The drug discount card will it cut drug prices for seniors? Medicare's drug discount cards promise savings on prescriptions. Will they deliver?

Healthcare Financial Management, July, 2004 by Paul L. Grimaldi

AT A GLANCE

Medicare's drug discount card program is expected to help participants save an average of 10 to 15 percent on the cost of outpatient prescription drugs. Many of the beneficiaries signing up for the program will also qualify for financial assistance. In 2006, the program will be replaced by Medicare's outpatient drug benefit. Data from the card program should help federal actuaries estimate the cost of the drug benefit.

Prescription drug spending ballooned 15.3 percent in 2002, down slightly from a 15.9 percent hike in 2001, according to CMS. Total spending for prescription drugs in 2002 was $162.4 billion. Paying for prescription drugs can take a big bite out of income, especially if you're a retiree over age 65 and without drug insurance.

Medicare's new drug discount card program enables eligible beneficiaries to obtain discounts on prices of outpatient drugs. The program covers all FDA-approved drugs for medically accepted indications and biological products that meet certain conditions, as well as medical supplies to inject insulin. Not covered are nonprescription drugs, barbiturates, agents used For anorexia or to promote fertility, and certain other items.

Eligible beneficiaries began enrolling in the program in May and using their cards at participating pharmacies in June. Participating retail and mail order pharmacies belong to networks established by Medicare approved sponsors. A small number of the participating pharmacies may be affiliated with hospitals, health systems, or medical practice plans.

Prices Down, Utilization Up?

Medicare's card program is expected to trim drug prices for carded beneficiaries, perhaps 10 or 15 percent on average. Thus, a beneficiary who otherwise would have had an annual d rug bill of $1,500 might save $150 to $225, or about five to eight times the annual enrollment fee of $30 (see below). However, a beneficiary who reaps better discounts through another card program might realize no financial benefit by signing up for a Medicare card.

Medicare's card program is expected to slice drug prices as approved sponsors and participating pharmacies compete for Medicare's business. Lower prices, coupled with transitional assistance, will likely increase the volume of drugs dispensed, and may slier the drug mix as well. Transitional assistance should mean fewer prescriptions filled at subsidized prices or not paid at all. All else being equal, participating pharmacies will see revenue from outpatient drugs decrease if prices decrease faster than volume increases and vice versa. Reduced revenue may mean some higher drug prices for non-Medicare customers. D rug prices may also rise if drug manufacturers try to counter anticipated price discounts.

Nonparticipating pharmacies will likely lose Medicare business if their drug prices are not competitive. For participating outpatient pharmacies affiliated with hospitals, health systems, or medical practice plans, any reduction in drug revenue will likely be small compared with total outpatient revenue.

Among the financial winners will be many of the 20 states with large programs that provide drug benefits to low-income Medicare beneficiaries who do not qualify for Medicaid benefits. These states may save the full transitional assistance amount for many of these individuals, thus freeing up money for other programs or pushing tax increases down.

Let's look at what the Medicare discount card program means for beneficiaries, providers, and drug costs.

Most Beneficiaries Qualify for a Card

Any Medicare beneficiary (Part A and/or Part B coverage) who is not enrolled to receive Medicaid outpatient drug benefits may enroll in the pro gram. Lower-income Medicare beneficiaries may also qualify for "transitional (or financial) assistance" to help defray prescription costs if they:

* Reside in one of the 50 states or the District of Columbia

* Have income that does not exceed 135 percent of the poverty line applicable to their family size--currently the threshold is $12,569 for single individuals and $16,862 for married individuals (income includes retirement benefits from Social Security, railroad, the federal government, or other sources, and benefits for a disability or as a veteran, plus any other income reported for tax purposes)

* Do not have coverage for covered discount card drugs under TRICARE, a Federal Employees Health Benefits Program, or a group health plan or health insurance coverage, excluding a Medicare Part C plan or a group health plan or insurance coverage consisting solely of excepted benefits, such as a Medigap plan

* Complete and submit the required enrollment form

Computer-savvy beneficiaries can determine their eligibility for transitional assistance on the Medicare web site (www.medicare.gov/maddc/ home.asp). The transitional assistance is $600 in 2004; it also will he $600 in 2005 for beneficiaries who apply no later than March 31, 2005, but thereafter it will decrease $150 a quarter. Transitional assistance may be used to purchase only covered outpatient drugs that are available at a participating pharmacy. CMS predicts that about 4.7 million of the 7.3 million beneficiaries who are expected to enroll in the new program will also qualify for transitional assistance.