A Summarization of the Medicare Prescription Drug Improvement, and Modernization Act of 2003
and the new proposals to change it
Various Proposals for Prescription Drug Coverage that Led to the Act

(1/14/07)- The US House of Representatives passed a bill that would amend the Medicare Prescription Improvement and Modernization Act of 2003. The bill made it mandatory for the secretary of health and human resources to negotiate drug prices for Medicare beneficiaries with the drug companies instead of having each drug plan negotiate on its own.

The vote, 255 to 170, was cast eight days after the new Congress convened which was well within the 100-hour mark set by House Speaker Nancy Pelosi, Democrat of California. No Democrats voted against it, while 24 Republicans joined in with the Democrats in voting in favor of the change.

The bill says the secretary of health and human resources "shall negotiate with pharmaceutical manufacturers the prices that may be charged" to Medicare drug plans.

Representative John D. Dingell, Democrat of Michigan and chief sponsor of the bill said, "Those who insist that the sky will fall if drug companies negotiate lower prescription prices are arguing that those companies should continue to skin a fat hog at the expense of taxpayers and beneficiaries."

President George W. Bush said that he would veto such a measure. The Senate will begin acting on its own version of such a bill, where its passage is not a sure thing. If the Senate does pass a similar bill, the two houses than would negotiate any differences between their respective bills before it could be sent to the president for his signature.

If the bill does reach that stage of being vetoed by the president it will be close call to see if the veto can be overridden.

(12/3/06)- Representative Nancy Pelosi, of California, will be the Democratic majority leader of the U.S. House of Representatives in January. She said that one of the prime objectives of the Democrats will be to pass a law allowing Medicare officials to have centralized control over the purchase of drugs under Part D of the Prescription Drug Improvement and Modernization Act of 2003.

The federal government already pays 46% of the health-care costs of all Americans, through Medicare, Medicaid and coverage of civilian and military employees. One of the models that the Democrats are looking at in regards to changing the Act is based on the program at the Department of Veterans Affairs (DVA).

Federal law requires the drug makers to provide the DVA with at least a 24% discount on the drugs covered by the agency's formulary. The VA pharmacy has 4.4 million users compared with the 23 million members who participate in Medicare Part D plans. The VA has its own pharmacies, home-delivery system, doctors and other staff that help keep costs down.

Thus it is unfair to compare the VA system to one that may be proposed as a new system for Part D Medicare plan members.

(11/10/06)- With the Democrats having gained control of the U.S. House and Senate it is time to look at the proposals the party's leaders are making in connection with the Medicare drug coverage Part D plan.

Representative Nancy Pelosi, of California, who is expected to be the majority leader in the House come January, has stated that one of the changes that the party would like to make in regards to Part D is to allow Medicare itself to be the sole purchaser of all drugs under the plan. As the plan is now operating, each individual plan insurer makes its own drug purchases.

The Democrats argue that by having one agency make the drug purchases for all members who are in Part D drug plans, the massive purchasing that is done under this method will in turn mean lower drug prices for all members of the plans.

The government is expected to spend at least $31 billion this year on the drug benefit, and it is estimated that the federal government will spend almost $50 billion on the plan next year. In 2006, the federal government's spending for drugs accounts for almost 20% of overall American drug spending.

(3/22/06)- In spite of avowals to the contrary by President Bush, don't be surprised if the May 15th deadline to join a drug plan by a beneficiary is extended to some later date.

According to the results of a new study done by Credit Suisse First Boston the federal government will begin this month to start paying the subsidy to companies that maintained their prescription drug plans for their retirees after passage of the drug modernization act of 2003. The study found that 331 of the nation's largest 500 companies offer retirees drug coverage.

It is estimated that there are about 7 million retirees currently covered by employer-sponsored health plans. The study asserts that GM will receive about $1.1 billion over the next four years in drug subsidies for its retired workers. The study goes on to assert that about $4 billion will be paid out by the federal government over the next 4 years as its share of the subsidy to companies that allow their retirees to participate in their drug coverage plan. In total, the federal government expects to pay all employers, both private and public, about $14 billion over the next four years as part of the continued coverage for their employees.

Please keep in mind that the purpose of the subsidy was to try and insure that companies would not drop the drug coverage for its employees, and thus in effect force the employees to opt for the new prescription drug coverage plan under Medicare.

(3/7/06)- In a memo sent to health insurers, Medicare officials are proposing a limitation of two different plans per insurer per region for plans that they will be offering under the new Medicare prescription drug law next year. The memo discussed the fact that Medicare might decide to limit health insurers to one 'basic" benefit plan, and one "enhanced" plan per region.

Presently the insurers are allowed to offer three plans per region, so the limitation of two plans per region hopes to make things less confusing for Medicare beneficiaries studying which options are available to them.

Under the present system some areas have more than 60 plans for potential enrollees to chose from. In the memo the Medicare officials asked for feedback from the health insurers on the proposal. Of course there are those of us, including the coeditors of therubins who feel that the best modification to the plan would be to allow the whole program to be administered by Medicare itself, rather than have all the different plans out there to confuse Medicare beneficiaries. This in turn would allow Medicare to buy the different prescription drugs at a much lower cost to all parties involved in this matter. We invite your feedback on this question.

The memo also stated that plans with 24- hour pharmacies in their networks would be required to have 24- hour phone lines for pharmacists to call. Effective dates of enrollment would also be changed, so that beneficiaries who sign up for a plan late in the month would not have to pay for the enrollment until 30-days after they join the plan, not on the first day of the month after they join the plan.

(10/10/05)- Medicare officials announced that more than 50 options will be available in most states for Medicare beneficiaries who want to enroll in one of the new drug coverage plans being offered under the law that will start in January 2006. In Oregon for example, 20 companies will offer 45 stand-alone plans, with monthly premiums ranging from $6.93 to $64.99.

Lists of the plans, premiums and some other features are available on the Medicare Web site, .

Here is a breakdown of the cost to the beneficiary under the new Medicare prescription drug plan law:

(6/23/05)- President George Bush recently kicked off the campaign to educate the public about the new prescription drug plan that will go into effect in January 2006. In October, beneficiaries will receive detailed information about the drug plans available to them. They can sign up from November 15, 2005 through May 15, 2006.

The government is tailoring different messages to the needs of different groups of people. Here is a breakdown of the different groups involved in this matter:

People 65 and older who are on Medicaid will be automatically enrolled in Medicare drug plans if they do not choose one before January 1, 2006. Beneficiaries in HMOs will receive information about the drug benefit from those plans. Retirees will receive the information directly from their former employers.

(5/12/05)- The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) (P.L.108-173) will go into effect beginning January 1, 2006. The net federal cost of the new benefit is projected to be $37.4 billion in 2006 and $724 billion from 2006 to 2015. All individuals who are entitled to Part A or enrolled in Part B may enroll in Part D.

Enrollment in Part D, which is the new prescription drug plan (PDP) coverage, is strictly voluntary. Beneficiaries can enroll in the PDP and get all other Medicare benefits from the traditional fee-for-service (FFS) program, or they can enroll in Medicare Advantage (MA) plans, such as HMOs or regional PPOs, that cover all Medicare benefits, including drugs.

