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Printed Hearing The Committee on Energy and Commerce W.J. "Billy" Tauzin, Chairman Designing a Twenty-First Century Medicare Prescription Drug Benefit.
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[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
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DESIGNING A TWENTY-FIRST CENTURY MEDICARE PRESCRIPTION DRUG BENEFIT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 8, 2003
__________
Serial No. 108-25
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
87-481 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan Ranking Member
JAMES C. GREENWOOD, Pennsylvania HENRY A. WAXMAN, California
NATHAN DEAL, Georgia RALPH M. HALL, Texas
RICHARD BURR, North Carolina EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
Vice Chairman BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico GENE GREEN, Texas
JOHN B. SHADEGG, Arizona TED STRICKLAND, Ohio
CHARLES W. ``CHIP'' PICKERING, LOIS CAPPS, California
Mississippi BART GORDON, Tennessee
STEVE BUYER, Indiana DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania CHRISTOPHER JOHN, Louisiana
ERNIE FLETCHER, Kentucky JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey (Ex Officio)
MIKE ROGERS, Michigan
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Crippen, Dan, former Director, Congressional Budget Office... 11
Feldman, Roger, Professor of Health Services Research/Policy,
University of Minnesota.................................... 16
Herman, David, Executive Director, Seniors Coalition......... 22
Olsen, Erik, AARP............................................ 34
Vladek, Bruce D., Professor, Health Policy and Geriatrics,
Mt. Sinai University....................................... 28
Material submitted for the record by:
Alliance to Improve Medicare, prepared statement of.......... 66
American Health Quality Association, prepared statement of... 67
Center on Budget and Policy Priorities, white paper.......... 73
Long Term Care Pharmacy Alliance, letter dated April 7, 2003.
1000.....................................................
(iii)
DESIGNING A TWENTY-FIRST CENTURY MEDICARE PRESCRIPTION DRUG BENEFIT
----------
TUESDAY, APRIL 8, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2123 Rayburn House Office Building, Hon. Michael Bilirakis
(chairman) presiding.
Members present: Representatives Bilirakis, Barton, Upton,
Deal, Burr, Whitfield, Norwood, Wilson, Shadegg, Buyer,
Ferguson, Rogers, Brown, Waxman, Pallone, Green, Strickland,
Capps, DeGette, and Dingell (ex officio).
Also present: Representative Allen.
Staff present: Chuck Clapton, majority counsel; Steve
Tilton, majority health policy coordinator; Patrick Morrisey,
majority deputy staff director; Eugenia Edwards, legislative
clerk; Bridgett Taylor, minority professional staff; Amy Hall,
minority professional staff; Karen Folk, minority professional
staff; and Nicole Kenner, staff assistant.
Mr. Bilirakis. The hearing will come to order.
As per new rules of the House, any members who are here at
the time of the gathering will have the opportunity and,
hopefully, to waive their opening statements so we can get
right into the witnesses, have that additional 3 minutes at the
time of inquiry. Mr. Brown and I will have 5 minutes under the
rules for an opening statement.
I call to order this hearing of the Health Subcommittee.
I'd like to, on behalf of myself and other members of the
subcommittee, thank our witnesses for taking the time to appear
before us today, and I am sure, and certainly hopeful, your
testimony will prove valuable, as we consider the challenges
inherent in designing an affordable Medicare prescription drug
benefit.
The Energy and Commerce Committee, and, particularly, this
Health Subcommittee, has held numerous hearings on the need for
a Medicare prescription drug benefit over the last few
Congresses. I'm sure that with each of these hearings we all
have taken away a particular point of view, but the one thing
I'm sure we can agree on is that while prescription drugs have
improved the lives of many beneficiaries there are still too
many without prescription drug coverage. Given the fact that we
all know about the problem, and I'd like to think by now we all
know about the problem, need not really hear too much more
about the problem, we must find a way to help Medicare
beneficiaries. However, I continue to maintain that we must do
so in a manner that protects and strengthens Medicare.
While today's hearing will focus on strengthening and
improving Medicare, we cannot design a benefit in a vacuum. We
have to consider the impact that a new benefit will have in the
long-term viability of Medicare.
We also must ensure that a new benefit does not discourage
competition and the innovation that is the hallmark of the
healthcare industry and the practice of medicine. I've always
said that doctors and the medical industry are the magicians of
our society, and we must construct policies that support the
development of this wizardry.
In this context, as we do now under Medicare, we should
continue to provide Medicare beneficiaries choices so they can
select a program that best meets their needs.
Last, I want to make it clear, though, that while we have
spent the past several years debating this issue, millions of
Medicare beneficiaries have suffered from a lack of
prescription drug coverage. I introduced legislation back in
1999 that would have provided immediate assistance to our
poorest and sickest seniors. I never intended, and said so many
times, for my bill to be a permanent solution, however, I did
not have a lot of faith that we would be able to quickly work
through this issue. Unfortunately, my fears were justified, and
even though the House has passed comprehensive benefits in the
past two Congresses some Medicare beneficiaries still don't
have access to prescription drug benefits, and it's my hope
that this changes in this Congress.
I'd like to again offer a warm welcome to all of our
panelists and thank them for joining us today, and now I
recognize Mr. Brown for an opening statement.
Mr. Brown. Thank you, Mr. Chairman, and thank you all, you
witnesses, for coming today.
The question you are being asked to consider is whether it
would be better for seniors to get their drug coverage through
traditional Medicare or through private drug plans. It seems
like a silly question. Why would you force seniors and the
disabled to buy one health benefit from a private company while
receiving the rest of their coverage through Medicare Fee-for-
service? The answer is, you wouldn't. The private drug plan
approach is laughable in its right.
It all makes sense if goals other than fulfilling an unmet
coverage need are being served. Proponents of private plans
have been relatively forthcoming about some of these in the
goals, less forthcoming about others. If pressed, they'll admit
that private drug coverage is intended as an interim step
leading to full Medicare privatization. They are less willing
to acknowledge that Medicare privatization is itself a means to
an end. Replacing traditional Medicare with a premium voucher
is the easiest way to transform the program from a defined
benefit to a defined contribution ending Medicare entitlement,
ending Medicare as we know it.
Instead of acknowledging that ideology, the government
programs always are bad, entitlements are bad, rather than
acknowledging that ideology is driving the Medicare
privatization campaign proponents attempt to sell privatization
on its own merits. I don't envy them that task.
It's difficult to justify dismantling a popular, reliable,
cost-efficient public insurance program, so the Medicare
beneficiaries can once again experience the pre-1965
uncertainty and volatility in the individual insurance market.
Proponents tend to rely on vague assertions like the
President's, Medicare should provide better help for its
options like those available to all Federal employees. What
does that mean exactly, traditional Medicare is more reliable
and offers more choices than private health plans.
Beneficiaries don't have to worry about disappearing coverage,
their premiums and their cost sharing don't vary by county to
county, by year to year, they can see the doctor and the
specialist they trust, they can use the health care facility
that best meets their needs.
Proponents of privatization say we need more choice, and
Medicare Fee-for-service gives the ultimate choice. Medicare
operates more efficiently than the private sector. For the past
30 years, Medicare has outperformed private insurance, even
adjusting for coverage differences. Administrative costs have
always been lower.
Perhaps, what the President actual means is that seniors
and the disabled deserve better benefits, like those available
through employer-sponsored coverage. That's certainly true, but
neither the President, nor Republican leadership here, has
proposed spending anywhere near the amount necessary to provide
seniors drugs or preventive benefits comparable to those
available in private health plans. Apparently, seniors deserve
more options, just not any good ones.
Besides giving seniors better options, proponents say the
private plan approach is a way of fending off prescription drug
price controls. Just to clarify, the price a public purchaser
like Medicare demands is a Draconian price control, the price a
private purchaser, like an HMO, demands, is an all American
discounted price per figure.
According to private plan proponents, Medicare price
controls would jeopardize the drug industry's ability to
conduct life-saving research and development. I think we all
lose sleep at night worrying that the industry's high profits
could plummet from obscenely high to unbelievably high. Yet,
the proponents claim that private plans would secure lower drug
prices for seniors than would the old tired Medicare program.
Private drug plans would be better at controlling drug costs
than traditional Medicare, they tell us, but the drug
industry's future is in jeopardy if we go to traditional
Medicare rather than through private plans. Clearly, something
is wrong with this picture.
The President and the Congress, Mr. Chairman, should be
concerned, in fact, should be concerned about the impact of
Medicare prescription drug coverage on the industry that
produces the drug. We also must be concerned about the impact
on the Federal budget, not to mention the consequences for
consumers and other purchasers if we do not confront spiraling
prescription drug costs. We should bring these competing
concerns out in the open and weigh them in a thoughtful manner.
So far, however, proponents of the private plan approach
have denied that this approach promotes a status quo when it
comes to drug pricing. The most dangerous thing about the
better option and lower prices rhetoric, upon which proponents
of private plans rely, is that it obfuscates privatization's
real goals and implications.
If the President and the majority want to end the Medicare
entitlement, if they want to reduce Federal spending on
Medicare by shifting costs to the beneficiary, they want to
take a laissez-fare approach to drug prices, do nothing to
constrain prices, they should be up front about it. The
President and the majority think seniors deserve better
options, I think they deserve the truth.
Mr. Chairman, I yield back my time. Thank you.
Mr. Bilirakis. Mr. Whitfield, do you have an opening
statement?
Mr. Whitfield. Mr. Chairman, I'm going to waive my opening
statement.
Mr. Bilirakis. Mr. Dingell, opening statement?
Mr. Dingell. Mr. Chairman, thank you.
I commend you, Mr. Chairman, for holding this hearing, and
I appreciate your courtesy to me and recognizing me.
Mr. Chairman, this is on a very important subject that we
meet today, providing a prescription drug benefit for Medicare
beneficiaries.
I want to thank our witnesses for being present today,
especially Mr. Vladeck, who is not yet here, but for whom I
have immense respect and high regard.
The Congress has spent a number of years debating how to
add prescription drug benefits to Medicare. Everyone agrees we
need to act, but there's a fundamental difference over how it
is to be done. The gulf is not just over the stewardship of a
prescription pharmaceutical program, but also over the
stewardship of Medicare itself.
The issue at hand today is what role the government and the
private sector should play in the delivery of prescription
pharmaceutical benefits, and more broadly, in the Medicare
program. I am very much concerned about the measure of the
marketplace approaches taken by President Bush and my
colleagues in the House amongst the Republicans, and what they
would foist upon Medicare and Medicare recipients. We've made
several forays into this area, and have found that we had some
very significant hardships inflicted, and some very, very
severe failures that we have undergone because of these
efforts.
We often hear how the private sector is more efficient than
Medicare, and, therefore, we should turn our seniors'
healthcare over to private companies. History I think tells us
very different, and I think that the seniors also tell us quite
different.
I question whether the private sector is more efficient,
and there are other concerns aside from efficiency that we
should have at the forefront when thinking about Medicare--
quality, equity, stability and compassion--something that
private companies are not always in the business of providing.
I would note that excesses of the HMOs have been, quite
frankly, recognizable best as not infrequently stupidity, and
crass disregard of the well-being of their beneficiaries, or
not infrequently just plain cold-hearted, flinty-eyed
indifference to the needs of their patients, and abandoning
hundreds of thousands of senior citizens who were silly enough
to believe the promises that were made by the HMOs, which got
them in in the first place and out of regular Medicare.
I think it's not at all clear that private companies then
are more efficient than Medicare. Even after adjusting for the
coverage of comparable services, Medicare cost containment has
been better than that of private insurance over the past 30
years. The record is very irrefutable. And, current evidence
suggests that neither managed care nor competition are likely
on their own to generate sufficient savings through efficiency
to address the baby boom's coming retirement and the demands
created by the growth in technology. And I think we better look
at some of these claims, because they seem to have about the
same reality as Alice in Wonderland.
If we want to reshuffle the future economic burden posed by
demography, we should have a meaningful discussion on that very
point. Those who do not agree we should honor our commitment to
provide comprehensive affordable healthcare to our elderly and
disabled should come forward and say so honestly, not engage in
rather shabby misstatement of what they really intend, but come
right flat out and tell us, this is what we want to do to the
senior citizens. Those who believe this should then say it, and
we should discuss how the elderly and disabled will meet their
healthcare needs, and how their families, and especially their
kids, are going to choose between taking care of their own kids
and taking care of the needs of their parents.
But, people should not hide their true intentions under the
guise of buzz words like competition and choice, because there
are some simple yardsticks, how much does it cost and how much
benefits can actually be delivered on an actuarially sound
basis. These will tell us a lot more things than a lot of the
pie in the sky that we are hearing on these matters.
These words are not infrequently, in fact, most commonly
meant as euphemisms for limiting government assistance,
shifting more costs onto seniors by forcing them into private
insurance plans, and leaving plans that make key decisions
about the seniors' coverage and out-of-pocket costs.
I would mention that the administration's plan for Medicare
recipients is quite frankly, simply, to herd them all,
reluctantly and involuntary into something called HMOs.
In any event, Mr. Chairman, I look forward to the hearing
that you are going to have. I thank you for recognizing me, and
I think we have a fine chance to explore what we are about to
do today if we can get the truth out of the administration on
these matters.
Mr. Bilirakis. The Chair thanks the gentlemen.
Ms. Wilson, for an opening statement?
Ms. Wilson. Thank you, Mr. Chairman.
I put my entire statement into the record, but I did want
to highlight a couple of things I think are important.
When we add a prescription drug benefit to Medicare there
are some principles that I'll be looking for and working
toward. One is that it should be available to all
beneficiaries. Second is that it has to be voluntary. There are
a lot of people who have earned their coverage in other ways,
either through a previous employer, or because they are
eligible for prescription drugs through the VA for example.
I think that seniors do want choices, and I don't think
there's anything bad about that word at all. My family gets
their coverage from Loveless in Albuquerque. We like to get our
medicine downstairs at the Loveless Pharmacy. I live in Santa
Rosa, New Mexico, a long, long way from the nearest clinic.
Perhaps, a mail order pharmacy is what I want, so that choices
are a good thing to meet the individual needs of patients.
I also think that we need to give the most help to those
who are low income and those who are very sick and have high
medicine costs, and the plan that the House passed last year,
under the leadership chairman, I think we did a pretty good job
of that. In New Mexico, where we have large numbers of seniors
who are low income, 64 percent of seniors in New Mexico would
have qualified to pay only a $2 or $5 co-pay, and that makes a
very big difference to seniors who are living in poverty.
In addition to creating this benefit, I think we have to
look at innovative ways to reduce the cost of medicine, and
certainly generic drugs have helped in that respect, but I also
think we need to allow reimportation of medicine from FDA-
approved facilities abroad. I know that's a controversial issue
for some, but for someone from a border State it really isn't.
In fact, I would bet anyone here donuts for breakfast on this
bet, in Demming, New Mexico, a little town on the border of
Mexico and the United States, I would bet anyone donuts that
more people buy their penicillin in Mexico than they do in the
United States. It's a whole lot cheaper and it is effective.
Finally, as we move forward on adding a prescription drug
benefit to Medicare, we will have the opportunity for different
elements of Medicare reform, and I think that the reform that
is most needed in Medicare is that the system is fundamentally
unfair in its reimbursement rates across this country. We no
longer have a local market for healthcare providers. There is a
national market for healthcare, and we continue to pay people
differently based on where they live, with what they call the
Physician Work Adjuster, which says that if you are a doctor
practicing in Torrance County, New Mexico, your work isn't as
valued by the Federal Government as if you were living in Dade
County, Florida.
We don't pay into Medicare based on where we live, and we
shouldn't be denied access to healthcare because of where we
live.
Thank you, Mr. Chairman. I look forward to the testimony
today.
Mr. Bilirakis. The Chair thanks the gentlelady, and, of
course, without objection, the opening statements of all
members of the subcommittee will be made a part of the record.
The Chair now recognizes Mr. Pallone.
Mr. Pallone. Thank you, Mr. Chairman.
In the State of the Union Address in January, the President
promised a prescription drug plan for seniors, but offered no
specifics as to how this would be accomplished. The President
didn't expand further, knowing full well that under his plan
the 37-year Medicare program would, essentially, be privatized.
His plan is based on the unpopular premise of forcing seniors
into joining private plans. Whether it's an HMO or a PPO, these
are the same plans that have said they don't want to cover
seniors, and that have a pitiful record of providing seniors
with healthcare.
The negative response from both Republicans and Democrats
to the President's prescription drug proposal should have been
a wake-up call to President Bush, that his Medicare
privatization proposal would have a devastating impact on the
health and security of our Nation's seniors. Seniors should not
be forced to choose either a prescription drug benefit or their
long-time doctor, and that's exactly what the President's plan
would do, and, unfortunately, what it seems the GOP is also
proposing.
Mr. Chairman, I'd like to express my opposition to
privatization of Medicare as a means for achieving a
prescription drug benefit. We are more than capable of
providing a universal, dependable benefit that is under
Medicare, which is exactly what the Democrats have proposed,
and any other type of approach would be risky and destructive
to a program that seniors need.
In my home State of New Jersey, we've been witnessing the
effects of a privatized Medicare option. Nearly 80,000 New
Jerseyans have lost their health coverage after their private
HMOs concluded Medicare beneficiaries simply were not
profitable. New Jersey's seniors also know all too well that
private insurance companies are not willing to assist them with
prescription drugs, and many seniors and HMOs nationwide say
that prescription drug coverage is limited or the co-pay
significantly increased, and I'm amazed that the President
would ever believe his plan would not face a similar fate.
That's exactly what would happen.
I think the time has come for Congress to add a meaningful
prescription drug benefit within the Medicare program so we can
strengthen the program with the addition of this critical
benefit, while at the same time we preserve the stability and
quality of the program to ensure that seniors have access to
reliable health services.
Now, the Democrats have such a proposal. It's very similar
to Medicare Part B, it pays your doctor bills, basically,
provides for a voluntary $25 per month premium, $100
deductible, 80 percent of the costs paid for by the Federal
Government, 20 percent co-pay, and most important requires the
Secretary of Health and Human Services to negotiate prices so
that prices of prescription drugs are brought down. There has
to be a price component in whatever we do, in order to make
drugs more affordable, otherwise we will continue to have major
problems.
It's very simple to take up what the Democrats have
proposed or something very similar to it. That's what we need,
a guaranteed Medicare benefit that is voluntary and universal,
people will have a choice that will be a meaningful choice.
Thank you, Mr. Chairman.
Mr. Bilirakis. The gentleman's time is expired.
Mr. Rogers, opening statement?
Mr. Rogers. Mr. Rogers will waive.
Mr. Bilirakis. Ms. Capps.
Ms. Capps. I will waive my opening statement and submit it
for the record.
Mr. Bilirakis. Thank you.
Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman.
I want to thank you and members of the subcommittee and our
witnesses for coming today and talking about a very important
issue, our prescription drugs for our seniors.
Prescription drugs have helped seniors to live happier, and
healthier and more productive lives. Few things that we do in
this committee could be more important than crafting a proposal
to bring the miracles of prescription drug medication to more
seniors throughout our country. No senior should be forced
between paying for food and shelter or the needed life-saving
prescription drug medication which, literally, transforms the
lives of millions of people in America and around the world.
It's tragic that over 1 million New Jersey seniors don't
currently have prescription drug coverage. Health care security
is a cornerstone to a secure retirement, and we must build on
the significant progress that we made here in Congress last
year to task legislation that would give our seniors that kind
of security.
I look forward to working with you, Mr. Chairman, and other
members of the committee on passing a generous and responsible
package again this year. Any proposal that we consider before
this committee has to, in my mind, accomplish some very basic,
but important, goals, which we actually laid out last year. The
plan must lower the cost of prescription drugs immediately,
must guarantee coverage to all senior citizens under Medicare,
must strengthen and improve Medicare with more choices and more
savings, and also must strengthen Medicare for the future.
Last year, we did our work here in the House, we passed a
strong bill, but the final product, of course, was elusive.
This year, I hope this important legislation does not get
bogged down once again.
I ask my colleagues on both sides of the aisle to come
together to pass a responsible bill that will become law and
will guarantee seniors the prescription drug benefits that they
need.
I want to thank you, Mr. Chairman, for holding this
hearing. I want to thank our witnesses for being here today. I
look forward to working with you on this issue that's so
important to our seniors, and I yield back.
Mr. Bilirakis. The Chair thanks the gentleman.
Mr. Waxman?
Mr. Waxman. Thank you, Mr. Chairman.
It's been obvious for a considerable period of time, in
fact more than a decade, that we need to add a prescription
drug benefit to the Medicare program. That issue is not in
doubt. Prescription drugs are a critical part of healthcare,
and they are no less basic to a good coverage plan than
hospital or physician services. And the senior population, the
disabled population, who are part of Medicare are the highest
users of prescription drugs, and they are the people who can
benefit greatly from them. They are the people who are least
likely, however, to have added a drug coverage, and seniors who
are left trying to pay for their own prescriptions face the
highest prices with no one to bargain for them. They are
discriminated against in the prices they pay.
Coverage should be available to all beneficiaries, and the
coverage should not be token coverage or used to discriminate
against people who want to stay in traditional Medicare. It
should be complete coverage, similar to the coverage we provide
in Medicare to other medical benefits.
There shouldn't be a hidden agenda. We shouldn't try to
drive people out of Medicare fee-for-service. We should make a
good drug benefit available to all beneficiaries, whether they
choose to stay in traditional Medicare or elect to join a
managed care plan. The point of covering prescription drugs
should be to provide a healthcare benefit to people who need
it, not to use it as either a carrot or a stick to push them
into private insurance plans or managed care. Basic Medicare is
a program that most beneficiaries prefer.
It amazes me that those who seem so enamored by competition
as a model for our healthcare system are determined to give a
competitive edge to private plans by refusing to put a good
drug credit in the traditional Medicare plan. Are they afraid
that the reform people want in Medicare is the addition of
drugs to the basic program? Are they unwilling to admit that
the choice beneficiaries are supposedly pulling out for is, in
fact, a choice to stay in Medicare as they know it, with the
addition of a good drug benefit? I believe the answer to both
is yes.
So, I hope today we will concentrate on what should be the
subject at hand, which should be, what should a drug benefit
look like. And I believe the answer will be the same as what
beneficiaries ask of all Medicare benefits: Make it available
from the provider that they choose, cover the drugs their
doctor prescribes, and make it affordable. It's really pretty
simple.
Mr. Bilirakis. I thank you, Mr. Waxman, and I, too, hope
that we will concentrate on the subject at hand, and that is,
what drug benefits should look like. We all acknowledge the
fact that the need is out there and the problems are there, so
it's a matter of finding the solutions.
Let's see, Doctor Norwood.
Mr. Norwood. I'll yield.
Mr. Bilirakis. Thank you.
Where are we now? Let's see now, Mr. Allen is not a member
of this subcommittee. If you'd like a 1-minute opening
statement out of courtesy I'll be glad to give it to you.
Mr. Allen. Mr. Chairman, thank you. I will take this 1
minute, and I appreciate the opportunity to say just a few
words.
I hope that in considering the Medicare benefit that would
be appropriate for American seniors we look around the world
and take some account of what the rest of the world does in
this respect.
I would urge that we not shrink from dealing with the issue
of price. Several members have said, on both sides of the aisle
have said, it's important to reduce prices, and I would simply
say that if we get too--if we believe that competition among
buyers of prescription drugs will lead, as the night follows
the day, to lower prices, I think we are mistaken.
It's vitally important that Medicare, that the Federal
Government, have enough leverage over the sellers, over the
pharmaceutical industry, in order to get the kind of prices
that American seniors deserve.
And, with that, Mr. Chairman, I yield back and thank you
for your courtesy.
Mr. Bilirakis. And, I thank the gentleman.
Mr. Upton.
Mr. Upton. Well, thank you, Mr. Chairman. I appreciate your
leadership on this issue for sure, and I was delighted to be a
member of the House Leadership's Prescription Drug Task Force
with the last two Congresses.
I have a full statement for the record, what I'd appreciate
hearing from our witnesses today, particularly, as we look at
the inequities in the current system, Medicare plus choice
doesn't work in my district, doesn't work a lot in our State,
and it really is unfair when you look at all of our seniors who
pay taxes, and pay the Medicare premium, and yet, because we
don't have Medicare plus choice in our district that other
States and, obviously, thousands of people that benefit from
better access and lower cost prescription drugs than they do in
my district. And, how can we have equal access to drug coverage
when, in fact, those inequities exist?
So, there are obvious flaws to the present system, and I'd
be anxious to hear from the witnesses as we address that, and I
will be in and out as we have a number of different activities
this morning, but I look forward to coming back and asking
those questions and yield back my time.
Mr. Bilirakis. The Chair thanks the gentleman.
Mr. Green.
Mr. Green. Thank you, Mr. Chairman, and I'll make a brief
statement and ask that my full statement be in the record.
I want to thank you for holding the hearing on creating a
Medicare prescription drug benefit. I think there's no other
issue, other than conflict in Iraq, that's more important to me
and my constituents than this one, and I'm sure that most of my
colleagues feel the same way. After all, this Congress has
debated the creation of Medicare prescription drug benefits for
the better part of the last decade, our committees have had
endless hearings on the issue, it was debated on the floor
numerous times, we even had a long, all-night hearing last
year. And, I know most of us have campaigned on it, and we
still have not been able to reach an agreement on how best to
design a benefit.
