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MEDICARE OUTPATIENT DRUG BENEFICIARIES EXCEEDING $600, 1991 DEDUCTIBLE

Executive Summary

MEDICARE OUTPATIENT DRUG BENEFICIARIES EXCEEDING $600, 1991 DEDUCTIBLE could be below the number anticipated by the catastrophic care legislation, according to data developed recently by Medco Containmnent Services. Medco Chairman Martin Wygod, speaking Nov. 30 at a medical conference sponsored by the investment house Robertson Colman & Stephens, declared that "in the last computations and actuarial runs that we did last week, we found that only 14-15% of the people that would be on this point-of-sale program would ever reach the deductible." The Medco estimate of the number of beneficiaries exceeding the mandated $600 deductible in 1991 is below the estimate contained in the legislation. In setting the deductible level for the first two years of full outpatient drug coverage (1991 and 1992), the legislation assumed that about 17% of Medicare beneficiaries would reach the established level of out-of-pocket expenditure. The legislation stipulates that in years after 1992, the deductible will be set so that 16.8% of beneficiaries are expected to reach the deductible. Medco's estimate also differs from the latest estimates by the Health Care Financing Administration. Staffers at HCFA who are developing an implementation plan for the drug benefit are currently working on the assumption that as many as 25% of beneficiaries could meet or exceed the statutory deductible levels ("The Pink Sheet" Nov. 28, T&G-1). HCFA is projecting that if the 25% estimate proves correct, the Medicare drug trust fund could be insolvent within three years unless the program is restructured. Wygod predicts that the catastrophic drug benefit "will have a very beneficial impact on mail service." "It opens up a brand new marketplace of elderly who will be funded for 50% of their prescription use over the six hundred and some odd dollar deductible. That is probably going to be a major, major increase in business for everybody in mail service," Wygod declared. One effect of the volume increase, Wygod noted, would be the further use of Medco capacity. The company's dispensing facilities could go from single to double shifts, he suggested. However, Wygod said that "the point of sale procedures that are probably going to be used to monitor the deductibles, we think are going to turn into a very serious problem. We think there is a very real possibility that it will be replaced by 1991." Wygod added that "when the new studies are done, they may go back to direct claims, where the individual has to get up to the deductible and then send in the necessary claims after that. I think a lot of this is going to change over the next six months." Medco Senior Executive Vice President James Manning said that Medco's revenues, which have increased at an 83% compounded rate over the past five fiscal years, should continue to be driven by new benefit plan customers and by greater utilization of services by the existing customer base. Over 16 mil. people are now enrolled in plans operated by Medco customers, and new clients with memberships totalling over 2 mil. will become active on January 1. About 1.4 mil. people are users of Medco services, Manning said. He noted that "it takes up to three years to achieve a substantial penetration of the base of employees and retirees in a group." He declared: "The increase in users of Medco's mail service programs from the base of eligibles provides a significant source of growth in revenues for the future. In fact, if no new clients were added, Medco could still grow its revenues approximately 20% a year. Education and familiarization with the mail service drug benefit, along with plan design and incentives to use the most cost-effective delivery system, can raise user rates as high as 30% for some retiree groups, and an extra 12% for an active group."
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