Beneficiaries who enroll in Part D will pay a monthly premium of about $37 in 2006. Individuals who delay enrollment past the initial period of enrollment will pay a lifetime premium penalty equal to 1% of the base premium for each month they delay enrollment. Roughly 29.3 million of the estimated 43.1 million Medicare beneficiaries are expected to enroll in Part D plans. Of the 14.5 million beneficiaries eligible for low-income subsidies in 2006, HHS expects 10.9 million to receive them. Employer plans are expected to offer drug coverage to 9.8 million of their retirees under their plans.

Medicare will contract with drug-plans in each of 34 regions to provide the new benefit. If two or more risk-bearing plans are not available (including at least one PDP), Medicare will contract with a "fallback" plan to serve beneficiaries in that area. Medicare officials have also divided the country into 26 coverage area within which they would spur the availability of private health-insurance plans called Medicare Advantage (MA) for senior citizens

Under MA private insurers would offer a full package of health benefits, including physicians, hospital coverage as well as the drug benefit.

Each plan must cover at least two drugs in each therapeutic class or category of covered Plan D drugs.

In addition to the monthly premium paid to the plan, the Medicare beneficiary will pay a deductible of $250. The government will pay seventy- five percent of the drug cost between $251 and $2,250, while the remaining twenty-five percent of the cost will be then borne by the plan member. There is no coverage for the drug cost between $2,251 until the drug cost reaches $5,100. The drug plan member pays the full cost in this "doughnut area" from $2,251 until the cost reaches $5,100. Once the drug cost reaches $5,1001 and above, Medicare will pay 95% of the cost above $5,101, and the member will be responsible for the remaining 5% of the cost.

Medicare will provide premium and cost-sharing subsidies to assist low-income beneficiaries. Medicare beneficiaries with Medicaid drug coverage, and QMBs and SLMBs, are automatically deemed eligible for these subsidies. Other low-income beneficiaries will have to meet both an income and asset test to receive additional assistance. Beneficiaries may apply for low-income assistance at local Social Security or state Medicaid offices.

To encourage employers to maintain drug coverage for their retirees, Medicare will provide tax-free subsidies equal to 28% of costs between $250 and $5,000 in drug expenses per retiree provided that the drug benefit is at least comparable to the standard Part D benefit.

(3/10/04)-Texas became the fourth state to establish-preferred drug lists for its health insurance program for the poor. In excluding Eli Lilly & Company's anti-psychotic best selling drug Zyprexa it threw more fuel into the fire in regards to the issue of the so-called atypical anti-psychotic drugs. Others in this category that were included in Texas' "formulary" for anti-psychotic drugs were Johnson & Johnson's Risperdol, Bristol-Myers Squibb Co.'s Abilify , AstraZeneca PLC's Seroquel and Pfizer Inc.'s Geodon. Zyrexa is the most-costly atypical anti-psychotic drug.

As states struggle with the deficits in their budget, lowering the expense of prescription drugs under Medicaid is one of the prime targets to effectuate this objective. Pharmaceutical companies have mounted a large lobbying campaign to exempt mental illness drugs from these formulary lists is because of the unusual circumstances attached to each patient with a mental illness. Kentucky and West Virginia are two other states that have excluded Zyprexa from their formulary list.

According to data from the Kaiser Commission on Medicaid and the Uninsured, Medicaid accounts for about 15 cents of every dollar spent by the states. In all, Medicaid spent $27.5 billion on drugs in 2003. If a drug is not on the state's formulary list, a doctor must specifically obtain approval for the drug to be used and reimbursed by the state for a patient.

The new prescription drug law has been passed by Congress and signed by the president. We will attempt to examine many of these new provisions as the information about them becomes available so that we will understand the impact of the law on all of us.

The new prescription drug benefit will become available in 2006. It looks like the premium will average about $36 a month in 2006, rising to$37 in 2007 and to $41 in 2008. As for the new discount cards that will go into effect in 2004 and last through 2006, it still looks like the premium will be about $30 a month from most of the companies that are offering the discount cards.

In attempting to try encourage employers who had prescription drug coverage for retirees from dropping this coverage, Congress granted subsidy benefits for the 65% of large employees with retiree health-care plans.

The new federal program calls for employers to be reimbursed for 28% of the cost of prescriptions of more than $250 per retiree, up to an annual subsidy of $1,330 per retiree beginning in 2006. The government will calculate the subsidy based on both what the employer spends for prescription drugs and what the retiree spends.

Thus if the employer and the retiree each pay $1,00 toward the retiree's medical costs, the employer's subsidy is calculated on the full $2,000. In the case where this comes to $2,000 the total subsidy would be $490. Incidentally, even though this subsidy won't be paid until 2006, the Financial Accounting Board of Norwalk, Ct., gave permission for the companies to book the value of the anticipated government payments in 2003 financial statements, if they believe they can accurately predict the effect of the subsidy.

In effect, the program allows the employers in some cases to use the subsidy to erase the entire cost of prescription drugs for retirees, or even turn a profit from a drug plan. If for instance the retiree's prescription costs are $2,550 and the retiree pays $1,000 of it, under long-standing tax rules, the employer can deduct its full $1,000 for tax purposes, and that the after-tax cost to the company is $650 at a 35% tax rate.

One of the key issues in connection with the high cost of prescription drugs has been the battle to allow the importation of drugs from overseas. In regard to this issue, the only country that will be allowed to export the drugs to the U.S. will be Canada. Before any drugs will be allowed to be imported from Canada, the FDA will have to attest to that "no additional risk" occurs as a result of the importation.. Commissioner Mark B. McClellan has already indicated that the FDA will not be ready to make such an attestation. This is similar to what occurred in 2000 when Congress passed and President Bill Clinton signed legislation that would allow the importation of drugs from abroad if the FDA attested to the safety and quality of the drugs. The FDA refused to make such an attestation so the matter was dropped.

In order to arrive at the agreement the negotiators added an estimated $18 billion tax break for employers to encourage companies to continue drug coverage for retirees. The government will provide subsidies to companies that certify they are offering their retirees a drug benefit that is actuarially equivalent to what the new bill promises for Medicare. The government will not only pay 28% of the costs for coverage from $250 to $5,000 in drug costs, but that support will be excluded from taxes.

A discount prescription drug card will be made available for senior citizens that the government hopes will enable them to buy discounted drugs at a 15% to 30% discount. The poorest seniors would receive $600 a year in additional assistance in 2004 and 2005, but the drug benefit would only begin in 2006.

Under the new proposal seniors who enroll in the plan would pay an average of $35 a month prescription drug premium starting in 2006 and have a deductible of $250 a year. Between the prescription drug costs of $250 till $2,250 a year the senior would pay 25% of the bill and the government would pay the other 75% of the bill. The beneficiary would pay all drug costs from $2,251 until the cost reached $3,600 out-of-pocket. Once the out-of-pocket cost exceeds $3,600, the government would foot 95% of the bill. Low-income beneficiaries would get extra aid.

Starting in 2006 subsidies would be provided to support private health plans, which will compete with the Medicare's traditional fee-for-service program. A senior will make a choice in 2006 whether or not to join a stand-alone drug plan in addition to the Medicare plan, or join a private health care plan with drug coverage. Starting in 2010, a demonstration program in up to 6 areas of the country will compare costs and the elderly may have to pay more to stay in the fee-for-service if its costs are more than the competing private plans. Seniors who stay in the traditional Medicare program would get their drug coverage from private insurers. Those who switch to private plans in 2006 would get the drug coverage as part of the plan.

Beginning in 2007, higher income seniors will be required to pay higher Medicare Part B premiums for physicians services. The income level for which higher premiums would be set would start at $80,000 and increase as the level of income increased, so that the premium would just about triple for those with income over $200,000.