So, I look forward to the panel today. If you have some
great words of wisdom that we haven't heard the last number of
years, let me reiterate my support for providing some type of
benefit under the traditional fee-for-service with Medicare,
and that's where most of our seniors receive their healthcare
from, through the fee-for-service, traditional Medicare, and we
need to provide a benefit that's under that to make it
effective.
And, I'll yield back my time.
Mr. Bilirakis. The Chair thanks the gentlemen. Opening
statements of all members thus completed, and we'll get on to
the panel now.
The witnesses include Doctor Dan Crippen, former Director
of the Congressional Budget Office; Doctor Roger Feldman,
former Senior Staff Economist for Health Policy and Economics
on the President's Council of Economic Advisors, and currently
Professor Health Insurance at the University of Minnesota; Mr.
David Herman, Executive Director of the Seniors Coalition; Mr.
Bruce Vladek, former HCFA Administrator, and currently
Professor of Health Policy and Geriatrics at Mt. Sinai
University; and Mr. Erik Olsen, on behalf of AARP.
Gentlemen, obviously, your written summation will be made a
part of the record, and we would hope that you would complement
that as much as you might. I'll set the clock at 5 minutes, and
we'll try to stay as close to it as we can.
Doctor Crippen, please proceed, sir.
STATEMENTS OF DAN CRIPPEN, FORMER DIRECTOR, CONGRESSIONAL
BUDGET OFFICE; ROGER FELDMAN, PROFESSOR OF HEALTH SERVICES
RESEARCH/POLICY, UNIVERSITY OF MINNESOTA; DAVID HERMAN,
EXECUTIVE DIRECTOR, SENIORS COALITION; BRUCE C. VLADEK,
PROFESSOR, HEALTH POLICY AND GERIATRICS, MT. SINAI UNIVERSITY;
AND ERIK OLSEN, AARP
Mr. Crippen. Mr. Chairman, Mr. Brown, members of the
committee, once again, I benefit from having a last name that
begins early in the alphabet.
I'm hopeful that I might be able to today put some context
into these discussions very quickly. I'm not sure, in fact,
probably sure the opposite is true, I can add any new words of
wisdom, as Mr. Green suggested he was looking for.
There are few things in public policy that I've worked on,
I think, more difficult to design than a pharmaceutical benefit
for Medicare. Many elderly have insurance coverage today and
access to drugs currently, but some, of course, do not.
Retirees pay roughly 40 percent out-of-pocket for their drugs,
compared to 33 percent for the non-elderly, and that may be too
much in some cases. As with many other medical services, a
relative few incur the lion's share of costs 25 percent of the
elderly spend 65 percent of the total on drugs. But targeting a
benefit to those most in need is very tricky and too wide a net
will greatly increase Federal expenditures and likely place a
greater burden on our kids and grandkids.
One place to start, Mr. Chairman, is an examination of the
current use of pharmaceuticals by the elderly, as well as the
source of funds for those purchases. Our public discussions are
often framed in the objective of getting more drugs to the
elderly, which is an admirable goal, but without fully
considering who is paying now and who will pay under a new drug
design.
This first chart helps illustrate the point. Fully 75
percent of the elderly, at least in 1999, and recognize that
number may be changed some, fully 75 percent of the elderly
have some form of insurance for drugs, although that number may
be declining. Perhaps more important is that those with
insurance fill an average of 32 prescriptions a year, those
with private insurance fill 30 prescriptions a year, and the
uninsured fill 25 prescriptions a year. While this gap between
insured and uninsured, 32 versus 25, may imply that there are
some elderly not receiving enough drugs, and surely some are
sacrificing to pay, many elderly currently have access to
pharmaceuticals.
The paramount issue, I would suggest, is ``who should
pay,'' both now and in the future-because much of what we are
doing with virtually any drug benefit is shifting and moving
spending that would occur in the absence of a benefit. That may
be good news or bad news, depending upon which side you are.
Now there may be good and compelling reasons to move
current funding from the elderly and their former employers to
current workers and taxpayers-perhaps a more uniform benefit,
for example, but in so doing we need to recognize who is paying
now and who will pay in the future.
In this light, a pharmaceutical benefit for the elderly may
be both more and less daunting. I could easily construct a
benefit that would cost $900 billion over 10 years-exactly half
of what we expect the elderly will spend over that time
period--a cost that many have deemed, of course, to be ``too
high.'' But much of that $900 billion is currently being paid
by someone-it does not imply $900 billion in new spending for
the economy. In fact, because most elderly are getting
substantial pharmaceuticals now, some benefit designs could
actually result in less spending overall in the Nation, but the
payers will be different. Instead of the elderly paying as much
of their own drug costs, current workers and taxpayers will pay
more. Instead of retirees' former employers paying, all
taxpayers will pick up some the tab. While these implications
may not seem so great for current retirees and workers, surely
my generation can afford to pay for drugs for our parents, the
impact on future generations may be profound.
This second graph, Mr. Chairman, depicts current and future
spending on existing Federal programs for retirees. Currently,
we devote about 8 percent of our economy or 40 percent of the
Federal budget to these programs today, but as my generation
retires and we increase the number of beneficiaries from 40
million to 80 million we will more than double our obligations.
Put another way, upwards of a fifth of what is produced in
2030--every fifth car, every firth shirt, every fifth loaf of
bread--will be consumed by retirees from the resources
transferred by just these three Federal programs.
These programs will consume roughly what we expend on the
entire Federal budget today. In the extremes, to accommodate my
generation's retirement, Mr. Chairman, we will have to either:
borrow the equivalent of $1 trillion a year, something that's
probably not sustainable for very long; virtually eliminate the
rest of government as we know it, including education, defense,
and all the rest; or, raise taxes by something like 8 to 10
percent of GDP. If it were in the form of payroll taxes, for
example, something like a 35 percent combined payroll tax would
be required to support all of these programs in the rest of
government, as compared to 15 percent today. This portends an
historic change in government and the economy in this country.
This graph, I would suggest, is also instructive on several
other issues. Most important, there are only two moving parts
here: the obligations and expenditures to the elderly and the
size of the economy. So you can make retirement ``more
affordable'' only by growing the economy or reducing
obligations, not by shifting costs, stuffing mattresses or
creating ``solvent'' trust funds.
We need to recognize that no matter what we do it is our
kids who will be financing our retirement, whether through
income taxes, payroll taxes, whether we borrow from them, or
whether we sell them a share of Microsoft out of our 401[k].
Thank you, Mr. Chairman.
[The prepared statement of Dan Crippen follows:]
Prepared Statement of Dan Crippen
There are few things more difficult to design than a pharmaceutical
benefit for Medicare beneficiaries. Many elderly have insurance
coverage and access to drugs currently, but some do not. Retirees pay
roughly 40% out-of-pocket for drugs--compared to 33% for the non-
elderly--and that may be too much in some cases. As with many other
medical services, a relative few incur the lion's share of costs--25%
of the elderly spend 65% of the total on drugs. But targeting a benefit
to those most in need is very tricky and too wide a net will greatly
increase federal expenditures and likely place a greater burden on our
kids and grandchildren.
One place to start is an examination of the current use of
pharmaceuticals by the elderly as well as the source of funds for those
purchases. Our public discussions are often framed in the objective of
getting more drugs to the elderly without fully considering who is
paying now and who will pay with a Medicare drug benefit.
This first chart helps illustrate the point. Fully 75% of the
elderly have some form of insurance for drugs, although that number may
be declining. Perhaps more important is that those with insurance fill
an average of 32 scripts a year--those with private insurance fill 30--
and the uninsured fill 25 scripts a year. While this gap between
insured and uninsured, 32 vs. 25, may imply that there are some elderly
not receiving enough drugs, and surely some are sacrificing to pay,
many elderly have access to pharmaceuticals.
The paramount issue, I would suggest, is ``who should pay,'' both
now and in the future--because much of what we are doing with virtually
any drug benefit is shifting and moving spending that would occur in
the absence of a benefit.
Now there may be good and compelling reasons to move current
funding from the elderly and their former employers to current workers
and taxpayers--perhaps a more uniform benefit or basic fairness. But in
so doing we need to recognize who is paying now and who will pay in the
future.
In this light, a pharmaceutical benefit for the elderly may be both
more and less daunting. I could easily construct a benefit that would
cost $900 billion over 10 years--exactly half of what will be spent
even without a benefit--a cost deemed by most to be ``too high.'' But
much of that $900 billion is currently being paid by someone--it does
not imply $900 billion in new spending. In fact, because most elderly
are getting substantial pharmaceuticals now, some benefit designs could
result in less spending overall in the nation than would occur in the
absence of a benefit.
But the payers will be different. Instead of the elderly paying as
much of their own drug costs, current workers and taxpayers will pay
more. Instead of retirees' former employers (and by implication their
current workers and shareholders) paying, all taxpayers will pick up
the tab. While these implications may not seem so great for current
retirees and workers--surely my generation can afford to pay for drugs
for our parents--the impact on future generations may be profound.
This graph depicts current and future spending on existing federal
programs for retirees. Currently, we devote about 8% of our economy or
40% of the federal budget to these programs today, but as my generation
retires and we increase the number of beneficiaries from 40 million to
80 million we will more than double our obligations. Put another way,
upwards of a fifth of what is produced in 2030--every fifth car, every
firth shirt, every fifth loaf of bread--will be consumed by retirees
from the resources transferred by just these three federal programs.
These programs will consume roughly what we spend on the entire
federal budget today. In the extremes, to accommodate my generation's
retirement, we will have to either: 1) borrow the equivalent of $1
Trillion a year; 2) virtually eliminate the rest of government,
including education, defense, and all the rest; or, 3) raise taxes by
something like 10% of GDP--if it were payroll taxes, something like 35%
of payroll (from 15% now). This portends an historic change in
government and the economy in this country.
This graph is instructive on several other issues. Most important,
there are only two moving parts: expenditures and the size of the
economy. So you can make retirement ``more affordable'' only by growing
the economy or reducing obligations, not by shifting costs, stuffing
mattresses or creating ``solvent'' trust funds.
We need to recognize that no matter what we do it is our kids who
will finance our retirement--whether through income taxes, payroll
taxes, whether we borrow from them, or we sell them a share of
Microsoft out of our 401(k).
[GRAPHIC] [TIFF OMITTED] T7481.001
[GRAPHIC] [TIFF OMITTED] T7481.002
Mr. Bilirakis. Thank you, thank you, Doctor Crippen. Of
course, you haven't given us a solution.
Mr. Crippen. No, only set the context so far.
Mr. Bilirakis. Doctor Feldman.
STATEMENT OF ROGER FELDMAN
Mr. Feldman. Mr. Chairman, and members of the committee, it
is my pleasure to appear before you this morning, and possibly
to offer some outlines for the solution.
In my opinion, the private sector should run a prescription
drug benefit for fee-for-service Medicare, but the government
has an important role to play here, too, and I will discuss
that as well.
The private sector should run the program because it is
better at discovering and implementing innovations to reduce
the cost and improve the quality of drug benefits. An example
of private sector innovation occurred in Minneapolis,
Minnesota, where Blue Cross and Blue Shield educated physicians
to increase their use of cost-effective drugs.
The private sector can adapt quickly when the need arises.
In response to rising drug costs, many employers have
introduced multi-tiered drug benefits. In contrast, changing
the delivery of Medicare benefits for any reason has proven to
be excruciatingly difficult. Congress actually blocked a
demonstration of competitive pricing for Medicare M+C plans.
My next point is that Medicare beneficiaries should have a
choice of drug benefit plans. Americans value choice, and
having choices improves quality. Employers in Minneapolis found
that technical quality of care improved when choices were
introduced. Advocates of a single plan point to several
supposed disadvantages of choice, including increased
administrative costs, adverse selection, and the burden of
protecting beneficiaries from the consequences of making bad
choices. These criticisms don't stand up to close scrutiny.
The minimum size for low administrative costs in a drug
benefit plan is several hundred thousand enrollees, so
statewide or regional bidding areas would be large enough to
offer choices with low administrative costs. Whenever
beneficiaries have choices, the sicker ones may be more
attracted to some plans than to others. Plans may try to avoid
high risks by skimping on quality. However, it is useful to put
this problem in perspective.
My colleagues and I recently found that M+C plans with drug
benefits attracted enrollees who cost 3.6 percent more than
average. If this difference is unacceptably large, it can be
reduced by risk adjusting the payments to the drug plans.
The purpose of risk adjustment is to compensate plans that
enroll high-risk beneficiaries. In my prepared remarks, I lay
out the details of one such risk sharing arrangement, in which
plans are paid more for enrolling beneficiaries with higher
expected use of prescription drugs. This is not an ideal
system. Ideally, I believe that all plans, including fee-for-
service Medicare, should submit bids to cover all Medicare
services. We proposed that system for the competitive pricing
demonstration.
I am, however, confident that the government can run a
competitive pricing system for Medicare drug benefits. Our
experience in Denver proved conclusively that CMS could issue
an RFP for a complete package of Medicare services and evaluate
the plan's responses in a very short time.
The last question raised by choice of drug benefits is
whether the information load on seniors would be unbearably
difficult. My position is simple, of consumers care about drug
costs they will become informed.
My colleagues and I surveyed employees of Minnesota
companies that switched from a single tier to a three tier drug
benefit last year. Compared with employees in companies that
kept their old single tier plan, they were more likely to know
the correct price of new drugs. We also found that employees
with more formal education were more likely to know that
formularies, generic drugs, and mail order drugs have
significant potential to reduce costs.
To educate seniors, the government can publish information
on drug benefits and summary measures of consumer satisfaction,
as it does for the Federal Employees Plan.
I've already argued that plans should bid on large regional
areas, and I believe this would solve the problem of access for
rural residents, which has so far plagued the M+C program. If
local cost differences are discovered and Congress wishes to
correct them, it can add explicit adjustment factors.
I want to conclude by saying briefly that the M+C program,
although we love to hate it, has been successful in offering
drug benefits to a majority, that is a choice of drug benefits
in an M+C plan, to a majority of Medicare beneficiaries in this
country.
Thank you for these remarks.
[The prepared statement of Roger Feldman follows:]
Prepared Statement of Roger Feldman, University of Minnesota
It is my pleasure to appear before you this morning to discuss a
vital issue for the Medicare program: the provision of an outpatient
prescription drug benefit for fee-for-service Medicare. For the past 20
years, I have studied the private health insurance industry from the
vantage of a university researcher. From 1995 to 2000, I assisted the
Centers for Medicare and Medicaid Services in designing a competitive
pricing demonstration for Medicare. These experiences have been
instrumental in shaping the ideas that I wish to share with you today.
As you well know, the Medicare entitlement provides only limited
coverage of outpatient prescription drugs. This is in sharp contrast to
private insurance plans that cover most Americans under 65. Virtually
all analysts agree that prescription drug coverage should be part of
Medicare. Without it, the elderly not only must spend unbearably large
sums of money out-of-pocket for drugs, but they may forego cost-
effective treatments. As President Bush said on March 4, ``Medicare
will pay a doctor to perform a heart bypass operation, but it will not
pay for drugs that could prevent the surgery.''
Despite this apparent consensus, it has been extremely difficult to
fashion a Medicare drug coverage plan. Much of the difficulty centers
on debate whether the program should be organized by the public sector
through a single government-administered entity, or offered by the
private sector through competing pharmacy benefit plans. In my opinion,
this debate has polarized the discussion and has obscured the solution
that we should be working toward. That solution includes both the
public and private sectors. The role for private sector plans is to
operate the drug program, and the government's role is to set the rules
under which those private plans operate.
WHY THE PRIVATE SECTOR?
The private sector should run the program because it is better than
the government at discovering and implementing innovations to reduce
the cost and improve the quality of health insurance benefits. Let me
describe one example of private sector innovation. As you know,
pharmaceutical manufacturers have long promoted their products through
the use of ``detailing'' representatives who visit physicians. Blue
Cross and Blue Shield of Minnesota, a not-for-profit health benefit
plan, was concerned that detailing was not in the interest of patients,
employers and insurers because it advocates the use of drugs with high
profit margins at the expense of alternatives that might be less
expensive and more beneficial. So within each drug therapeutic class,
Blue Cross declared that certain drugs would be preferred, whereas
others would be given a yellow cautionary flag and some would be deemed
as red agents--the least cost effective. Blue Cross conducted classes
for physicians and sent pharmacists to visit clinics with messages
promoting the plan's favored drugs. Andrea De Vries, a student from our
doctoral program at the University of Minnesota, found that there was a
consistent increase in prescribing preferred agents among clinics with
more pharmacist visits.<SUP>1</SUP> She concluded that it is possible
to have a positive effect on drug utilization that is not driven by a
financial incentive.
---------------------------------------------------------------------------
\1\ Andrea De Vries, ``Affecting Physician Prescribing Behavior:
Factors Influencing the Success of a Pharmacy Intervention,'' Ph.D.
Dissertation, University of Minnesota, May 2000.
---------------------------------------------------------------------------
This example illustrates the private sector's ability to recognize
a problem, devise a solution, and implement it effectively. Pharmacy
benefit management (PBM) companies that run prescription drug benefit
programs for most insured Americans under age 65 are another example of
private sector innovation. PBMs control the cost of prescription drug
programs by targeting the behavior of pharmacists, drug manufacturers,
consumers, and prescribing physicians. One study found that PBMs
obtained discounts of 13.2% below the average wholesale price of drugs,
as well as manufacturer rebates of about 5%.<SUP>2</SUP> Researchers
from the RAND Corporation reported that aggressive management through
private PBMs has been shown to reduce drug expenditures by 15% or
more.<SUP>3</SUP>
---------------------------------------------------------------------------
\2\ David H. Kreling, ``Cost Control for Prescription Drug
Programs: Pharmacy Benefit Manager Efforts, Effects, and
Implications,'' background report prepared for the DHHS Conference on
Pharmaceutical Practices, Utilization, and Costs, Washington, DC,
August 8-9, 2000.
\3\ Dana P. Goldman and Geoffrey F. Joyce, ``A Third--and Better--
Way for Prescription Dug Coverage,'' Los Angeles Times, November 5,
2000.
---------------------------------------------------------------------------
The private sector can adapt quickly when the need arises. For
example, in response to rising drug costs, many employers have
introduced multi-tiered drug benefit plans where employees have to pay
more for non-preferred drugs. The use of ``3-tier'' pricing
arrangements (lowest payment for generic drugs, middle payment for
formulary or preferred brands, and highest payment for non-formulary
brands) nearly doubled from 29% of covered workers in 2000 to 57% in
2002 according to a survey by the Kaiser Family Foundation.<SUP>4</SUP>
An additional 28% of workers had ``2-tier'' drug benefits with a lower
payment for generics and a higher payment for brand name drugs.
---------------------------------------------------------------------------
\4\ Kaiser Family Foundation, Employer Health Benefits Survey, 2002
Summary of Findings, http://www/kff.org/content/2002/20020905a.
---------------------------------------------------------------------------
In contrast, changing the delivery of Medicare benefits for any
reason has proven to be excruciatingly difficult. For example, I know
of only one instance where the government has used its purchasing power
to contract with selected providers for Medicare services. That is the
demonstration of competitive pricing for durable medical equipment
(DME). Congress actually used its power to block a demonstration of
competitive pricing for Medicare M+C plans, despite the support of the
CMS Administrator and a direct mandate from Congress to conduct such a
demonstration.<SUP>5</SUP>
---------------------------------------------------------------------------
\5\ Bryan Dowd, Robert Coulam, and Roger Feldman, ``A Tale of Four
Cities: Medicare Reform and Competitive Pricing,'' Health Affairs, 19:5
(September/October 2000), pp. 9-29.
---------------------------------------------------------------------------
WHY MULTIPLE CHOICES?
A closely related question is whether Medicare beneficiaries should
have a choice of pharmacy benefit plans. Advocates of a single plan
point to several supposed drawbacks of multiple choice, including
increased administrative costs, adverse selection, and the burden of
protecting beneficiaries from the consequences of making bad choices.
Before dealing with these specific criticisms, let me say that
choice of medical benefits should be good thing because Americans value
choice. ``One-size'' benefits do not fit everyone. In the market for
employer-based health insurance, for example, it has been demonstrated
beyond a doubt that employers offer multiple health insurance plans
because employees want to have choices.<SUP>6</SUP> Even countries with
national health insurance systems allow some individuals to opt out
(Germany) or to purchase private insurance when they need to fill gaps
in the government plan (Britain and Canada).
---------------------------------------------------------------------------
\6\ Pamela B. Peele, Judith R. Lave, Jeanne T. Black, and John H.
Evans III, ``Employer-Based Health Insurance: Are Employers Good Agents
for Their Employees?'' Milbank Quarterly, 78:1 (2000), pp. 5-21; John
H. Moran, Michael E. Chernew, and Richard A. Hirth, ``Preference
Diversity and the Breadth of Employee Health Insurance Coverage,''
Health Services Research, 36:5 (October 2001), pp. 911-934; and M. Kate
Bundorf, ``Employee Demand for Health Insurance and Employer Health
Benefit Choices,'' Journal of Health Economics, 21:1 (January 2002),
pp. 65-88.
---------------------------------------------------------------------------
Having choices also improves quality. An evaluation of a health
insurance purchasing coalition operated by large employers in
Minneapolis found that introduction of multiple choices (as many as 15
separate provider-controlled delivery systems) in 1997 was associated
with improvement in technical quality of care for patients with
diabetes.<SUP>7</SUP> Rates of use of preventive services either
remained stable or improved after the introduction of choice.
---------------------------------------------------------------------------
\7\ Alan Lyles, Jonathan P. Weiner, Andrew D. Shore, Jon
Christianson, Leif I. Solberg, and Patricia Drury, ``Cost and Quality
Trends in Direct Contracting Arrangements,'' Health Affairs, 21:1
(January/February 2002), pp. 89-102.
---------------------------------------------------------------------------
What about the extra administrative cost of offering multiple
choices? This is a true cost that can't be ignored. We know that large
employers are more likely than small ones to offer multiple health
insurance plans because they can spread the administrative cost over
more enrollees. But it is easy to make too much of this problem. We
could minimize the cost of buying automobiles if there were only one
auto dealer in each city, and the administrative cost of grocery stores
would be lower if there were only one of them. But we value choice of
auto dealers and grocery stores quite highly, despite the extra
administrative costs. Based on my discussions with a large PBM, I
estimate that the minimum efficient size for low administrative costs
is several hundred thousand enrollees. This estimate suggests that
statewide or regional bidding areas composed of multiple states would
be large enough to offer multiple choices with low administrative
costs.
Whenever beneficiaries have multiple choices, the sicker ones may
be more attracted to some health plans than to others. This phenomenon
is called ``adverse selection,'' and it can have implications for the
efficiency of the health benefit program. Plans may try to avoid high
risks by skimping on quality and cutting services that attract them.
Adverse selection could be a problem for a multiple-choice prescription
drug benefit in Medicare. However, it is useful (as it was for
administrative costs) to put the problem in perspective. My colleagues
and I recently completed a study of adverse selection in the M+C
program, which will be published in the Health Care Financing Review.
We estimated that M+C plans that offered drug benefits with an annual
cap above $800 in 1999 attracted enrollees who cost 3.6% more than
average.<SUP>8</SUP> This is an upper limit on the cost of adverse
selection, because adverse selection from offering drug benefits at all
has to be larger than selection from tinkering with quality and
services once the benefit is offered.
---------------------------------------------------------------------------
\8\ Roger Feldman, Bryan Dowd, and Marian Wrobel, ``Risk Selection
and Benefits in the Medicare+Choice Program,'' forthcoming in the
Health Care Financing Review.
---------------------------------------------------------------------------
THE ROLE OF GOVERNMENT
If this amount of adverse selection is unacceptable, it can be
reduced further by ``risk adjusting'' the payments to the drug benefit
plans. Risk adjustment means that payments are increased to account for
the adverse selection experienced by a plan. A discussion of risk
adjustment leads directly to the question of the government's role in a
Medicare prescription drug plan. In my opinion, the government should
set the rules for the program and make sure those rules are enforced.
One of the most important rules is how to share risk with the
participating plans. As I understand the proposals currently on the
table, the possibilities range from government bearing all of the risk
except for the plans' fees, to the private sector bearing most of the
risk subject to risk-sharing corridors. For example, plans might be at
risk for a target level of spending, plus or minus 5%. If costs exceed
the upper limit, the government pays the extra amount, and conversely
plans keep the extra savings if costs are less than the lower limit.
Before discussing the details of my proposal risk-sharing proposal
(which is only one among many), I want to emphasize that the purpose of
risk bearing is to give private Medicare plans better incentives for
cost containment. In order to accomplish this goal, as a general rule,
private plans should bear the risk for events that they control, but
they should not bear risk for events they do not control. In this
context, private plans do not control the number of prescriptions that
providers write within a therapeutic drug class. Thus, they should not
be at full risk. However, private plans do control the choice of
specific drugs to fill those prescriptions and the prices of those
drugs. Thus, they should be at risk for the cost of drug management and
drug prices. You could think of the cost equation as the product of
three elements:
DRUG COST PER PERSON =
(1) NUMBER OF THERAPEUTIC PRESCRIPTIONS PER PERSON *
(2) SPECIFIC DRUGS USED TO FILL PRESCRIPTIONS *
(3) PRICES OF SPECIFIC DRUGS
To implement a payment system based on this formula, the government
could specify the number of prescriptions in each therapeutic class
that are written for a ``standard beneficiary,'' who could be the
average fee-for-service Medicare beneficiary for illustration. In a
standard population of 1,000, there might be 50 prescriptions for ACE
Inhibitors, 25 for Lipotriptics, and 10 for H2 Blockers per month.
