optimization at Ingenix Consulting. But, he adds, “it’s not going to be huge. It could be $1 or $2 PMPM [i.e., per member per month].”
Part D beneficiaries so far have proved astute at switching to generic drugs in order to lower costs as they near the doughnut hole, Wood says. Some critics have suggested that the PhRMA deal could entice seniors to remain on brand-name drugs, boosting pharmaceutical companies’ revenues and Part D plans’ costs. But Wood disputes that assertion. “Generics are so much cheaper than brand, even at a 50% discount, [that] it is unlikely that the price concession will make a huge difference,” he explains. “But it’s possible that some generics will be replaced by discounted brand.”
Matthew Coffina, an equities analyst with Morningstar, Inc., says that in terms of the impact on plan sponsors, he considers the deal a “non-issue.” He explains that “the way seasonality for Part D plans works, they make all the money in the second half of the year….So it won’t affect the money-losing portion in the beginning” of the year, when health plans are responsible for a larger share of drug costs because beneficiaries haven’t yet entered the doughnut hole. And although “it might get people through the doughnut hole faster,…in general the fourth quarter is always the best quarter for these plans, so it won’t have much impact.” The fact that Part D plans bear only a small portion of costs in the catastrophic phase also protects them from the risk of higher utilization.
Few details are available about how the program would be administered, making it difficult to determine the impact on Part D plan managers.


July 17, 2009 - Posted by | Cost, drugs, Federal Government, healthcare | , , ,

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