Doctors would get a 1.5 percent increase in Medicare fees next year, instead of being cut 4.5% as required under current law. People eligible for both Medicaid and Medicare would not have to pay more than $3 for each prescription, but this charge would increase in the future.

In addition to these items, Medicare would provide at least $25 billion in new assistance to hospitals, doctors and other health care providers in rural areas. Medicare would cover an initial physical examination for new beneficiaries and screening for diabetes and cardiovascular disease. It would provide benefits for coordinated care for people with chronic illnesses and would increase payments for doctors administering mammograms to encourage their use.

Hospitals could avoid future cuts in Medicare payments by submitting data on the quality of care to the government. Payments through Medicaid would be increased to hospitals that serve a large number of the poor and lower income population. An 18-month pause in development of new specialty hospitals would be imposed and the expansion of existing ones would be limited.

People with high deductible health insurance policies ($1,000 or more for individuals; $2,000 for married couples) would be allowed to shelter income from taxes. Investors would receive a tax deduction, and pay no taxes on the investment and earnings upon withdrawal, provided the money was used for health expenses. Otherwise a 10% penalty would apply.

With the passage of the new law all the prior proposals and bills that were discussed are only useful when we look at them from a historical perspective. Nevertheless it is quite useful to look at history and compare it to what eventually evolved from Congress.

The proposal for the drug discount card has had a long and tortured history even before President Bush announced his plan for a drug discount card issued by the government. In July 2000 President Bush laid out a plan for a discount drug card program but the plan was tied up in the court system. When the plan was originally announced it was intended as only a stop-gap measure to aid seniors with their prescription drug costs until Congress could revise the entire Medicare program.

His drug discount card suffered a defeat when U.S. District Court Judge Paul Friedman ruled against the President's drug discount card plan. The CMS had announced the issuance of a final rule establishing a prescription drug discount plan for Medicare beneficiaries in spite of the lawsuits challenging its authority to have such a program. Thus the CMS had a drug discount card plan in the works even before Congress passed the new legislation.

Under the Bush program, private entities called pharmacy-benefit managers (PBMs) would have applied for government permission to market drug discount cards to Medicare beneficiaries. The Medicare beneficiaries would pay a fee of anywhere from $12 to $24 per year to be entitled to the discount card. The PBMs would negotiate the discounts with the drug makers and the pharmacies for its members.

The plan called for discounts of between 10% to 25% for its members. The National Association of Chain Drug Stores and the National Community Pharmacists Association brought a suit against the plan. The plaintiffs contended that the executive branch of the government lacked the legal authority to initiate such a plan by not holding public hearings and obtaining public comments before initiating the plan.

Judge Paul Friedman had originally granted a temporary injunction against proceeding with the president's plan until he decided the case. His temporary injunction was based on a 1946 law that required public hearings on the matter before such a program could be initiated. The administration has stated that it would hold public hearings and invite public comments on the plan, but the judge stated that the plaintiff could then initiate a new suit against the new plan once the government attempted to implement it. 

Two large drugstore chains have extended the reach of the Together Rx drug-discount card. Eckerd drug stores, a unit of J.C. Penny Co., of Plano, Texas, agreed to offer seniors who are enrolled in Together Rx a 30% discount on generic drugs which are not covered under the plan. Thus about 1,000 generic drugs would now be included under the Eckerd plan. Longs Drug Stores Corp., Walnut Creek, Cal., will also give a discount on drugs not covered by Together Rx under its own drug-discount card plan. Together Rx recently advertised that it now has over 1 million cardholders in its plan.

The two drug companies, GlaxoSmithKline PLC and Bristol-Myers Squibb Co. that had dropped out of the Together Rx Card drug-discount plan announced that they would resume the discounts that they had originally offered under the program. They dropped out of the program because of the fear that the discounts that they offered under the program violated the federal Medicaid "best price" offered law. This in turn would mean that they would have to increase the amount of the rebate that they would have give to the federal government in connection with all their drugs.

The two companies stated that they had received a letter from the Bush administration stating that the government would not try to demand similar low prices for all drugs marketed by the pharmaceutical industry. The letter from Thomas A. Scully, administrator of the Centers for Medicare and Medicaid Services said the discounts offered under the program were similar to "direct-to-patient coupons", which are exempt from the law requiring the pharmaceutical companies to give the Medicaid program their lowest price.

The drug companies that comprise Together Rx are Abbott Laboratories, Aventis, Bristol-Myers Squibb, AstraZeneca, Glaxo-SmithKline, Novartis, Janssen Pharmaceutical Products L.P and Ortho-McNeil Pharmaceutical Inc. The group expects to be able to offer their drugs to the cardholders at 20 % to 40 % discounts. The amount of the co-payment for the cardholder will vary. Novartis will offer a copay of $12, while Bristol's copay will be $15. Glaxo has set a copay of $5 to $10 depending on which drug is involved. Some drugs will be free to the very poor. To enroll in this program call 1-800-865-7211 or visit The maximum income to be eligible for this plan is $28,000 for individuals and $38,000 for couples. McKesson Empowering Healthcare administers the plan.

The individuals who apply for the cards would have to state their eligibility but no one will check to see if their statements are true. Cards can be used only at participating pharmacies. The group estimated that 11 million of the 40 million who are on Medicare would be eligible for the card. Novartis and Glaxo had previously announced their own prescription drug card plans, which they will fold into the Together Rx Card plan. Pfizer and Lilly, which had also announced their own plans have not indicated that they will join in the Together Rx plan. Together Rx offers the most medicines (more than 150 drugs) covered through one discount card.

The National Association of Chain Drug Stores has agreed to help market the Together Rx plan for senior organizations. Members of the association include CVS Corp., Rite Aid Corp., and Wal-Mart Stores Inc. will begin their campaign to educate and enroll seniors in the fall in six major cities. The association had considered marketing their own drug discount card plan as discussed below, but the members opted instead to go along with the Together Rx plan.

The chain drugstores, which oppose President Bush's discount card plan, originally announced their own drug card discount plan that will be run by Argus Health Plan. Under the plan being offered by the National Association of Chain Drug Stores (NACDS) seniors would only have to carry one card. Under the NACDS plan each drug company would continue to design its own discount program including eligibility requirements. No drug company has agreed to become part of this plan, though several drug companies have expressed an interest in it. This card would have gone under the name of PharmacyCareOneCard. The association has decided not to go it alone with this plan and instead opted for the Together Rx Card Plan.

Pfizer Inc. had a large advertising campaign in 15 states chosen for the high number of senior citizens and disabled people in connection with its discount prescription drug card plan. The campaign is especially aimed at Medicare beneficiaries who take Pfizer medicines and don't qualify for drug coverage under Medicaid or other prescription drug saving plans. California, Florida, Texas and Ohio are among the 15 states that were targeted for the ads, since those states do not have state programs for low-income Medicare beneficiaries.

Pfizer was the third drug company to offer a discount prescription drug card plan for the elderly, with its plan calling for a monthly flat fee of $15. The plan member would be eligible to receive a 30-day supply of most of Pfizer's drugs, with the one notable exception being Celebrex, which is co-marketed with Pharmacia Corp. The average retail price for a month's supply of Pfizer's medication is $48.22.

