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Executive Summary

MEDICARE SINGLE-SOURCE DRUG COSTS A "PARTICULAR CONCERN" FOR OTA study of alternative payment methodologies for outpatient prescription drugs under Medicare, according to a "project proposal" developed by the Office of Technology Assessment. Burroughs Wellcome's Retrovir, with its annual per-patient cost of $ 8,000-$ 10,000, is cited as an example of the concerns surrounding payment for new, patented therapeutic technologies. Of particular concern are possibilities for controlling Medicare expenditures for single-source drugs, primarily drugs protected by patents," the proposal states. "This concern stems from experience with recent new drugs, such as zidovudine [Retrovir], whose annual per-patient expenditures reach several thousand dollars." The OTA study was requested in a March 17 letter from the Senate Aging Committee ("The Pink Sheet" March 27, T&G-3) and in an April 4 letter jointly signed by the Senate Finance Committee and the House Energy & Commerce and Ways & Means Committees. The study proposal was approved by OTA's Technology Assessment Board April 11. The project is expected to get underway this summer. Other issues to be examined in the study will include direct price contracts and licensing of patented drugs. "Payment methods for single-source drugs, including bilateral bargaining with manufacturers to set prices, licensing drugs on patent, and other" cost-control measures will be addressed, OTA said. OTA will also look at formularies, discounts, the role of mail-order pharmacies, and preferred provider contracts. As requested by the committees, OTA says it plans to "examine the experience of other programs," such as Pennsylvania's PACE plan, New York's EPIC program, HMOs, other private insurers, and foreign countries like Canada with similar programs. The April 4 letter urges OTA to research "the best and most appropriate policies and methodologies" for outpatient drug payments, including "all alternatives to those" mandated by the Catastrophic Care Act. The proposal notes that Congress continues to be concerned "that outlays [for drug coverage] may exceed expected levels," especially in "the early years [1990-1992], when the benefit is being phased in, because the legislation stipulates levels of deductible and coinsurance." HHS may adjust beneficiary "cost-sharing" requirements beginning in 1993, so that a constant 16.8% of beneficiaries remain eligible, the proposal points out. However, the Health Care Financing Administration has estimated that up to 25% of enrollees will exceed the law's $ 600 deductible limit for 1990; consequently, the agency has called for a $ 1,005 deductible to control costs ("The Pink Sheet" April 3, T&G-4). OTA intends to consult with outside groups and appoint an advisory panel to help plan the study. The panel will assist in targeting specific issues and identifying relevant literature, extant data, and experts in the field. OTA's project staff will then gather information on experience from other programs of pharmaceutical assistance for the elderly and measures taken under such programs to contain expenditures. OTA's project director for the study is Jane Sisk. The agency said it will use information as it becomes available from the National Medical Expenditure Survey being conducted by the National Center for Health Services Research ("The Pink Sheet" March 6, T&G-1). OTA finally will develop payment options and prepare a draft report for the advisory panel's review.

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