Using the preferred drugs on its formulary and its prices, a private
plan might bid $100 per month to cover one standard enrollee. After all
the participating plans have submitted bids, the government could use
the bids to determine the enrollee's out-of-pocket premium
contribution. For example, the government might pay 100% of the premium
up to the higher of the median bid or the enrollment-weighted average
bid, as we proposed for the M+C competitive pricing demonstration.
Premium competition would provide powerful incentives for plans to
submit low bids.
Next, enrollees would sign up for the drug benefit program. Because
of the large subsidy (e.g., the government pays 100% of the premium of
at least one plan), enrollment would be nearly universal, so adverse
selection between enrollees and the general Medicare population would
be minimized. Additional restrictions such as a penalty for delayed
enrollment in the drug benefit program could also be
imposed.<SUP>9</SUP>
---------------------------------------------------------------------------
\9\ John M. Bertko, ``Medicare Prescription Drug Plans: The Devil
is in the Details,'' Washington, DC: American Academy of Actuaries,
September 2002.
---------------------------------------------------------------------------
After joining the program, enrollees would have an opportunity at
regular intervals to select a particular private drug benefit plan, and
the government would observe how many prescriptions were written in
each therapeutic class for the plan's enrollees. This system requires
the private plans to submit claims for each prescription, but that is
their standard procedure for commercial business, so it is not an
additional cost for them. If the plan that bid $100 for a standard
enrollee attracts sicker beneficiaries who use twice the standard
amount of prescriptions, it would be paid $200 per month. Because the
plan is not at risk for the health of the enrollees it attracts, it
does not have an incentive to skimp on covering drugs that attract
them. However, if the plan overestimates its ability to manage the
types of drugs used, or if it is overly aggressive in estimating its
ability to get low prices, it must eat those extra costs.
This is not an ideal bidding system. Ideally, all plans, including
fee-for-service Medicare, should submit bids to cover all services.
Consumers could then choose among all plans based on premiums,
amenities, and their preferences for the plans' medical management
styles. We proposed that system for the competitive pricing
demonstration, although the demonstration eventually was restricted to
M+C plans only.
I am confident that the government--either CMS or a new, single-
purpose agency--is technically capable of running a competitive pricing
system for Medicare drug benefits. Our experience in Denver proved
conclusively that CMS could issue an RFP for a complete package of
Medicare services in a very short time, and it could evaluate the
plans' responses. Bidding for one piece of the benefit package must be
easier than that experience. Later demonstration efforts in Phoenix and
Kansas City explored the design of formularies, co-payments for single-
and multiple-source drugs, expenditure caps, and which prices to apply
against the cap.<SUP>10</SUP> Solutions that were acceptable to the
local stakeholders were found for all of those design issues.
---------------------------------------------------------------------------
\10\ For example, the local advisory committee in Phoenix decided
that the average wholesale price (AWP) for brand name drugs should be
applied against the benefit cap. They concluded that it was too
difficult to include plans' discounts in the calculation because of
large variations among plans.
---------------------------------------------------------------------------
The last question raised by multiple choice of drug benefits is
whether the information load on seniors would be unbearably difficult,
leading them to make bad choices. The main point I want to make is that
the supply of information responds to the demand for it. If consumers
have no reason to care about drug costs, then it follows that they
won't demand information and they will remain ignorant. On the other
hand, if they have a reason to care about drug costs, then there is a
strong incentive to become informed. I know this from my own research,
in which several colleagues and I surveyed employees of Minneapolis
companies that switched from a single-tier to a 3-tier drug benefit
last year. Compared with employees of companies that kept the old
benefit, they were more likely to know the correct price of new
drugs.<SUP>11</SUP> We also found that more formal education was
positively correlated with knowing that formularies, generic drugs, and
mail order drugs have significant potential to reduce drug costs.
---------------------------------------------------------------------------
\11\ Roger Feldman, Jean Abraham, Linda Davis, and Caroline Carlin,
``Pharmacy Benefit Design and Consumer Knowledge of Prescription Drug
Costs,'' Division of Health Services Research and Policy, University of
Minnesota, April 2003.
---------------------------------------------------------------------------
The second finding highlights the important role of education in
informing consumers about drug costs. Our study looked at formal
education, but there is also a role for specific drug education
programs directed at seniors. The government has a major responsibility
for providing those programs. Publishing information on drug benefits
and summary measures of consumer satisfaction--as is done for the
Federal Employees Health Benefits Program (FEHBP)--is an example of
what the government can do for seniors. The FEHBP also encourages
members to request generic drugs instead of brand name drugs and to use
their plan's home delivery program if it has one.<SUP>12</SUP> The
government could also require plans to provide on-line access to their
formularies.
---------------------------------------------------------------------------
\12\ FEHBP 2002 Guide, United States Office of Personnel
Management, www.opm.gov/insure. Home delivery enables members to get a
90-day supply of a drug instead of the usual 30-day supply, often at
lower out-of-pocket cost per unit.
---------------------------------------------------------------------------
In addition to these information measures, the government could
demand that sensible consumer protections be built into every plan. For
example, although the bills under consideration are somewhat different,
they all require private plans to include at least one and sometimes
two brand-name drugs in each therapeutic class.<SUP>13</SUP> An appeals
process can offer protection against arbitrary coverage denials.
Finally, the patient's doctor can always write ``dispense as written''
orders.
---------------------------------------------------------------------------
\13\ H.R. 5019 requires that there is at least one branded drug in
each therapeutic class; two, if the class includes more than one drug;
or two and a generic, if available. S. 2625 requires the formulary to
include all generics and at least one but no more than two branded
drugs (with exceptions allowed if clinically inappropriate for a
class). Other bills require unspecified ``drugs within each therapeutic
class.''
---------------------------------------------------------------------------
THE BIDDING AREA AND URBAN-RURAL DIFFERENCES
I would now like to discuss two related questions that are very
important in designing a Medicare drug benefit: Should plans bid on
local or regional areas? And should there be adjustments for urban-
rural differences?
The current M+C program allows risk-bearing organizations to
designate service areas county-by-county (and even to select smaller
areas if there is a significant geographic barrier to covering a whole
county). Although there is some controversy around this definition, it
makes sense for M+C plans to serve small areas because medical care
markets are local. This is not the case for pharmacy benefit
management. Prices that PBMs pay for drugs are determined by national
volume, and utilization management techniques are national in scope as
well. Because there is no distinct local market, it follows that the
size of the bidding area should be determined by the minimum size
needed to achieve economies of scale in administration. As I mentioned
earlier, this might be at the statewide or regional level. Small states
could be combined to achieve the critical mass needed for an efficient
competitive bidding system.<SUP>14</SUP>
---------------------------------------------------------------------------
\14\ In a speech on January 23, Senator Max Baucus said that plans
should be required to serve large geographic areas of at least two
states. Montana's population of 140,000 seniors would have more options
if the service area included multiple states.
---------------------------------------------------------------------------
Bidding for large regions would solve the problem of access for
rural residents, which has plagued the M+C program. Plans would have to
cover all areas, both urban and rural, in the region. If the cost of
dispensing drugs were higher for rural pharmacies than for urban
pharmacies (although I know of no evidence that this is the case), then
urban residents would implicitly cross-subsidize rural residents in the
same bidding region. If local cost differences were discovered and
Congress wished to recognize them, it could add an explicit adjustment
factor to the payment system.
CONCLUDING OBSERVATIONS ON MEDICARE M+C
I would like to conclude with a few observations on the much-
maligned M+C program, which has been accused by some of being
unreliable and unstable.<SUP>15</SUP> The reason why some HMOs have
withdrawn from the M+C program is that the payment system is seriously
flawed. Instead of having HMOs tell the government how much it costs to
provide Medicare services through a competitive bidding process, the
government--which knows almost nothing about HMOs' costs--tells them
how much it will pay. Despite this flaw, the M+C program was still able
to offer 391 separate products with some form of drug coverage in
2001.<SUP>16</SUP> 288 of those products had coverage limits that
exceeded $800 per year, and 177 had unlimited coverage for generic
drugs. The average premium for M+C products with drug coverage was $41
per month. Finally, about 54% of all Medicare beneficiaries had at
least one drug-coverage M+C product available to choose in 2001.
Therefore, although the M+C program is far from perfect, it has
provided a choice of drug coverage for many Medicare beneficiaries, an
accomplishment that has been beyond the ability of fee-for-service
Medicare.
---------------------------------------------------------------------------
\15\ Public Citizen, ``Proposals to Offer Drug Coverage Through
Private Insurers and HMOs: A Step Backwards for Medicare,''
www.citizen.org/congress/reform/rx--benefits/drug--benefit.
\16\ This information is courtesy of Rachel Halpern, a graduate
student at the University of Minnesota. An M+C ``product'' is a benefit
package with an associated premium and geographic service area. Since
HMOs may offer more than one product, analysis of access to drug
benefits in the M+C program at the product level is more accurate than
simply looking at the number of HMOs that offer drug coverage.
---------------------------------------------------------------------------
Thank you for allowing me to present these remarks.
Mr. Bilirakis. Thank you, Doctor Feldman.
Mr. Herman.
STATEMENT OF DAVID HERMAN
Mr. Herman. Mr. Chairman and members of the subcommittee, I
am David Herman, Executive Director of The Seniors Coalition
(TSC). On behalf of our organization and its 4 million members
and supporters, I want to thank you for convening this hearing
and for your continued interest in studying the best means for
adding a much needed prescription drug benefit to the Medicare
program, while preserving Medicare for today's beneficiaries
and tomorrow's retirees.
We are grateful to you for this opportunity to present our
findings about the needs and desires of seniors in the Medicare
program, and our views on how best to meet those needs.
We all know that 21st century Americans consider
prescription medicine coverage to be a crucial component in
addressing their health insurance needs, but it is a fact that
seniors need that component more than other segment of American
society. Prescribed medication use increases with age and its
associated chronic and acute health problems. Yet, only two-
thirds of seniors have been able to address that need, and they
are doing so at a great personal expense.
The remaining one-third of the senior population that does
not have any prescription medicine coverage has no means of
ensuring adequate health coverage and treatment. Uninsured
seniors either do without their medication or they take reduced
quantities, thereby reducing and nullifying the benefits.
Eventually, this tactic can lead to deteriorated health and
more invasive and expensive health treatment. This is a
travesty on Medicare's original promise to provide seniors with
the highest quality health care in the world.
The Centers for Medicare and Medicaid Services reported in
2002 that Medicare paid only 53 percent of the total cost of
beneficiaries medical care. Who among us would purchase a
health insurance plan that covered only 53 percent of our
medical care costs?
In addition to coverage concerns, research conducted for
the Seniors Coalition indicates that seniors key concerns for
healthcare policy are: keeping healthcare affordable; providing
healthcare access for everyone; free health wellness programs
and illness protection; creating a prescription drug benefit
for Medicare; strengthening financially the current Medicare
program for the baby boomers who will soon enter the program;
and, Medicare is out of date and out of touch with the needs of
today's senior citizens.
Solutions seniors can live with, it becomes obvious then
from our research that all seniors need access to an affordable
prescription medicine plan. They need changes and choices that
take their varying financial and health status into
consideration. They want an insurance plan that allows them to
seek wellness care first, as opposed to illness treatment, and
in keeping with this selfless legacy they want it strengthened
for the next generation of beneficiaries, not just themselves.
In my full testimony, the Seniors Coalition addressed these
needs in detail. I'd like to highlight those now and
respectfully request that the subcommittee refer to my full
testimony for greater depth and detail.
Our seniors desire that prescription coverage be made a
core element of Medicare coverage through realistic legislation
modeled on a market-based plan like the Federal Employees
Health Benefits Program. To that end, our membership rallied to
support H.R. 4954, the Medicare Modernization and Prescription
Drug Act 2002, as an important first step toward such a market-
based plan.
We believe there are certain safeguards that must be
established in the prescription plans to ensure that seniors do
not receive a substandard plan that will require changes within
a few years. Specifically, we know that mandatory schemes
imposed by Medicaid, such as prior authorization and preferred
drug lists, are unacceptable limitations that can negate
seniors' benefits.
Our research indicates such schemes can result in a
systematic under-utilization of prescribed medications, which,
in turn, can pose a threat to quality of care and potentially
increase costs to the system.
Our research also indicates that seniors want a disease
management component in their Medicare plan that will encourage
and reward wellness and management of chronic diseases, and
they want protection from long-term care costs which accounted
for 41 percent of seniors out-of-pocket expenses in 1999. Non-
solutions seniors can live without.
The most critical problem in consumer acquisition of needed
medicine centers on price. The obvious culprits in the struggle
to contain costs of needed healthcare are the brand name drug
companies. While we realize we subject ourselves to criticism
from those who make such attacks, we believe it is most
important to the future of seniors' good health that we
continue to uphold our free market system that is responsible
for the remarkable products that such a system, and only such a
system, encourages.
While we've been a vocal advocate against exploitive
tactics by patent holders to unfairly extend patents and,
therefore, disadvantage consumers, at the same time we're
vigorous advocates for preserving the incentives for
development of innovative therapies to address age-related
chronic disease and physical disabilities attended to age.
Another suggested easy fix for the high cost of
prescription drugs is drugs reimportation. Some have proposed
that we simply establish a public policy that permits the
importation of other government subsidized prescription drugs.
Congress has previously received testimony on the deadly
effects of such actions, and the U.S. Food and Drug
Administration has definitely declared they cannot validate the
safety and efficacy of reimported drugs.
Our senior citizens want their own government, not foreign
governments, to support and ensure their prescription coverage.
When we compare the changes that have taken place in the health
insurance business in the past four decades, since Medicare's
inception, to the changes in Medicare there is no comparison.
Medicare is pretty much the same one-size-fits-all plan that
President Johnson initiated in 1965. Our seniors would like to
see Medicare, the only insurance plan available to many of its
35 million senior participants, catch up.
Thank you.
[The prepared statement of David Herman follows:]
Prepared Statement of David Herman, Executive Director, The Seniors
Coalition
Mr. Chairman and members of the Subcommittee, I am David Herman,
Executive Director of The Seniors Coalition (TSC). On behalf of our
organization and its four million members and supporters, I want to
thank you for convening this hearing and for your continued interest in
studying the best means for adding a much needed prescription drug
benefit to the Medicare program, while preserving Medicare for today's
beneficiaries and tomorrow's retirees. We are grateful to you for this
opportunity to present our findings about the needs and desires of
seniors in the Medicare program, and our views on how best to meet
those needs.
SENIORS HAVE A DISPROPORTIONATE NEED FOR PRESCRIPTION MEDICATION
We all know that 21st century Americans consider prescription
medicine coverage to be a crucial component in addressing their health
insurance needs, but it is a fact that seniors need that component more
than other segment of American society. Prescribed medication use
increases with age and its associated chronic and acute health
problems. Yet, only two-thirds of seniors have been able to address
that need, and they are doing so by meeting Medicaid requirements, by
continuing in private insurance plans through former employers, by
enrolling in Medicare+Choice, or by purchasing Medicare supplemental
insurance policies at additional personal expense.
The remaining one-third of the senior population that does not have
any prescription medicine coverage has no means of ensuring adequate
health coverage and treatment. They cannot afford supplemental
prescription coverage, nor can they afford to pay for their
prescriptions. To compound the problem, uninsured seniors do not
receive a discounted price that insured seniors' insurance plans afford
them. Uninsured seniors either do without their medications, or they
take reduced quantities, thereby reducing or nullifying the benefits.
Eventually, this tactic can lead to deteriorated health and more
invasive and expensive health treatment. This is a travesty on
Medicare's original promise to provide seniors with the highest quality
health care in the world.
ACKNOWLEDGING MEDICARE'S PROBLEMS
In a survey published in June 2002 from Medicare's 1996-1999
beneficiaries, the Centers for Medicare and Medicaid Services (CMS)
reports that Medicare paid only 53 percent of the total cost of
beneficiaries' medical care. Who among us would purchase a health
insurance plan that covered only 53 percent of our medical care costs?
When prescribed medicines were considered separately, Medicare pays
only 8.1 percent of all beneficiaries' cost, and that is inpatient
prescription costs. CMS also reports that while those Medicare
beneficiaries with drug coverage spend more on prescriptions than non-
covered beneficiaries, the non-covered beneficiaries pay 75 percent
more in out-of-pocket costs. In other words, those able to afford
prescription drug coverage are also able to afford more medications,
while those unable to afford prescription medicine coverage are forced
to pay very high out-of-pocket costs to attain those medicines they can
afford. This is upheld by CMS's data that shows that beneficiaries with
prescription drug coverage fill more prescriptions than those without
drug coverage, regardless of the number of chronic conditions they
have. For example, CMS reports that among beneficiaries with five or
more chronic conditions, those with drug coverage filled 44.4
prescriptions, while those without drug coverage filled only 38.6
prescriptions. It has become abundantly apparent that Medicare's
problem, the lack of a prescription medicine benefit, has become our
seniors' burden.
We certainly applaud the efforts that pharmaceutical companies have
made to make medicines more affordable to seniors through their
discount card programs. These programs have allowed millions of seniors
to access needed medicines they might otherwise not have been able to
afford. However, the utilization by seniors of these programs
highlights how important it is to enact broader real coverage for
prescription drugs under Medicare so that all seniors can benefit from
the solution we are presently working towards. Discount cards alone,
whether from the private sector or the public sector, does not equal
coverage and is not a solution.
That is not, however, the only problem our seniors experience in
their Medicare coverage. In a survey prepared for TSC by The Luntz
Research Companies, 42 percent of seniors listed the most important
healthcare policy as keeping healthcare affordable, and the second most
important healthcare policy as providing healthcare access for
everyone. When asked to choose the specific Medicare benefit most
important to them, 50 percent chose free health wellness programs and
illness protection, and 43 percent chose creating a prescription drug
benefit through Medicare. When asked to choose from several statements
about Medicare two statements that they most agreed with, 55 percent
agreed it was essential that we strengthen financially the current
Medicare program for the baby boomers who will soon enter the program,
and the second largest group agreed that Medicare is out of date and
out of touch with the needs of today's senior citizens.
ADDRESSING THE PROBLEMS: SOLUTIONS SENIORS CAN LIVE WITH
It becomes obvious then from our research that all seniors need
access to an affordable prescription medicine plan; they need changes
and choices that take their varying financial and health status into
consideration; they want an insurance plan that allows them to seek
wellness care first as opposed to illness treatment; and, in keeping
with their selfless legacy, they want it strengthened for the next
generation of beneficiaries, not just themselves.
For many years The Seniors Coalition (TSC) has communicated to
Congress our members' desire that prescription coverage be made a core
element of Medicare coverage through realistic legislation modeled on a
market-based plan like the Federal Employees Health Benefits Program
(FEHBP). This is the same model that was recommended by the 1999
National Bipartisan Medicare Commission. To that end, our membership
rallied to support H.R. 4954, The Medicare Modernization and
Prescription Drug Act of 2002, as an important first step towards such
a market-based plan. We support many of the provisions of this bill: A
voluntary and affordable prescription program that provides permanent
drug coverage while discounting medicines by as much as 60 percent to
85 percent; a reasonable deductible of $250, with protection against
catastrophic drug costs by capping them at $3,800 per year; choice in
plans that provides standard drug coverage or an improved benefit
package to meet individual seniors' needs; safeguarding the private
healthcare coverage that seniors already have; and, stabilization of
Medicare+Choice;
In addition to those choices and changes, we believe there are
certain safeguards that must be established in a prescription plan to
ensure that seniors do not receive a substandard plan that will require
changes within a few years. Specifically, we know that mandatory
schemes imposed by Medicaid such as ``fail first requirements,'' prior
authorization and preferred drug lists are unacceptable limitations
that can negate seniors' benefits.
Our research indicates that prior authorization schemes can result
in the systematic underutilization of prescribed medications, which in
turn can pose a threat to quality of care and potentially increase
costs to the system in terms of avoidable emergency room and hospital
admissions, physician visits, and nursing home stays. Medicines that
seniors' doctors prescribe may not be available because of these
mandatory schemes. This ``one-size-fits-all'' mentality is
counterproductive to the findings of pharmacogenetics, or personalized
medicine, which tells us that small differences between your genes and
those of your relative or neighbor can affect how you react--or don't
react--to a medicine. In an age when personalized medicine is becoming
the promise of safer, more effective treatment, we would not want to
see the government given a veto power that ignores the progress in
genetic research in favor of their corporate gain. The long-term
consequences to seniors could be grave. That's why we need to be able
to choose among plans.
Our research also indicates that seniors want a disease management
component in their Medicare plan that will encourage and reward
wellness and management of chronic diseases. A successful disease
management program has the potential to enhance a patient's health
outcome, control their disease, and avoid more invasive care while
reducing overall health care spending. Yet, Medicare does not provide
for sound coordination of care or disease management programs.
Another important protection that seniors need is protection from
long-term care costs. A CMS study on 1999 cost and use by Medicare's
beneficiaries showed that the majority of out-of-pocket spending was
for Medicare cost-sharing and payment for non-covered services. Long-
term care accounted for 41 percent of those expenditures. It is
estimated that more than half of all seniors may need long-term care
(LTC) during their lifetime, a statistical measure that points to the
importance of making long-term care an affordable component of
geriatric healthcare. The federal government, through Medicare and
Medicaid programs, is the largest purchaser of LTC, with expenditures
through 2020 projected to be $77.2 billion. Out-of-pocket expenditures
for LTC are expected to be $35.6 billion by 2020, and it is estimated
that ``donated care'' will climb to a value of at least $45 billion,
and possibly as much as $94 billion.
In a detailed study on the problems with, and solutions to LTC, the
Center for Long-Term Care Financing states that ``the current crisis is
dire. Somehow, the profession of long-term care must reduce its
dependency on public financing, which drags like an anchor on
profitability and quality of care. By some means or another, long-term
care must attract more of the consumer-driven, private financing that
will lift all boats.''
Despite such warnings, few Americans are prepared for the financial
apocalypse that long-term care ushers in. TSC supports legislation that
encourages the purchase of private insurance through tax deductible
long-term care insurance premiums and a tax credit for those with out-
of-pocket long-term care expenses. We support legislation that is
designed to protect seniors from the high and often financially
devastating costs of long-term care by allowing a deduction for
qualified LTC insurance premiums, use of such insurance under cafeteria
plans and flexible spending arrangements, and a credit for individuals
with long-term care needs.
THE PRICE CONUNDRUM
At its core, the most critical problem in consumer acquisition of
needed medicines centers on price. The affordability of prescription
drugs is a political hot-potato that seems to keep coming back year
after year. You are all familiar with the heart-wrenching stories of
seniors and economically fragile families, particularly those with
young children, who cannot afford to purchase drugs that are prescribed
by their doctors. We all know of seniors who are forced to make the
choices I referenced earlier between buying food or their prescription
drugs, or between the drugs and paying their rent or mortgage. It is
the kind of dilemma that no senior should be caught in. The obvious
culprits in the struggle to contain costs of needed health care, and
the one who many well-meaning but plainly wrong senior advocates
passionately attack, are the brand name drug companies.
Blaming brand name drug companies makes all of us feel better.
Blaming brand name drug companies is the intoxicating elixir of choice
for self-styled consumer advocates, and let's be honest--for many
Members of Congress--for relieving the political headache brought on by
high drug prices. However attractive the target, however pleasing the
rhetoric may sound as it fills the airways, and however simple a
solution it may seem, it is wrong.
Those who are hooked on the political elixir of blaming brand drug
companies will immediately brand me as a biased advocate for the drug
industry. That would be incorrect. The Seniors Coalition has been a
strong critic of exploitation by brand drug companies of patent
litigation for popular medications that effectively delays generic
competition. We believe strongly that when a patent term runs its
course, consumers have the absolute right to the benefits of a hotly
competitive pharmaceutical marketplace. We therefore support the
President's regulation that, once finalized, will prohibit patent
holders to unfairly extend patents and thereby disadvantage consumers.
But we also are vigorous advocates for preserving the incentives
for development of innovative therapies to address age-related chronic
disease and physical disabilities attendant to age. It is our
fundamental philosophy that seniors benefit from new drug breakthroughs
that help seniors avoid costly and often debilitating surgery; new
drugs that allow seniors to be mobile rather than trapped in
wheelchairs or in convalescent beds; new drugs that allow seniors to
live independently rather than in assisted living facilities; new drugs
that allow seniors to enjoy the quality of life rather than suffering
from one painful minute to another in a body incapable of normal
functions; and new drugs that literally extend the lives of seniors who
would otherwise be condemned to an early death.
The innovation that drives the development of such new drug
therapies cannot, and does not, exist in a price controlled
marketplace. Unfortunately, that is the remedy of choice now being
seized by elected officials and regulators on both the state and
federal level for high drug prices and the tool that is consistently
applied by Medicare and Medicaid regulators. It is a solution that is
so easy that it frankly seems too good to be true. It seems that way
because it IS too good to be true.
I would ask you to look at the benefits of new drug research that
have made real, quantifiable differences in the quality of life, and
indeed the length of lives of seniors.