The Pfizer plan, named Share Card, is available to Medicare beneficiaries who do not have prescription-drug coverage, and who earn less than $18,000 a year if single, or $24,000 if married. As many as 7 million people might be eligible for Pfizer's plan although at latest count there were only 250,000 cardholders enrolled in the plan.

Medicare beneficiaries have to submit copies of the first page of their tax returns or other proof of income with their applications. You can get all the information about the plan by calling Pfizer's toll free number at 1 800 717 6005. Pfizer said that it sold 9 of the top 50 prescription drugs sold to Medicare beneficiaries.

Eli Lilly & Co. became the fourth drug company to offer its version of a discount prescription drug card plan. The Lilly plan has the lowest monthly premium to its participants of all the plans that have been announced up to this date, since it expects to charge a monthly fee of $12. The company did not say how much they expect the discount would be for their drugs to the participants, but they did claim that the average participant would save about $600 per year by using the plan. Once again the plan failed to deal with any catastrophic situation that a participant might be faced with.

The Lilly plan, which is named LillyAnswers, has about 100,000 cardholders. Some of the Lilly drugs covered under the plan are: Evista for osteoporosis, and Zyprexa for dementia in the elderly and Humulin and Humalog for diabetes. Their plan will apply to people with disabilities who are in the Medicare insurance program and to people over 65 with an annual income below $18,000 per individual or $24,000 per household.

To enroll in the Lilly plan call 1-877-RX-LILLY and the enrollment will be good for one year.

GlaxoSmithKline, the world's second largest drug company, was the first drug company to announce a national discount prescription drug plan for low-income people over the age of 65. It certainly was a step in the right direction, but the plan leaves much to be desired before it can be called a fair one. Under its plan those eligible to receive an Orange Card must be senior citizens 65 or older, or the disabled who are enrolled in Medicare.

To be eligible the annual income must be below $30,000 for single individuals and $40,000 for couples. According to Glaxo this would mean up to 11 million citizens could be eligible to join the plan. A further requirement for eligibility is a lack of either public or private insurance programs, such as Medicaid or Medigap policies covering prescription drugs. Glaxo has enrolled 100,000 patients under its program. The plan applies to all prescription drugs made by the company.

Novartis, A.G. of Switzerland was the 2nd drug company to offer cards to elderly Americans to provide discounts of 25% or more on the company's brand name drugs, or $12 for a 30-day supply of the company's drug, depending on income. Under the Novartis plan, to be eligible you must be 65 or older and have an income of $18,000 or less if single, or $24,000 for a household. According to IMS Health, which collects data about pharmaceutical sales, Novartis' products account for about 1/4 the sales of prescription drugs to people over the age of 65 in the last 12 months. Miacalcin Nasal Spray for osteoporosis was among the top 50 drugs used by the elderly in a Families USA survey last year. Novartis announced that it has enrolled 15,000 participants in its card program.

Some pharmaceutical benefits managers have their own drug discount card plans. Merck-Medco's YOURxPLAN card charges $25 a year for an individual and $40 for a household. The SaveWell card, which offers a range of health-care discounts, charges $84 a year. The AdvancePCS RxSavings plan has no annual charge, but the consumer pays a transaction fee with each use. 

Republican Senators Hagel of Nebraska and John Ensign of Nevada introduced a bill in the Senate that would give Medicare beneficiaries private drug discount cards and 90 % help for seniors whose medication bills reach the catastrophic levels. The proposal also called for a small co-pay by the beneficiary of anywhere from $2 to $5. All beneficiaries would receive a discount on prescription drugs through a drug discount card.

The plan was defeated in the Senate since it did not have the required 60 votes needed for passage. 51 Senators voted in favor of the plan versus the 48 who opposed it. Their bill would have limited a beneficiary's out-of-pocket spending for prescriptions, with even low income individual having to spend $1,500 before receiving assistance.

Neither the Democratic nor the Republican versions of their prescription drug coverage plans for the elderly were able to muster enough votes in the Senate in order to be passed, since a minimum of 60 votes was needed for passage. The Democratic version of the bill went down to defeat by a vote of 52 to 47, while the Republican version failed by a 48 to 51 vote.

The cost of both the Republican and the Democrats plans exceeded the maximum allocated amount of $400 billion over 10-years in the budget. Under budgetary procedural rules established by the Balanced Budget Act of 1997 a super majority of 60 votes is required to pass any legislation that exceeds the allowable amount allocated in the budget towards that item.

Senator Peter G. Fitzgerald of Illinois was the only Republican senator who voted for the Democratic proposal. The two Democratic senators from Louisiana, John B. Breaux and Mary L. Landrieu voted for the Republican measure. Republican senators Lincoln Chafee of Rhode Island, Chuck Hagel of Nebraska and Richard G. Lugar of Indiana voted against the Republican version of the plan. Independent Senator James M. Jeffords voted for both the Democratic and Republican plans.

By a vote of 56-43 the Senate approved an amendment sponsored by Sen. Debbie Stabenow (Dem.-Mich.) that would allow the states to extend the formulary approach for their preferred-drug list to residents with even greater income than those limits they had set to qualify for Medicaid. The Senate did pass a measure that would give $9 billion in new funding to states to help prevent cuts in Medicaid and other social services

One of the trial balloons that leaked out of the conference committee meeting that is trying to negotiate a new prescription drug plan under Medicare involves what is know as the "average wholesale price" or AWP. This is the price that Medicare and Medicaid use to reimburse medical professionals and pharmacists for the cost of drugs given to their patients or customers. It is a price established by the pharmaceutical industry, and in some ways is analogous to the list price for a new car. Under the proposal being considered the AWP price would be replaced over time by the actual price that a drug is selling for in the market place (ASP-average sales price). It is our understanding that some of the cancer drug charges by medical professionals to Medicare will come under a new pricing system, but we await more information on this matter.

The Centers for Medicare and Medicaid Services (CMS) will hold off on making any changes to the Medicare payment for furnishing or administering certain drugs and biologics under the 2004 Physicians Fee Schedule. If the CMS were to enact AWP reform before the passage of the bill, then the provisions would have no longer been scored as savings by the CBO. This in turn would mean that Congress would have less flexibility to increase payments to providers while staying under the $400 billion target for the prescription drug bill.

We have pointed out time and time again that the AWP is one of the weakest of the links in the medical pricing chain. Would you pay the list price for a new car? Medicare and Medicaid pay 95% of the AWP for a drug, and this is supposed to mean that they are getting a bargain. This price fails to take into account the discount and rebate that is given to a large mass purchaser of any product. It is not the "best price" that the government is supposed to get when compared to other purchasers of drugs.

One of the proposal taken up by the conference committee was that the price that the government pays for a drug on the AWP list would be reduced to 85% of its listed price instead of 95%. After the first year however the price would shift to a new market-oriented price which will be determined through actual prices that are paid by large purchasers of any particular drug. It seems to us that this is a much more realistic approach to the question of the actual cost of drugs. Under this approach if there is not a large enough market from which a realistic price can be arrived at, then government officials could set a price related to the AWP. We await the final draft of the law to see if this proposal has been included in the new bill.

The lobbyists are taking a page out of the Wall Street investment banker's book when we noted with interest that there would be a merger of two of the largest lobbies in the health care industry. One is the Health Insurance Association of America, which began as a lobby for traditional insurance companies. The other partner in the merger is the American Association of Health Plans, which began as a lobbyist for HMOs. Members of the two groups provide coverage for more than 200 million people

Karen M. Ignagni, a former health policy analyst at the A.F.L-C.I.O. will be president of the merged companies. She has been president of the association of health plans for 10 years and led the industry's successful fight against congressional efforts to define patients' rights.

Under the new law, Medicare would set the standards for drug discount cards and give its approval to cards meeting those standards. Medicare beneficiaries would have a choice of at least two cards to chose from in each geographic area, but could be a member in only one drug discount card club. PBMs, insurance companies, drug store chains and other entities could issue the cards. The card issuer could charge an enrollment fee of up to $30 per year.

Beneficiaries with incomes below about $12,123 would be able to get $600 a year to spend on their drugs. These cardholders would pay a co-payment of between 5% to 10%.

According to a report issued by the Commonwealth Fund, a New York foundation that specializes in health and social issues, the costs for Medicare beneficiaries enrolled in outside health plans have doubled since 1999 to an average of $1,964 in 2003. People in poor health have much higher costs, averaging $5,305 a year.

The study went on to show that preferred provider organizations (PPOs) have been very costly to the beneficiaries who have enrolled in these plans. These plans allow its members to go outside a fixed provider network to see a doctor or hospital of their choice. The Commonwealth reports shows that these individuals are paying an average of $2,284 a year to cover the cost of the premiums and the co-payments.

We have seen that recently the HMOs have been dropping out of the health plan coverage for Medicare beneficiaries as shown in our article about Medicare Coverage Droppage by HMO's. For a Medicare beneficiary to join a PPO, it will mean about spending $1,000 more than enrolling in a traditional HMO.

No precise target is set for the discounts that pharmacy-benefit managers would have to provide to the cardholders, but Republicans said it would be about 15%. The Medicare drug benefit is not expected to become effective until 2006, so the card discount program will have to carry the weight until then. Negotiators agreed to allow 6 months to elapse after the passage of the Medicare legislation before the cards would be issued.

Thomas Scully, the head administrator for the Centers for Medicare and Medicaid Services said that his agency has begun preparations for issuance of the cards. In addition to the cards the negotiators are working on a $600 assistance program that would go to people with incomes as high as 135% of the federal poverty level, or about $12,123 annually. No asset test is imposed but the Senate version of the bill would require beneficiaries to pay 10% of the cost of the prescription before getting the assistance.

It is estimated that companies prescription drug coverage plans insure about 12 million of their employees who are part of the 40 million Americans who are Medicare beneficiaries.

The Congressional Budget Office estimates that about 3 million Medicare beneficiaries would lose drug coverage under the Senate bill. Theoretically Medicare would pick up the cost but in reality, the coverage under Medicare will not be as good as the coverage under the employer's plan.

Originally the House of Representatives by an overwhelmingly majority of 243-186 approved the Gil Gutnecht (Rep.-Minn.)-Jo Ann Emerson (Rep.-Mo.) bill that would allow pharmacies, wholesalers and individuals to import prescription drugs from 25 different countries into this country. The Republican leadership in the House does not support the bill, but has stated that it would not actively oppose the bill.

The vote was allowed as part of a deal that the Republican leadership struck with Mrs. Emerson in return for her vote on the Medicare prescription drug benefit legislation. The House passed that legislation by a vote of 216-215, with Rep. Emerson's vote being the deciding vote in favor of the bill. Unlike prior legislation that was passed and signed by the then President Bill Clinton in 2000, the House bill does not require certification by the FDA as to the safety of the imported drugs. It does require the drug companies to put their products in tamper-resistant packages, and noted that European nations allow imports.

According to the latest estimates from the Congressional Budget Office the Senate Medicare prescription drug bill would cost $461 billion over 10 years and the House version of the bill would cost $408 billion over the 10-year period of time. Congress and the president had approved the limit for the spending at $400 billion over the 10-year period of time.

One of the more amazing numbers in the CBO estimate is that the Senate version that requires the PBMs to report the discounts that they receive from the drug makers would cost $40 billion over the 10-year period of time. The CBO report stated that if the PBMs made such disclosures, they would have less ability to get rebates from the drug makers. Sen. Maria Cantwell (Dem.-Wash) stated: "It's unclear to us how disclosure can cost $40 billion".

The following is a list of the members who constitute the House-Senate conference committee:

The House Republican members of the committee are: Tom DeLay of Texas, the majority leader; Bill Thomas of California; Nancy L. Johnson of Connecticut; Bill Tauzin of Louisiana and Michael Bilirakis of Florida.

The Senate Republican members of the committee are: Charles E. Grassley of Iowa; Orrin G. Hatch of Utah; Don Nickles of Oklahoma; John Kyl of Arizona and Bill Frist of Tennessee.

The House Democratic members of the committee are: John D. Dingell of Michigan; Charles B. Rangel of New York and Marian Berry of Arkansas, a licensed pharmacist.

The Senate Democratic members of the committee are: Max Baucus of Montana; John D. Rockefeller of West Virginia; John B. Breaux of Louisiana and Tom Daschle of South Dakota, the minority leader.

When the conference committee finalized its version of the bill for Congress to vote on, there were only two Democrats on the negotiating committee. They were Senators Baucus and Breaux.

The following items cover the key provisions of the differing bills that the conference committee had as its starting point:

The House bill starts with a $250 deductible versus the Senate bill which starts with a $275 deductible. The House version then covers 80% of the annual drug costs up to $2,000. Under the Senate version the annual drug coverage then is 50% up to $4,500.

Under the House version of the Medicare prescription drug plan drug costs are not covered for the beneficiary from $2,001 through $4,900. Under the Senate version of the bill drug costs are not covered for the beneficiary from $4,501 through $5,800.

Under the House version of the bill 100% of the beneficiary's drug costs are covered for amounts over $4,900, while under the Senate version of the bill 90% of the costs after $5,800 are covered with the beneficiary picking up the cost of the other 10%. Under the House version of the bill there is a higher threshold than $4,900 for people with higher incomes.

Under the House version of the bill there is low-income assistance for those below150% of the poverty level, with there being full-cost coverage for those below 135%. Under the Senate version of the bill there is additional benefits for those below 1160% of the poverty level.

Under both the House and Senate versions of the bill, starting in 2006, seniors could choose to join a managed-care plan to get comprehensive medical care. The monthly premium for beneficiaries under both the House and Senate versions of the bill would be about $35. Thus under both the House and Senate versions of the bill the elderly would have a yearly premium cost of $420. Under the Senate's version of the bill the elderly would pick up the next $275 as the deductible. Medicare would then pick up 50% of the cost for the beneficiary's drugs until the total drug cost hit $4,500.

For employers who stick with their current drug plans, the House bill would offer a sliding subsidy equivalent to 28% of the actual cost of the drugs purchased, but only after the first $250 for each retiree, with a ceiling of $5,000. The Senate bill offers a direct annual subsidy to these employers of $840 a retiree.

The Congressional Budget Office forecast that 37% if retires, or 4.4 million people, would lose drug coverage under the Senate bill and 31% would lose coverage under the House bill. It is conjectured that many large companies would coordinate their health coverage with any new Medicare bill.

According to data compiled by the government's Medical Expenditure Panel Survey two-thirds of the elderly used less than $1,100 worth of drugs in 1999. The ten percent of the elderly who used the most drugs averaged about $3,720 in total costs according to the survey. Please keep in mind that drug costs have increased considerably since 1999 both because of drug price increases and the aging of the population means that there are more people living until older ages.

