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REP. STARK's MEDICARE DRUG BILL WOULD REIMBURSE 41%-44% OF ENROLLEES IN FIRST YEAR - PROJECT HOPE; PMA URGES STUDY OF STATE PLANS FOR LOW-INCOME ELDERLY

Executive Summary

Rep. Stark's (D-Calif.) Medicare drug bill would cost $ 8.3-$ 9.9 bil. in 1993 and provide reimbursement to 41%-44% of Medicare enrollees, Pharmaceutical Manufacturers Association Exec VP Robert Allnut told a June 11 House Ways & Means/Health Subcommittee hearing on the bill (HR 2500). The measure would establish outpatient prescription drug coverage as a Medicare Part B benefit, with a deductible set at $ 650 in 1993 and increasing by $ 50 each year. Upon introducing the bill in late May, Stark said about one-third of the elderly pay more than $ 650 yearly for outpatient prescription drugs ("The Pink Sheet" June 3, p. 8). PMA's figures are drawn from a Project HOPE study conducted for the association. Allnut said PMA's board has not yet taken a position on HR 2500, but before doing so, would "want to determine -- particularly in light of the repeated cost underestimations of the catastrophic program -- whether the proposal was fiscally sound. Otherwise," he maintained, "artificial and dangerous restrictions on patients' access to all approved medicines would become necessary or . . . restrictions on reimbursement would" be imposed. PMA also said it "shares the subcommittee's goal" of assuring the elderly's access to drug therapy, but urged the subcommittee to look at the other efforts, including state programs, to "achieve this goal." In prepared testimony, the association noted that eight states have aimed at assisting the lower-income elderly. They are New Jersey, New York, Pennsylvania, Illinois, Maine, Rhode Island, Connecticut and Maryland. PMA urged review of what these states have learned about the operation and funding of drug coverage. The Project HOPE study conducted for PMA uses data from the HHS National Medical Expenditure Survey, which also served as a data source in debate on the Medicare catastrophic care/outpatient drug law that was enacted in 1988 and repealed in 1989. Project HOPE supplemented the 1987 NMES data with its own Prescription Drug Expenditure Verification Survey, and updates for price inflation, trends in volume of prescriptions per person and in the mix of drug therapies. Project HOPE made separate cost projections for assumptions that new coverage would increase demand by 0%, 5%, and 10%. For 1996, Project HOPE estimated that the benefit would cost $ 14.6 bil., with 47% of enrollees receiving reimbursement, under the 5% median projection. Following Allnut's comments, Stark retorted that Project HOPE is a "shill for the pharmaceutical manufacturers" and its "independence is subject to question" given that PMA funded the study. Allnut responded by pointing out the difficulty in commissioning an outside study without paying for it. Despite Stark's criticism and the differences in projections on the number of individuals exceeding the deductible, Stark's estimated required premium increases appear to be not far off those required under Project HOPE's cost figures. Under current Part B statutes, beneficiaries pay 25% of program costs through premiums. Stark estimated that the bill would increase monthly Part B premiums by $ 6 in 1993. Under Project HOPE's median projection for 1993, program costs would be $ 9.1 bil., with 34.3 mil. individuals enrolled. If beneficiaries pick up 25% of costs, this roughly translates into a $ 5.50 monthly premium. For 1996, with costs of $ 14.6 bil. and 35.6 mil. enrollees, the premium would be about $ 8.50, the same as Stark is projecting. Project HOPE's study projects that in 1993, $ 5 bil., or 55% of reimbursements, "would go to middle- and upper-class elderly, defined as persons with incomes at least three times the poverty level." Another $ 2.1 bil. would go to individuals below 125% of federal poverty levels and $ 1.8 bil. to the near-poor. "We estimate that only 15% of the benefits paid under this program would go to persons who currently lack public or private insurance to supplement Medicare," the report says. About three-quarters of the funds would go to enrollees who also have private insurance, although the report does not determine how many of those enrollees have drug coverage included in their private supplements. The report and PMA's testimony may reprise elements of the association's positions during the debate on the 1988 law. Though, in the end, it backed the Senate version of the catastrophic care/drug coverage act, PMA began by calling for a study of cost issues and then indicating support for assistance to the lower- income elderly. Both Stark and Rep. Waxman (D-Calif.) had introduced bills to expand Medicaid drug coverage for the elderly, but by the time PMA moved toward support of a more targeted assistance program in the summer of 1987, momentum had picked up for a Medicare coverage approach ("The Pink Sheet" June 15, 1987, p. 5). Stark noted that a key factor in the downfall of the 1988 catastrophic coverage plan was beneficiaries' very vocal objections to the added costs, particularly because the earlier benefit was entirely financed by beneficiary premiums, including an income-related premium. Wealthier beneficiaries were both assessed higher premiums and were more likely already to have drug coverage through private Medigap plans. Remarking that HR 2500 probably has a "pretty remote possibility of passage to begin with," Stark said he did not want to undertake the effort if the response is that "busloads" of senior citizens will show up in his district calling him a "scuzzbag." He asked witnesses from each of the three senior citizen advocacy groups represented if they believe senior citizens would be willing to pay $ 5 per month for Medicare drug coverage. American Association of Retired Persons board member Ruth Scarborough said senior citizens would be willing to pay that amount, particularly because they have been "startled" by drug price increases over the past two years. National Committee to Preserve Social Security and Medicare Exec VP Max Richtman agreed, remarking also that the Part B benefit approach preserves the social insurance concept of Medicare whereby all wage earners contribute a portion of the program's costs. Families USA Public Policy Associate Lucia DiVenere said her group generally advocates a progressive financing approach, and expressed concern that some sort of financial protections should be added for the lowest- income elderly for whom even $ 5 might be a hardship. Stark also asserted it "boggles the mind" why drug prices are lower in bordering countries than in the U.S. He suggested he might research U.S. trade laws to "allow you to go down and set up mail-order operations south of the border to sell pharmaceuticals to our seniors at a reasonable cost." Though still recuperating from a heart attack this spring, Sen. Pryor (D-Ark.) contended in a written statement submitted to the hearing that "it is high time" to address issues such as "why the average American pays 50% more for the same drug than the average European and 60% more than the average Canadian." Pryor said a Medicare drug benefit "makes logical sense" and that he will work with Stark on "making medications more affordable and available," although the Senate Aging Committee Chairman stopped short of endorsing HR 2500 as the specific mechanism to achieve those goals. Further needling PMA, Stark circulated a mock advertisment entitled "Innovation in Profiteering" that parodies PMA's "Innovation in Medicine" and series, one of which was published the day of the hearing in daily newspapers. Stark's ad was sponsored by "Pharmaceutical Marketers and Advertisers, formerly known as the 'ethical drug industry'." Stark's bill requires that a point-of-sale claims processing system be in place by Jan. 1, 1993. National Association of Chain Drug Stores Senior VP Randy Teach told the subcommittee that NACDS endorses the provisions to establish a real-time, computerized system but urged that it build on technology currently in use; be phased in, starting with claims processing and perhaps adding drug utilization review later; and be tested before being brought on line. American Pharmaceutical Association Exec VP John Gans urged the panel to assure that Medicare DUR be established as complementary to DUR provisions of the Medicaid rebate law. In addition, Gans said, "we assume it is not the intent of HR 2500 to require prospective DUR as part of the electronic claims processing system. While we agree an electronic claims system offers great potential for current or prospective DUR, we believe the approach taken in the [Medicaid act] . . . of a multi-state demonstration project on the feasibility of linking prospective DUR with the electronic claims system is essential."
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