Over the past decade, pharmaceutical research companies have made
dramatic advances in providing physicians more and more effective tools
to treat disease. Between 1993 and 2002, 363 new drugs, biologics and
vaccines that prevent and treat over 150 diseases and conditions were
approved for marketing by the Food and Drug Administration.\1\
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\1\ Pharmaceutical Research and Manufacturers of America, New Drug
Approvals Series (Washington, DC: PhRMA, 1994-2003).
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Let me describe a few of these advances that have impacted the
quality and length of life of America's seniors:
Beginning in 1995, a string of major advances in the treatment of
type 2 diabetes has allowed diabetic patients to more effectively
manage their condition. Prior to 1995, there was only one category of
medicines, aside from insulin, that were available to patients with
type-2 (also known as non-insulin dependent) diabetes. Since that time,
there have been five new classes of medicines developed, allowing
doctors to better customize treatment regimens to fit their patients''
needs. Because these medications have different mechanisms of action,
and different side effects, combination therapy (using more than one
type of medicine to treat the condition) can prevent patients from
becoming hypoglycemic (having blood sugar levels that are too low), as
well as prevent costlier complications, such as kidney problems.
Alzheimer's disease is a progressive disease that causes those who
suffer from it to gradually lose their ability to remember things and
to think clearly.\2\ All four of the prescription medicines, belonging
in two therapeutic classes, approved by the FDA to treat Alzheimer's
disease have been developed in the past decade. Approximately three
quarters of patients diagnosed with Alzheimer's disease are admitted to
a nursing home within 5 years of diagnosis. As study of one
cholinesterase inhibitor, rivastigmine, for treatment of mild to
moderate Alzheimer's demonstrated improved cognitive function and a
slowed rate of decline that delayed the move of patients to
institutionalized care. Savings are realized in both the direct costs
by delay of institutionalization and reduced caregiver burden. [H. Lamb
and K. Goa, ``Rivastigmine: A Pharmacoeconomic Review of its Use in
Alzheimer's Disease,'' Pharmacoeconomics, 19 (2001): 3.]
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\2\ National Institute on Aging, ``Alzheimer's Disease Fact
Sheet,'' February 2003 <www.alzheimers.org/pubs/adfact.html> (28
February 2003).
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These are just a few examples of the types of new, innovative
medicines whose discovery and development would well have been delayed
or eliminated completely in a price-controlled pharmaceutical market.
Please allow me to stress our strong belief that the solution is not to
attack this problem by limiting the ability of researchers to fund this
continuing valuable new drug research, but a clearly more rational
approach would be to develop appropriate public policies that will
permit patients who need financial assistance to access these
medicines.
The Seniors Coalition strongly repudiates price control schemes
that have been and those that are being considered at both the state
and federal level. Virtually all of these programs deny needed
medicines to seniors; place patients at substantial health risk,
including death; and deny seniors a quality of life that would
otherwise be available if they had the financial means to pay for these
needed medicines from their own pockets. That places seniors in a cruel
public policy vise where they are denied access to medicines they
desperately need today, and substantially limits the research for
breakthrough drugs that would otherwise be available to them in the
future.
America's seniors have been called the ``greatest generation.'' The
fruits of the sacrifice we have made are clearly evident. To call upon
this greatest generation to now make the additional sacrifice of our
health and well-being, to ask that we forfeit longer and more
productive lives, to require that we not have access to medicines that
would allow us to live independently and enjoy a quality of life would
not just be a sacrifice, it would be a penalty on America's seniors.
We look forward to working with this Subcommittee to develop more
responsible and effective public policies to preserve and protect the
secure and healthy retirement years of America's seniors.
THE REIMPORTATION FIX
There is another seemingly easy fix for the high cost of
prescription drugs. It is called reimportation. We simply establish a
public policy that permits the importation of prescription drugs from
one of our neighbors--the country of choice for many is Canada. We
state that a consumer cannot be charged any more for those drugs that
what a Canadian citizen pays. Drug costs in Canada are, for the most
part, much lower than they are in the United States.
That is such a simple solution that it too seems almost too good to
be true. Again, that is precisely because it IS too good to be true.
The primary reason Canadians can buy prescription drugs cheaper
than we can in America is because Canada has a socialized medicine
system that imposed strict price controls. So we are not really
reimporting drugs into America from Canada, we are importing an
economic policy that is antithetical to the free enterprise system we
adhere to, and such policies undermine the American patent system that
fundamentally recognizes the need for incentives for new drug
development to assure a robust pipeline of new drugs in the future.
Then, of course, there is the serious problem of patient safety.
The U.S Food and Drug Administration has definitely declared they
cannot validate the safety and efficacy of drugs imported from Canada.
The lack of regulatory controls in Canada, a country that is among the
better of many of our neighbors, is well documented with pervasive
contamination and counterfeit drugs.
CONCLUSION
The needs and desires of seniors might seem overwhelming if looked
at as only a request for more spending on a growing senior population.
But many, including the 1999 Bipartisan Medicare Commission, believe
that increased competition through a variety of plans will make
Medicare more efficient and save on its cost, while at the same time
making Medicare more flexible and more responsive to beneficiaries'
differing needs. Think of the changes that have taken place in the
health insurance business in the four decades since Medicare's
inception. Insured workers have gone from a one-size-fits-all plan to
plans customized for specific family structures by particular
industries. We have seen the addition and refinement of HMOs and PPOs,
and we have seen the addition of tax benefits like MSAs and FSAs. The
health insurance industry and the Congress have responded to the needs
and desires of those they serve and made new products and new tax
benefits available. But look at Medicare and what do you see? It is
pretty much the same defined benefit, one-size-fits-all plan that
President Johnson initiated in 1965.
Finally, think of the changes that have occurred in the senior
population since the 1960s. We enjoy better health, we have 20 percent
less disabilities than we did 20 years ago, we have a better overall
quality of life, and we live a lot longer. We'd like to see Medicare,
the only insurance plan available to many of its 35 million senior
participants, keep up with us.
Mr. Bilirakis. Thank you, Mr. Herman.
Mr. Vladek. Welcome, sir.
STATEMENT OF BRUCE C. VLADEK
Mr. Vladek. Thank you, Mr. Chairman, good morning, it's a
pleasure to be back here yet again. We haven't always agreed on
every issue, Mr. Chairman, but I've always been treated with
the greatest courtesy and consideration by you and your
colleagues on the committee, and a special appreciation to Mr.
Brown in that regard, and I'm pleased to be here again today.
I have prepared a written statement, I hope that it can be
put in the record, and I will try to be extremely brief in my
comments this morning. I won't make the arguments for the need
for a good prescription drug benefits for Medicare
beneficiaries, many of the members have already done that more
eloquently than I could, and I will not comment on specific
proposals, since one of the luxuries of my current employment
situation is I don't have to follow in detail all the current
proposals.
But, I do think as we try, as you try to work this year to
finally achieve a prescription drug benefit, it would be useful
to think about some of the lessons and from the experience with
the Medicare program over the last 35 years and some of the
lessons that have been learned in the life of the program as
principles to keep in mind in designing a program.
And, I think there are really five that are most important.
The first is, the absolute importance of a benefit that is
available to all seniors. I think we are all talking about a
voluntary drug benefit, modeled on Part B. Once you have a
payment involved, you need an opportunity for people to decline
the coverage rather than have to pay the premium, but as I
detail in my written testimony, unless the benefit is available
on, essentially, equal terms to all beneficiaries you will
create a web of inequities that I think is not otherwise
soluble.
Second, I think the benefit needs to be a good benefit. I
understand all the fiscal constraints and the tradeoffs, but
the fact of the matter is that if you look at prescription drug
expenditures by Medicare beneficiaries they occur across a wide
range of income distribution in many different parts of the
country, for people in many different kinds of circumstances,
and the more sophisticated and the more elaborate we get in our
design of caps, and ``collars,'' and ``donuts,'' and ``donut
holes'' and what else one might call it, the more folks who are
going to find the benefit a hollow promise that is of very
little value to them, and the fewer of those with the greatest
needs we are going to effectively cover.
In that regard, there's been a lot of talk with which I'm
very sympathetic and with which I strongly agree in principle
about designing special protections for low-income
beneficiaries, I know in other instances this committee has
spent a lot of time and effort on trying to protect low-income
beneficiaries, and I would just cite one statistic in that
regard. At the moment, despite vigorous efforts over the last
several years, somewhere in excess of 40 percent of all the
Medicare beneficiaries we believe are eligible for Medicare
savings programs, for QMB or SLMB or QI1, QI2, are not
enrolled, and in some States that number is as high as two
thirds of beneficiaries. It's one thing to target this stuff on
a chart in Washington to make up very fancy slides and graphs,
it's another thing, as we've learned with the child health
insurance program as well, to actually enroll people and keep
them enrolled, and any efforts to target at low-income people
our experience suggests are going to leave a lot of folks who
have very significant needs outside the system.
Fourth, when we talk about the use of private plans and the
employment of private plans in Medicare, I think we really have
to look at the record, rather than rhetoric, and we do have 20
years of experience at paying private managed care plans in
Medicare on a capitated basis, and I think there are a couple
of conclusions one can draw in that regard.
The first is that in administration of a drug benefit all
the things that Mr. Herman describes as undesirable, whether
they are lists of approved drugs, or differential prices for
different categories of drugs, or so forth, are things that
managed plans need to use.
Second, I very much share the concerns of Mr. Upton and so
forth about inequities in the existing Medicare+Choice system.
We spent a lot of time on that in 1996 and 1997, if you'll
recall, Mr. Chairman, I would argue that in a capitated or any
fixed price, private competitive system those problems are
inherently insoluble without incurring enormous additional
expense for the program, and I'd be happy to expand on that
further in the course of the discussion.
Finally, there's always sort of the notion that by giving
private plans responsibilities for certain administrative
functions, Congress or the executive branch can somehow be off
the hook from difficult decisions about who gets covered and
how. I think that's not been our experience, you just have a
different set of problems that you have to worry about.
I've already exhausted my time. Again, I appreciate the
opportunity to be here this morning and I thank you again, Mr.
Chairman.
[The prepared statement of Bruce C. Vladek follows:]
Prepared Statement of Bruce C. Vladeck, Mount Sinai School of Medicine
Mr. Chairman, Mr.Brown, Members of the Subcommittee, my name is
Bruce C. Vladeck. I am currently Professor of Health Policy and
Geriatrics at the Mount Sinai School of Medicine in New York City, and
engaged in a number of other activities in health care, including
Chairmanship of the Board of a developmental, pre-PACE, Medicaid
managed care plan for the frail elderly. As you know, I was
Administrator of the Health Care Financing Administration from 1993 to
1997, and subsequently served as a Presidential Appointee along with
Mr. Bilirakis and Mr. Dingell on the Bipartisan Commission on the
Future of Medicare. It is a pleasure to have the opportunity to appear
before you again. While we have not always agreed on every issue, I
have always been treated with the greatest of courtesy and
consideration by you, Mr. Chairman, and the Members of this
Subcommittee, and I very much appreciate the opportunity to renew those
acquaintances.
I will not take much of your time this morning describing the
importance of a prescription drug benefit for Medicare beneficiaries. I
believe that, by now, the necessity of such a benefit is almost
universally acknowledged, as is evidenced not only by the Members'
opening statements today but by the range of proposals already being
considered by this Congress. To me, it continues to be rather
astonishing that, at this juncture in our history, some ten million
senior citizens of the world's wealthiest nation lack even the most
basic coverage for the costs of prescription drugs that might prolong
their lives, reduce pain and discomfort, or prevent disability. But I
am hopeful that, through the work of this Subcommittee and your
colleagues in both Houses of the Congress, 2003 might finally prove to
be the year in which a worthwhile, effective benefit is enacted.
I will also not take up your time this morning commenting in detail
on any specific proposal for a Medicare prescription drug benefit. One
of the great advantages of my current circumstances is that I no longer
need to remain current with all of the details of specific proposals,
and I hope and expect that the legislative process before you is one in
which useful concepts and innovative ideas from a variety of different
sources will ultimately be melded into final legislation. Instead,
given my perspectives and my experience, I thought the most useful
thing I could do today would be to describe and comment on a handful of
issues and themes that I think must be adequately taken into
consideration in order to craft a Medicare drug benefit that will meet
the needs of beneficiaries, make administrative and fiscal sense, and
not hold out a promise to the nation's disabled and senior citizens
which their government is then unable to fulfill.
Specifically, I think there are five critical points that must be
considered:
First, a Medicare prescription drug benefit must be universal.
This is a large and heterogeneous country, and Medicare
beneficiaries are a diverse and heterogeneous group. Their needs--
including their needs for prescription drugs--vary from one individual
to another, and for individual beneficiaries over time. Further, while
those needs are strongly correlated with socioeconomic and health
status, they are not perfectly and uniformly connected to them. For
example, nearly half of Medicare beneficiaries who lack adequate
prescription drug coverage have incomes in excess of 200% of the
federal poverty level. So any benefit designed to cover only part of
the Medicare beneficiary population or only part of their costs will
invariably exclude at least some people who really need it; will create
inequities across geographical, social, and disease groups; and will
unavoidably create a series of notches or boundaries which will
invariably create resentment and perceptions of unfairness--not to
mention significant headaches for the Congress in the future.
Medicare's universality is one of its greatest strengths--both in
terms of popular support and simple administrative practicality.
Virtually every individual eligible for the program is enrolled, and
once enrolled, they receive the same level of Medicare-funded benefits
regardless of age, income, residence, or delivery system choice. Dr.
Karen Davis, President of the Commonwealth Fund, has recently produced
some estimates of the overall costs to the American health care system
of the very fragmentation and decentralization of our health care
system. Whether one agrees with every aspect of Dr. Davis's analysis or
not, the underlying point is that universality simply takes off the
table what is otherwise the source of considerable complexity,
confusion, and expense.
As the history of Medicare Part B over more than thirty-five years
well demonstrates, one can have a universal benefit for which
enrollment is voluntary. Every contemporary proposal for a Medicare
prescription drug benefit that I have seen calls for such voluntary
enrollment, and I agree that it is essential that beneficiaries have
the option of declining a drug benefit for which they would have to pay
an additional premium. But I would also remind the Members of this
Subcommittee that, of all the possible insurance benefits for services
heavily used by Medicare beneficiaries, insurance for prescription
drugs is especially susceptible to adverse selection--a phenomenon that
has already priced Medigap policies that cover prescription drugs out
of the market in most of the country. This adverse-selection problem
also helps explain the concerns that so many have raised about a stand-
alone drug benefit. Designing a prescription drug benefit that really
works for Medicare beneficiaries will therefore require setting a
premium level low enough to maximize enrollment, and thus avoid self-
selection by high-risk beneficiaries.
I am also aware that roughly one third of Medicare beneficiaries
currently receive prescription drug coverage through employment-related
retiree benefits--although that proportion is expected to fall steadily
in the coming years--and that it would be highly desirable, both for
beneficiary convenience and federal fiscal purposes, to keep as many
employers in the game as long as possible. There are a variety of ways
in which employers could be given financial incentives to maintain such
benefits, and so long as the net costs of the subsidies is no greater
than direct Medicare coverage would cost, I would think we should want
to do so.
Second, a Medicare Prescription Drug Benefit Must Be a Meaningful
Benefit
In an understandable effort to minimize program expense or hit some
sort of arbitrary budgetary target, many proposals for a Medicare
prescription drug benefit have contained complex combinations of
variable coinsurance, ``collars,'' ``caps,'' and ``donuts,'' to
precisely define the relative shares to be paid by insurance and
coinsurance at each level of beneficiary drug expense, and in many
instances as well to target insurance benefits on certain sub-
categories of beneficiaries. Yet many of those efforts run counter to
the basic underlying realities of Medicare beneficiaries and their
expenditures for prescription drugs. About one third of Medicare
beneficiaries spend $500 a year or less on prescription drugs; another
ten percent spend more than $6,000. But the majority of beneficiaries
are pretty evenly distributed across intervening levels of expenditure,
with the average for all beneficiaries being somewhere between $2,500
and $3000. At the same time, the median Medicare beneficiary living
alone has an income of roughly $15,000 a year, and will be paying close
to $800 of that for Part B premiums in 2004; the median couple, with an
income of slightly more than $25,000, will pay $1600 in premiums.
Assuming that any new drug benefit will carry an additional premium and
some form of coinsurance, it's clear to me that any additional holes in
coverage, above ordinary coinsurance, will vitiate the value of the
supposed benefit for many beneficiaries, and leave us right back where
we started in terms of the inability of beneficiaries to afford the
drugs they need.
Third, We Shouldn't Fool Ourselves About the Ability to Target Lower-
Income Beneficiaries
Cognizant of the extremely limited incomes of many Medicare
beneficiaries, the authors of most of the proposals for a Medicare
prescription drug benefit currently being discussed have sought to
provide additional protection for low-income beneficiaries, through
lower premiums or coinsurance or both. Some proposals have extended
prescription drug benefits to lower-income beneficiaries only. I
certainly share the belief that lower-income Medicare beneficiaries not
currently eligible for Medicaid are desperately in need of assistance
in paying for prescription drugs, and I am sympathetic to efforts to
tilt the design of any benefit structure in favor of those with lower
income, but I think it's critically important that we not deceive
ourselves about our ability to target benefits nearly as precisely as
we would like.
First, it's important to remember that something like 40% of all
Medicare beneficiaries live in households with incomes below 200% of
the federal poverty level. For some of those households, Medicaid
currently provides prescription drug coverage, but that still leaves
perhaps eight to ten million beneficiaries with low incomes and limited
coverage, if any, for prescription drugs, while millions more with
incomes just slightly above that level also have very limited financial
resources. So even relatively narrowly-targeted coverage will still
cost a substantial amount of money while leaving many beneficiaries
with very real needs uncovered.
Second, many of you will remember from our discussions of income-
related premiums during our work on the Balanced Budget Act the basic
fact that neither the Centers for Medicare and Medicaid Services nor
the Social Security Administration maintains any income information on
beneficiaries, other than that which is obtained from sample surveys.
The only comprehensive data on income of individual Medicare
beneficiaries is that maintained by the Internal Revenue Service, and
even that is extremely incomplete, since almost half of the elderly
population has insufficient taxable income to require filing of income
tax returns. IRS data, of course, is also retrospective and lagged;
some time this coming summer, we will have information on the 2002
income of roughly half of beneficiaries. Thus, any prescription drug
benefit in which premiums, coinsurance, or benefits vary by income will
require creation of an entirely new administrative apparatus, or
reliance on existing State Medicaid agencies or, in a few instances,
other State agencies that do income determinations for state-operated
pharmaceutical assistance plans. This is not just a problem of
bureaucratic complexity or expense; as our more recent experience with
the SCHIP program has taught us all too well, effectively reaching
individuals who are legally eligible for publicly-subsidized health
insurance benefits requires a systematic investment of administrative
commitment, time, and resources.
In short, policy proposals for income-related targeting that look
extremely elegant on the spreadsheets and PowerPoint presentations of
Washington policy analysts are often highly inapplicable in the real
world. This is not just a theoretical problem; we only have to look at
the experience of the Medicare Savings Programs to recognize that, even
under the best of circumstances, benefit programs that require
specialized outreach and income-eligibility determinations are
extremely unlikely to reach all who should be able to benefit from
them. Under the most recent estimates, for example, more than 40% of
Medicare beneficiaries eligible for SLMB/QMB benefits are not enrolled,
and in some states that proportion exceeds 60%. What should also be
recognized, in addressing the problems of low-income Medicare
beneficiaries, is of course the interaction with Medicaid. States are
now spending some $13-15 billion a year on prescription drug benefits
for dually-eligible Medicare-Medicaid beneficiaries, of which $5-6
billion is their own tax-levy money, with the balance being federal
match. Even a relatively modest, universal Medicare prescription drug
benefit would thus generate very substantial savings for the states, at
a time when fiscal relief is desperately needed. Conversely, even with
all of the fiscal pressure on state Medicaid budgets, it is not hard to
envision building into Medicare prescription drug legislation some
expectation of continued Medicaid wrap-around coverage not only for
beneficiaries for whom Medicaid is currently paying the whole bill, but
for a somewhat expanded pool of low-income beneficiaries in addition.
Such an approach would be particularly desirable because the actual
benefits provided under Medicaid are far superior to those offered by
even the most generous Medicare prescription drug benefit proposals now
before the Congress.
Fourth, the Design of a Medicare Drug Benefit Should Be Grounded in
Actual Experience with Private Health Plans, Not Rhetoric or
Special-Interest Pleading
For those of us who participated in the debates leading up to the
enactment of the Balanced Budget Act in 1997, the current preoccupation
with the potential role of private plans in provision of a Medicare
prescription drug benefit can't help but generate a disconcerting sense
of deja vu. I am also reminded of the old adage about second marriages:
that they represent the triumph of hope over experience. For while much
of the rhetoric about the potential role of private plans is
essentially unchanged from what we heard five or six years ago, we now
have another five or six years' worth of actual experience from which
we can deduce some pretty clear-cut conclusions.
Private managed-care plans have participated in Medicare throughout
its history, and significant participation by private plans paid on a
capitated basis has now been going on for almost twenty years. We have
a lot of actual experience, and a lot of data. While analysts can argue
ad infinitum about almost any point that has ideological or political
implications, I believe that several conclusions from that experience
are crystal clear:
1. To date, participation of private plans in Medicare has yet to save
the Medicare program a nickel. Prior to the BBA, Medicare's
rate methodology, interacting with favorable risk selection for
the plans, produced payments to private plans significantly in
excess of what Medicare would have paid had those beneficiaries
remained in fee for service. Changes in the payment formula
contained in the BBA, along with the fact that private sector
costs have increased much more rapidly than those in Medicare
FFS, have largely eliminated this phenomenon by now, but have
also driven many plans out of the program.
2. Even if one could establish a perfectly ``level playing field'' in
payments between Medicare fee-for-service and private plans,
private plans would still incur marketing, enrollment, and
administrative costs (in addition to any possible profit) that
don't affect ``traditional'' Medicare. In order to provide
precisely the same services at the same costs, therefore,
private plans have to either be at least 15-20% more efficient
in their use of services than Medicare, or else extract prices
from providers lower than those Medicare pays, something that
was quite prevalent before the BBA, but that is no longer
possible in most communities. While private plans are often
more economical in their use of services than the traditional
system, documented evidence of a 15-20% differential is
extremely hard to come by.
3. Thus, historically, private plans have been able to provide
additional benefits to Medicare beneficiaries without
additional premiums only when they were overpaid.
4. When private plans are not happy with Medicare payment levels or
other environmental conditions, they leave the program. They
also leave as a side-effect of continuing consolidation,
reorganization, and corporate restructuring in the private
health insurance industry. One should hardly expect anything
different from private, for-profit firms, but the effect of
such departures on beneficiaries can be quite significant. Plan
turnover certainly raises significant issues about continuity
of care for beneficiaries. It should also be emphasized that
the widespread withdrawal of private plans from Medicare in
2001 and 2002 was hardly unprecedented: a proportionately
similar number of plans withdrew in the late 1980s.
5. In general, managed care plans are much more prevalent, and much
more successful, in urban than rural areas. Few rural
communities have the kind of oversupply of providers that gives
managed care plans their greatest leverage over prices and
patterns of care, and marketing and enrollment costs per
beneficiary are much higher in rural areas.
6. The data are also quite clear, and consistent over the past fifteen
years, that the overwhelming majority of the small minority of
Medicare beneficiaries enrolled in private plans are highly
satisfied with the choice, while the overwhelming majority of
those who have chosen not to enroll in, or who have left,
private plans are also highly satisfied with Medicare, and
don't want to enroll in private plans. One would hardly expect
anything different. Nor is it surprising that Medicare
beneficiaries, in general, are substantially more satisfied
with their health insurance than enrollees in private plans who
are denied the opportunity to make those kinds of choices.
7. Finally, as those private plans that have remained in Medicare +
Choice over the last several years have sought to adjust their
benefit and premium structures to survive economically in a
more difficult and rapidly-changing market, they have come up
with a variety of limits, coinsurance arrangements, and premium
structures for their prescription drug coverage that make
inter-plan comparisons increasingly difficult to describe, let
alone making the choice process more difficult and confusing
for beneficiaries.
In sum, whatever the rhetoric may be, I think the data concerning
the participation of private plans in Medicare leads unavoidably to the
conclusion that, for a minority of beneficiaries, when payment levels
and benefit structures are roughly equivalent with the fee-for-service
program, private plans can produce some benefits--although cost savings
are clearly not among them. Requiring beneficiaries to enroll in
private plans in order to obtain affordable prescription benefits, on
the other hand, would be inherently inflationary, would discriminate
against rural beneficiaries and those in other low-managed care
markets, would make a lot of beneficiaries very unhappy, and would
cause considerable administrative and political turmoil when market
exigencies induced lots of plan exits.
Fifth, No Matter How Much Privatization is Involved in Construction of
a Medicare Prescription Drug Benefit, There Will Still Be A
Complex, Unavoidable, Difficult Federal Role
One of the great attractions of private managed care for purchasers
both public and private, I've long believed, was the illusion that
turning health insurance functions over to private plans would reduce
the burden on purchasers of making difficult decisions about coverage,
benefit design, and access to care. But both employers and legislators
have learned that it's not so easy to get off the hook; the same
problems come back in new forms.