Under the Senate plan, the Part B of Medicare (outpatient and doctor's visits) deductible, which has been set by law at $100 since 1991, will be increased to $125 in 2006.

The process for passage of the Medicare prescription drug plan received a large push forward when the House Ways and Means Committee, by a 25-to-15 vote approved a bill adding a prescription drug benefit to Medicare. The House passed bills in both 2000 and 2002 that added prescription drug coverage to Medicare but the Senate failed to add such a proposal both years. Both Houses of Congress are expressing concern that in adding prescription drug coverage to Medicare, employers may cut back or even eliminate drug coverage as a benefit to their employees.

In the Senate the key for passage of the legislation arose when Senate Finance Committee Chairman Charles Grassley (R.-Io.) and the committee's senior Democrat, Sen. Max Baucus (D.-Mont.) both backed a proposal that would offer Medicare beneficiaries prescription drug coverage beginning in 2006. Until 2006 the beneficiaries would be offered a drug-discount card from 2004 through 2005 for a nominal fee that would provide an estimated 15% discount. The proposal is restricted by the limit that the Senate had placed on the prescription drug benefit cost to $400 billion over a 10-year period of time. When Senator Ted Kennedy (Dem.-Mass.) backed this proposal the impetus thus fell in place for passage of the legislation in the Senate.

It now seems as if the Bush administration will back some form of prescription drug coverage under Medicare. Until recently the president was calling for prescription drug coverage for senior citizens through private insurance company coverage rather than for coverage under Medicare. After a meeting with Tommy Thompson, the Secretary for Health and Human Services, Senate Majority Leader Bill Frist (Rep.-Tenn.) and Senator Chuck Grassley (Rep.-Io.), the senators said they expected that Mr. Bush would sign a plan similar to the one that they recently had formulated.

Under the proposed plan the beneficiaries would have to pay a $35 monthly premium and they would have an annual $275 deductible that they would have to pay themselves. Under the Senate plan the beneficiaries would pay 50% of his/her prescription drug costs from $276 through $3,450 a year and Medicare would pick up the rest of the 50% of the expense. There would then be a gap from $3,451 until the beneficiary had spent $3,700 in out-of- pocket. At that point Medicare would pick up 90% of the expense and the beneficiary would be responsible for the remaining 10%.

Six Democrats and the Vermont independent Senator James Jeffords joined the Republicans on a 58-37 roll call vote to have Medicare provide a new prescription drug benefit through subsidized private insurance coverage rather than through a direct government-run program. At the same time Senator Charles Grassley (Rep.-Io.) acknowledged the strong pressure to increase subsidies to dissuade employers from dropping drug coverage for retirees.

Under a draft House bill the premium would be the same at $35 per month, but the beneficiaries deductible would be $250. Plan members would then bear 20% of the next $2,000 of annual drug expenses. Under the House proposal the plan would pay 100% of the drug expense over the individuals cost when it reached $5,300. The House plan would extend coverage even to households with income greater than $60,000, while the Senate plan would not do so.

As an alternative, Medicare beneficiaries could choose a private health plan that would offer both prescription drug and medical coverage. The new option would be called Medicare Advantage. This plan would be administered by a new governmental agency that would solicit bids from companies in various regions of the country. Each region that is created would have a choice of three best bidders to provide the benefits in that particular region. Premiums and other cost-sharing details would vary by the plan selected. If private plans did not enter the Medicare market in a particular area, the government would provide a contractor to handle that area.

Thomas A. Scully, the administrator for the Centers for Medicare and Medicaid Services stated that the Bush administration had "significant disagreements" with the proposal. Three key members of the Senate Finance Committee also voiced support of the plan. They were-Senator John B. Breaux (D.-La.), Senator James Jeffords (Ind.-Vt.) and Senator Olympia J. Snowe (R.-Me.). The Senate has never passed any prescription drug legislation under Medicare whereas the House has passed such legislation twice (in 2000 and in 2002).

President George W. Bush began to reveal some more particulars about his proposed plans to revamp Medicare over a period of time. In addition to the present system, the president sees the future based around an Enhanced Medicare that would invite a multitude of different types of private plans to compete for the same beneficiaries, while at the same time adding a prescription drug plan to the program.

One of the areas causing particular problems for his proposed plan was rural America. Rural communities have a greater proportion of low-income elderly than do urban ones. The urban areas have fewer doctors per capita than do urban areas. It is much more difficult for an urban area to set up a profitable health-care network, with the population being spread out over a large area, than it is for an urban health-provider network that has a much denser mass of the population to work with.

President Bush vowed to do better by modeling Enhanced Medicare along a similar path to the Federal Employees Health Benefit Program (FEHBP), which uses competing private plans to cover nine million government workers. The problem with this approach however is that most federal employees are concentrated in certain areas, whereas the rural community does not have this type of concentration to work with. "Rural areas are nervous," admits Thomas A. Scully, the administrator for the Centers for Medicare and Medicaid because of the fear that the rural communities will suffer as a result of the proposed changes in Medicare.

According to Mr. Scully Medicare reimbursements to doctors and hospitals will be set on a regional basis to "smooth out" any inequities that may arise. The administrative costs of Medicare are just a fraction of those at private competitors. In many rural communities there is only one hospital available to cover a wide area. Many communities do not even have a physician available to treat Medicare beneficiaries. Trying to pattern the revised Medicare to the federal employee system has a tough road in store for itself.

Senate majority leader Dr. Bill Frist in a speech to the American Hospital Association on April 28th said "the legislative stars in Washington are aligned" for adding a prescription drug benefit to the health insurance plan for older Americans. Dr. Frist went on to say that he expected the Senate to vote on a drug plan before the Fourth of July recess, with the House potentially moving even faster. He went on to warn however that the presidential election campaign could become a factor for delay once we got to the summer months.

A group of Democrats in the House presented a proposal for low income Americans to have prescription drug coverage under Medicare. Representative Cal Dooley of California and Rahm Emmanuel of Illinois offered other House Democrats the proposal with support from 16 House Democrats. The group has adopted the name of the New Democrats. Under their proposal the prescription drug coverage would be part of the standard Medicare benefits and there would not be any extra premium to be paid by the beneficiaries.

Under their proposal, Medicare would pay 80% of the cost of each prescription after a beneficiary had incurred $4,000 of drug costs in a year. The $4,000 deductible would not apply to elderly people with incomes less than twice the poverty level. The poverty level is $12, 120 for a couple in 2003. The federal share of the coverage would be 80% for the poorest level and decrease as the beneficiary's income approached the 200% of the poverty level.

According to the Congressional Budget Office, nearly one half the elderly have incomes less than twice the poverty level. The CBO also estimates that about 17% of the elderly will have more than $4,000 in drug expenses this year. This proposal would use up the full $400 billion over 10 years that the president hac proposed for the improvement in Medicare. The proposal also included the institution of a federal drug discount card for Medicare beneficiaries that its sponsors estimated would save the elderly between 15% to 30% on their drug bills. The benefits could be delivered through health maintenance organizations, group health plans for retirees, private insurance policies that fill gaps in Medicare or state pharmaceutical assistance programs.

President George W. Bush unveiled his plan for prescription drug coverage for the elderly. Many of the proposals in the plan did not have any definite proposals attached to it, but just spoke about some of the items in general terms. The plan did back away from the thought of not offering any drug coverage at all under Medicare. The drug benefits would be far more extensive in the private plans in an attempt to induce Medicare beneficiaries to join the private plans.

