Medicare Drug Coverage Under Fire

Enough Republicans sided with Democrats last month to approve legislation canceling a scheduled 10.6% cut in Medicare fees for physicians. In doing so, the legislators tacked on dozens of provisions pleasing to beneficiaries and providers alike. The Medicare Improvements Act expands coverage of preventive services, cuts some co-payments and coverage caps, increases assistance for low-income seniors and boosts support for hospitals and providers in rural areas. There are goodies for speech pathologists, ambulance services, clinical labs, community health centers, and others.

Biopharmaceutical companies have their share of gains and losses. One low-profile item prevents the Centers for Medicare and Medicaid Services (CMS) from imposing stricter payment caps on radiopharmaceuticals. The policy benefits Cell Therapeutics and GlaxoSmithKline and provides time for manufacturers to work with CMS on a new reimbursement scheme.

But therapies used in dialysis services for patients with kidney failure face a new bundled payment system. One rate will cover the cost of drugs, laboratory tests, and other services for end-stage renal disease treatment, largely to prevent overuse of medicines and other products.

Generic makers joined pharmacists and pharmacy benefit managers (PBMs) in applauding a delay in adopting an average manufacturer price reimbursement formula for Medicaid programs. The AMP system would cut have cut pharmacy reimbursement for dispensing generic drugs, but the delay now gives everyone a year to devise a more equitable system.

Challenges for Part D

One more controversial measure could expand the number of “protected” drug classes that have to be included on all Part D plan formularies. CMS requires plans to reimburse for “all or substantially all” drugs in six protected classes (antipsychotics, antidepressants, antiretrovirals, immunosuppressants, anticonvulsants, and antineoplastics). The new legislation codifies the existing protections, reducing the likelihood that CMS might soften the requirement some day. The bill also establishes a process for extending protected status to additional medications where formulary exclusion could have “major or life threatening clinical consequences.”

The White House blasted the policy, warning that expansion of protected classes would “effectively end meaningful price negotiations” between drug plans and manufacturers and ultimately increase program costs and beneficiary premiums. PBMs and drug plan sponsors also opposed the change, while Democrats and patient advocacy groups praised it as a way to ensure coverage of important medicines for seniors. Pharmaceutical companies say they sat this one out, but have pressed for protected classes in the past and clearly stand to gain from stiffer coverage requirements.

This could be a short-sighted attitude if curbs on price negotiating erodes private plan participation in Part D. That’s just what some Democratic leaders in Congress would like to see. At the CBI health policy conference in July, Rep. Henry Waxman (D-CA) described Part D as “a serious mistake that is not working well.” Sure, seniors are happy because they didn’t have any drug coverage at all before, Waxman said. But he complained that beneficiaries can’t shop around for the best plan because they don’t know which drugs are covered, and co-pays and premiums vary from year to year. He wants drug coverage to be part of regular Medicare benefits and is mapping strategies to engineer such a change.

PBMs also may become less enthusiastic about Part D due to new pharmacy-backed provisions that they say will be costly and difficult to implement. A “prompt pay” measure requires Part D plans to reimburse pharmacies within 14 days and to update drug pricing standards weekly.

Stopgap changes

The Bush administration also complained about an item in the bill that blocks a new competitive bidding program designed to reduce Medicare outlays for durable medical equipment. A new CMS pilot program was supposed to establish an alternative system for supplying and paying for wheelchairs and prosthetics, but providers and equipment makers argued successfully that the contemplated system was unfair and inappropriate.

Such lobbying tactics are one reason that the Medicare bill fails to implement any real cost-cutting or quality improvement programs. Doctors, providers, and suppliers got higher rates and softer rules, largely by squeezing payments for private insurers offering Medicare Advantage plans.

One provision in the bill encourages electronic prescribing by physicians in three years as an initial step towards more efficient electronic health information systems. And another measure offers bonuses to physicians who expand reporting on quality care.

But there’s little effort to replace Medicare’s outmoded and inefficient payment system for doctors and other providers with a value-based approach. In fact, the legislation calls for a 20% cut in physician fees in 2010, setting the stage for another heated battle over Medicare rates and regulations.