MEDICARE BENEFIT WOULD GENERATE 5 MIL. NEW SCRIPTS ANNUALLY, HCFA SAYS, WITH FULL MARKET EXPANDING 10%-20%; PMA SAYS SALES BY BRAND FIRMS COULD DROP BY 11%
The Medicare outpatient drug benefit would generate 5 mil. new prescriptions annually according to Health Care Financing Administration estimates, HCFA Deputy Administrator Helen Smits, MD, testified at a Nov. 16 hearing before Sen. Pryor's (D-Ark.) Senate Special Committee on Aging. Asked by Sen. Grassley (R-Iowa) about the reliability of government estimates on the cost and size of the outpatient program, Smits asserted: "We know how much more prescribing we expect annually, which is about 5 mil., which [will represent] increased income to the manufacturers." Overall, HHS expects the Clinton Health Security Act to spur a 10%-20% jump in prescription drug use by all groups of users -- a figure which is somewhere between two to 10 times greater than public estimates by the pharmaceutical industry. HHS Assistant Secretary for Health Philip Lee, MD, told the Pryor committee that universal pharmaceutical coverage through qualifying plans and Medicare would add "at least a 10%-20% increase in demand for prescription drugs." Induced demand in the Medicare population will yield "a somewhat higher percentage increase" in pharmaceutical volume, the HHS official projected, "because they have a much higher need for prescription drugs, more chronic illness and more prescriptions per beneficiary," Lee continued. Smits stated the HCFA utilization estimates in another way, projecting that more than 60% of the over-65 population would have their pharmaceuticals covered by a third party for the first time under the proposed benefit. "Some 30%-40% of beneficiaries" already have some outpatient prescription drug coverage under private plans, Smits pointed out. Smits also projected that well over 60% of the Medicare beneficiaries would qualify for the drug benefit by spending more than the $250 annual deductible. Only 2% would exceed the $1,000 out-of-pocket cap on drug expenditures. A beneficiary would have to spend more than $4,000 in one year (because of the 20% copay requirement) to exceed the out-of-pocket cap. The "over 60%" estimate on qualifying beneficiaries indicates the effect of the relatively low deductible chosen by the Clinton Administration. The deductible for the aborted drug progam under the 1988 Catastrophic Care Act was projected to exceed $650 in 1992. That deductible was calculated to permit just under 17% of Medicare beneficiaries to exceed the deductible. Under further questioning from Grassley, Lee acknowledged that Medicare projections in general have turned out to be in the low end in terms of expenditures. He maintained, however, that the estimates for the current proposal are more realistic. The $11 per month Part B premium which would pay for the drug benefit was calculated, Lee said, "based on estimates by HCFA actuaries; Urban Institute economists were involved and the Office of Management and Budget." Lee told Grassley: "There has been a very extensive review of the projections in order to avoid just the kind of problems that you describe." Pharmaceutical Manufacturers Association President Gerald Mossinghoff maintained that due to the rebate costs affiliated with the Medicare drug benefit, the added coverage would actually result in a net 11.2% drop in dollar volume for brandname companies. At a briefing after the Senate hearing, Upjohn VP-Strategic Pharmaceutical Marketing Peter Seaver reiterated previous industry estimates that a Medicare benefit would mean only about a 2-6% increase in prescription volume. "Certainly, we would be interested in increased volume," Seaver said. "However, we are more interested in the appropriate allocation of pharmaceutical technologies to those people who are outliers in the system so that they don't get to the the healthcare system at the last minute." Although the innovator drug industry continues to support universal pharmaceutical coverage, it does so "with the full knowledge that expanded drug coverage, as defined in the Administration's proposal, would result in a net loss for many research companies," Mossinghoff told the Pryor committee. At a Nov. 18 Senate Labor & Human Resources Committee hearing, Mossinghoff elaborated on the projections of the net effect on the research companies and the generic companies. Citing figures prepared by a prominent former Congressional Budget Office economist (Don Muse), Mossinghoff acknowledged that there "will be increased volume if a drug benefit is included in health care reform," but he maintained that "there will be so many biases against the research side of the industry with Medicare rebates, with generic substitution, that...the net loss from the Administration's plan for the research side of the pharmaceutical market will be somewhere between 6%-11 % of revenues." By contrast, "the not gain to the generic side of the market will be significant: anywhere from 33% to 50%." Attempting to debunk the "talk of windfall sales and windfall profits," Mossinghoff urged the Senate to "keep those numbers in mind." PMA and executives at the research-based firms are using low estimates of the increased volume to argue against rebate payments. One of the oddities of this year's debate on a Medicare prescription pharmaceutical benefit compared to the debate five years ago is that PMA is siding with the low estimates on increased volume. In 1988, the association stressed the estimates of high induced utilization, primarily because the industry was afraid that an under-funded program would lead to direct government intrusion into the pricing of pharmaceuticals. At the Nov. 18 Senate Labor & Human Resources Committee hearing, Warner-Lambert President Lodewijk de Vink implicitly responded to HHS Assistant Secretary Lee's estimate of 10%-20% overall volume growth. De Vink maintained instead that "while the uninsured and Medicare beneficiaries would receive a federally- mandated outpatient prescription drug benefit under the President's plan, this does not mean that 72 mil. new patients will be brought into the pharmaceutical market." Most of the 72 mil. without current pharmaceutical coverage, de Vink maintained "already use medicines, including those who have Medigap prescription drug coverage." The W-L exec added that "health care reform may cause prescription drug unit volume to expand, yet net revenue will not rise significantly, if at all, due to increased discounting and the many other cost containment elements of managed care." De Vink was one of the first execs to use the low increased volume estimates as a public response to the potential impact of extension of drug benefits to that part of the population currently without drug coverage. In April, de Vink put the increased volume from drug coverage at 3%-5%.
Sign in to continue reading.
New to Pink Sheet?
Start a free trial today!
Register for our free email digests: