The Prescription Drug Benefit: Boon or Boondoggle?

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The Prescription Drug Benefit: Boon or Boondoggle?

 

There is no doubt that prescription drug costs are rising out of control and

that the problem hits senior citizens hardest of all. Congress is trying to

respond to the problem by offering a prescription drug benefit to Americans

eligible for Medicare. On the surface, this approach seems logical enough.

Besides, government-administered programs such as Medicaid, which is paid for by

the states, already reimburse the costs of nearly 22% of all prescriptions

written in the United States. Indeed, Medicaid now accounts for around 20% of

state spending, and prescription drug costs account for 20% of all Medicaid

outlays. So, the precedent already exists. Indeed, a significant proportion of

Medicaid beneficiaries are low-income senior citizens. It would appear, at least

at first glance, that Congress is doing its job responding to a public need.

But, as is usually the case in Washington, there is more to whats going on than

meets the eye.

The real question is whether the Medicare drug benefit is going to be a boon for

seniors, or just one more boondoggle.

 

BY KATHLEEN B. DEOUL

 

There is no doubt that prescription drug costs are rising out of control and

that the problem hits senior citizens hardest of all. In 2002, Americans spent

almost $175 billion on outpatient prescription drugs, an increase of 13.2% over

2001. Even as health care costs rose by an average of 7% over the past decade,

prescription drug costs increased an average of 12%! There is little doubt that

they are a major factor driving this growing burden. Today, spending on health

care accounts for 13% of Gross National Product, and the percentage continues to

rise. Until health care costs are brought under control, however, there is a

more immediate need to provide relief to the millions of senior citizens who too

often face the painful dilemma of choosing between food and medicine. To put

their problem in perspective, in 1965, the average senior citizen spent around

$65 a year on prescription drugs. In 2002, that figure had increased to $2,149 -

35 times as much as in 1965!

 

Congress is trying to respond to the problem by offering a prescription drug

benefit to Americans eligible for Medicare. On the surface, this approach seems

logical enough. Besides, government-administered programs such as Medicaid,

which is paid for by the states, already reimburse the costs of nearly 22% of

all prescriptions written in the United States. Indeed, Medicaid now accounts

for around 20% of state spending, and prescription drug costs account for 20% of

all Medicaid outlays. So, the precedent already exists. Indeed, a significant

proportion of Medicaid beneficiaries are low-income senior citizens.

 

It would appear, at least at first glance, that Congress is doing its job -

responding to a public need. But, as is usually the case in Washington, there is

more to what's going on than meets the eye.

 

The real question is whether the Medicare drug benefit is going to be a boon for

seniors, or just one more boondoggle.

 

There are several competing plans for the drug benefit, but the most likely one

is expected to cost $400 billion over the next ten years or $40 billion

annually. If a somewhat more generous program is adopted that figure could rise

to as much as $66 billion a year! Moreover, even if the lower figure is

initially adopted, the history of federal benefit programs suggests that $40

billion a year is just the beginning. Of course, if the program guarantees good

health to senior citizens, it would be well worth it - the only trouble is it

probably won't, because, like the rest of our health care system, its focus is

on treatment after you get sick instead of keeping you well in the first place!

 

Although it seems nonsensical, while the plan would pay hundreds of dollars for

drugs to treat conditions, it will not pay for preventative measures or for

cheaper, natural alternatives.

 

For example, it will pay almost $70 for 30 tablets of Fosomax, a drug used to

treat osteoporosis, but not the $3.12 for a bottle of calcium tablets to prevent

it. It will pay $174 for a bottle of 50 Vioxx tablets, to treat arthritis pain,

but not $12 for a bottle of 60 glucosamine and chondroitin tablets that are as

effective and have fewer side effects. It will pay almost $240 for a month's

supply of Prilosec to treat peptic ulcers, but not $13 for a month's supply of

L-glutamine to prevent them. It will pay anywhere from $800 to $1,400 for six

vials of Procrit to treat anemia, but not a few dollars for an iron tablet and

some Dong Quai to help keep anemia from developing in the first place.

 

And why is it that safe, natural remedies - even ones like glucosamine and

chondroitin that have substantial clinical evidence of effectiveness - are

excluded from the various benefit schemes? The reason is that there is more at

stake in their exclusion than simple cost. It would be a tacit acknowledgement

of the fact that safe natural alternatives to expensive prescription drugs exist

- and that's something " Big Pharma " and its allies in the medical establishment

and government are not about to let happen. If it did, their whole approach to

medicine - treatment after the fact rather than prevention - would be called

into question, and with it their control over health care in the United States!

