Washington Matters: FTC Launches Probe of PBM Policies (Part 2)

Medicare Prescription Drug Coverage

Drug Benefit Trends
Posted 06/15/2004

By Daniel B. Moskowitz
Washington, DC-based Journalist

Curbing Activities of Card Issuers

The government warned the sponsors of Medicare-endorsed drug discount cards that "payment arrangements between discount drug sponsors and their network pharmacies in connection with education, outreach, and enrollment services may raise concerns under the anti-kickback statute." The April 8 guidance from the HHS Office of Inspector General (OIG) acknowledges that retail pharmacies can be a prime venue to communicate information about the new cards to seniors and that pharmacies will incur costs in undertaking such educational efforts. But it warns that it is "inherently suspect" to tie any reimbursement provided to the volume of bus iness or to the number of completed applications that a pharmacy generates. Noted in the guidance was that one unnamed plan had already proposed just such per-application bonus payments.

To date, the Centers for Medicare and Medicaid Services (CMS) has approved 40 private sponsors to issue Medicare drug discount cards. In addition, 43 sponsors representing 84 Medicare Advantage health plans are offering cards to the beneficiaries enrolled in the plans. Seniors sign up for the cards directly with sponsoring organizations. A total of 49 different card programs are being offered, of which 30 are available nationwide. Information is available online at " http://www.medicare.gov/ " and in print by calling 800-MEDICARE to assist seniors in selecting a card program to suit their individual circumstances. The cards are expected to provide discounts on prescription drugs of 10% to 25% for middle- to upper- income Medicare beneficiaries. Low-income Medicare beneficiaries may be eligible for a $600 annual credit.

The OIG advisory came the day after Mark B. McClellan, MD, PhD, the new head of the CMS, said his agency is looking for ways to make enrollment for the cards easier for seniors. Among options being considered: a more widespread advertising campaign; an outreach program aimed at health care professionals who work with seniors; and a plan to automatically enroll in a discount card plan everyone whose income is low enough to be eligible for the $600 annual card prepayment and who is already receiving prescription drug assistance through a state program.

CMS is also expanding its efforts to be able to respond to seniors' questions about the new prescription drug benefit. CMS has increased the number of operators for its toll-free Medicare information phone line from 380 to 1400. And by the beginning of May, the agency planned to post on its Web site comparisons of prescription drug costs offered through various discount cards.

South Carolina Reconsiders Formulary Exemptions

South Carolina lawmakers may include more categories of drugs in the state's program of encouraging Medicaid recipients to select preferred drugs. Under a policy adopted last year, a panel of physicians pick what the physicians agree is the best drug in each therapeutic category. Other drugs can win a place on the formulary, but only by giving the state discounts in return for inclusion. Physicians can still prescribe nonformulary drugs for their Medicaid patients but only with prior approval.

Currently, the formulary does not cover medications for cancer, asthma, or diabetes, leaving physicians free to select any drugs they deem appropriate for those conditions. And those exemptions are costing South Carolina as much as $8 million a year, SC HHS Director Robert Kerr testified on April 7. The exemptions for those drug categories will expire this year, and Kerr's testimony kicked off a fight to let them die. The pharmaceutical industry is split on the issue. Having a company's drug picked as the preferred drug on the formulary can boost sales, but not being selected also means lower profits because of the required rebates.

Michigan Medicaid Formulary Okayed by Appellate Court

The pharmaceutical industry has been fighting the growing movement among states to introduce a formulary as part of the pharmacy benefit in state Medicaid programs that makes it tougher for beneficiaries to get higher-priced brand-name medications. On April 2, the US Court of Appeals in Washington, DC, strongly endorsed the use of formularies. The ruling tossed out objections that the Pharmaceutical Research and Manufacturers of America (PhRMA) had raised to the Michigan Medicaid program. The court's decision seems applicable to similar programs in place in 25 other states as well. Ten additional states have passed laws calling for institution of a formulary in the Medicaid program, but these laws have not yet been implemented.

The Michigan Medicaid program has previously withstood PhRMA litigation in Michigan state courts and in the US District Court in Washington. PhRMA, claiming that imposing a formulary that would limit medication choices for the indigent population runs counter to the aims of Medicaid, is now considering whether to take the issue to the US Supreme Court.

The Michigan approach divides all drugs into 40 therapeutic categories and selects the least expensive drug in each category to be placed on the formulary. Other drugs in the same category can be added to the formulary but only if their manufacturers offer the states rebates that will lower the price to that of the least expensive drug. The Michigan Department of Community Health says that the formulary has saved the state around $40 million a year since it was implemented in 2002 and slowed the average annual increase in Medicaid prescription drug costs from 11% to 4.2%.

Key to the judges' okaying the formulary is a provision requiring that prescriptions for off-formulary drugs be filled as long as the prescribing physician phones the state's PBM and explains his or her reasons for rejecting the preferred medication. "The available data confirm that in practice the prior authorization requirement has proved neither burdensome nor overly time-consuming," said Judge Karen LeCraft Henderson.

South Dakota: PBMs Must Disclose Rebates

As of July 1, South Dakota health plans that contract with PBMs for their drug benefit will have a chance to learn the details of their PBMs' financial arrangements with pharmaceutical companies and drug repackagers. Under a new law–opposed by the Pharmaceutical Care Management Association (representing PBMs) but easily passed by both houses of the state legislature–PBMs will have to respond to plan requests for information, such as the amount of rebates and utilization discounts they get from specific suppliers and the nature and amount of any other revenue they receive. Plans will also have the right to audit the PBMs with which they deal on an annual basis. The idea, according to Gov Mike Rounds, who requested the statute, is that customers of PBMs (including the state) cannot bargain effectively for their drug contracts without knowing how much is being paid in rebates.

Drug Benefit Trends 16(5):236-239, 2004.

 © 2004 Cliggott Publishing, Division of CMP Healthcare Media
Copyright © 1994-2004 by Medscape.

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