Widespread participation by private plans in the delivery of a
Medicare prescription drug benefit, for example, might produce
considerable variation in benefit design, formulary composition,
substitution policies, and customer service strategies, but if Medicare
beneficiaries throughout the country are to receive relatively uniform
benefits and relatively equal access to needed drugs, and if there is
to be sufficient accountability in the expenditure of public funds,
then the more participation there is by private plans, and the more
freedom they are given in benefit design and administration, the more
formidable the federal standards-setting and monitoring task will be.
Unless private plans were required to cover every drug listed in the US
Pharmacopeia with uniform coinsurance, the opportunities for
manipulating formularies, appeals mechanisms, and/or tiered coinsurance
levels to achieve favorable risk selection are so substantial and so
pervasive that uniform national policies will be unavoidable, and
someone will have to not only figure out how to establish them, but how
to enforce them. Marketing practices and public disclosure issues pose
similar challenges. And as the growing volume of litigation around PBMs
suggests, ensuring program integrity in an industry in which rebates,
proprietary pricing information, and sophisticated, complex, promotion
schemes are widespread will also require considerable effort by the
federal government.
Indeed, given the history of the pharmaceutical insurance and
distribution industries over the last decade or so, I think it's no
exaggeration to suggest that widespread participation by private plans
in delivery of a Medicare prescription drug benefit would leave the
Congress with a policy choice between a highly regulated private
``market'' and a scandal waiting to happen. Either of those
alternatives is likely to be more expensive, in the aggregate over
time, than a uniform benefit directly administered by government
contractors through well-established, existing mechanisms.
In summary, I think that there are many who believe that we now
have an historic opportunity to enact a real, effective, administrable
prescription drug beneficiary that will provide critical access to
needed pharmaceuticals for millions of Medicare beneficiaries, ease the
financial burden on millions of hard-pressed families, and make
available to Medicare patients and their health care providers the full
armamentarium of modern medicine, with all the benefits that can
produce. But I very much hope that we can get it right the first time;
that our policies will be guided more by realism and experience than by
theories or ideologies--no matter how seductive some of those might be;
and that we do our best to avoid policies or processes that are bound
to fail.
Again, it's been a pleasure and a privilege to have the opportunity
to appear before you again, and I'd be delighted to try to respond to
any questions you might have.
Thank you very much.
Mr. Bilirakis. Thank you, Mr. Vladek.
Mr. Olsen, please proceed, sir.
STATEMENT OF ERIK D. OLSEN
Mr. Olsen. Mr. Chairman and members of the subcommittee, my
name is Erik Olsen. I am a member of AARP's Board of Directors.
On behalf of our 35 million members, I want to thank you for
including us in this discussion of how to design a Medicare
drug benefit. A meaningful and affordable Medicare drug benefit
remains a top priority for AARP. As a Medicare beneficiary
myself, I can tell you personally about the importance of drug
coverage. Yet, despite the promise of relief, older and
disabled Americans continue to face double digit increases in
both drug spending and fewer options for coverage, through
employers or managed care.
Our members and their families are counting on your
leadership and action for this year. Our members also tell us
that a Medicare drug benefit should have several key features.
It should be available to all beneficiaries, whether they
choose traditional Medicare, managed care, or a new coverage
option.
It should be stable to provide coverage that we can rely on
from year to year.
It should provide extra help for people with low incomes.
It should protect those with the highest costs, and
moreover, it should not create more incentives for employers to
drop current retiree coverage for disadvantaged beneficiaries
in the traditional Medicare program.
More specifically, we have learned from research we
conducted with AARP members and the general public that
acceptable premiums should be no more than $35 a month. A
$6,000 catastrophic cap is generally viewed as too high to
provide real assistance.
Benefit designs that have gaps in coverage are viewed
negatively. Some believe drug coverage should be linked to
fundamental changes in Medicare. AARP does believe there is
room for some improvements in Medicare. We support sensible
improvements, as long as they start with drug coverage and they
would not put the traditional fee-for-service program and the
millions of beneficiaries who rely on it at a disadvantage.
We also urge you to consider the following in designing a
drug benefit. It should promote safety and quality, and be
integrated into the program, so it can foster better care
management for chronic diseases. It should include cost
containment mechanisms that do not compromise safety or access
to needed drugs. It mus also have adequate financing. We
recognize that a meaningful benefit requires a sizable
commitment of Federal dollars, and that budget constraints are
greater than last year. Nevertheless, the situation facing
millions of older and disabled persons, who cannot afford the
drugs they need, continues to worsen, and constitutes a
healthcare and financial emergency that must be addressed.
We learned from last year's debate that more than $400
billion will ultimately be needed to design a meaningful
benefit. Any Medicare reforms or provider give backs will
require additional funding.
We understand the challenges in designing a meaningful
Medicare drug benefit. We will provide assistance in every way
we can to work with members on both sides of the aisle, because
we all share the same goal, enactment of a meaningful and
broadly supported Medicare prescription drug benefit this year.
I thank you again for inviting us to be here, and I'd be
happy to answer any questions you might have.
Thank you, Mr. Chairman.
[The prepared statement of Erik D. Olsen follows:]
Prepared Statement of Erik D. Olsen, AARP Board Member
Mr. Chairman and members of the Subcommittee, my name is Erik
Olsen. I am a member of AARP's Board of Directors and a Medicare
beneficiary. On behalf of the organization and our 35 million members,
I want to thank you for convening this hearing and for including us in
your discussions about how to design a much needed prescription drug
benefit for Medicare beneficiaries.
Members of this Subcommittee have noted many times before that,
given the prominence of drug therapies in the practice of medicine, if
Medicare was designed today--rather than in 1965--not including a
prescription drug benefit would be as absurd as not covering doctor
visits or hospital stays. The focus of this hearing, therefore, is very
important--rather than questioning whether to add prescription drug
coverage to Medicare, the issue before us is how to do so. Enacting a
meaningful and affordable prescription drug benefit for beneficiaries
remains a priority for AARP, our members and their families. The
addition of a prescription drug benefit is central to a 21st century
Medicare program.
I am pleased to discuss AARP's recommendations and share with you
some recent findings of what our members tell us they need in terms of
Medicare prescription drug coverage. AARP members and their families
are looking to you for leadership this year in making a prescription
drug benefit in Medicare a reality.
Older and disabled Americans continue to face double-digit
increases in drug spending and fewer options for coverage through
employers or managed care. Thus, while modern medicine increasingly
relies on drug therapies, the benefits of these prescription drugs
elude more Medicare beneficiaries every day. The lack of drug coverage
threatens access to needed medications for many older Americans.
Furthermore, the lack of a drug benefit in Medicare today poses ``a
perfect storm'' scenario for the future:
<bullet> Changing Demographics--The retirement of the ``baby boom''
generation will nearly double the number of Medicare
beneficiaries in the program. As people are living longer, they
become more likely to develop chronic conditions treated with
medications. Medicare must be prepared to handle the unique
health care needs of a growing number of older Americans who
reach not only age 65, but age 85, or even 100--and also a
growing number of disabled individuals.
<bullet> Increased Reliance on Drugs--Prescription drug use increases
not only with age but also with the prevalence of chronic and
acute health problems. Nearly 90% of Medicare beneficiaries
filled at least one prescription in 1999.
<bullet> Higher Drug Spending--Prescription drug costs among the
Medicare population are rising rapidly. Total spending for
prescription drugs is increasing at an annual rate of around 12
percent. By 2002, average annual out-of-pocket prescription
drug spending by Medicare beneficiaries reached $860. This
trend is projected to continue in the near future due to limits
on drug coverage and other factors, including the continued
introduction of new, high-priced drugs and potential increases
in demand stemming from direct-to-consumer advertising.
<bullet> Higher Prices--While the majority of the increase in drug
spending is due to greater utilization and shifting from older,
lower cost drugs to newer, higher cost drugs, increasing drug
prices are still an important component. Between 1993 and 2001,
prices for all prescription drugs rose at more than triple the
rate of inflation. Prices of brand name prescription drugs have
been rising at three and a half times the rate of inflation.
<bullet> Declining Coverage--Most Medicare beneficiaries have some form
of supplemental drug coverage, but access to these benefits is
declining. Employer-based retiree health coverage is eroding.
Managed care plans in Medicare have scaled back their drug
benefits. The cost of private coverage is increasingly
unaffordable. State programs provide only a limited safety net.
About 40% of Medicare beneficiaries lack prescription drug
coverage at some point in the year; most of these beneficiaries
lack coverage for the entire year.
<bullet> Impact on States, Private Sector, and Public Policies--
Increasing drug costs combined with the surging older
population are already taking a toll on state budgets, private
sector offerings and public policies. Medicaid spending on
prescription drugs increased at an average annual rate of
nearly 20% between 1998 and 2001. Medicare HMOs covering
prescription drugs have reduced their benefit--more than 4 in
10 enrollees have a drug benefit cap of $750 or less. Until we
achieve affordable and sustainable drug coverage in Medicare,
pressures for other cost-reducing measures--re-importation,
price controls, litigation--will only increase. Pressures will
continue to squeeze not only public programs, but also
businesses that will drop or restructure drug coverage.
Therefore, the need for a Medicare drug benefit for all
beneficiaries will only continue to grow. Congress must act this year
to provide Medicare beneficiaries with relief from the devastating
costs of prescription drugs. Our country cannot afford to wait any
longer.
What Older Americans Need in a Drug Benefit Design--Our members
tell us that a Medicare prescription drug benefit should be:
<bullet> Universal--All Medicare beneficiaries need access to
affordable, meaningful prescription drug coverage--whether they
choose to stay in the traditional fee-for-service option or
participate in managed care or any other coverage option.
<bullet> Stable--Medicare beneficiaries need stable and dependable drug
coverage that they can rely on from year to year. Current
prescription drug options are not reliable. For example, the
share of large employers offering retiree health benefits is on
the decline--24 percent of employers with 200 or more employees
offered health coverage to their Medicare-age retirees in 2001
compared to 31 percent in 1997. In addition, beneficiaries who
have drug coverage through Medicare HMOs cannot depend on
having this coverage from year to year, as plans can change
benefits on an annual basis or even terminate their
participation in Medicare. For example, 50 percent of Medicare
beneficiaries nationwide had access to a Medicare+Choice plan
with prescription drug coverage in 2002 compared to 65 percent
in 1999. Of the Medicare+Choice plans providing a drug benefit,
51 percent only covered generic drugs in 2002 compared to 18
percent in 2001.
<bullet> Catastrophic Coverage--Medicare beneficiaries need protection
from extraordinary out-of-pocket costs.
<bullet> Low Income Assistance--A Medicare drug benefit should provide
low-income beneficiaries with additional assistance.
<bullet> Not Disruptive--A Medicare drug benefit should not create more
incentives for employers to drop current retiree coverage or
disadvantage beneficiaries in the traditional Medicare program.
Over the course of the last two years, AARP has conducted research
asking our members and the general public about the attractiveness of
benefit design options. An attractive benefit is necessary in order to
generate the high level of participation needed (i.e., the necessary
risk pool) for a workable Medicare benefit. We have the learned the
following thus far:
<bullet> Medicare beneficiaries are willing to pay their fair share for
a meaningful prescription drug benefit, but the premium and
coinsurance must be reasonable. We know, for instance, that
beneficiaries would not be likely to enroll in a prescription
drug plan with a premium of $50 a month. Our research suggests
that a $35 a month premium is nearing the maximum amount that
the public indicates it is willing to pay for a stand alone
drug benefit, although willingness to pay any premium is highly
dependent on the cost of the plan's other components.
<bullet> While the amount of the beneficiary premium drives the
equation, our members also look at the program design features
in combination with one another. This means it is difficult to
assess a single component of a package. For example, some
beneficiaries might look more favorably on a higher level of
coinsurance if the premium was lower, or vice versa. In a poll
conducted last year for AARP, of 885 individuals age 45 and
over, only one-third of those 65 and over said they would be
likely to participate in a prescription drug plan that
included: a $35 monthly premium, 50% coinsurance, a $200 annual
deductible, and a $4000 stop loss.
<bullet> Most Medicare beneficiaries are concerned about the
unpredictability of health care costs and want to know what
they will pay out-of-pocket. This makes real catastrophic stop-
loss protection that limits out-of-pocket costs an important
component of any package. Our members have indicated that a
$6,000 catastrophic stop-loss is viewed as too high--since most
believe they will never reach a cap at that level--and even a
$4,000 cap is not viewed as providing adequate benefit
protection.
<bullet> Public reaction to gaps in drug coverage (``donut holes'') is
highly emotional and deeply negative. Thus, any proposals
containing such provisions, regardless of the cost of the other
components, have always been very poorly rated in our research.
<bullet> Discount cards with discounts in the 10-25% range are viewed
as not providing much assistance, particularly because this
level of discount is available from other sources, such as
current buying clubs or pharmacy chains. In addition, members
question the price to which any discount will apply. Increasing
the discount to a 30-35% range somewhat improves overall
reaction.
Our findings thus far indicate--not only beneficiary preference--
but also what is necessary to create a benefit that is attractive
enough to yield a broad risk pool and to build a strong and viable
program. We will continue to seek the views of AARP members and future
members on specific design packages and we would be happy to work with
this Committee as proposals are developed.
ADDITIONAL POLICY CONSIDERATIONS IN DESIGNING A DRUG BENEFIT
Adequate Financing--The first step in designing a Medicare drug
benefit will be to ensure that enough money is available in the budget
to accomplish this goal. We recognize that to design the kind of
prescription drug coverage that beneficiaries will find meaningful
requires a sizeable commitment of federal dollars. We also recognize
that budget constraints are greater than last year. But while the
budget situation changes from year to year, the situation facing
millions of older and disabled persons who cannot afford the drugs they
need continues to worsen, and constitutes a health care and financial
emergency that must be addressed.
The House and Senate budget resolutions now in conference allocate
$400 billion over ten years for prescription drugs, program reforms,
and provider givebacks. As we all learned from last year's debate, more
than $400 billion will ultimately be needed to design a Medicare
prescription drug benefit that will attract enough beneficiaries. AARP
has urged the budget conferees to allocate the full $400 billion for a
prescription drug benefit and we further believe that Congress will
need to revisit the budget amount in order to facilitate the enactment
of a workable benefit design. Any Medicare reforms or provider
givebacks will require additional funding.
Cost Containment--We recognize that strong and effective cost
containment measures are a necessary part of a Medicare prescription
drug benefit. In order for a drug benefit to be sustainable over the
long run, mechanisms must be in place to control the rising costs of
prescription drugs. AARP actively supports solid cost containment
methods as long as patient safety and well-being is not compromised and
access to prescription drugs is not impeded. We also support the
responsible promotion of generic drugs as one effective cost
containment tool.
Chronic Care--Improving how chronic care services are provided in
Medicare is another major challenge facing the Medicare program of the
21 century. The inclusion of a prescription drug benefit in Medicare
would greatly advance efforts to address this challenge, because high
quality treatment of many chronic conditions is inextricably linked to
prescription drug therapy. Millions of beneficiaries who suffer from
chronic conditions must have access to such state-of-the-art drug
therapies if they are to receive high quality chronic care. Further, in
order for Medicare to ensure high quality care and quality improvement,
it must have access to prescription drug claims and utilization data.
Having such data would permit providers and QIOs to link information on
prescription drug use with hospital and claims from other care
settings, thereby facilitating disease management and similar
strategies that help to address the needs of individuals with chronic
conditions. In the long run, such efforts should not only help to
improve care, but may also reduce unnecessary hospitalizations or
nursing home stays.
Quality and Safety--A Medicare prescription drug benefit should
also be designed and administered in a way to promote higher quality
and safe use of pharmaceuticals. This can be accomplished, for example,
through discount cards that track pharmaceutical purchases and are
connected to electronic systems that flag potential problems for the
physician or pharmacist.
Structural Reforms--Some policy makers have urged that prescription
drug coverage not be undertaken without fundamental changes in
Medicare. AARP believes that there is room for some improvements in
Medicare. The addition of a prescription drug benefit is one example.
Better delivery of care to chronically ill beneficiaries is another
necessary improvement. Any changes to Medicare, however, need to
improve the program and its ability to provide affordable health care
to older and disabled Americans. We would not support reforms that put
the traditional fee-for-service program, upon which millions of
beneficiaries rely, at a disadvantage.
AARP believes we should strengthen Medicare for the decades ahead.
We must acknowledge the fundamental importance of this program to older
Americans who have come to rely upon and value the health coverage it
provides. Medicare is a great success story in a health care system
where tens of millions of Americans remain uninsured. We advocate
sensible improvements to strengthen Medicare, as long as they include
prescription drug coverage and ensure that the program remains the
solid rock of health care upon which more than 40 million Americans
rely.
Conclusion--Our members believe that Congress should work to
achieve the goal of an affordable Medicare drug benefit this year. We
understand the challenges in designing a proposal for a responsible
Medicare drug benefit that can take us through the 21st century. We
pledge that we will provide assistance in every way we can to work with
Members on both sides of the aisle to adopt a meaningful and broadly
supported Medicare prescription drug benefit.
Mr. Bilirakis. Thank you, very much, Mr. Olsen.
Well, in 1988, and we'd like to more often than not forget
this, Congress passed a Medicare Catastrophic Coverage Act,
which among other things added, as you may recall, catastrophic
drug benefit to the traditional Medicare program. The
legislation was repealed months after it was enacted in 1989.
It would have provided a drug benefit with a $600
deductible and 50 percent co-insurance at drug purchases, et
cetera, et cetera. There are more parts to it.
Doctor Crippen, this certainly was not your responsibility
at the time, I really don't know off hand what you were doing
back in 1988-1989.
Mr. Crippen. Actually, I was working for President Reagan
on this issue at the time.
Mr. Bilirakis. Oh, you did. Well, in any case, the CBO cost
estimate of the plan at the time of enactment was $5.7 billion
over 3 years, and we know that less than a year later these
estimates doubled to $11.8 billion. What was the reason for
that, very briefly.
Mr. Crippen. I'll tell you that I don't know the exact
reason for that doubling. I will tell you that having been
working in the administration at that point we thought at that
time the CBO estimates were too low. In fact, the HHS actuaries
were, I think, as I recall, in the neighborhood of $12 to $15
billion. So, I think the CBO estimate was just, frankly, too
low. I don't know exactly why.
Mr. Bilirakis. What did they do during that particular
period of time to, basically, double the estimates? Did they go
back into it?
Mr. Crippen. They reexamined their techniques. I'd like to
think we talked them into reality from the other end of the
street, but I'm not sure. Doctor Reichauer, as I recall, was
the Director then, and I have not discussed with him what
exactly changed in that period, but it was not a change of
facts so much as it was a change of projection of the future.
Mr. Bilirakis. Mr. Olsen, you heard Mr. Herman, and I've
heard from many beneficiaries who, basically, have said, look,
give us a plan, make available to us a plan that's similar to
the plan that you have as a Federal employee. And, Mr. Herman,
basically, thinks that we ought to have a drug benefit modeled
after the Federal Employee plan.
Well, tell me, what would be wrong with that?
Mr. Olsen. First of all, I want to emphasize that the
current Medicare program, including Medicare+Choice, have
rather substantial private sector components involved in them
at the current time.
Mr. Bilirakis. All right.
Mr. Olsen. So, there is----
Mr. Bilirakis. And, that's bad.
Mr. Olsen. [continuing] ``private sector'' no, I'm saying
that is true, and Medicare is a very popular program, as I
think you all understand.
One of the concerns that we would have is there is a
different population with different needs, and more chronic
illnesses, and that type of thing. Also, there are many seniors
who are on fixed incomes which do not increase year to year,
and, therefore, there's probably a greater concern relative to
the stability of the program from year to year, so that the
rates go up but my fixed income does not go up.
Mr. Bilirakis. Of course, Part B keeps going up.
Mr. Olsen. I understand that.
Also, it's very critical for seniors to know, as far as the
stability, to know that they have a defined benefit, guaranteed
by the Congress in the law, that they can receive so that they
don't have to worry, like current participants, some of my
friends in Medicare+Choice, to wonder if their plan will
include prescription drugs this coming year or not. So, the
stability, or in some cases even if they are going to be in
business, if they go out of business, so it's very important
that the benefit be defined and there not be a year-to-year
concern by the beneficiaries and they get yanked back and
forth.
Also, there does seem to be a problem in the geographical
differences, and not, for instance, Medicare right now not all
areas are covered by private, by Medicare+Choice. That would
have to be.
So, those are some of the elements we would be concerned
about as we build.
Mr. Bilirakis. Of course, if this were to take place,
obviously, you'd have to solve that particular problem, make
sure that the access is virtually equal all over the country.
In your opinion, do you feel that the Medicare, that
today's Medicare beneficiaries versus, let's say, 20 years from
now the Medicare beneficiaries, would have a bigger problem in
terms of making the choices, arriving at the choices?
Mr. Olsen. You raise an interesting point and probably not.
I can't really look ahead 20 years, but in one way I can look
back 20 years. I had the assignment, if I might say, of when
they passed in 1997 the balanced budget with all the new
choices, the different alphabet choices, of explaining that to
one of the senior areas of Sun City in Arizona. And so, I got
up and started explaining. I was at least 20 years junior of
anyone in that room probably, lots of widows, and I'm sure
you've done this. I was so proud of myself, it was hot off the
press, I was explaining all these new alphabet choices, and I
got about half way through and I saw everybody out there in the
audience was aghast. And so, I finally figured out that what I
said to them, but, wait a minute, I says, you don't have to
change out of your current plan or change your doctor, and you
could almost see the audience----
Mr. Bilirakis. Sigh of relief.
Mr. Olsen. [continuing] sit back in their chair.
So, I relate back to 20 years ago. They were worried about
choice of doctor, and so have we changed in 20 years, to say
myself, probably. Will we change in 20 more years? I suppose.
Mr. Bilirakis. People will be going on to Medicare who had
been parts of managed care plans through their employer for the
most part, and somewhat more familiar than they were 20 years
ago, or even today, would you say?
Mr. Olsen. I would say that's true, but I think we still
ought to probably recognize very much that as when people get
to the age probably of the people I was talking to at that
time, they are not, you know, you really have to have it as
adaptable to change.
Mr. Bilirakis. Yes, I've experienced that, too, in my
congressional district.
Thank you, Mr. Olsen.
I'm sorry I took a little more time.
Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Crippen, you made a very cogent case against the
President's tax cuts. I very much appreciate that. I've
noticed, if I could enter it into the record, budget and policy
priorities points out that the tax cut will consume over the
next 75 years between 2.3 and 2.7 percent of GDP, the Medicare
and Social Security deficits will consume about half that. The
tax cuts will be somewhere between $12 and $14 trillion over 75
years. The deficits of Social Security and Medicare funds will
be about slightly under $10 trillion, so I think the gloom and
doom about Medicare and Social Security are a bit overstated,
and I think our country absolutely can afford this program.
Mr. Chairman, I'd like to enter this in the record, if I
could.
Mr. Bilirakis. Without objection.
Mr. Brown. I would like to ask Mr. Vladek a question. First
of all, thank you for your emphasis on simplicity. I sat
through this mark-up last summer in this subcommittee and in
the full committee on the prescription drug bill, and then the
Republican plan was so confusing with donuts, and co-pays and
deductibles, and I think seniors, the importance of simplicity
cannot be overstated.
Mr. Vladek, as you know, premiums in private plans have
increased rapidly in the past few years. The FEHB has increased
9 percent per year for the last 5 years, in fact, it increased
13 percent last year, employee share of Blue Cross, Blue Shield
standard option has gone up 15 percent. CALPERS, the California
State Employees system, similar to FEHB saw premiums increase
25 percent last year.
And, if you would, when you look at people wanting to go in
and privatize this system, and push a lot of managed care into
the full panoply of choices that they misleadingly talk about
with private systems, what happens to the whole issue of
defined benefit versus defined contribution with seniors having
to pick up more of the cost? Is that as big a problem as some
might suggest?
Mr. Vladek. I would have a great deal of concern that any
effort that turned all of the Medicare program into a fixed
contribution, rather than a purchasing of a defined set of
benefits, would, in fact, over time lead irresistibly in years
of tight budgets, in years of other demands on the Federal
Treasury and so on and so forth, of a shift of an increasing
share of the costs of the program to Medicare beneficiaries on
average. But, I'm even more concerned, and particularly when we
talk about the particular issue of prescription drugs, with the
ability to manipulate formularies, with the ability to
manipulate coverage patterns, or patterns of co-insurance and
deductibles, to shift relatively more costs to the sicker
beneficiaries, rather than less sick beneficiaries.
In insurance for prescription drugs, the penalties to the
insured from adverse risk selection are potentially so great
that unless you standardize the nature of the benefit, in which
case you wonder why you need the private plans at all, the
necessity to prevent gaming of that in order to maximize risk
selection on the part of the insurers seems to me to be very
substantial, and I don't know how to do that, from the point of
view of administering the Medicare program.
So, I would be concerned, in general, about efforts to move
Medicare from a defined benefit to a defined contribution
program. I'd be particularly concerned in the context of a
discussion of the drug benefit about the creativity of private
insurers and private PPMs to target high risk, high cost
beneficiaries and design their plans to minimize the benefits
they'll have to provide to them.
Mr. Brown. Do you see evolving a two-tier kind of Medicare,
where the sickest have the highest costs, and those costs are
often shifted to the beneficiary?