 

But it's not just that the focus will be on treatment after the fact rather than

prevention that is a problem in the current approach to a prescription drug

benefit. It is also what the government is likely to pay for the drugs in the

first place.

 

There is no doubt that many drugs are beneficial and have their place in medical

care. Prevention does not always succeed and there is not always a natural

alternative that is as effective as available pharmaceutical options. But that

does not mean that a prescription drug benefit plan should not seek the lowest

possible price when pharmaceutical products are the only alternative.

 

You would think that with its enormous buying power, the federal government

could negotiate substantial discounts on the prices they pay for drugs. Other

institutions with significant buying power such as health maintenance

organizations, retailers like K-Mart and major drugstore chains routinely engage

in such negotiations to reduce their costs and improve profitability. Federal

reimbursements would be hundreds or even thousands of times larger than the

purchases made by the largest HMO, retailer or drugstore chain, so you would

think its leverage would be that much greater. That assumes, though that the

institution was willing to use its market clout. Apparently, the federal

government isn't!

 

Anyone who has dealt with the federal government in a commercial transaction can

tell you how convoluted the government's purchasing rules can be. Although the

rules and stringent specifications that normally accompany a federal contract

are intended to protect the public, they can also be manipulated by the

unscrupulous to gain an unfair profit or advantage. This is exactly what is

happening in the case of prescription drugs, and what may cause the cost of any

drug benefit to spiral out of control.

 

The way it works is this.

 

Commercial firms are supposed to give the federal government the best price they

offer to any of their customers. Defining just what this is can be difficult. In

the case of prescription drugs, this is accomplished through something called

the " Average Wholesale Price " or AWP. It is supposed to reflect the average

price at which the company sells its drugs to its customers. That's fair isn't

it?

 

Well, not really.

 

You see since the AWP includes all sales, it does not accurately reflect the

discounts that are given to large purchasers. The simple fact is that K-Mart or

Costco do not pay the same wholesale price that a single, independently owned

drugstore in a small town would. But the wholesale price to such small retailers

is included in the calculation used to establish the AWP. As a result the AWP

ends up significantly above the LOWEST price the drugs are sold for. The abuse

of AWP pricing has become so severe that in 2002 the States of Nevada and

Montana sued 18 drug manufacturers to obtain a refund on charges for drugs paid

for by Medicaid. In the press release issued at the time the lawsuit was filed,

Montana Attorney General Mike McGrath said:

 

" Montana taxpayers are being cheated out of millions of dollars … and it is

especially troubling that Medicaid and Medicare consumers - often senior

citizens - are the hardest hit by this deception. "

 

McGrath noted that since individual consumers are required to make a 20%

co-payment based on the AWP. If that price is inflated, then their co-payment is

correspondingly higher - and the amount of the overcharge is often significant.

 

In an exhibit accompanying legal documents filed in the suit, a chart listed the

amount of the 20% co-payment required of consumers - which is based on the AWP -

and the REAL wholesale cost of the drug. In instance after instance, the

co-payment was often more - sometimes substantially more - than the ACTUAL

wholesale cost. So the low-income consumer was actually paying what should be

the full price, and with the drug company pocketing the state's reimbursement as

pure profit!

 

Take, for example, Leucovorin, which is used in conjunction with the

chemotherapy drug Methotrexate to counteract some of its side effects. The

wholesale price of Leucovorin is $1.48 per 50mg dose. The price charged to

Medicare on the basis of the AWP, however is $19.50 so that the consumer has a

$3.90 co-payment for each dose. The co-payment is more than twice the wholesale

price!

 

The price gouging for the chemotherapy drug Etoposide is even worse. The

wholesale price for a 100mg dose of Etoposide is $7.50. The allowable

reimbursement under Medicare, however, is $129.34 per dose. Therefore the

consumer is required to make a co-payment of $25.87 - almost three and a half

times the wholesale price!

 

The magnitude of the problem cannot be overstated. One study estimated that if

the federal government were more aggressive in its price negotiations, it could

reduce outlays for Medicaid and Medicare prescriptions by at least one-third! If

in administering a prescription drug benefit, the government allows the same

sort of abuse to occur, costs could skyrocket and ultimately much of the burden

could fall on the seniors who it was supposed to help!