Under his proposals the president wants to give seniors one of three options:

  1. Staying in the traditional Medicare plan which would have some form of prescription drug coverage.
  2. Switching to private plans through "Enhanced Medicare".
  3. Switching to private plans through "Medicare Advantage".

For those who would stay in the regular Medicare, they would receive a drug discount card (10% to 25%) and "catastrophic" drug cost coverage. The level before the catastrophic coverage kicks in has not been determined yet. "Enhanced Medicare" would be a new, private-plan option that would consist mostly of preferred-provider plans. In this type of a setup, patients can have the freedom to choose their doctors, but would have to pay extra if the doctor is outside the network.

"Medicare Advantage" is an updated version of the Medicare + Choice program, which was started in 1998 to provide lower-cost, managed care to seniors. The choice of physicians is limited and this plan may not have drug coverage included in it. There are now about 5 million beneficiaries enrolled in this plan. Please keep in mind also that the drug companies are offering their own drug discount cards, which in many cases offer a sharper discount than the one being offered under the president's proposals. Also keep in mind that the H.M.O have dropped many of the Medicare beneficiaries who had enrolled in their plans when they felt they were not making enough money on this type of plan. For further info on this topic please see our article on What to do if You are Dropped by Your H.M.O.

Michigan and Vermont are planning the first united effort to extract discounts for drugs dispensed through Medicaid. First Health Services Corp. of Washington, D.C will administer the new program. The combination will adopt a bidding system to set the price for drugs under its formulary approach. In the 40 most common therapeutic categories, drug companies will submit a price for their drug to be included in the system. Under the current system the state sets the price in advance and tells the drug company to take it or leave it.

Medicare beneficiaries make up about 14% of the population, and yet they account for 43% of the country's prescription drug spending. Only about 60% of Medicare's 41 million beneficiaries have some form of prescription drug coverage.

Originally administration officials indicated that they are considering requiring beneficiaries who want drug coverage to choose from a broad menu of private health plan options. Many of the officials in Washington want some kind of drug coverage to be included in any revisions that may be made to Medicare.

The recently announced budget deficit figures released by the National Conference of State Legislatures showed a 50% increase over the estimated deficit, for all the states combined, that was released in November of 2002. The situation will worsen in 2004 when it is projected that there will only be 3 states that will not have budget deficits-Arkansas, New Mexico and Wyoming. Combined with the fact that the revenue estimates continue to decline, this situation will surely worsen over the short haul.

With the cost for prescription drugs continuing to be one of the largest items for expenditures in the states budgets many of the states will have little choice but to find new ways to cut down on this cost item. Thus you will see more initiatives taken by the states since the federal government has its own rising budget deficit to contend with.

In the last 5 years, 2.4 million beneficiaries have been dropped by H.M.O.s. We have written about the droppage of beneficiaries in our article What to do if you are Dropped by your H.M.O. The H.M.O.s have continued to drop members even though the payment rates have been increased and were supposed to eliminate this problem.

We point this fact out because the administration is hoping to provide prescription drug coverage through H.M.O. participation, and the truth of the matter is simple-it has not and will not work!!!!! Once again many politicians are talking about increasing payments to H.M.Os to encourage them to keep Medicare beneficiaries on their rolls, but it had not worked that way in the past and will not work that way in the future.

The Bush administration had considered a set of proposals that would require Medicare beneficiaries to join some type of government-subsidized private health insurance plan to obtain coverage of prescription drugs. The private plans would include H.M.O.s, or a loose network of medical professionals and hospitals known as preferred provider organizations (PPOs). Beneficiaries could remain in the traditional Medicare program, but there would not be any prescription drug coverage available under this option. The H.M.Os and the PPOs would provide prescription drug coverage for its members, for which the members would pay an additional fee.

Under the proposals, the government would provide for people with catastrophic illnesses, covering 90% of costs over $6,000 a year. The proposals include a co-payment charge to Medicare beneficiaries for home health care. Up till now Medicare beneficiaries have not had to co-pay for home health care since 1981. The proposals include the establishment of standards by the federal government for drug coverage.

Under the standard coverage, a beneficiary would pay a deductible of $275 a year, plus half the cost of prescription drugs up to $3,050 a year. Medicare would then pay 90% of any drug costs after the patient had spent $5,500 on drugs.

The Court of Appeals in Michigan lifted the temporary injunction that had prevented the state from proceeding with its plan to help 1.6 million low-income residents of the state pay for their prescription drugs. The Michigan plan is attempting to cut health-care costs by limiting the drugs doctors can prescribe for people on Medicaid, infants and the elderly to a formulary list that the state set up. Doctors must apply for and get state approval in order to be paid under the program if they prescribe a drug that is not on the formulary list. In lifting the temporary injunction the court stated that the plaintiff failed to show that their case was likely to succeed.

PhRMA has instituted an action in the U.S. District Court in Washington, D.C., which challenges the Michigan preferred drug list discount program. The lawsuit was filed against the Department of Health and Human Services Secretary Tommy Thompson and Thomas Scully, administrator of the Centers for Medicare and Medicaid Services for approving the Michigan program. The lawsuit in effect is challenging the attempt to use preferred prescription drug lists to restrict the choices of drugs available to the state's residents. In order for a drug to be on such a list the drug must be approved by a panel that attests to the efficacy of the drug, and the drug company must give a discount that will exceed the normal 15% reduction ordinarily required under Medicaid.

In the battle that is evolving in the attempt to hold down the cost of prescription drugs, the Department of Veterans Affairs is turning out to be one of the more interesting battlefields involved in the fracas. David Rogers pointed out the matter in his article in the February 13, 2002 issue of the Wall St. Journal entitled " VA Bid to Trim Drug Cost May Rile Firms".

The article pointed out that the VA would be spending more than $3 billion annually for the more than four million veteran's outpatient prescriptions enrolled in its system. In order to try and hold down the costs the VA is urging the more than tripling of the co-payment for drugs to $7 a prescription. It is also seeking to impose a $1,500 deductible for other medical services provided to middle income veterans. Incidentally veterans now have to co-pay $7 for their drugs.

The article further points out that "the VA budget will increase again by at least $1.5 billion next year to $23.5 billion". Enrollment in the system has jumped 44% in the last 2 years. With the recession continuing to affect our economy, more of the unemployed are utilizing the VA system for their health benefits. Many of the new enrollees are attracted to the VA system since they have lost their own prescription drug coverage because of the increased premiums and even the droppage of prescription drug coverage by the HMOs.

The VA is encouraging its doctors to prescribe lower cost medications and even generics to hold down its costs. One such drug that is being discouraged from being used is Lilly's Zyprexia which is an antidepressant. Zyprexia is the high cost drug in its category, with risperidone, sold as Risperdal by Johnson & Johnson's Jansen Pharmaceutica and quetiapine, marketed as Seroquel by AstraZeneca PLC being cheaper drugs in this category. The VA is encouraging its doctors to prescribe the latter two medications and Lilly has drawn the battlelines over this matter.

Bruce G. Bodaken, the chief executive officer of Blue Shield of California, a nonprofit insurer with 2.6 million members called for legislation that would provide public or private health coverage for every resident of the state of California. His plan would require most employers in the state to provide essential health coverage for every employee as part of his plan to cover six million uninsured state residents.

