Senior Coverage Increases Per Capita Drug Spend By 66%, HHS Report Finds

Average per capita spending on drugs for Medicare eligibles with drug insurance was 66% higher in 1996 than spending on pharmaceuticals for non-covered elderly, according to an analysis of drug spending released by the Clinton Administration on April 10.

The average per capita drug spend for Medicare beneficiaries with some form of drug insurance in 1996 was $768.90, according to the study ordered by the White House.

For Medicare eligibles without drug coverage, the average per capita spend was $463.15.

The covered elderly also bought more prescriptions (21.14 compared to 16.01) and paid more per prescription ($36.37 compared to $28.93).

Excluding those elderly from each category who did not fill at least one prescription during 1996 further clarifies the effect of insurance coverage on individual expenditures for drugs. The per capita average drug expenditure for insured elderly increased to $859.99 versus $576.43 for uninsured, when those not using drugs are excluded from the calculation.

The Clinton report contends that the higher costs per prescription for covered individuals in the Medicare survey does not necessarily reflect higher prices to that group.

"This is not because the price of any specific medication is higher for people with coverage," the report says. "Instead, the difference seems to come from the fact that people with drug coverage receive a different mix of drugs than noncovered people receive or different size prescriptions."

The average retail unit price paid by seniors with drug coverage (exclusive of Medicaid coverage) was $1.65 for brand name drugs based on 1996 data from the Medical Expenditure Panel Survey. The unit cost for generics was 53cent for individuals with insurance.

Medicare eligibles without drug coverage, however, paid an average retail unit price of $1.31 for branded products and 38cent for generic drugs.

Seniors with drug coverage (again excluding Medicaid coverage) paid an average of 26% more than uncovered seniors for brand name prescriptions. For generic drugs, covered seniors paid 39% more than those without drug insurance.

The MEPS drug cost data was presented in the HHS study as a retail unit price, calculated by dividing the price per prescription by the total number of standardized units in the prescription.

HHS touts the analysis of the 1996 MEPS data as important because the data (although four years old) were not publicly released until December 1999 and, therefore, "have not been widely used" previously, the report states.

The point-of-purchase prices cited by the MEPS data for cash customers and insured individuals do not reflect manufacturer rebates.

Even with manufacturer rebates of 15%, the average unit price would still be higher for the uninsured and underinsured.

To support the analysis of a richer drug mix for covered seniors, HHS included an analysis of two hypothetical patients with similar conditions and drug treatments - one with coverage and one without.

For a five-drug regimen, the covered individual would generate drug spending (by the insurer and with co-pays) of $185 per month versus $140 out of pocket for the uncovered individual.

The covered beneficiary would spend less in monthly cost on three identical drugs (same brand, dose, strength) shared by the two patients, according to HHS. The lower costs would come from purchase efficiencies by the third-party coverage group.

However, for two classes of treatment, the insured beneficiary would spend more because of access to newer and more costly therapies.

The Administration's finding of higher drug costs for covered individuals is slightly at odds with the headlined findings of the study that the "greater market leverage of third-party payers relative to individual consumers" would bring lower drug prices to covered individuals. That premise is one of the underlying political assumptions and attractions of the Clinton Medicare drug benefit.

Higher total spending levels on covered individuals represents the frequently overlooked silver lining to the drug industry from expanded coverage.

While uncovered individuals tend to spend less overall on pharmaceuticals, they nevertheless pay higher prices for comparable drugs, according to the report. HHS analyzed IMS data from 1998 and contends that the typical cash customer paid 13% more at retail than a third party before rebates ($52 compared to $46).

According to the report, Medicare eligibles without drug coverage "typically pay 15% more than insurers who negotiate price discounts for the same prescription drug."

"At the pharmacy level, people without coverage pay higher prices for drugs than the amount paid on behalf of those with coverage through third-party payers, when controlling for the dose and strength of the drug," the report continues.

Data from the Medicare Current Beneficiary Survey show that "for a given prescription, prices are generally lower for people with third-party coverage than for people who purchase their own drugs," the report states.

According to MCBS data, uninsured seniors paid more than the third-party price for 12 of the 19 drugs most frequently used by Medicare beneficiaries in 1996. "By 1999, the cash price was equal to or higher than the third-party price for all of the 19 drugs," the report states.

The MEPS data indicate that the Medicaid program often pays higher prices at retail than insurers and PBMs and, on average, pays about $10 more per prescription than the Federal Supply Schedule prices.

According to the report, the average price per Medicaid subscription is $34 factoring in an average rebate of 21%. However, depending on the rebate (which ranges from 15% to 30%), the average net price paid by Medicaid ranges from $30 to $37. That range compares with the average net price paid by insurers and PBMs, which falls in the $30 to $44 range.

The HHS report, "Prescription Drug Coverage, Spending, Utilization and Prices," was requested by Clinton last fall (¹ ).

Originally scheduled for release in time for his State of the Union speech, the report is now being publicized as a backdrop for the probable introduction of legislation embodying the Clinton Administration's Medicare drug benefit.

In an April 10 press release, Rep. Thomas (R-Calif.) interpreted the HHS report as confirming that "what seniors need is a market-oriented prescription plan."

To keep drug costs in the limelight, the Administration is promising a conference this summer on pharmaceutical pricing and discounting practices. The conference will include representatives from pharmaceutical manufacturers, purchasers and pharmacies.

The summer scheduling assures a White House publicity event near the time of the conventions when the Presidential election and Congressional campaigns begin to take center stage in news coverage.

In an April 10 press statement in conjunction with the release of the report, the President declared that the study "provides further evidence of the need for a voluntary, affordable Medicare prescription drug benefit." The President said he will seek a senior drug benefit for the uninsured as well as the "discounts and rebates that those with coverage receive."

² See chart: Key Findings of the Department of Health and Human Services Report on Prescription Drugs.