Comparing Prescription Drug Proposals: Bush v. Gore
Table of Contents
The Candidates and Cost Containment
Faced with the prospect of rising drug costs, the Gore and Bush proposals differ in the way they propose to contain costs.
"Gore proposes to contract for administration of drug benefits on a stand-alone basis."
The Gore Proposal: Pharmacy Benefit Managers and Price Negotiations. Gore proposes to contract with pharmacy benefit managers (PBMs) to administer the drug benefits on a stand-alone basis. He also proposes to hold down the prices of prescription drugs by negotiating with manufacturers. But this approach means the impact of prescription drugs on total costs and total health benefits of seniors will be difficult to coordinate or integrate. When the U.S. General Accounting Office (GAO) looked at President Clinton's prescription drug proposal (which Gore has essentially adopted as his own), it concluded that negotiation would work only if Medicare adopted a formulary and required beneficiaries to make additional payments if they wanted drugs not on the formulary. Without these limits, the GAO said, manufacturers would have no incentive to offer a deep discount because Medicare couldn't guarantee a larger market share for a specific drug if beneficiaries had a wider choice.18
There is no such flexibility in the Gore proposal as it now stands, since the formulary would be open (that is, Medicare beneficiaries would have access to "medically necessary" drugs, even if they weren't on the formulary) and no copayment would be more than 50 percent, regardless of the drug selected. However, political pressure likely would force Medicare to enact a national formulary if, say, PBM A limited access to certain drugs in one part of the country while PBM B made the same drugs available in another part of the country. The GAO has suggested that PBMs, which now make decisions privately, might lack the flexibility under Medicare that they have now, adding, "Implementing a formulary and other utilization controls could prove difficult for Medicare,...which must have transparent policies that are determined openly."19
Gore's proposal projects that prescription drug spending will increase an average of 5 percent per year (the same projection used by the Clinton administration). However, discussions with private-sector PBM executives and congressional testimony by those executives suggest a higher rate of increase.20 Some former PBM executives predict that to limit spending increases to 5 percent a year, the Gore administration would have to do the following:
- Impose mandatory price cuts and freezes.
- Create restrictive formularies that would narrow selection to one or two drugs for each type of therapy.
- Institute a policy to not pay for any branded drugs or put a price control on all but generic drugs in any therapeutic class.
- Establish government directives and formularies using PBM databases telling doctors what to use.
- Require prior authorization before using drugs that are not on a formulary.
"Bush stresses an approach that will put health care for the elderly on equal footing with health care for the non-elderly."
The Bush Proposal: Marketplace Competition. Bush stresses an approach that will put health care for the elderly on an equal footing with health care for the non-elderly. He would leave the formulary and utilization control decisions in the private sector, since prescription drug coverage would be one part of the Medicare beneficiary's coverage by a private plan. Unleashing millions of elderly consumers into the marketplace, most of whom are - as the previous tables show - healthy and relatively well off, will shift the way in which prescription drug coverage is offered and provided. Or rather, it will move health plans in a direction that some were already heading. Health expert J.D. Kleinke points out that health plans are rapidly moving towards multi-tier drug coverage where insurers prepay for drugs that are the most "medically and economically useful" for patients while assigning a copayment to drugs that are not.21 More to the point, individual health plans - driven by competition for consumer dollars - will have an incentive to show how the availability and use of new and better drugs pay off in terms of improved health and well-being (and fewer dollars spent on other services).
A consumer-driven Medicare system will be able to more effectively capture the savings inherent in the use of newer pharmaceuticals. Confirming Kleinke's observation, an exhaustive study by Lichtenberg found that the number of hospital stays, bed days and surgical procedures declined most rapidly for those diagnoses with the greatest increase in the total number of drugs prescribed and the greatest change in the use of new drugs. His estimates imply:22
- An increase of 100 prescriptions is associated with 1.48 fewer hospital admissions, 16.3 fewer hospital days and 3.36 fewer inpatient surgical procedures.
- A $1 increase in pharmaceutical expenditure is associated with a $3.65 reduction in hospital care expenditures.
However, the current environment does not encourage health providers to consider drug coverage in the context of its effect on the cost of a patient's total health care. Kleinke suggest that health plans often use the cost of expensive drugs as an excuse to raise rates. "Expensive drugs are guilty of driving up total medical costs until proven innocent...the plan can point to highly visible increases in pharmacy costs as the sole justification for its premium increases...," he wrote in Health Affairs."23
"More prescriptions lead to fewer hospital admissions and fewer surgeries."
Kleinke notes that even if a health plan's pharmaceutical cost increased 20 percent, it would only raise a typical plan's drug costs from the current 8 percent of total health care spending to 10 percent. "This increase does not square with average premium increases of seven to 10 percentage points in 1999-2000," he says.24 Indeed, HMOs continue to report declines in the time people spend with doctors and in hospitals. Most of the new expensive drugs launched in the past few years, such as Rezulin for diabetes, Zocor for cholesterol, Zyprexa for schizophrenia and Claritin for allergies, are keeping patients with chronic conditions more stable. This means fewer admissions, shorter stays, less reliance on doctors for care. Premiums have increased out of proportion to increases in total medical costs because HMOs are attempting to recover lost profit margins.
Critics will say that the Bush proposal in its present form does not do enough to encourage competition among plans for subscribers and to give consumers more control over health care dollars to promote the more appropriate use of pharmaceuticals by provider groups, insurers and HMOs. They are partly right. Seniors must have additional incentives to invest in and save for their own health care, consistent with their expected future ability to do so. More of the money currently used for premiums or payments to insurance companies and health care systems should, in the future, be sitting in the personal accounts of retirees in the form of long-term care or medical savings accounts.
In addition, health plans need to provide better information on price and quality of care. The Choice Plus system, run by the Buyers Health Care Action Group (BHCAG) in Minneapolis, offers an example of what can be done. Retirees from companies that are members of BHCAG use a combination of premium allowances and consumer guidebooks to drive health plans towards better care at lower cost.