Mr. Vladek. That's where I would be concerned about, if
we're not very careful. I think we devoted a lot of time on
both sides of the aisle in constructing the Balanced Budget
Act, and constructing Medicare+Choice to minimize that in
Medicare+Choice. That may be why Medicare+Choice hasn't
enrolled more people than it has, but I would just, again, as
we design a prescription drug benefit, I think given the nature
of the use of prescription drugs, and of the insurance for
prescription drugs, that's a particularly significant risk, and
we need to be very careful about it.
Mr. Bilirakis. Do you see, Mr. Vladek, an effort on the
part of the majority party to shift possibly the costs to the
low-income people, as Mr. Brown put it?
Mr. Vladek. I have expressed concern, Mr. Chairman, in the
past on the part of advocates from both the majority party and
the minority party, for so-called support or other approaches
to the Medicare program, which I fear over time would, in fact,
shift more of the costs to beneficiaries.
Mr. Bilirakis. Thank you.
Mr. Whitfield, for 8 minutes.
Mr. Whitfield. Thank you, Mr. Chairman.
I want to thank all of you for attending today. We
genuinely appreciate your comments, and as we prepare to pass
another prescription drug benefit on the House side, of course,
we've already done it twice before, and the Senate still has
not acted, but as we prepare to do that again, I think Mr.
Crippen touched on something that all of us are thinking a
little bit about, and that is Medicaid is in dire financial
straits right now, almost every State is running a deficit. We
know that Medicare is becoming more and more expensive each
year, and the Part B, paid by the government, is increasing,
and the percentage paid by the beneficiaries is decreasing
percentage-wise.
In addition to that, our Social Security program, by the
year 2012, there's going to be more money going out than coming
in through the payroll tax. And, we set aside $400 billion over
10 years for this prescription drug benefit, and I think
everyone recognizes that it's probably going to be much greater
than that, and it will be an entitlement so it will have to be
paid.
And, as we think about that, I think it's imperative that
we also consider those uninsured people out there in our
society, many of whom do not have any health insurance at all.
Their employer doesn't provide it for them, they can't afford
to buy it themselves and provide healthcare for their families,
because they are just a little bit over the line so they are
not eligible for Medicaid, they are not old enough to be on
Medicare. And so, that's a big segment out there that right now
they have nothing.
So, in trying to balance all of these, I would like to ask
Mr. Olsen, it's my understanding that your organization's
position has been that this benefit would be available to
everyone, every senior citizen, and I know the means testing is
not a popular word, but considering the financial situation of
our country today, and all those things that I mentioned, why
would your organization be opposed, for example, if somebody
like Warren Buffet paying for his health, his prescription
drugs?
Mr. Olsen. I can't speak for Warren Buffett. However, first
of all, the first part of your question had to do with the
general problem of the uninsured and the critical problem of
the uninsured between and before they get to Medicare, which
probably just highlights the importance of Medicare in another
way.
I can assure you that it's also one of AARP's priorities,
it's not the subject of this hearing this morning, but that is
another one of our top priorities, is to work in that area.
But, let me talk about, you mentioned means testing and
Warren Buffett, or Bill Gates. I would like to be sure we
define the terms, means testing and income relation. Means
testing is putting a dollar amount on income, or net assets, or
something, and beyond that point you do not get whatever it is.
Mr. Whitfield. Well, let me just give you a hypothetical.
Considering the situation today, and we're just trying to get
this program going, which is what we want to do, just from a
philosophical standpoint, are you and your organization
opposed, for example, to saying any senior whose income is
above $80,000 a year, let's say, they would have to pay for
everything, for prescription drugs.
Mr. Olsen. Okay. Our position is, we do oppose what I
defend as means testing, but we are willing to discuss, and
think it should be part of the discussion as we build this
structure, something called income relation. And, there are
administrative problems with doing that, but that would imply
that those with higher incomes, and I don't have any idea what
that number is, but higher incomes, would, perhaps, pay a
higher premium for some coverage. So, we are open for that
discussion.
But, we are opposed to means testing, which cuts off a
certain element, because it seems to me that somewhat violates
the social contract that those who paid in will receive the
benefits. So, I hope that clarifies where we are on that issue.
Mr. Whitfield. And, I appreciate that, because I think
that's a reasonable step, that there would be some relationship
to salary on what you pay.
Mr. Barton. Would the gentleman yield?
Mr. Whitfield. Yes, sir.
Mr. Barton. Define income relation. I mean, I've never
heard that term.
Mr. Olsen. There's a subtle distinction, and a lot of
people use the word means test, but means test is a more
limited. That's, at some point, you just don't get the benefit,
you make too much, or you have too many assets. That we are
opposed to.
Income relating is probably your income on the 1040 or
whatever, at a certain level you would pay more, but you would
still receive the benefits.
Mr. Barton. It's a sliding scale.
Mr. Olsen. It would be more that, yes. And, I'm glad that
question was asked, because I think there is not total
understanding between the two, and we think that second part
should be open for discussion as we build on the framework of
this program.
Mr. Bilirakis. Would the gentleman yield, so, basically,
you don't like the term means testing, because you feel that
every Medicare beneficiary who has paid into the system ought
to be able to receive the benefits. But, what you are saying,
that they would receive the same benefits, but in terms of
their contribution would be related to their income.
Mr. Olsen. I think that can be a part, you know, not
total--that can be part of the discussion, yes.
Mr. Bilirakis. Good, thank you.
Mr. Whitfield. I want to thank you all for asking questions
on my time.
I would like to ask, last year we passed a plan that,
basically, said that there would be a $250 deductible, the
first $1,000 the beneficiary paid 20 percent of that, the
second $1,000 the beneficiary paid 50 percent of that, and then
between there and $3,700 the beneficiary pay all of it, and
then after $3,700 the government would pay because there would
be a cap on our out-of-pocket expenses.
And, Mr. Vladek and Mr. Olsen, I would like to ask you,
what is about that particular plan that you have problems with?
Mr. Vladek. Well, Mr. Whitfield, I can't do all the
arithmetic as I'm sitting here, but looking at those numbers
and looking at drug expenses for Medicare beneficiaries, I
think any arrangement of that sort, wherever you put the exact
points in coverage, means that for many beneficiaries the net
value of the benefit, over and above what they are paying in a
premium, gets to be very, very small. And, some of those are
people with very significant needs.
The extent to which a plan like that one effectively meets
the objective of providing financial protection and improved
access for beneficiaries varies then enormously, depending, to
some extent, on happenstance, or whether one's principal
problem is a cardiac problem for which there happened to be
generic drugs, or a kidney problem for which all the drugs are
brand name and, therefore, more expensive. And, it would
produce, I think, very significant inequities among similarly
situated Medicare beneficiaries, which I think is exactly the
sort of thing we don't want to do in designing a benefit.
I understand the need to get control of expenditures and
make the numbers work out right, but I think arrangements of
that sort, given patterns of drug use among Medicare
beneficiaries, create a real risk of significant inequities
between similarly situated beneficiaries.
Mr. Olsen. I'm not an actuary, and I defer to that, but I
would refer back to my experience at Sun City trying to explain
it to someone. Be as simple as possible.
Mr. Bilirakis. The Chair thanks the gentleman.
Mr. Pallone for 5 minutes.
Mr. Pallone. Thank you, Mr. Chairman.
I wanted to ask Mr. Vladek and Mr. Olsen, in my opening
statement I mentioned how in New Jersey we have about 80,000
seniors who have lost their health coverage after the private
HMOs, basically, dropped them. I know that the administration
and the Republicans may not say that they are necessarily
privatizing or relying strictly on HMOs to provide a
prescription drug benefit, but that's the way I see it, and I'm
sort of operating on that assumption in answering my--asking
these questions.
I don't understand how, you know, all I hear from my
seniors is, we joined an HMO and they dropped us, or we joined
an HMO and they've cut back on the benefits, or we've joined an
HMO and, you know, the co-pay is going up, or, you know, the
premium costs are going up and I can't afford it, in order to
keep, you know, their prescription drug benefit. And, how in
the world the administration or the Republicans figure they are
going to come up with a new program to cover prescription drugs
when the existing program is, essentially, a failure in
providing the very benefit that they are now saying they are
going to provide with it. So, to me, it's just amazing.
I mean, if you look at this chart, this shows how,
basically, premiums under various programs, you know, private
programs if you will, have gone up on the average per year, I
guess, for the last 10 years. If you compare that to Medicare,
which has gone up 6.7 percent per year, the premium cost, over
the 10-year period on average, I mean the bottom line is that
premiums are going up in these private plans, it's costing more
and more.
So, when the Democrats say, look, the best thing to do is
provide a guaranteed benefit under Medicare, like Part B, for
prescription drugs, and then the Republicans say, no, that's
not a good thing to do, we're going to rely on the private
sector, we have nothing out there to indicate that this is
going to happen successfully, only a series of failures over
the last five or how many years that, you know, the HMO option
has been out there.
So, I guess I would just ask, I guess I'll start with Mr.
Vladek, and then Mr. Olsen, how do you build a program of this
magnitude on a series of failures, or am I missing something?
Go ahead, Bruce, if you will, and then I'll ask Mr. Olsen.
Mr. Vladek. Mr. Pallone, just a quick thing, I think these
charts are the most recent year's increase. I think, in fact,
private health insurance premiums have grown more quickly than
Medicare costs over the last decade, but CALPERS hasn't
averaged 25 percent a year, it's just this past couple years
have been very bad.
But, I think it's important to emphasize that there are
still 5 million plus Medicare beneficiaries enrolled in
Medicare+Choice plans, and many of them are very happily so,
and some of them are getting relatively good benefits. The
problem is, I believe, if you look at the history of private
plans and Medicare, that what you can't do at the same time is
provide additional benefits, attract and keep private health
plans in the system, and save money. The three are mutually
incompatible. It is almost impossible for a private managed
care plan, as the heads of some of the best private managed
care plans in northern California or in the Twin Cities will
tell you, to provide high-quality services at a cost equivalent
to Medicare fee-for-service costs in their communities. They
have marketing costs, and enrollment costs, and administrative
costs, let alone the issues of profitability that the Medicare
fee-for-service program doesn't have, and even if they are more
efficient in utilization they are not that much more efficient
in utilization.
So, the Balanced Budget Act, when we were overpaying the
HMOs very substantially in Medicare, they wanted to come in the
program and they were happy to provide additional benefits in
order to get enrollees, and it was still a very good
experience. When we brought the price differential between what
we were paying the private plans and what we were paying in
fee-for-service down in the Balanced Budget Act, a growing
proportion of the private plans couldn't compete under those
circumstances.
So, I believe, and again, there are these problems of
inter-regional differences, which are horrendous and I believe
insoluble, and which, given the organization of the House of
Representatives in the U.S. Congress will present enormous
problems no matter what you do, because one district will be
different from another district.
So, you can have more participation of private plans, you
can use private plans to get more benefits, if you are prepared
to pay a substantial premium for it. But, if you are trying to
minimize expenditures then a centrally administered, government
administered plan, is going to be more cost effective.
Mr. Pallone. I don't know if we have time for Mr. Olsen, go
ahead.
Mr. Olsen. Again, I want to emphasize that all elements of
the current Medicare system have private elements in it,
including all the proposed prescription drug.
I want to emphasize again, we are looking for stability
from year to year, and that I don't see how it can be
accomplished other than have a defined benefit within the plan.
And, what we are really interested is that whatever private
plans the Medicare beneficiary has a choice for does not
undercut the current Medicare program or disadvantage any of
the current Medicare beneficiaries, so that there's an equal
playing field and an equal choice. That's our position.
Mr. Pallone. Thank you, Mr. Chairman.
Mr. Bilirakis. Ms. Wilson for 5 minutes.
Ms. Wilson. Thank you, Mr. Chairman.
Doctor Feldman, I noticed in your testimony that you talk
about and give some examples of some of the partnerships and
things that have worked with the private sector. I wonder if
you could expand a little on that and see whether, and share
with us more than just the example, but what you think there is
in behavior that we can learn from here, and how we might
incorporate some of those principles into a Medicare
prescription drug benefit.
Mr. Feldman. That's a big question.
Ms. Wilson. Yes, it is.
Mr. Feldman. Let's just start off with the formularies that
most of the private drug management firms use. Those have the
potential to reduce costs by somewhere between 5 to 9 percent,
according to one estimate by Merck Medco, according to another
one by Express Scripts they might reduce the costs by 6
percent. They do that by redirecting the incentives of
providers and consumers to use the drugs that are on the
formulary and to substitute for generic drugs if those are
available.
The episode that I mentioned in Blue Cross and Blue Shield
showed that it's also possible to redirect physician
prescribing patterns without using financial incentives, and
that was done by educating physicians to use drugs that our
Blue Cross plan had deemed to be the most cost effective. So,
those are two examples that I would give you, the use of
financial incentives in a formulary, and educational programs
that private health plans can run with their providers who
redirect behavior.
Ms. Wilson. Thank you.
I had question, and, perhaps, Doctor Feldman, you are also
the one to answer it. Why do you think that the Medicare+Choice
competitive demonstration model was never implemented?
Mr. Feldman. Quite simply, I believe it was opposition from
the interests who opposed it on the grounds, essentially, that
it would reduce the prices that were being paid, the premiums
that were being paid in the demonstration areas.
Ms. Wilson. Thank you.
Thank you, Mr. Chairman.
Mr. Bilirakis. The Chair thanks the gentlelady.
Ms. Capps, for 8 minutes.
Ms. Capps. Thank you to each of you panelists, since I
didn't do my opening remarks I'll take a minute to tell you,
and also to thank our subcommittee chair for holding this
hearing.
Across this country, no matter what is going on in the
world, a sizable percentage of our population has this topic as
its highest priority for us to do something about, and they've
been waiting rather impatiently over the years.
As you did give in your testimony, and as I've listened to
some of my colleagues, I've been mindful of the reasons
Medicare was enacted almost four decades ago. Wasn't it because
the private insurers were not able to cover this population,
higher-risk population, in an affordable way? And so, Medicare
was created, and I'm going to ask you pointedly in a minute,
Mr. Olsen, but since you represent probably more seniors here
at the table than anyone, I think I'm a member of your
organization as well, what seniors want is stability and a
defined benefit that they can count on over time. Medicare has
come to mean that for more than one generation of seniors by
now.
So, here we are, at the cusp of a--well, many of us feel we
are in a crisis, because of the cost of prescription
medication, the way seniors are staying healthy and alive is
not the same as it was in the `60's, yet we have this burst of
technology that gives us possibilities for living
independently, being healthy and productive much longer, many
more decades than before, and that's the challenge of paying
for the means whereby this generation now, and particularly the
baby boom one coming behind it, is going to be able to have at
its disposal the means to be healthy and to continue to be a
vibrant part of a community.
So, we have, in the last 5 years or more, Medicare+Choice
as an option, and it's now being proposed that it become a
central part of Medicare prescription drug coverage. However,
it's interesting, and this has been talked about a bit, it's
interesting that Medicare+Choice enrollment since 2000, this is
from the Kaiser Family Foundation, has declined by 27 percent.
Now, it is no longer 4.6 million beneficiaries, but it is now
11 percent of the Medicare population, and that's what I wish
to discuss with you.
Let me ask you, am I correct in listening to you, Mr.
Olsen, that when you speak to the seniors in Sun City they
really are, they are interested in choice, but mostly of their
physician, that Medicare fee-for-service has provided them over
the years, and with respect to their prescription medications
are interested in stability, that the price that they are
paying this year, they are already paying way more than they
can afford on their fixed income, these are not salaries, these
are fixed income seniors, that as time goes on they want that
price to stay where it is.
Mr. Olsen. I'm not sure of your question, but I have a
couple of comments on your's.
You mentioned about that we are having this discussion
today, and people are still interested even while we are at
war. I had a presentation in Ohio on about September 14th of
2000, right after 9/11, and it was on prescription drugs for
Medicare. We thought no one would show up, went ahead with the
presentation. The place was packed, and I think that while
everybody was still in mourning over this.
So, and you know you say is this still needed, I talked to
my own Medicare doctor about a week ago, I had an appointment,
I asked him about, you said about the middle income and fixed
income, I says, how does this work in your practice? He says,
``I have a lot of people, middle-income people, that are having
big problems.'' Especially, he noticed the diabetics, they need
some rather, a series of expensive drugs, $300, $400, $500 a
month, they do not have that much money.
I said, ``What do you do?'' He says, ``I give them samples,
and when I run out of the samples I give them a different
drug.'' Then what he said, ``If I run out of that sample, they
are out of luck.''
Ms. Capps. And, Mr. Olsen, I want to stress, this physician
is talking about his, not his low-income patient.
Mr. Olsen. No, not his low income, he specifically said his
average working man, middle income, and this is in Carson City,
Nevada, working class city.
Ms. Capps. So, a program that is specifically targeting
low-income seniors is not really going to adequately address
the challenge that we face in terms of talking about
prescription drug benefits.
Mr. Olsen. I don't want to, you know, in any way say that
there shouldn't be additional assistance for low-income people,
but probably it should be outside of the Medicare program,
because the program goes way, way beyond that.
You know, two thirds of the people over age 65 rely on
Social Security for at least half their income.
Ms. Capps. That's correct.
Mr. Olsen. I don't think that falls in the wealthy
category.
Ms. Capps. I agree.
I want to just make one comment about something that, Mr.
Herman, you said, in terms of holding up FEHBP as a model, and
believe me for a Federal employee it is a wonderful healthcare
benefit, I wish everyone in the country could have it. However,
it's not the same risk pool as Medicare, I hope you agree with
that, and I just want to mention the fluctuation within the
plans, and the terminating plan service area withdrawals, since
1998 that year 66 plans terminated, 1999 42, 2000 32, maybe
it's stabling down, but there certainly is not total stability
within the plans even offered by FEHBP.
But, I really want to concentrate on a topic, Mr. Vladek,
that I want to address to you, and this has to do with a person
who came to me in my office hours, sidewalk office hours, in
front of a grocery store in Santa Maria, a rural agriculture
community, because we are talking about a rural population, she
was 55 in a wheelchair, but she wasn't--she was coming on
behalf of her parents pushing 90.
This is not unusual nowadays, and they were enrolled in a
Medicare+Choice plan that had subsequently left, and she was
struggling. She had her own health needs and her own needs as a
Medicare recipient herself. Here's two generations worth, how
are we going to address, and you touched on some regional
issues, but I really want to deal with this, it's going to be
really hard for these constituents of mine in the rural part of
my district to buy into a plan that's being proposed by the
administration where all of the benefits, or almost all the
benefits, and for prescription medications, are a part of an
HMO that they have had very, very poor success with?
Mr. Vladek. Well, I think that if you are serious about
choice, that there has to be the full choice, that's the heart
of FEHBP. I don't know what the numbers are now, the last time
I looked 70 or 75 percent were in one of the two Blue Cross
standard option or plus option, which looks a lot like the
Medicare program to me except that Blue Cross takes a few
percent off the top that doesn't occur in the Medicare program.
But, I think the real issue is that people should no more
be required to enroll in a private plan that they don't like
than the fact that they should not have the option to enroll in
a private plan if it's there and if they like that better than
the traditional fee-for-service Medicare. It's about choice.
Mr. Bilirakis. The gentlelady's time has expired. You've
had 8 minutes, Lois.
Ms. Capps. Okay, thank you.
Mr. Bilirakis. Doctor Norwood, 8 minutes.
Mr. Norwood. Thank you very much, Mr. Chairman, and I'd
like to thank the panelists, one and all, for being here, and
particularly Mr. Herman who was here up from Georgia, we are
glad to see you all today.
Mr. Crippen, I want to ask you a question in just a minute,
and I'm going to tell it to you now and want you to think about
it. I'd like you to summarize your statement, the important
part of your statement, in about three or four sentences in
just a second. I'll come back to you.
Mr. Olsen, I'm curious, the AARP membership, what percent
of your membership, for example, is 60 years and older?
Mr. Olsen. I don't have that number, we'll get it to you,
but to give you a little perspective, about half of our
membership, and it just varies a half, is still working. So, I
don't know the exact number at 60, but we'll get that to you.
Mr. Norwood. I'm curious.
Mr. Olsen. But, that will probably give you a--that's
probably not so far off from the number who are working, let's
say, so it's about half are still working and half retired.
Mr. Norwood. It is of interest to me which side you'd take
on this. One side----
Mr. Olsen. I'll get that information for you.
Mr. Norwood. [continuing] wants affordable, I think is the
word you used, and meaningful benefits, and the other side is
worried about making their house payments or sending their
children to school, and that's got to be quite a conflict for
you, if half of them really aren't on Medicare and half are.
What, by the way, does affordable mean? You pointed out
that the AARP wanted an affordable benefit. Mr. Herman, I'm
going to ask you the same question, what does affordable mean?
Mr. Olsen. Well, you can look at it from two directions, I
suppose. We talk, we've done some research on the premium I
mentioned in my testimony, and I gave the number $35 as
premium, but, you know, it gets better for them at $25, so
that's one level of affordability.
Mr. Norwood. So, if we had a premium of $35 you would
consider that affordable?
Mr. Olsen. Well, you see, everybody has got to make the
kitchen table test on this, and the research we get is 50 is
way too much, 25 is a lot better, but there's some number in
this. That's one thing.
Mr. Norwood. No matter what we make it somebody is not
going to like it.
Mr. Olsen. Of course, yes.
Mr. Norwood. We were trying to do exactly like you wanted
it, I was hoping you'd tell us what affordable would make all
of your members happy.
Mr. Olsen. Oh, all of them? Actually, of course, in any
program premium is just one element of it, and there will be
co-payments, there will, perhaps, be deductibles. I hope there
isn't a donut hole, there will be catastrophic levels, whatever
there might be, so all that is interchangeable.
Mr. Norwood. Well, I agree with you, all of us want to give
everybody everything they want. We just don't want to back up
from anything.
Mr. Olsen. We also understand----
Mr. Norwood. Mr. Herman, tell me what you think affordable
means?
Mr. Herman. A couple things. Firstly, we don't think a
program that pays 53 percent of medical costs in 2002 as
reported by CMS is affordable, it's pretty darn expensive.
We understand that to someone poor full coverage is
affordable. They can't pay anything more. We also understand
from a lot of our membership that they've worked five decades,
they've saved something, they'd like to pass a little of it on.
A cap on prescription costs is affordable, they can pay
something, they've paid all their lives.
But, right now there is no cap. I have a father, I had a
father who died a year ago of Alzheimer's. Let me tell you, it
wasn't affordable. Well, so everybody is talking about
affordable, they mean what is affordable to the receiver of the
benefit, not necessarily what is affordable to the payer of the
benefit, meaning the taxpayer. I'm just trying to make sure we
are all focusing on just one part of this.
The 53 percent that Medicare pays, that sounds to me like
somebody is managing the costs for it to be just 53 percent.
Mr. Herman. There are a number of things that are
happening. We spoke with a doctor last week who is dropping his
Medicare practice, he's not going to do it anymore. And, it's
his words, not our's, but he says that, you know, I'm being
made a partner with the government, when all I really want to
be is a doctor and take care of people. I can't pay my bills.
I'm not getting reimbursed very well, and every time I turn
around what is reimbursed to me has been reduced, and I've got
a family to take care of and I'm moving on now.
Mr. Norwood. So, CMS is managing cost and care exactly or
much like the private industry, referred to earlier by Mr.
Brown, is managing cost in care.
Mr. Herman. Yes.
Mr. Norwood. You can't really sit here and say I hate
managed care, because when you say I hate managed care you've
got to mean you hate managed care CMS just as much as you hate
managed care in the private industry. By the way, I fall in
that category.
Mr. Crippen, your turn. Summarize quickly for me what you
said.
Mr. Crippen. I thought I did that before.
Mr. Norwood. No.
Mr. Crippen. There are only two larger points. One is, many
of the elderly today are getting--have access to drugs, not
necessarily in a way that's the best way. Many of them may not
be able to afford what they are paying out of pocket, but most
of the elderly, 75 percent are insured some way or another.
Mr. Norwood. Their outcome in 2030 is where I'm trying to
get you to go.
Mr. Crippen. Right.
Mr. Norwood. If we do nothing, what do you anticipate our
problems will be, at the taxpayer level, the Federal Government
level, in 2030?
Mr. Crippen. Even without a drug benefit, Mr. Norwood, it's
likely we would need a payroll tax equivalent of about 35
percent of payroll on workers at that time, in order to----
Mr. Norwood. What if we didn't do that?
Mr. Crippen. What if we didn't?
Mr. Norwood. Yes. What if we didn't have a payroll tax,
what is the cost to our annual budget?
Mr. Crippen. Well, it's, roughly, a trillion dollars a year
in current dollars.
Mr. Norwood. What percentage would our annual budget go?
Mr. Crippen. To about 25 to 30 percent.
Mr. Norwood. I've heard 35.
Now, does that include, are you calculating that number
based on if there are any tax reductions or if there are not,
or is that based on just as we are today?
Mr. Crippen. In this point of view, the tax reductions are
relevant, and the point is, how much are our obligations to the
elderly versus how big is the economy that our kids are going
to have to pay us with.
Mr. Norwood. Is that sustainable?
Mr. Crippen. I suspect it's not in this country. We've only
collected, since World War II, an average of 18 percent of GDP
in Federal taxes, and it's actually been relatively constant.
It goes up and down, obviously, but 18 percent has been the
average since World War II.
We are talking about going to 28 percent, for example, in
order to sustain these programs. Now, you know better than I
what's politically acceptable and sustainable, but we will look
very much like some of our European counterparts in terms of
Federal tax policy if we just increase taxes to cover these
costs.