Under his plan the state would provide subsides, based on need to help those who could not afford the full costs. Mr. Bodaken said that the universal coverage under his plan would generate savings through expanded preventive care and reduce the usage of hospital emergency rooms by the uninsured. In addition to these savings, further savings would accrue as a result of patients going to see medical professionals before their condition worsened as it would if they had no or insufficient insurance coverage at all. Mr. Bodaken said his plan would call for "an essential benefits package, designed by independent medical professionals that would guarantee preventive care, physician services, hospital care and prescription drugs."

The White House originally announced that it opposed the McCain-Schumer generic drug bill that we discuss in the article " Medicare and the Cost of Prescription Drugs-Part II ", and also that it opposed the Graham-Miller Democrat's version for prescription drug coverage under Medicare. President Bush's generic drug plan however is very similar to the McCain-Schumer bill passed by the Senate earlier this year.

By a vote of 69-30 the U.S. Senate approved a measure introduced by Senator Byron Dorgan (Dem.-N.D.) that would allow the re-importation of FDA-approved drugs from Canada. The Senate then also approved an amendment by a vote of 99-0 that was introduced by Senator Thad Cochran (R. -Miss.). As we noted above however, the new Medicare and prescription drug law allows the importation of drugs from Canada only if the Secretary of Health and Human Services Thompson attests to the safety of the medication. The secretary has indicated he will not be willing to make such an attestation so it will still be illegal to import drugs, even from Canada.

Sen. Cochran's amendment would make the re-importation contingent on obtaining the certification from the HHS Secretary that it could be accomplished safely and in a manner that would provide "significant" savings for the American consumers. The present HHS Tommy Thompson has stated that he can not approve such a certification. There are more measures contained in the re-importation bill that remain to be voted on by the Senate, and we will follow up on their progress as the Senate acts.

Back in 2000 when Congress passed similar legislation it was the certification provision that prevented the then President Bill Clinton and his HHS Secretary Donna Shalala from proceeding to enforce the law. In addition the HHS Secretary Shalala was unable to get the drug labels necessary for the drugs from the drug companies. The drug companies stated that they could not provide the needed labels because they had no assurances that the drugs had not been tampered with in Canada. Please keep in mind that this provision applies only to the re-importation of drugs originally sent to Canada from the U.S.

The Senate commenced debate on a prescription drug coverage plan under Medicare on July 15, 2002. Senators Ted Kennedy of Mass., Bob Graham of Florida and Zell Miller of Georgia wrote the main Democratic plan. The main Republican bill is cosponsored by Senators Chuck Grassley of Iowa, Orrin Hatch of Utah, Olympia Snowe and Susan Collins of Maine and by the sole independent Senator in Congress James M. Jeffords of Vermont.

Under the budget blueprint adopted by Congress, $300 billion has been allocated over 10 years as the upper limit of the cost for any Medicare prescription drug coverage plan. The Democratic bill would cost $500 billion from 2004 to 2010. The Republican bill would cost $370 billion from 2005 to 2012. Thus if any bill is to be passed it would require the votes of 60 of the Senators to overcome a point of order challenge that the bill exceeds the $300 billion limit. At this point it is fair to say that no bill that is pending will be able to garner the needed 60 votes to be able to pass the point of order challenge.

Under the Democratic bill, beneficiaries would pay a premium of $25 per month. The beneficiary would also pay a $10 co-payment for each generic drug, $40 for a branded drug on the state's formulary list of preferred drugs, and $60 for a nonpreferred brand-name drug. There would not be any deductibles that a beneficiary would have to pay, and $4,000 is the maximum that any beneficiary would have to pay for drugs in a year. See our article below to see the items in the Republican plan.

On June 21, 2003 the House Committee on Energy and Commerce under the leadership of Rep. Billy Tauzin (Rep.-La.), passed a bill containing provisions for prescription drug coverage for the elderly under Medicare. Its passage came two days after similar action by the House Ways and Means Committee. These two committees share jurisdiction over Medicare. Health and Human Resources Secretary Tommy Thompson has endorsed the House Republican prescription drug plan. The full House passed the bill on June 28th. Under the bill passed in the House Medicare would pay subsidies to private insurance companies to offer prescription drug coverage.

Republican Representative John E. Sweeney from New York and 9 other House Republican members sent Speaker Hastert a letter protesting the haste in trying to get the measure passed. The terms of the proposed plan are shown below. The House Republican plan originally called for the cutting of $17 billion to hospitals over the next 10-year period of time.

The Republicans complained that the plan would finance the Medicare drug benefit, in part, by cutting Medicare payments to hospitals and other health care providers. Rep. Sweeney's letter went on to state: " New York's health care providers can no longer sustain Medicare payment reductions without cutting back on the level of care they deliver to our communities. We can see no justification for such reductions."

Representative Bill Thomas, the California Republican who is chairman of the Ways and Means Committee, said that Republican leaders had reached an agreement with the American Hospital Association and the Federation of American Hospitals that would increase hospital payments by $9 billion instead of cutting them by the $17 billion previously stated. This of course means that this money will not be available for any prescription drug coverage plan under Medicare.

Medicare payments to doctors were cut 5.4% this year and are due to be cut by 5.7% each in the next two years. Under the change proposed under the House Republican plan payments to doctors would be increased instead of being cut by 2.5% next year, 2.3% in 2004 and by 2.4% in 2005. The final version of the new bill calls for an increase of 1.5% to doctors in 2004.

The House Republican's bill also calls for the increase Medicare payments to HMO.'s by $3.5 billion over the next decade in an attempt to keep the HMO's from pulling out of private plan coverage under Medicare. Senator Max Baucus (Dem.-Mont.) stated that "the interest in prescription drug benefits is increasing but the interest in structural reform of Medicare is falling off."

As a general rule Medicare does not cover prescription drug costs incurred outside a hospital. According to some figures from the Congressional Budget Office Medicare beneficiaries will spend about $86 billion or about $2,150 per beneficiary this year for the costs they incur for their outpatient prescription drugs. Some of this cost will be picked up by their private insurance but almost one-third of the 40 million Medicare beneficiaries do not have any private insurance at all.

In our previous articles Medicare and Prescription Drug Coverage-Part I and Medicare and Prescription Drug Coverage-Part II we present all the prescription drug coverage plans under Medicare that we were aware of at the time. In this article we will present all the new proposals for prescription drug coverage under Medicare as soon as we become aware of them. Hopefully instead of rhetoric we will actually see the coverage extended to all Medicare beneficiaries. This obviously is a matter of history since the Congress has now passed a new Medicare bill but it is interesting to be able to look back and see how things evolved in this matter.

Let's start off the discussion with the differences between the Democratic Senate and Republican House proposals in Congress. Sen. Bob Graham of Fl. and Sen. Zell Miller of Geo sponsored the Democrats plan. Remember that these are just proposals so not all members of each party necessarily support the respective plans of their party.

Governor Bob Taft of Ohio announced that the state planned to contract with MemberHealth, a Cleveland-based pharmacy-benefits manage (PBM) to arrange discounts and negotiate rebates with the drug companies. Under his plan, which is called Golden Buckeye, more than 2.2 million seniors and disabled Ohioans would receive anywhere from a 15% to 70% discount on their prescription drugs.

The plan is subject to approval by the state Controlling Board. Cardholders would get between a 13% to a 20% discount off wholesale costs for most brand name drugs and up to a 50% discount on generic drugs.

Our other article that may be of interest to you in these matters is The Maine Prescription Drug Plan.


Allan Rubin
Updated January 14, 2007

To e-mail:

Return to Home