Computer discount prices

AT A GLANCE

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

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

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

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

Prices Down, Utilization Up?

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

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

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

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

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

Most Beneficiaries Qualify for a Card

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

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

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

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

* Complete and submit the required enrollment form

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

Transitional assistance beneficiaries with incomes below the poverty line may use the funds to pay 95 percent of a covered drug's price (90 percent for all others). The beneficiary is liable for the remaining 5 or 10 percent (i.e., the coinsurance amount). Assuming a charge of $150, the amount deducted from the beneficiary's transitional assistance would be $142.50 or $135, and the coinsurance would be $7.50 or $15, depending on the beneficiary's income. Beneficiaries without transitional assistance would be liable for the full $150.

For transitional assistance beneficiaries, federal law allows the coinsurance to be waived as long as the waiver is not advertised, the coinsurance is not routinely waived, and the coinsurance is waived only after a beneficiary has been determined to be in financial need and a reasonable effort has been made to collect the coinsurance.

Eligible beneficiaries are not required to enroll in any approved sponsor's card program. Those who do enroll may change sponsors once. Medicare beneficiaries can obtain enrollment forms at participating pharmacies. Information is available by calling 1-800-Medicare; the booklet Guide to Choosing a Medicare-Approved Drug Discount Card is posted at www.medicare.gov.

Get Information at Medicare's Web Site

At Medicare's on-line price-comparison page (www.medicare.gov), beneficiaries can obtain:

* The name and address of each participating pharmacy located within a specified radius of the beneficiary's zip code

* The maximum price, inclusive of the dispensing fee, that a participating retail and mail order pharmacy charges for a covered drug, taking into account the drug's dosage and quantity

* The maximum price of generic alternatives, when applicable

The sponsor's enrollment fee is also shown on the web site; it may be well below the allowed $30, perhaps even free.

This information will help beneficiaries select a sponsor's card program and save money. For beneficiaries with multiple prescriptions, the selection process may be complicated, confusing, and time-consuming when pharmacies in one sponsor's network charge lower prices for some d rugs but higher prices for others. Furthermore, because prices may be updated weekly, a choice that is correct today may be incorrect tomorrow. In all likelihood, complications and changes w ill slow the enrollment process and use of the discount cards.

In certain instances, the lowest price charged by a participating pharmacy may not be a beneficiary's best deal. For example, Internet-based pharmacies may charge an even lower price, inclusive of shipping charges. If so, a beneficiary would have to decide whether the incremental savings outweigh quality or other concerns that he or she may have about dealing with such pharmacies.

Approved Sponsors Operate Pharmacy Networks

Organizations (e.g., insurance plans, pharmacy benefit managers, and Medicare managed care plans) approved by CMS administer the drug card program. These "endorsed or approved sponsors" must:

* Form and operate pharmacy networks, enroll Medicare beneficiaries, track transitional assistance, and meet reporting requirements

* Obtain rebates, volume discounts, and other price concessions from drug manufacturers on at least some of the covered drugs

* Factor an unspecified portion of the cost savings into the prices (including dispensing fees) that sponsors negotiate with participating pharmacies