Mr. Norwood. Not necessarily that statement, but I'm
interested to know from the rest of the panelists, do they
agree with Mr. Crippen on this. If we do nothing, if we
continue to let the program go like it is, not add a drug
program, just let things go like they are, in 25 or 27 years,
if we are at the point 35 cents out of every dollar goes to
these programs, do you all think he's wrong? Is he overstating
that?
Mr. Bilirakis. You don't have the time for every member of
the panel to respond to that.
Mr. Norwood. How about a yes or no?
Mr. Bilirakis. Yes or no, yes.
Mr. Vladek. He's not wrong.
Mr. Bilirakis. Mr. Vladek can't hold himself to a yes or
no.
Mr. Vladek. He's not right because we can't predict 25
years.
Mr. Olsen. I'm not an economist, but I thought the seniors
and doctors were part of the economy, too.
Mr. Bilirakis. Mr. Green to inquire.
Mr. Green. Thank you, Mr. Chairman.
Let me ask this, although, Mr. Feldman, since you mentioned
it in your testimony, that administrative costs, and marketing
costs, and payments to investors, would not outweigh the
private plan savings, would it be able to generate due to the
increased competition efficiency under private plans. And, Mr.
Vladek mentions that typically the cost of 15 to 20 percent of
the total cost.
I know that traditional fee-for-service Medicare has about
a 2-percent overhead, and not only Mr. Feldman, but anyone, how
can we--how can the fee-for-service, the 2 percent, compare
with the Medicare+Choice or the proposals when we have to take
15 to 20 percent of it for administrative costs?
Mr. Feldman. Sir, I'd like to respond. I can design a
system that has no administrative costs or virtually none.
Providers submit bills electronically, and the insurance
company automatically pays them, but no one would want that
system. We need some administration, the question is how much.
Mr. Green. Does CMS provide that administration now,
because I know there are doctors' bills that are submitted to
CMS that don't get paid.
Mr. Feldman. I don't believe that CMS provides enough
administration now. Granted that HMOs take ten or 15 percent
off the top, but let's look at what the HMOs in the Medicare
program have been able to provide in the way of extra benefits
that fee-for-service Medicare can't provide in their areas.
That suggests that the administration cost is not eating up the
total difference in the payment rates for those HMOs.
Mr. Green. Well, go ahead, anyone else to address the 15 to
20 percent administrative costs, considering 2 percent for fee-
for-service?
Mr. Vladek. I would just point out that the addition, as
every member of this subcommittee knows, the additional
benefits provided by Medicare+Choice plans are provided to
beneficiaries only in some communities and not in others.
And again, that has to do with the extent to which the
inadequate payment structure that we have for Medicare+Choice,
which replaced a differently inadequate payment structure we
had under the Balanced Budget Act, produces overpayment
relative to fee-for-service in certain communities, which makes
the provision of additional benefits by the plans affordable.
One of the places that couldn't make it under pre-BBA
rates, and that has had a great deal of difficulty keeping
private plans in the program since, is the place, the Twin
Cities, where some of the most efficient and best managed care
plans in the country are.
Mr. Green. Let me go on to my next question, since I only
have 5 minutes.
Let me point out, fee-for-service Medicare can't provide
additional benefits, because, you know, of law, whereas, a fee-
for-service can, but again, the 15 percent, the 20 percent
concerns me depletes its 2 percent to such a huge volume of the
seniors who receive, you know, their traditional healthcare
under fee-for-service.
Mr. Herman, let me ask you, on page three of your testimony
you talked about discount cards alone, whether from the private
sector or the public sector, does not equal coverage, is not a
solution. And, I know in your testimony you talk about some of
our pharmaceutical companies who have done, you know, they've
created different cards in vacuum and jointly created one, and
so your testimony is, is that discount cards alone can't
provide the solution, whether it's by pharmaceutical companies,
the proposal by the administration.
Mr. Herman. Yes, sir, that's correct. We need the ability
to take care of prescription benefits. We've been waiting 37
years.
Mr. Green. Strictly under Medicare.
You mentioned also in your testimony on page five that
HR4954, the one our committee spent a great deal of time on
last year, one of the provisions in that, a volunteer
affordable prescription provides permanent drug coverage while
discounting medicine by as much as 60 to 85 percent. I have
some concern about that, because the bill that I remember
spending many hours on talked about potential for discount, but
I never saw it quantified. And, would that discount go to the
PBMs as created by that legislation, or would it actually come
back to where seniors would see their prescriptions reduced, or
maybe the taxpayers would see what we provide for Medicare?
Mr. Herman. We saw that as the seniors themselves and,
ultimately, the taxpayers, one evolves to the other.
Mr. Green. Okay.
Again, during a lot of our testimony and our long all-night
debate I don't remember hearing a quantification of 68, I think
that's what our provisions I would like to see, because we've
seen success whether it's veterans, whether it's, you know, the
Federal health insurance, whether it's, I know up on the board
the State of Texas employees actually can provide prescription
drug benefits, and also because of their negotiation ability.
Thank you, Mr. Chairman.
Mr. Norwood [presiding]. Thank you, Mr. Green.
I think it's important that the record state that Mr.
Vladek said that the inadequate payment structure is why
Medicare+Choice doesn't work, and it's important to understand
that inadequate payment structure coming out of CMS is why we
have so many physicians quitting Medicare today, it, basically,
is not working in Medicare either.
I'd like to recognize now Chairman Barton for 8 minutes.
Mr. Barton. Thank you.
My good friend and former Senator Phil Graham used to say,
``We all want to get to heaven, we just all don't want to do
what you have to do to get there.'' And, I think that's kind of
where we are in the prescription drug benefit for Medicare.
I want the panel to stand up and look at the audience, just
look behind you. Just stand up and look behind you, very
briefly. Now, how many people out there do you all see that
appear to be 65 or older? A handful maybe.
Mr. Brown. How many do you see up here?
Mr. Barton. If Chairman Bilirakis were here, I think
Chairman Bilirakis would be close to it.
Well, here's the deal, if you polled the people up here we
all want a prescription drug benefit for senior citizens. We
voted on the House floor last night, we had three suspension
votes. We named two post offices and passed a resolution, I
think, in support of youth literacy. I think they were all
unanimous, because there's no cost to it. It was a good thing
to do, and there was no cost to it.
But, the test on a prescription drug benefit, in the
current Medicare system, or even reforming Medicare system, is
not just to provide an adequate benefit that our friends at
AARP are going to support, but to make sure that all those
people sitting out there behind you have a benefit when it gets
to be their turn. In other words, we have to try to come up
with a defined benefit that doesn't break the bank on down the
road. And, that's why not one of you, not one of this panel in
your opening statement, proposed a solution. Not one of the
experts proposed a solution.
Now, here's the AARP solution, implicitly, not explicitly,
you want a universal benefit. You want a catastrophic stop loss
that's not more than $3,000. You want a premium that's not more
than $35. You'd prefer a deductible that's not more than $100
on an annual basis. You don't want any donuts in your coverage,
and you'd like a discount card that's going to have a
prescription drug discount card that's at least 40 to 50
percent.
And, on page seven, and I quote, you want enough money,
``Enough money is available in the budget to accomplish this
goal.'' That's a solution, except that they don't say what the
amount of the money is.
Now, Mr. Olsen, you are a great guy, and you have obviously
been very well coached, or you are just naturally a very good
speaker in presenting your positions. Does AARP, based on your
testimony, have an estimate of what that prescription drug
benefit plan would cost on an annual basis, because you outline
it, universal coverage, catastrophic stop loss not more than
$3,000, premium not more than $35, deductible not more than
$100, no donuts, and a discount card that gives at least 40 to
50 percent discount.
Mr. Olsen. First of all, thank you for the compliment, but
I'm not sure----
Mr. Barton. It is. I want you to testify for me if I'm ever
before a Grand Jury.
Mr. Olsen. We believe the debate last year clearly showed
that $400 billion over 10 years is not enough.
Mr. Barton. I didn't ask that question.
Mr. Olsen. I understand that.
We do not have a number we can give you, it will depend on
how all these elements are put together, and we will be happy
when the structure has started to coalesce to work with the
committee and develop a bipartisan approach.
Mr. Barton. Then, let me rephrase the question. How much do
you think the people behind me should be willing to pay
starting next year and every year thereafter, adjusted for
inflation, what's fair to them?
Mr. Olsen. Our----
Mr. Barton. $40 billion a year is not enough, how much is
enough that provides a benefit that you would prefer for the
AARP'ers, that they can afford to pay, and understand this,
once they start paying it they are going to pay it every year
the rest of their working lives. The young man in the green
suit, the young lady in the red sweater, the young man over
here in the black suit, they are going to pay it the next 30 to
40 years.
Mr. Olsen. First of all, the people in the back of the room
are probably the ingenious ones that are going to figure out
how it will be done, let's start on that one.
But, I would, and maybe they should be up here testifying,
I am a beneficiary myself now, I used to be----
Mr. Barton. And, we want you to continue to be a
beneficiary for a long time.
Mr. Olsen. [continuing] one of those folks sitting in the
back of the room, my reaction was that I was taking care of my
parents, so that I did not have to do it myself. It's an
intergenerational thing. Our research shows that there's great
support among the people under 65 for a prescription drug
program that is affordable, it's meaningful, and it's
available, and you don't----
Mr. Barton. I've got all that. I understand that. I didn't
hear an answer.
Now then, but you said something that I want to ask
everybody on the panel. I'm a part of the task force that's
trying to come up with some innovative ways to, perhaps, solve
this. How would you folks react if the Congress passed a law
that said, any family member that buys a prescription drug for
their mother, their father, or anybody over 65, their aunt,
their great aunt, could fully deduct it from the cost of their
taxes if they owed taxes, and if they didn't owe taxes get an
earned income credit for it?
Mr. Olsen. It's never occurred to me, so I couldn't
respond.
Mr. Barton. Well, be a human being, think without getting
briefed on it. What do you all think about that? I just--my
mother was in the hospital 2 years ago, when I got her out of
the hospital I went down to the hospital pharmacy, I paid $247
bucks for her initial prescriptions. I don't know if I could
deduct that from my taxes the year after that.
Mr. Olsen. Again, it gets to what are the merits of the
drugs you bought for your parents, as opposed to those you buy
for yourself. The out-of-pocket nationally----
Mr. Barton. I'm not 65 yet, I hope to be 65 in 1 year.
Mr. Olsen. But, you'll pay 40 cents out of your pocket for
your parents and 33 cents out of your pocket for yourself and
your kids.
Mr. Barton. Well, look guys, I'm getting back to what I
said at the beginning, we all want to get to heaven, but none
of us want to do what it takes to get there. The Federal
Government cannot afford a prescription drug benefit that AARP
is just going to hug to death and say it's great.
Now, we might be able to afford something that you all
accept grudgingly, kind of behind the back, or, you know, if
that's the best we can do, but we should be family friendly.
Why would it be wrong to say if my mother is on Medicare and
needs prescription drugs, and there's not a prescription drug
benefit and I buy them for her I can deduct dollar 1, all those
costs, up to some amount, what's wrong with that? It doesn't
cost the tax--it's a tax credit next year. I bet the answer is,
there's some seniors that don't have children that could do it,
so then how do you take care of that? Then you let non-profit
charities. If you wanted to be really creative about it, you'd
say let churches, but heaven help us to get started in that
debate, just say non-profit charities, to think about it. We
need some innovative solutions.
Mr. Feldman. Mr. Barton, I'm a little bit reluctant to get
into the debate with you, I'm afraid I'm going to lose.
Mr. Barton. That's okay with me.
Mr. Feldman. I like, I think your idea is very similar to
an insurance policy for drugs, which has the government pick up
a certain proportion of the cost, and I like it for that
reason. But, where I think it falls down is for the people who
have very high costs who really need the insurance, you still
are only paying them 30 or 40 percent of the cost, instead of
even as I understand the last Republican proposal there was a
$3,700 cap. So, I'm worried that your proposal doesn't have----
Mr. Bilirakis. I thank the gentleman. The time, I'm sorry,
has expired.
Mr. Strickland, you are recognized for 5 minutes.
Mr. Strickland. Thank you, Mr. Chairman, and I have an
answer for my friend from Texas, as to how we can do what AARP
wants or come close to doing it. What about $726 billion? That
would go a long way toward accomplishing what AARP----
Mr. Barton. You just happened to pull that number out of
the air?
Mr. Strickland. I just happened to pull that out of the
air, and I'd like to say to all those young people back there,
if they make less than $1 million a year it will cost them very
little.
And, I'm being a little facetious, but I'm also trying to
illustrate something that I think is accurate. We are not
talking about money here, we are talking about values. Do we
have the will to do what we've all told the American people we
want to do for them?
When it comes to the national security of this Nation, we
say there are no limits that we will not go to achieve safety
and security for our people. Well, we are talking about health
security, and it seems to me that we need the same kind of
attitude about prescription drug coverage.
I believe that we don't argue here between parties or among
those of us with different philosophical points of view about
the size of the pie. I think we argue about how that pie is
going to be cut up, and who is going to get the larger pieces,
and I'm talking in terms of our Federal resources.
So, we find money to do that which we truly believe is
worthy of being done. I believe that, and I will challenge any
of my colleagues to take a different point of view. When we are
fighting a war, we say we will do whatever it takes. There are
no limits to our national will, to spend money, or to do
whatever it takes to get the job done. But, when it comes to
the health and security of the American people we have a
different set of values. That's where we are.
Question for Mr Vladek, I hope I'm pronouncing that
reasonably correctly. I heard a lot that we need to improve
Medicare so that beneficiaries can have better disease
management. Now, the Bush Medicare proposal gives a more
generous drug benefit and better preventive benefits in private
plans and not in Medicare, but I'm wondering whether we really
need private plans to do what needs to be done in terms of
these improvements.
Do we have an definitive evidence that HMOs or private
plans do better with respect to quality than Medicare? I know
there has been some work done that shows in several instances
Medicare beneficiaries with chronic conditions in HMOs show a
worse quality of care than those in regular Medicare. Can you
respond to that, please?
Mr. Vladek. Thank you, sir.
I think it's fair to say that the evidence is fragmentary
and spotty, but when talking about the management of chronic
illnesses, or the treatment of Medicare beneficiaries with
chronic diseases, I don't even want to say as much, because
it's all over the place, but there is evidence that managed
care plans have done less well, and there is some anecdotal
evidence that they've done as well or better.
The most recent published data on quality of care for
Medicare beneficiaries looked at the fee-for-service sector,
which showed really quite substantial improvements in the
quality of care provided to Medicare beneficiaries and Medicare
fee-for-service in the 1990's, and I'm not familiar with any
data from the managed care sector for the Medicare population,
or any other population that shows qualitative improvements
quite as dramatic as the Jinx article in JAMA several months
ago.
Mr. Strickland. Thank you.
I'd like to say to Mr. Feldman, who indicated the improved
services or enriched services that are possible through
Medicare+Choice. That may be true if you have Medicare+Choice
options available to your constituents. In southeastern Ohio
they are gone, and so that's not an option for most of the
people that I represent.
One follow-up question, Mr. Vladek. If it is true that
private plans don't have documentation, or we don't have data
to suggest that they do better quality of care, or even as
good, why don't we just give Medicare the tools that they need
to do better disease management activities? Why only give
private plans these tools and these extra benefits, why not
give them to Medicare as well? I just don't understand why we
wouldn't choose to handle Medicare with the same level as we do
these private plans.
Mr. Bilirakis. It's a good question. The gentleman's time
is expired.
Bruce, if you have just a few minutes to respond to that,
we'd like to hear it.
Mr. Vladek. Very briefly, the most effective disease
management programs, the most important thing they do, which
Medicare doesn't now do, is pay for prescription drugs. For
congestive heart failure, for diabetes, for the other places
where disease management has been most effective the key is the
drugs, and the rest of it is cheap and largely peripheral.
Mr. Strickland. Thank you, Mr. Chairman, for giving me
those extra few moments.
Mr. Bilirakis. Mr. Buyer, to inquire, for 5 minutes.
Mr. Buyer. Thank you.
First I'd like to thank Doctor Crippen and Mr. Vladek for
your services and contributions to your country.
This is my 11th year here on Capitol Hill, and I've spent a
lot of time in the VA health delivery system, and as the
chairman for 4 years over the military health delivery system,
and 3 years to design, do the pharmacy redesign, that was far
easier than this.
Now, as I am learning more about the intricacies of
Medicaid and Medicare, as we try to perfect these systems I
still come with a market-based approach. I still believe in the
innovations out there, but I'm a little concerned. I'm
concerned because I don't want to make changes, give
improvements to a model that I know is going to crash in the
future. I'm very concerned.
And, I want to get a quick feeling for the opinions of
everyone here, since I don't have much time, I only have 4
minutes, there have been some recommendations with regard to
reforms in Medicare itself. I'd like to know how your support
is, let's go down the line, who here would support increasing
the program's eligibility age. Since Congress addressed this
back in 1983 they increased it for Social Security but not for
Medicare. Let's go right down the line. Who would support
increasing the age to make Medicare match Social Security, to
age 67?
Doctor Crippen?
Mr. Crippen. I think it's an inevitable we'll end up there
some day, particularly if we enhance disability.
Mr. Buyer. Doctor Feldman?
Mr. Feldman. I think we are going to have to face that
choice. What you are talking about here----
Mr. Buyer. I don't have that kind of time.
Mr. Feldman. Excuse me.
Mr. Buyer. All I need from you is whether you support that
or not.
Mr. Herman?
Mr. Herman. Yes.
Mr. Buyer. Mr. Vladek?
Mr. Vladek. If you really match it to Social Security and
let people collect something at 62.
Mr. Buyer. That's not the question now. Would you support
what has been proposed?
Mr. Vladek. I would match it to Social Security for
eligibility age, both for full benefits and reduced benefits.
Mr. Buyer. That's an answer.
Mr. Olsen?
Mr. Olsen. My answer would be, I do not favor that. It's
come to occur to me that----
Mr. Buyer. All right, let me ask a second question then.
With regard to, I guess AARP doesn't like the terms means
tested, but whether it's means testing or income relation, with
regard to Part B would you support doing that?
Doctor Crippen? Examining means testing or income relation.
Mr. Crippen. Yes.
Mr. Buyer. Medicare Part B.
Mr. Olsen. By the way, we did that in `88 and it's one of
the things that probably killed the program.
Mr. Buyer. Is that true, Mr. Feldman?
Mr. Feldman. I know the very short answer is yes.
Mr. Buyer. Thank you.
Mr. Herman?
Mr. Herman. I'd have to get back to you, I'm not sure.
Mr. Vladek. Yes, just as we supported it in `97.
Mr. Buyer. Thank you.
Mr. Olsen?
Mr. Olsen. Well, I've already answered.
Mr. Buyer. You said that you would support.
Mr. Olsen. We absolutely want to discuss the income
relating and to finish my last question----
Mr. Buyer. I can't, I haven't got time.
With regard to increasing the beneficiary cost sharing, if
we increase Part B co-insurance 20 to 25 percent, or Part B
deductibles from $100 to make them compatible with the private
sector, is this an alternative that we should be examining?
Doctor Crippen?
Mr. Crippen. Yes, increase the deductible.
Mr. Buyer. Thank you.
Yes on both? I'm sorry, Mr. Herman was yes on both.
Mr. Vladek?
Mr. Vladek. I would say no on both.
Mr. Buyer. You'd say no on both?
Mr. Vladek. That's correct.
Mr. Buyer. Wow.
Mr. Vladek. I think they are interrelated questions of the
total program. You can't make an answer until you see the total
structure.
Mr. Buyer. With regard to the fourth question, introducing
market-based innovations into the current fee-for-service
program, whether it would be case management programs for heart
disease, chronic pain, diabetes, would everyone concur? Can we
find some middle ground here? Everyone concurs in the positive.
The record will reflect that.
With regard to major structural reforms, there have been
suggestions with regard to combining Parts A and B of the
program for a single deductible of up to $400. It was
introduced by the Breaux/Thomas proposal.
Doctor Crippen, would you support this?
Mr. Crippen. I don't think that's a major reform.
Mr. Buyer. Yes, would you support that? You would.
Mr. Herman, would you support it?
Mr. Herman. Yes.
Mr. Buyer. Mr. Vladek, with A and B?
Mr. Vladek. I would support that.
Mr. Buyer. You would support that.
Mr. Olsen?
Mr. Olsen. At this time.
Mr. Buyer. At this time. So, it's something the AARP may,
in fact, support in the future, if you find yourself the only
one saying no?
Mr. Olsen. We want the whole subject open for bipartisan
discussion.
Mr. Buyer. The Breaux/Thomas proposal was bipartisan,
through a bipartisan commission, was it not?
Mr. Olsen. Yes.
Mr. Buyer. Thank you.
I'll yield back my time.
Mr. Bilirakis. Thank you, sir.
I recognize Mr. Burr for 5 minutes.
Mr. Burr. Mr. Chairman, do I get extra time since I did not
give an opening statement?
Mr. Bilirakis. You have to be here, Mr. Vice Chairman of
the committee.
Mr. Burr. The chairman cannot fault me for trying.
Bruce, welcome, Dan, as well as our other distinguished
panelists. It troubles me slightly to see the lack of a crowd
in this hearing room and the lack of press representation,
because, honestly, I can't think of an issue that's more
important than what we are setting out to do.
Mr. Olsen, I'm delighted to hear that AARP would like to
see something. We want to pass something that's signed into
law, and I think that what you need for a product to do that is
willing partners. And, I think for once we have enough willing
partners at the table.
Let me launch into a few questions, if I can.
Dan, you very specifically covered three items in your
testimony that I think you predicted would happen, or the
budgetary one, that we would need to borrow the equivalent of a
trillion dollars a year to virtually eliminate the rest of
government, including education, defense and all the rest.
Three, raise taxes by something like 10 percent of GDP, if we
were able to afford this in the future.
And, I guess my question, quite frankly, is, have you taken
into account growing the economy as an option, and could we
grow the economy sufficiently to support this type of cost?
Mr. Feldman. Those numbers actually include about a 3-
percent real growth a year, so there's an assumption that the
economy does keep growing, but you could not grow your way out
of this, no. I mean, the fact that we are going to double the
number of retirees without changing much the size of our work
force makes it impossible to do that.
Mr. Burr. But, could you grow the economy and reform the
system in a way that financially you could keep the promises?
Mr. Feldman. You'd have to do both, yes.
Mr. Burr. You said it was easy to construct a $900 billion
plan, much of the $900 billion is currently being paid by
somebody. How much, in your prediction, is currently being paid
for?
Mr. Feldman. I'll have to rely on my old colleagues here,
they know a lot more than I do, frankly, the current
assumption, baseline, it's $1.8 trillion over this 10 years.
The $900 number I picked just as being roughly half of that. My
point was, it's easy to figure out how to spend the $900
billion as a Federal benefit. That's not the hard thing to do,
it's how you are going to target that to folks who now are not
getting drugs or can't afford it.
Mr. Burr. But, my question was, how much, you said an ideal
plan you could design is $900 billion, but much of that is
already being paid for by somebody.
Mr. Feldman. Right.
Mr. Burr. How much is--well, actually----
Mr. Feldman. Some of the plans that we looked at at CBO in
the past, some of them would say that we could spend less than
$900 billion with a Federal benefit if it had a lot of----
Mr. Burr. No, but how much is currently being spent in the
population by somebody?
Mr. Feldman. The entire amount, almost the entire amount.
Mr. Burr. There's currently a drug expense that people are
paying, somebody is paying, out of their pocket, out of a plan,
out of the State Medicaid. How large a pot of money is that
today? Is it $900 billion?
Mr. Feldman. No, it's actually twice that, $1.8 trillion.
Mr. Burr. Okay, thank you.
Mr. Olsen, if the plan provided health to the most at risk,
meaning that we have targeted those low-income individuals, and
assume for the purposes of this discussion that we said we're
going to pay 100 percent of your drug costs, and there were a
separate policy that dealt with catastrophic. So, in other
words, people above a certain income line were not provided
first dollar drug coverage, but they were provided a policy for
catastrophic los, would AARP be supportive of that approach?
Mr. Olsen. Going back to my testimony, I think it's five
elements that I thought were critical, and those are two of
them, the low-income assistance program outside of Medicare,
which you indicated, and a catastrophic.
In addition, we would hope that the structure would include
also the other elements that we indicated, which is, you know,
affordable prices and available to everyone, and a stability
from year to year.
So, those are two of the elements that we consider very
important, but we don't think that gets us there.
Mr. Burr. Let me cut you short, though.
Mr. Olsen. We don't think that's where we need to go.
Mr. Burr. I've got 2 seconds.
Is there anybody on the panel that feels that to provide a
low-income drug benefit, that it has to have an insurance
product to provide it?
Mr. Vladek. I'm sorry, with the time, as opposed to what,
as opposed to a direct provision by purchase from the
manufacturers and delivery by the government?
Mr. Burr. We have a whole world of options that don't
demand that there be an insurance product to supply something
that the Federal Government is saying we are picking up 100
percent of the tab, so I guess for the purposes of Dan's world
that he deals in, could we self-insure a defined population
without bringing a third party insurer into that?
Mr. Feldman. Sure.
Mr. Norwood [presiding]. Thank you, Mr. Chairman, and let
me suggest that is an important question, and, perhaps, you
would be kind enough to respond to the committee in writing on
that.
