REVISIONS LIKELY FOR MEDICARE DRUG PLAN

WASHINGTON -- While this week's election is unlikely to have a significant impact on the Medicare drug benefit, lawmaker and consumer concern over retiree healthcare costs may force major changes before the program transitions from the current drug discount card program to a permanent program in January 2006.Officially known as the Medicare Part D Prescription Drug Benefit, it was created by the Medicare

WASHINGTON -- While this week's election is unlikely to have a significant impact on the Medicare drug benefit, lawmaker and consumer concern over retiree healthcare costs may force major changes before the program transitions from the current drug discount card program to a permanent program in January 2006.

Officially known as the Medicare Part D Prescription Drug Benefit, it was created by the Medicare Modernization Act of 2003. Even if the Democrats win the White House this week, that won't derail the Republican-sponsored plan because Republicans will probably remain in control of Congress, analysts said.

However, the plan's start-up date could be delayed and the scope of drugs covered in the new entitlement could be scaled back, according to sources. Meanwhile, the question of Medicare direct negotiation with manufacturers for drug prices could be reopened, and the issue of drug re-importation by individuals and retailers is in the hands of the Department of Health and Human Services, which must create a task force and report back by December.

"I see the [Part D benefit] going through regardless of who wins the election. This was one of President Bush's most hard-fought domestic victories. The Republicans have been dying to claim a stake in health care. Even if [Sen. John] Kerry were elected and wanted to put the brakes on it, the Republicans are not going to yield one inch of ground and give this back to the Democrats," said John Gorman, president and chief executive officer, Gorman Health Group, a Washington-based health care policy consultancy.

"[Part D] is very likely to proceed as legislated because the Republicans will not want to reopen the Medicare issue next year" and revisit the hotly debated and narrowly passed law, said Joseph Antos, a health care policy expert with the American Enterprise Institute, Washington.

How would Kerry approach the senior entitlement? "Kerry would like to convert the drug benefit to a traditional, uniform Medicare benefit, and generally Medicare is very generous. The problem is, he doesn't have the money. Nobody does. And he would need Republican support to pass his plan," Antos said.

"All he could do is require greater [benefit] uniformity through the regulatory process" without adding costs to the program, he said.

While the new Medicare benefit is a major government-funded entitlement, it provides for drugs to be delivered by private drug plans (PDPs), companies that would assume the risks for their costs, compete with each other for consumers, and negotiate drug prices. The PDPs -- which could be health insurers or prescription benefit management companies willing to assume risk -- must be state-licensed, risk-bearing entities before submitting bids to Medicare for plans they want to offer. Consumers will get a choice of plans.

However, the benefit's costs were revised upward by one-third to $534 billion over 10 years just two weeks after Congress passed the law. Then the Center for Medicare and Medicaid Services announced a 17.5% premium increase in 2005 in the Medicare Part B doctors' care benefit. CMS said one of the reasons for increase is to defray the costs imposed by the new drug entitlement, a trade-off that seniors' advocates have opposed.

Gorman sees two possible "wild card" scenarios in Congress: There could be a revolt by conservative Republicans. "They are saying, 'We are not getting any love from our constituents,"' who are confused by or oppose the drug benefit. "[The Republicans] were opposed to a benefit that was going to bust the budget and that is what they have got," while revenues are depleted by the Iraq war and tax cuts, and the government is running a record deficit. "I can see them saying, 'Mr. President, something has got to give,"' Gorman said.

A second scenario could unfold if Democrats gain control of the Senate this year -- "a one-in-four chance," said Gorman. "Nobody is talking about repeal. The law addresses the issue that Democrats care most about, which is coverage for the low-income who are basically provided a free, unlimited drug benefit," Gorman said. Yet Democrats might seek to extend the Medicare discount card program for another year to revisit the issue of Medicare direct negotiation for drug prices with manufacturers, which is prohibited in the current law.

"That would be a negotiation of epic proportions on behalf of 41 million of the biggest drug users in the country. The government would get much better deals [than could the PDPs]. But you risk wringing the profit out of drug manufacturers, wrecking their research and development budgets."

Seniors might yet demand changes in the voluntary benefit.

"The outpatient drug benefit will be implemented, but it could be dramatically modified, especially if seniors start revolting," said Ty Kelley, director of government relations, Food Marketing Institute, Washington.

A benefit that would cut the program's cost and impose lower out-of-pocket costs on seniors could scale back the drugs that are covered to include only chronic medications and catastrophic coverage, Kelley said.

Key issues for pharmacies in the Part D benefit remain unresolved as the CMS drafts the regulations before a final rule is published early next year.

The proposed regulations could allow PDPs to set up preferred networks that would fall short of standards for insuring consumers access to local pharmacies, National Association of Chain Drug Stores, Alexandria, Va., and FMI are arguing.

"They are allowing plans to form smaller networks than the minimum established by law," said John Coster, vice president, policy and programs, NACDS.

Smaller networks could persuade beneficiaries to use mail order when their local pharmacy of choice isn't in the PDP network, or is a network non-preferred pharmacy with higher patient cost-sharing.

While pharmacies are recognized by Medicare for the first time as providers of medication therapy management services, "plans have significant discretion in designing their MTM programs. The regulation needs to define patient eligibility, a standard package of services, and minimum payments," Coster said.

The regulation fails to prohibit differential cost-sharing for incenting patients to mail order, though Congress intended there be no co-pay incentives to use mail order, NACDS and FMI are arguing.

"The pharmacies will not win that fight. [Differential cost-sharing in retail and mail-order prescriptions] is standard business practice today for running a drug benefit," Gorman said.