House Medicare Rx Bill Authorizes Tiered Co-Pays, De-Emphasizes Mail

The draft House Republican Medicare prescription drug bill includes language explicitly authorizing tiered co-pays.

In the section on beneficiary cost-sharing, the draft legislation says, "nothing in this part shall be construed as preventing a [prescription drug plan] sponsor from applying tiered copayments...under a formulary or other feature."

The provision on tiered copays is one new element in the 2002 version of Republican Medicare drug benefit legislation. In general, the draft is similar to Rep. Bill Thomas' (R-Calif.) 2000 bill, HR 4680.

The 2002 draft includes several changes to formulary and pharmacy benefit management rules that appear intended to address retail pharmacy concerns that the bill is "PBM-centric". The House leadership hopes to pass the bill in May (see ¹ (Also see "Medicare Rx Bills Unveiled: Does Provider Reimbursement Take Precedence?" - Pink Sheet, 6 May, 2002.)).

One change significantly de-emphasizes mail-order pharmacy. HR 4680 included specific language authorizing prescription drug plan sponsors to use mail delivery, which is not in the new bill.

The draft states that "the PDP sponsor of the prescription drug plan shall secure the participation of a sufficient number of pharmacies that dispense drugs directly to patients to ensure convenient access." HR 4680 required "a sufficient number of pharmacies (which may include mail order pharmacies)."

In addition, new language in the draft bill would require a PBM to report the amount of manufacturer rebates that are passed on to pharmacies or beneficiaries.

"The PDP sponsor...shall disclose to [HHS]...the extent to which discounts or rebates made available to the sponsor or organization by a manufacturer are passed through to enrollees through pharmacies and other dispensers or otherwise," the bill says.

The legislation would also require that a majority of members on a plan sponsor's formulary committee be physicians or pharmacists.

"Such committee shall include at least one physician and at least one pharmacist and a majority of its members shall consist of individuals who are a physician or a pharmacist (or both)," the bill states. The 2000 bill only required that a pharmacist and a physician serve on the committee.

Drug plan sponsors would still be able to restrict their pharmacy networks in the new Thomas plan, but the draft bill would also require sponsors to give beneficiaries the option of paying more in return for access to out-of-network pharmacies.

The bill sponsors are still deciding between offering a "Preferred Provider Organization" option and a "Point-Of-Service" system.

Under the PPO, a sponsor could impose "additional charges" at the pharmacy level for "providing access to any or all pharmacies that are non-preferred providers or otherwise participating in the plan."

The POS system would enable sponsors to increase the plan's premium in exchange for beneficiary "access to any or all pharmacies that are not participating providers."

One new section in the bill is likely to be less welcome to retail pharmacy. The draft bill includes language that would give statutory authority for the Bush Administration's Medicare-endorsed drug discount card proposal.

HHS "shall establish a program to endorse prescription drug discount card programs that meet the requirements...and make available to Medicare beneficiaries information regarding such endorsed programs," the bill states.

The National Association of Chain Drug Stores and the National Community Pharmacists Association are fighting the Bush proposal in court (² (Also see "Medicare Rx Discount Card Savings Estimated At $1.65 Bil. In 2003" - Pink Sheet, 4 Mar, 2002.), p. 14).

The draft Medicare bill may also disappoint advocates of drug pricing reform. It does not include any provisions on direct-to-consumer advertising or generic drugs.

Thomas is a vocal critic of DTC advertising and had floated the idea of addressing the topic via the Medicare bill. House Energy & Commerce Committee Chairman Billy Tauzin (R-La.), however, objects to that approach (³ (Also see "PDUFA III Funding Level Will Allow Increased Ad Oversight By FDA – HHS" - Pink Sheet, 22 Apr, 2002.), p. 6).

The bill was also expected to include a proposal to amend the AWP payment methodology for drugs currently covered by Medicare, another area where Ways & Means and Energy & Commerce did not see eye-to-eye.

AWP reform may now move as part of a separate bill on cancer drug coverage.

The most significant differences between HR 4680 and the 2002 Thomas draft are in the size of the federal contribution to the Medicare drug benefit.

The 2002 budget resolution allows the House leadership to create a plan that is significantly more generous - and expensive - than HR 4680, which was originally scored by the Congressional Budget Office at $140 bil. The current set-aside in the House for Medicare-related legislation is $350 bil. (⁴ (Also see "CBO Medicare Rx Costs: Thomas Plan Is $155 Bil. Under House Set-Aside" - Pink Sheet, 15 Apr, 2002.), p. 16).

The numbers in the draft bill are still under negotiation. However, a summary released by the sponsors indicate that the proposed government burden for the benefit will increase.

While the $250 deductible from the 2000 bill is left unchanged, the out-of-pocket cap will be lowered from $6,000 to no more than $5,000.

The reinsurance rate for plan sponsors would increase from an average 35% to either 50% or 60%. The bill notes that the reinsurance payment is intended to "reduce premium levels"; "reduce adverse selection"; and "promote the participation of the PDP sponsors."

The bill sponsors expect that monthly premiums would be kept to between $35 to $40 under the bill.

The Health Insurance Association of America remains skeptical of the reinsurance mechanism.

The draft bill also has a more generous co-pay structure for costs above the deductible than the 2000 bill did. One proposal is for a 20% co-pay for annual drug costs of $251-$1,000 and a 50% cost-sharing for costs between $1,001 and $2,000.

HR 4680 would have assigned a 50% co-pay to all costs between $251 and $2,100.

Both bills have a so-called "donut hole" in the co-pay structure where the beneficiary would pay the full cost of their drugs if they spent over $2,000 but under the catastrophic cap.

The draft bill has several other notable differences from HR 4680.

Electronic prescribing would be encouraged with grants to physicians. HHS "is authorized to make grants for the purpose of assisting healthcare professionals who prescribe drugs and biologicals in implementing electronic prescription programs," the bill says.

The bill would require that all participating prescription drug plans include the capability to receive prescriptions electronically. In addition, the PDP sponsor would have to be able to electronically transmit patient history and medication, generic alternatives, and formulary information to a physician upon receipt of an e-script.

The concept of an e-prescribing grant program was introduced under a medication errors bill by Sens. Bob Graham (D-Fla.) and Olympia Snowe (R-Maine) (⁵ (Also see "Electronic Rx Systems Would Receive $100 Mil. In Medication Error Bill" - Pink Sheet, 7 May, 2001.), p. 9).

The bill also stipulates the co-pay structure for low-income seniors: not more than $2 for multiple-source and generic drugs and $5 for a non-preferred drug.

HR 4680 directed only that HHS set "nominal" co-pays for those with incomes lower than 135% of the Federal poverty level.

There is also a change in the language regarding drugs already covered under parts A & B of Medicare. Both the 2000 and 2002 versions direct that those drugs would continue to be paid under the current program, rather than the new drug insurance benefit.

However, the 2000 bill would have provided coverage under the new program "if...payment is not available because benefits under part A or B have been exhausted." The draft 2002 bill does not include that language.

The new bill would also establish within a "Medicare Benefits Administration," a "Chief Actuary" to be appointed by the "Administrator" to "exercise such duties as are appropriate for the office...and in accordance with professional standards of actuarial independence."