I recognize Mr. Deal for 5 minutes.
Mr. Deal. Mr. Chairman, first of all, I will yield back to
you for a question you wanted to ask.
Mr. Norwood. Thank you, Mr. Deal.
Mr. Olsen, after reading your testimony and hearing then
Chairman Barton outline what you recommend as a plan, does that
mean that the AARP doesn't any longer support the Graham/Smith
bill that came out last year? My understanding was you did
support that, it's about low-income and catastrophic, and does
that mean you've got a change of heart this year?
Mr. Olsen. You'll pardon me, I'm not an expert on policy,
so I don't remember the exact details, but in my recollection
there was a gap in there, and our current policy is one that
everyone would have, you know, it would be available to
everyone in the program. So, that's our position.
Mr. Norwood. So, your policy this year is different than at
that point last year that Mr. Graham and Mr. Smith altered
their bill?
Mr. Olsen. I don't recall the specifics of that bill, I'm
sorry.
Mr. Norwood. Would you give me an answer to that in
writing?
Mr. Olsen. I'll absolutely do that.
Mr. Norwood. Thank you very much, Mr. Deal.
Mr. Deal. Thank you, Mr. Chairman.
I'd like to ask just a couple of rather quick questions,
hopefully. One is, have there been any study done on whether or
not we could achieve a satisfactory result and achieve a
satisfactory cost line by simply restricting the formularies
that are available? In other words, rather than across the
board have a restricted formulary, and if you have any
information on that would you comment?
Mr. Feldman. Sir, I think it depends on what you mean by
satisfactory. It's not going to reduce the trend of drug costs,
which, ultimately, is going to be driven by technology and an
aging population.
However, it can get us the drugs at a lower cost than we
could get them without a formulary. Estimates for two-tier
formularies suggests that the savings are a couple percent.
Estimates for the three-tier formularies, which is the most
common design now in the private sector, range from five to 9
percent.
Mr. Deal. Anyone else?
Mr. Vladek. I believe in the Medicaid law, the adoption by
States of formularies produced savings of that magnitude or
somewhat more, low double-digit percentages over what they
otherwise would have paid.
Mr. Deal. Those formularies adopted under Medicaid at the
State levels, have there been any significant complaints with
regard to those formulary approaches?
Mr. Vladek. There have been very, very significant
complaints. How valid the complaints have been I couldn't
totally comment on.
Mr. Deal. Is that mostly from somebody who wasn't in the
formulary?
Mr. Vladek. Or particular beneficiaries who have become
attached for whatever reason to a particular drug that's not in
the formulary.
Mr. Herman. Formularies can be extremely difficult for
senior citizens. You are telling them that you've got to take
this, here it is, you come back, you've got the side effects
that occur with that, now you've got to get another one, you
are not particularly mobile. Even at our age, I ran into
formulary problems with an HMO. I went through four different
drugs, the number of times I had to go back in there and get
permission to get something else was ridiculous for just
hypertension.
You start spreading that over a population that isn't
mobile, and that isn't really very effective, but it's darn
sure harmful.
Mr. Deal. Yes, sir.
Mr. Olsen. I think we realize that there needs to be a
professionally developed, something called a formulary or
something, we just think it's critical that whatever is in
there has some kind of an appeal or an escape mechanism so that
when what was just described happens there is a quick way to
appeal and out of that.
Mr. Deal. Okay.
With regard to the purchasing mechanism for this, we've all
had the complaints from our small local pharmacist that
whatever plan we adopt they are going to be left out of the
process. Would any of you comment with regard to a purchasing
arrangement, if it were not privately handled, a purchasing
arrangement that would maybe track what we have at VA and other
Federal agencies that have mass purchasing processes in place,
is that something that--what has been the thought process
that's been given, if any, to a mass purchasing of drugs
through some government entity that would maybe follow the
pattern of VA and other Federal agencies?
Mr. Herman. Our members want choice. They want the ability
to go to their local pharmacist, or their mailbox, depending on
what the situation is. The mass buying side of this opens up a
giant can of worms. On the one hand, you start hearing, well,
that's going to stop R&D, and on the other hand you hear
nothing ever stops R&D. But, we would say that when you start
getting into mass buying, price control, which is really what
you are getting into, that you do stop a portion of R&D, and
it's the portion of R&D that isn't the most profitable. So, you
now have drug companies that will have a profit motive, and
they'll be looking at 15 items, and they'll exclude three of
them because they are going to be under a cap and there's no
money in that. So, let's go over here and look at the cancer
drug and ignore the Alzheimer's drug.
So, from a standpoint of that kind of buying, you are not
going to stop R&D, but you may well stop significant R&D for
senior citizens.
Mr. Deal. I think my time--Dan, do you have a comment?
Mr. Feldman. I was just going to say that dispensing is a
separable issue, I think, from the purchasing, and in
competition, and negotiable ought to be dispensing fees like
everything else. The friends at the other end of the table,
AARP, are one of the largest distributors of pharmaceuticals
today through the mail, so there are lots of ways that this may
be cracked, but there's always a place for a distribution
system separate from the purchasing.
Mr. Deal. Okay, thank you.
Thank you, Mr. Chairman.
Mr. Norwood. Thank the gentleman.
Mr. Allen, you are now recognized for 5 minutes.
Mr. Allen. Mr. Chairman, thank you. I appreciate the
courtesy of being able to participate in this hearing. I thank
you all for testifying.
Just a few comments and then a question. I think the bill
that I had would contain costs as much as any bill in the
Congress, costs of prescription drugs for seniors, so I care
about cost control. But, I'm struck by the fact that many
people who talk about the cost of this system and how much it
will cost in the future never talk about the added value to
seniors. And, I just think we ought to remember that if we do
this and get it right, whichever way it is, the health of our
seniors will be a lot better than it is today.
Second, Medicare+Choice is always thrown up, those who
advocate private plans will talk about Medicare+Choice. This is
just an anecdote, I'm not relying on it, but my parents were on
Medicare+Choice in their mid 80's, they are both gone now, but
it was a nightmare. It was an absolute horrific nightmare,
because no matter what procedure they went for the claim was
denied and we had to go back to my father's law firm and they
had to somehow manage the claim. And, the prospect of seniors,
you know, trying to cope with a private plan has always struck
me as being a problem.
There are those who hold up the FEHBP as a model. Well, I
was looking at the 2003 handbook, and guess what, there is no,
zero, there is no plan, an HMO plan or a point of service plan
in the State of Maine for Federal employees, none. Just
skimming through this, there are nine States where there is
only one plan. The choice, I would argue, is often, appears to
me, the choice from private sector involvement in many cases I
think would be a myth and we'd get the kind of variation across
the country that I think is a tremendous problem.
Mr. Vladek, I want to ask you a question about how well the
private health care system is doing right now in the area of
prescription drugs, because, of course, you have these private
plans and the employer for people who are employed, and in many
cases I think they work well, but when it comes to the
companies, the entities which are managing these prescription
drug plans for employers it seems to me there are a lot of
problems.
A number of lawsuits have been filed against plans for
negotiating hidden deals for their own benefit, at the expense
of employers. Switching employees to higher priced drugs, for
the benefit of the pharmacy, benefit manager, of they get kick
backs from drug companies, or they fail to pass on millions of
dollars in rebates and other financial incentives to employers
that the PBMs then pocket for themselves.
I would just like, what I think is going on is that
employers don't have the market power to leverage discounts
from the manufacturers, so they hire these private companies,
but the private companies strike their own deals with
particular manufacturers.
Mr. Vladek, would you be able to comment on that, and talk
a little bit about what those kinds of problems mean for a plan
under Medicare that relies on private PBMs or on other such
intermediaries?
Mr. Vladek. Thank you, Mr. Allen.
In some of the details of the way the pharmaceutical
industry, the wholesale and distribution industry is, Doctor
Feldman probably knows more than I do, but I've had some
exposure to it in recent months, and I've never seen anything
as baroque, or as complicated, or as hidden, as the way in
which prices and actual--both nominal prices and real prices
are manipulated in the flow for the supply chain from the time
it leaves the manufacturer to the time it reaches the retail
consumer.
There are all kinds of rebates of shadow prices, of private
deals and so on and so forth, and I think there's some major
litigation now involving the PBMs for failure to disclose to
their customers the fact that they were getting very
substantial rebates for certain drugs, and, therefore,
benefiting themselves rather than their customers in that
regard.
I do think, to be very blunt about it, the issue of the
PBMs and the private intermediaries has arisen because we've
been unwilling politically to talk about government leverage
over pharmaceutical prices in the Federal programs or in
Medicare, while we are willing to talk about it for the VA, we
are willing to talk about it for the Public Health Service, or
we are willing to talk about it in State Medicaid programs.
But, that's what it comes down to.
And, if you need to disguise efforts to do something about
price controls, then you need some kind of intermediary, but
I'm not sure that the track record of any of the existing
intermediaries is particularly encouraging in that regard.
Mr. Allen. I thank you.
Thank you, Mr. Chairman.
Mr. Norwood. Thank you very much, Mr. Allen.
Gentlemen of the panel, thank you for taking your time.
We'll be anxiously looking forward to hearing from you and some
of the questions that time didn't permit to be answered.
With that, this hearing is now adjourned.
[Whereupon, at 12:36 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of The Alliance to Improve Medicare
The Alliance to Improve Medicare (AIM) is pleased to submit this
statement for the hearing record to the Energy & Commerce Health
Subcommittee. We applaud the Subcommittee's continued dedication to
improving and strengthening Medicare. AIM has developed a set of
recommendations on providing access to prescription drug coverage
though Medicare and we are pleased to share these recommendations with
the Subcommittee. The recommendations provide guidance for developing
prescription drug coverage through both the traditional fee-for-service
Medicare program and Medicare's managed care program, Medicare+Choice.
Medicare was designed and created in 1965 when hospital-based care
was the standard. Today's standard of care, however, includes a greater
reliance upon modern technologies such as prescription drugs to treat
patients and reduce the number and length of hospitalizations. Designed
today, Medicare would no more exclude prescription drug coverage from
the standard benefit package than it would exclude hospitalization or
physician services. Current statistics show that nearly one-third of
Medicare's elderly and disabled beneficiaries lack outpatient (Part B)
prescription drug coverage. The balance of Medicare beneficiaries have
some level of coverage through retiree health benefits, Medigap
policies, Medicare+Choice plans or Medicaid.
AIM believes all Medicare beneficiaries should be offered
prescription drug benefits as an integral part of Medicare health
coverage and as part of broader efforts to strengthen and improve both
the traditional fee-for-service program and Medicare's managed care
program, Medicare+Choice. Further, AIM believes prescription drug
benefits should be designed with adequate financial support and
effective management tools to ensure reliable coverage and long-term
success. AIM also believes that equal financial resources should be
dedicated to both the fee-for-service program and the Medicare+Choice
program for the development of prescription drug benefits. Finally, AIM
believes health plans should have flexibility in designing prescription
drug coverage benefits and opposes bureaucratic prescription drug
proposals and government price controls.
Prescription Drug Coverage in Fee-For-Service Medicare
AIM believes fee-for-service Medicare beneficiaries should have
private health care coverage options that include prescription drug
coverage as part of the basic benefit package. AIM supports efforts to
add prescription drug coverage to the fee-for-service benefit package
through a new, comprehensive benefit package. Medicare fee-for-service
program beneficiaries should have a comprehensive benefit package that
includes basic prescription drug coverage.
Further, a comprehensive benefit package in fee-for-service
Medicare should include appropriate use of private sector management
tools. Private sector health plans have developed proven tools to
ensure safe and cost effective use of prescription drugs. These
management tools, including formularies, tiered co-payments, and drug
interaction prevention programs, are essential to high-quality coverage
for beneficiaries and should be incorporated into a new comprehensive,
fee-for-service benefit package while allowing access to all classes of
drugs.
Finally, a fee-for-service benefit package that includes
prescription drug coverage should avoid government imposed price
controls.
Prescription Drug Coverage in Medicare+Choice
Congress created the Medicare+Choice program as a health care
coverage option for Medicare beneficiaries. The option was designed to
offer more health care coverage choices and organized health care
systems to beneficiaries. However, Medicare reimbursements which fall
below cost increases, severe payment cuts, and increased costs due to
excessive regulation have caused many Medicare+Choice plans to reduce
or eliminate prescription drug coverage in order to maintain plan
offerings in some counties.
AIM's recommendations to ensure prescription drug coverage for
Medicare+Choice program beneficiaries require adequate payments to all
providers. The current Medicare+Choice payment formula has resulted in
inadequate payment levels which have not kept pace with overall medical
costs for Medicare+Choice plans in many parts of the country.
Stabilization of the Medicare+Choice program will minimize disruption
of benefits, including prescription drug benefits, among beneficiaries.
Recent reductions in funding for Medicare+Choice health plans have
caused many plans to reduce the scope of their prescription drug
benefits or to increase beneficiary cost sharing.
Further, AIM believes that Congress must ensure a sustainable
funding and financing mechanism for a prescription drug benefit. The
additional Medicare program costs associated with providing
prescription drug benefits should be accompanied by a reliable and
sustainable financing mechanism.
Finally, health plans must be allowed flexibility in the design of
benefits packages. Beneficiaries should have the option of selecting
from among many different plans and plan types to best suit their own
coverage needs. Statutorily mandated benefit requirements will
unnecessarily restrict beneficiary options for coverage.
Conclusion
AIM appreciates the opportunity to provide these comments to the
Health Subcommittee and applauds Chairman Bilirakis for his efforts to
improve Medicare. AIM urges the Subcommittee to consider these
recommendations to ensure a sustainable Medicare prescription drug
benefit for all Medicare beneficiaries. We look forward to working with
the Subcommittee and other members to further improve and strengthen
Medicare this year.
______
Prepared Statement of David G. Schulke, Executive Vice President,
American Health Quality Association
The American Health Quality Association represents independent
private organizations--known as Quality Improvement Organizations
(QIOs)--that work under contracts with the Centers for Medicare and
Medicaid Services (CMS) to improve the quality of care for Medicare
beneficiaries in all 50 states and every U.S. territory. Congress
created the QIOs to monitor and improve the quality of care delivered
to Medicare beneficiaries and supports the national work of the QIOs
with approximately $333 million annually from the Medicare Trust Fund,
or about $8 per beneficiary per year.
Past policy efforts to develop a Medicare prescription drug benefit
for the 21st century have focused almost exclusively on financing a
benefit. Very little attention was given to including initiatives in
the drug benefit to ensure a benefit is safe and continuously monitored
to maximize the quality of outpatient pharmacotherapy.
In the 107th Congress the Energy and Commerce Committee became the
first congressional committee to recognize this challenge by including
language in House Report 107-551 directing the administrator of the
Medicare prescription drug benefit to make Part D claims available to
QIOs for quality improvement efforts. The American Health Quality
Association commends the Energy and Commerce Committee for their
leadership in this regard. It is absolutely critical to create an
integrated quality improvement program. Otherwise, beneficiaries are
likely to be ill-served by a carved-out drug benefit that operates
separately from the Medicare hospital and outpatient benefits and data
systems.
BUILDING A SAFE DRUG BENEFIT.
A Medicare outpatient prescription drug benefit presents an
opportunity to improve the quality of life for our nation's seniors,
but also brings the real risk of increased morbidity and mortality
associated with an increase in the use of medications. It is reasonable
to predict that with an outpatient prescription drug benefit, more
seniors will receive more drugs. Expanding access to and availability
of drugs, without a complementary investment in quality improvement,
will exacerbate the unacceptable cost and incidence of hospital and
long-term care admissions associated with medication use. A recent
meta-analysis of 11 different studies reviewing drug use in the elderly
population found that ``[t]he reported prevalence of elderly patients
using at least one inappropriately prescribed drug ranged from a high
of 40% for a population of nursing home patients to 21.3% for
community-dwelling patients over age 65.'' <SUP>1</SUP>
Pharmacoeconomists at The University of Arizona have tracked the
costs associated with drug therapy since the early
1990s.<SUP>2,</SUP><SUP>3</SUP> In the spring of 2001 these researchers
published the following statement: ``Overall, the cost of drug-related
morbidity and mortality [in the ambulatory care environment] in the
United States exceeded $177.4 billion in 2000. Hospital admissions
accounted for nearly 70% ($121.5 billion) of total costs, followed by
long-term-care admissions, which accounted for 18% ($32.8 billion).''
<SUP>4</SUP>
INTEGRATING MEDICAL AND PHARMACY DATA SYSTEMS THROUGH MEDICARE QIOS.
Historically, attempts to address the morbidity and mortality
associated with medication use have been stymied by the inability of
practitioners in various disciplines to access certain medical or
pharmacy records that would otherwise provide a comprehensive picture
of a patient's true medication use history. As this committee discusses
building a Medicare prescription drug benefit for the 21st century, it
is essential that the new statutes and regulations include language
that provide the QIOs with access to pharmacy claims data. Regardless
of how a drug benefit is administered, the Secretary of HHS must have
unrestricted access to pharmacy claims data to use in directing the
activities of the QIOs. QIOs were created by Congress with the
necessary confidentiality protections and staff expertise to permit
them to combine medical and pharmacy data to guide health care systems
improvement.
Most congressional proposals forwarded to date rely on the pharmacy
benefit administrators to process pharmacy claims data and take certain
quality improvement steps at the point of service when the pharmacy
claims data suggests medication misadventures. The good work of the
pharmacy benefit administrators is limited by the information present
in the pharmacy claim. Without integration of the data present in the
medical record and pharmacy record, systematic failures leading to
inappropriate prescribing and dispensing will continue to happen
everyday.
INTEGRATION OF DATA SYSTEMS THROUGH QIOS IS CRITICAL--A STUDY OF
OUTPATIENT BETA-BLOCKER USE IN HEART ATTACK VICTIMS.
QIOs use data to track progress and improve provider performance,
reducing errors by focusing on treatment processes, mostly
pharmacotherapy. Since 1996, QIOs have worked on local projects to
improve clinical indicators in care for diseases and conditions that
broadly afflict seniors. Among the diseases targeted for quality
improvement by the QIOs, treating heart attack victims with beta-
blockers offers an example of how the QIOs could further their current
inpatient efforts with appropriate access to data gathered with an
outpatient prescription drug benefit.
Medical practitioners have known for several decades that the
secondary prevention benefits of beta-blocker therapy after heart
attack include reduced hospital readmissions, reduced incidence of
further heart attacks, and decreased overall mortality.<SUP>5</SUP> The
evidence is so convincing that the American College of Cardiology and
the American Heart Association guidelines for the management of heart
attack recommend routine beta-blocker therapy for all patients without
a contraindication.<SUP>6</SUP> Despite the evidence and expert
recommendations, the use of beta blockers after heart attacks remains
considerably suboptimal, with 20-30% of appropriate patients lacking
this essential therapy.<SUP>7</SUP> The reason is unlikely to be cost.
Beta-blocker therapy in the outpatient setting is one of the most
affordable medications available to patients. A 90-day supply of this
life-saving medication usually costs less than $10.00.
QIOs work to ensure that patients discharged from the hospital
following a heart attack leave the hospital with a prescription for a
beta-blocker. In the November 2002 issue of the Journal of the American
College of Cardiology (JACC), researchers report that many patients
never fill prescriptions for their discharge medication, and many of
those that do discontinue the use of beta-blockers shortly after
filling the prescription. The study's authors conclude: ``Patients not
discharged on beta-blockers are unlikely to be started on them as
outpatients. For patients who are discharged on beta-blockers after
AMI, there is a significant decline in use after discharge. Quality
improvement efforts need to be focused on improving discharge planning
and to continue these efforts after discharge.'' <SUP>8</SUP> During
the QIO's Sixth Scope of Work (1999-2002), QIOs were responsible for
improving the national rate of beta-blocker order at discharge by
7%.<SUP>9</SUP>
In his study published in JACC, Butler and colleagues found that
the first step to preventing heart attack recurrence is to make sure a
prescription is written and ordered at the time of the patient's
discharge from a heart attack hospitalization. If this is done, the
study shows there is a 10 TIMES greater likelihood of getting that
patient started on inexpensive, effective beta blocker drugs that 20-
30% of Medicare heart attack patients still do not receive, almost 40
years after the first marketing of propranolol, the first beta blocker.
The authors of the study utilized data for the dually enrolled
population of patients (those receiving Medicare and Medicaid benefits
simultaneously), as this is the only population of seniors for which
there is comprehensive drug therapy claims data. This same kind of
monitoring should be available for all beneficiaries. It is critical
for Medicare to have the drug claims/ utilization data so QIOs can
identify heart attack patients who don't fill a prescription for beta
blockers post discharge, or who stop filling prescriptions (almost one
quarter do after 6 months, according to the study)--and give their
physicians assistance in getting the prescription started or changed
(the latter might be needed if the patient didn't like the particular
beta blocker initially prescribed and has consciously stopped taking it
due to unacceptable or intolerable side effects). QIOs are ideally
suited to identify patients at highest risk for hospital readmission or
death due to poor beta-blocker adherence (i.e., patients taking beta-
blockers post heart attack). We believe the QIOs unique ability to
integrate medical information with pharmacy claims/utilization data
complement pharmacy adherence programs that may be currently managed by
benefit administrators.
QIO CONFIDENTIALITY REQUIREMENTS.
The confidentiality of information collected or developed by a
Medicare QIO is assured by Section 1160 of the Social Security Act. It
was the intent of Congress in drafting this provision to provide
safeguards for information identifying a specific patient, practitioner
or reviewer. These safeguards foster an environment that is conducive
to quality improvement efforts.
RECOMMENDATIONS.
The American Health Quality Association has drafted the following
legislative specifications we ask the Committee to include in this
year's Medicare outpatient prescription drug benefit bill.
Legislative Specifications for the 108th Congress.
1) Give the QIOs responsibility for the outpatient drug benefit
analogous to the responsibility they have for all other Title 18
benefits:
Add new `Sec-------- . Review Authority--. Section 1154(a)(1) is
amended by adding `and section ------ after `1876'.
2) Instruct the QIOs to make assistance available to providers,
practitioners and benefit administrators to improve the quality of care
under the new drug benefit.
Prescription Drug Therapy Quality Improvement.--Section 1154(a) is
amended by adding a new paragraph 17:
``(17) With respect to items and services provided under Title
XVIII Part ------ the organization shall execute its responsibilities
under subsection (a)(1)(A) and (B) by making available to providers,
practitioners and benefit administrators assistance in establishing
quality improvement projects focused on prescription drug or drug-
related therapies. For the purposes of this part and title XVIII, the
functions described in this paragraph shall be treated as a review
function.''
3) Include legislative language instructing prescription drug
benefit administrators to provide patient specific pharmacy claims and
drug utilization data to the Secretary of HHS. Suggested wording:
``Requirements for Prescription Drug Plan Sponsors, Contracts,
Establishment of Standards.--Any agreement between the Secretary and a
benefit administrator for this purpose shall provide the Secretary with
all patient specific pharmacy claims and drug utilization data.''
4) Include legislative language providing appropriate availability
of prescription drug claims data to the QIOs for quality improvement
purposes. Suggested wording:
``Data Availability.--The Secretary shall provide the utilization
and quality control peer review organizations with the patient specific
pharmacy claims and drug utilization data to permit the organizations
to perform the functions described in 1154(a)(17).''
References
<SUP>1</SUP> Lui GG, Christensen, DB, ``The Continuing Challenge of
Inappropriate Prescribing in the Elderly: An Update of the Evidence.''
J Am Pharm Assoc, 42(6), p847-857, 2002.
<SUP>2</SUP> Johnson JA, Bootman JL, ``Drug-related morbidity and
mortality. A cost-of-illness model.'' Arch Intern Med (United States),
155(18), p1949-56, 1995.
<SUP>3</SUP> Harrison DL, Bootman JL, Cox ER. ``Cost-effectiveness
of consultant pharmacists in managing drug-related morbidity and
mortality at nursing facilities.'' Am J Health Syst Pharm, 55(15),
p1588-94, 1998.
<SUP>4</SUP> Ernst FR, Grizzle AJ, ``Drug-related morbidity and
mortality: updating the cost-of-illness model.'' J Am Pharm Assoc,
41(2), p191-199, 2001.
<SUP>5</SUP> Soumerai, SB, McLaughlin TJ, et al. ``Adverse outcomes
of underuse of beta-blockers in elderly survivors of acute myocardial
infarction.'' JAMA, 227, p115-121, 1997.
<SUP>6</SUP> Ryan TJ, et al. ``ACC/AHA guidelines for the
management of patient with acute myocardial infarction. A report of the
ACC/AHA Task Force on Practice Guidelines (Committee on Management of
AMI).'' J Am Coll Cardiol, 28, p328-348, 1996.
<SUP>7</SUP> Krumholz HM, et al. ``National use and effectiveness
of beta-blockers for the treatment of elderly patients after AMI:
National Cooperative Cardiovascular Project.'' JAMA, 280, p623-629,
1998.
<SUP>8</SUP> Butler J, et al. ``Outpatient adherence to beta-
blocker therapy after AMI.'' J Am Coll Cardiol, 40(9), 1589-1595, 2002.
<SUP>9</SUP> Jencks SJ, et al. ``Change in the Quality of Care
Delivered to Medicare Beneficiaries 1998-1999 to 2000-2001.'' JAMA,
289, p305-312, 2003.
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