SKILLS FOR SUCCESS
January/February 2005
The New Medicare Drug Benefit: What’s in Store?
Carol Sardinha Director, Healthcare Segment Programs, Bimark Medical Communications
If you are not sure what impact the new Medicare Part D Prescription Drug Benefit will have on your business, you are not alone. Medicare Part D represents the largest, most expensive, and most complicated change to Medicare since its creation in 1965. With the new benefit scheduled to take effect less than a year from now, in January 2006, there are some important developments you should be aware of given the extent to which they will likely shake up healthcare market dynamics in the very near future.
For Pharma, Glass is Half Full
The pharmaceutical industry has some things to be happy about. First, Medicare Part D is expected to help many seniors afford more prescription drugs than they may previously have been able to. Second, the legislation creating the new benefit, the Medicare Modernization Act, does not authorize the federal government to negotiate prices for Medicare beneficiaries directly with pharmaceutical companies, (ie, does not impose price controls). So, from a revenue perspective, things would appear, at least on the surface, to be positive for pharma.
But there are lots of caveats, including the level of influence that managed care will play in providing the drug benefit to seniors.
Managed Care Takes Center Stage
Under Medicare Part D, seniors can receive their prescription drug benefit in one of two ways: 1) remain in traditional fee-for-service Medicare and receive the drug benefit through a separate Prescription Drug Plan (PDP), which would serve as a supplement to their existing Medicare coverage, or 2) receive all their medical care, including prescription drug benefits, through a managed healthcare system approved by the government as a qualified Medicare Advantage (MA) plan.
Both PDPs and MAs that provide the Medicare Part D drug benefit on behalf of seniors have the authority to negotiate drug prices with manufacturers. In fact, under the Medicare Modernization Act, these entities are not subject to the Medicaid “Best Price” rule. In other words, a managed care plan, Pharmacy Benefits Manager (PBM) or other entity providing the Medicare drug benefit can, in theory, negotiate a price with a manufacturer that is lower than what the Medicaid program pays for that drug — something not previously allowed under federal law.
Formulary Placement is Critical
Managed care plans and PBMs can use formularies and other pharmacy benefit management tools, such as prior authorization, in providing the Part D benefit. New guidelines recently approved by the Centers for Medicare and Medicaid Services (CMS) essentially created a compromise in terms of how inclusive - or exclusive - formularies serving Medicare beneficiaries could be structured. The goal was to balance the need to provide seniors with broad access to a range of drugs, while encouraging cost controls via the price negotiating leverage that formularies generally afford health plans in contracting with drug manufacturers.
Manufacturers will want to seek favorable formulary placement for their products if they want to gain market share stemming from the anticipated influx of Medicare beneficiaries who will soon have access to drug coverage not previously available. Some pharmaceutical industry executives are understandably nervous about how these emerging dynamics may place further downward pressures on pharmaceutical prices. Price pressures and limited formulary access may be particularly evident when dealing with Prescription Drug Plans, or PDPs, because these entities will be at financial risk under the Medicare program for drug costs only, not total medical costs. This, of course, is assuming that healthcare entities step forward and serve as PDPs. Currently, no such prototype exists in the healthcare marketplace.
Value, Not Just Price
Price and formulary access will also be important when negotiating for formulary placement with Medicare Advantage (i.e., managed care) plans. But MA plans will examine more than just price. For example, how critical is this product for the elderly population? Is it more effective than others in its class? Is dosing easier? Are interaction concerns improved?
Keep in mind that managed health plans, too, are challenged by the new Medicare environment. Although some managed care plans have experience serving the senior population, many do not, and those that do are generally more accustomed to serving relatively younger, healthier seniors with fewer complex medical problems. These plans will find themselves challenged to manage total medical costs, not just drug costs, when older seniors with higher rates of chronic conditions and medical problems start to enroll in larger numbers.
That’s where pharmaceutical companies may also be able to provide value. What are the best ways to monitor and coordinate care—including, but not limited to, pharmaceutical care—for seniors with complex, chronic conditions and co-morbidities? How can pharma work with health plans, physicians, and other providers to promote best practices in treating and managing the complex medical needs of the senior population? Are there disease management or similar programs that can improve medical outcomes for seniors and manage total healthcare costs?
The uncertainties and challenges presented under the new Medicare Part D drug benefit loom large for healthcare businesses in general. But so, too, do opportunities for finding new, and possibly better, ways for pharma and managed care to work together.