 

As currently designed, and including the monthly charge for the benefit and

co-payments, under the drug benefit plan proposed by the House of

Representatives, beneficiaries would be liable for up to $4,220 per year for

prescription drugs. Under the Senate's version, they would be liable for up to

$4,300 annually. But both of those figures assume that neither the deductible

nor the co-payment is increased. If the recent experience with private insurance

is any measure however, it is highly unlikely that the co-payments will stay

where they are.

 

Across the nation, private health care plans and HMOs have doubled, and even

tripled the amount of co-payment beneficiaries must make for prescriptions.

Also, where it was once common for the co-payment to be a set amount - say, $10

for less costly drugs and up to $60 for more expensive ones - insurers are

increasingly requiring beneficiaries to pay a set percentage of the price. In

some instances, this can be as much as half!

 

Another current trend among private insurers is to require prior authorization

from a doctor before a patient can be reimbursed for the cost of certain

medications. Since both of the proposed Medicare drug benefits are modeled after

similar private sector plans, if drug costs begin to rise sharply - as is almost

certain - similar cost cutting measures could be put in place increasing the

burden on seniors even as drug companies are fattening their bottom line!

 

But there is a third problem with the proposed Medicare drug benefit as well.

Currently, only about 27% of senior citizens do not have some form of

prescription drug plan. About 33% retain benefits from employer-sponsored

insurance they had while working. Another 15% have a drug benefit through

membership in a Medicare Risk HMO. About 12% are covered through Medicaid and

10% through individually purchased insurance. Roughly 3% have coverage through

other, unspecified programs.

 

The trouble is that if the Medicare drug benefit is passed in its current form,

many individuals covered through employer-sponsored programs may lose their

coverage. It would be all too tempting for employers seeking to reduce health

care costs to argue that benefits under their private plans are not needed

because Medicare is providing coverage. Employer-sponsored plans, however, are

often more generous than the proposed benefit, so the seniors would actually see

an increase in their prescription drug costs. Since there is little the federal

government can do to prevent such a move, it may be the seniors who lose in the

end.

 

So what to do?

 

First of all, the program should place a premium on prevention. It should

reimburse 100% of the cost of products, including vitamins, minerals and herbs

that can help keep people well. Keeping people healthy is always cheaper than

treating them after they get sick! Moreover, their quality of life is improved

as well, so there is a double benefit from this approach.

 

Second, there should also be an incentive for physicians to " look outside the

box. " Most doctors do not stop to consider whether there is a natural

alternative to the pharmaceutical products they are prescribing, or whether some

older product might be just as effective, or even more effective than its newer,

more expensive counterpart.

 

For instance, it is now evident that aspirin and vitamin E can be as beneficial

in preventing blood clots for some individuals as drugs commonly prescribed for

this purpose. Doctors should be encouraged to try these remedies first. Where

blood thinner is required, recent studies have shown that Warfarin (the generic

version of Coumadin) is as effective or more effective than other far more

costly alternatives and has fewer side effects to boot!

 

Third, the government should use its clout to force manufactures to offer the

ACTUAL lowest price to the Medicare program, not some fictional Average

Wholesale Price that is merely a way to inflate " Big Pharma's " already bloated

profits! There should also be stiff penalties for companies that attempt to

manipulate pricing schedules to reap a windfall at the taxpayer's expense.

 

Fourth, the government should build on the Bush Administration's just-announced

reforms related to generic drugs. In limiting the number of lawsuits that can be

filed to block a generic drug from entering the market and eliminating the

ability to challenge generics on frivolous grounds, significant progress has

been accomplished in making lower-cost drugs available to consumers. But more

must be done. In particular, there should be a prohibition of " Big Pharma's "

practice of filing frivolous patents simply to keep cheaper generic drugs from

competing with their brands. This would greatly increase the number of generic

drugs available under any proposed benefit program.

 

Finally, consideration should be given to lowering the " catastrophic " cap after

which the program will pay the full cost of all drugs - at least for

moderate-income seniors that lack some form of other prescription drug coverage.

This is the group that suffers the greatest economic impact when faced with huge

drug bills. They make too much money to qualify for Medicaid and can quickly see

their life savings wiped out by a major illness. Many of the people in this

group were small business owners or worked for companies that did not offer

continuing health benefits to retirees. It is unconscionable that the nation

should allow them to be impoverished merely to satisfy the rapacious greed of

" Big Pharma. "

 

If these measures were included in a Medicare prescription drug benefit plan, it

could prove to be a real boon for seniors. If not, it may just turn into another

Washington boondoggle.