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Drug Discount Cards for Medicare Beneficiaries to Debut This Year

Kate Traynor

Medicare-endorsed prescription drug discount cards are expected to be available by this summer by legislative mandate, nearly three years after the Bush administration first attempted to create a similar discount card program without congressional approval.

Enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the card program is among the earliest visible results of the act, which was signed into law December 8, 2003. The card program will remain in place until 2006, when a Medicare outpatient prescription drug benefit begins.

The basics. Beginning in May, Medicare beneficiaries may enroll in a discount card program that is operated by the private sector but endorsed by the Centers for Medicare & Medicaid Services (CMS). According to CMS, enrollees will be issued cards starting in June that entitle cardholders to receive discounts on certain prescription drugs. The discounts are generated by card sponsors, who negotiate rebates and other price concessions from drug manufacturers and pharmacies.

CMS expects the discounts to amount to 10-15% of enrollees' total prescription costs. Medicare beneficiaries can enroll in just one program at a time, at a cost of up to $30 per year. The enrollment fee will be waived for Medicare beneficiaries whose income is below 135% of the poverty level. These enrollees will receive a $600 annual "transitional assistance" subsidy for the purchase of prescription drugs.

"We believe this 18-month program is a way to provide immediate relief for the cost of prescription drugs for many seniors who are paying retail or above-retail prices" for medications, said Timothy Trysla, policy adviser for CMS.

Trysla made the comment December 18 during a teleconference on legislative implementation of the Medicare reform law. Trysla spoke from Baltimore, Maryland, where he was holding a meeting attended by more than 500 people representing potential sponsors of the discount cards.

The cards are to be offered by pharmacy benefit managers and other private entities that meet requirements set out by CMS in the December 15, 2003, Federal Register. The requirements include three years' experience adjudicating claims and negotiating price discounts from drug manufacturers and pharmacies and serving at least 1 million "covered lives." CMS will allow organizations that do not qualify on their own to partner with other groups to meet the requirements.

CMS estimates that 4.7 million Medicare beneficiaries who qualify for transitional assistance will sign up for a discount card each year, as will up to 7.4 million Medicare beneficiaries who do not qualify for the annual subsidy. The cards will be available to Medicare beneficiaries who do not have drug coverage through Medicaid.

Covered drugs. Most FDA-approved drugs, vaccines, and biological products are eligible for inclusion in the discount card programs, as are syringes, needles, and gauze used for insulin administration. Lancets and test strips used for blood glucose testing are not covered by the discount card program, because CMS does not consider these products to be directly related to the injecting of insulin.

Congress specifically excluded from coverage in the discount card program a number of products, including barbiturates, benzodiazepines, fertility drugs, cough and cold symptom remedies, and cosmetic drugs.

CMS requires discount card programs that use a formulary to include at least one product in each of 209 therapeutic categories listed in the Federal Register notice. At a minimum, a discount must be offered on one product in each therapeutic category, including a discount on a generic product in 115 of the categories.

Of note, Medicare enrollees who qualify for transitional assistance can apply the $600 subsidy to products not included in a card sponsor's formulary.

CMS plans to operate a price comparison Web site and other outreach programs to help Medicare beneficiaries determine which card best meets their personal needs. Although the price for any single product can vary within a program depending on the price negotiated with different pharmacies, the price submitted to CMS must be the highest contracted price for each drug, including any dispensing fees, that would be available to the cardholder.

Who pays what? Card-plan enrollees who qualify for transitional assistance pay nothing for the discount card but are responsible for a coinsurance fee-5% of the prescription cost for enrollees whose income is at or below the poverty level, and 10% for those above it.

Trysla described the subsidy as "a line of credit [that] is extended to the card sponsor," with the card functioning like "any of the debit cards you're currently seeing in place at Starbucks" and elsewhere.

The card sponsor is required to provide the remaining available transitional assistance balance to the cardholder at the point of sale. The current balance must also be accessible through the sponsor's customer service telephone number.

After the $600 subsidy has been spent, low-income cardholders are responsible for paying the full negotiated price for prescription drugs or the pharmacy's usual price, whichever is lower.

Bulk buying power. CMS Acting Deputy Administrator Leslie Norwalk, during a December 10, 2003, seminar at the National Conference of State Legislators Fall Forum in Washington, D.C., said that the discount card program is a way to harness the buying clout of the Medicare population.

"We can pool the purchasing power of 40 million Medicare beneficiaries and say to the drug card sponsors, 'I'm going to bring you a lot of volume, and I want some discounts,' " Norwalk said, citing a figure greater than CMS's official estimate that about 12 million Medicare beneficiaries would sign up for a discount card.

The new Medicare law forbids Medicare from directly negotiating discounts on prescription drugs for the program's beneficiaries, who must instead rely on price concessions worked out by discount card sponsors.

Passing the buck. Although Norwalk said that she expects discounts of 10-25% to be passed on to Medicare beneficiaries, CMS did not set a minimum level for discounts.

"We are requiring that at least some portion of the discount be passed from the manufacturers, in the form of rebates, on to the beneficiary," Norwalk said. "I suspect that some of the discount will occur because of generic substitution, and some of the discounts will be because of pharmacy costs," she added.

According to CMS, would-be card sponsors must provide in their application to CMS "a discussion about" manufacturer rebate contracts but not copies of the actual contracts.

"The drug card sponsors will not be providing, certainly not publicly, where all that money comes from-where the discounts come from," Norwalk said.

Using figures from CMS's estimate on the impact of the discount programs on small businesses, the National Community Pharmacists Association (NCPA) calculated that the program would cost independent pharmacies that participate an average of $125 per day.

John M. Rector, general counsel for NCPA, said that "ambiguity in the language" of the Federal Register notice makes it likely that most of the discount will be eked from pharmacies' profit margins, not from drug manufacturers.

"Our people should take a long, hard, serious look to see whether they would participate in these offerings," Rector said.

He also warned pharmacies to be alert for an issue that arose when the Bush administration first attempted to launch a discount card program: card-sponsor solicitations that were disguised to look like addenda to existing insurance agreements between pharmacies and benefit managers. Rector emphasized that pharmacies must accept insurance contract addenda, while participation in discount card programs is optional.

Norwalk likewise said that the decision of whether to contract with card sponsors will be up to pharmacies.

"It's up to you whether or not you contract at a rate that you like," she advised pharmacies. "If you don't like the rate, then don't contract. And if you like the rates, fabulous. So, it's really up to you as to whether or not you'd be operating at a loss. I don't know."

Rector said he sees irony in the discount-card arena.

"It was the independent pharmacy sector that came up, originally, with the whole notion of a senior discount," Rector said. "Way before cards, independent pharmacies gave seniors 5-10% discounts."

Rector is skeptical that Medicare-endorsed cards will earn seniors discounts greater than 10%. "I wouldn't hold my breath," he said.