Medicare Rx Plans Likely To Focus On Managing Use Of Low-Cost Drugs

The catastrophic coverage provided under the Medicare Part D benefit may give private plan sponsors little incentive to control use of high-cost drugs, American Enterprise Institute Resident Fellow Scott Gottlieb said April 27.

Part D plans "potentially will focus more of their efforts in trying to manage the lower-cost drugs, and not really apply a lot of utilization review to the $20,000-a-year drug," Gottlieb said at a Biotechnology Industry Organization/Windhover conference in Washington, D.C.

High-cost drugs could be less of a concern for prescription drug plans because the Centers for Medicare & Medicaid will be paying the bills of the most costly patients, Gottlieb noted.

"Most of the patients getting those drugs are in the catastrophic category anyway. They've already blown the cap on the new benefit, which means that Medicare is picking up 95% of the tab above a certain amount."

In the first year of the Part D benefit, patients become eligible for catastrophic coverage once the total cost of their drugs exceeds $5,100.

"Just like a lot of health insurers don't really try to aggressively manage the intensive care unit, because it's picked up by a reinsurer, the plans might not try to aggressively manage those high-cost patients," Gottlieb said.

Manufacturers of primary care products could be under the most cost pressure from Part D, Gottlieb suggested.

Plans "might really focus on the lower-cost drugs, which has certain implications...for companies that are in the business of making primary care medicines, but not businesses generally that make cancer drugs and other high-cost biotech products."

Although the government's coverage of the highest-cost enrollees may benefit manufacturers of biotech products in the short term, eventually there could be a political backlash, Gottlieb said.

If CMS is "paying for 95% of all the high-cost items, that's going to add to the government's costs, and that's even a bigger risk because that brings into the mixture political risk."

"One thing you could see down the road is that CMS would start making coverage decisions around Part D drugs," Gottlieb said.

Although legislative changes that would make this possible are not imminent, "if costs continue to increase...people are going to start looking at that potentially, and that could really change the environment."

Gottlieb has predicted that conflicting incentives created by the separation of coverage for physician-administered and outpatient drugs could result in the eventual merger of Part B and Part D (¹ (Also see "Medicare Part D Will Subsume Part B, AEI’s Gottlieb Predicts" - Pink Sheet, 20 Dec, 2004.), p. 10).

The groundwork has been laid for combining physician-administered and outpatient drugs with some of the Part B reimbursement changes in the Medicare Modernization Act, including the option for physicians to receive drugs through approved vendors, Gottlieb said.

"A lot of the recent changes that have been made in the structure of how those injectable drugs are getting reimbursed makes it easier to fold, eventually, B into D."

"If competitive bidding takes off, it becomes much easier for B to be folded into D because in a lot of cases, the companies that will be supplying the drugs to the doctors under the competitive bidding programs will also be the PBMs that will be administering the Part D plans," Gottlieb said.

Attorney Carolyn McElroy recently expressed concern that the competitive acquisition program would be unattractive to potential vendors because of the high administrative burden and low returns (² (Also see "Part B Competitive Acquisition Plan Needs Significant Changes, Attorney Says" - Pink Sheet, 25 Apr, 2005.), p. 21).

The coverage of certain drugs by both Parts B and D could also drive adoption of technologies that allow prescription drug plans to capture information necessary to determine coverage for those products, Gottlieb said.