[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THIRD IN SERIES ON MEDICARE REFORM: LAYING THE GROUNDWORK FOR A RX DRUG
BENEFIT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MARCH 27, 2001
__________
Serial No. 107-7
__________
Printed for the use of the Committee on Ways and Means
----------
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73-534 WASHINGTON : 2001
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
NANCY L. JOHNSON, Connecticut, Chairman
JIM McCRERY, Louisiana FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota KAREN L. THURMAN, Florida
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of March 20, 2001, announcing the hearing............... 2
Witnesses
Congressional Budget Office, Dan L. Crippen, Ph.D., Director..... 9
Health Care Financing Administration, John A. Poisal,
Statistician, Office of Strategic Planning..................... 43
______
Frederick, Helen, Crownsville, MD................................ 56
Institute for Safe Medication Practices, Michael R. Cohen........ 49
National Committee to Preserve Social Security and Medicare, Max
Richtman....................................................... 61
Third Millennium, Maya MacGuineas................................ 65
Wilkinson, Lore, Durham, NC...................................... 58
Submission for the Record
American Society of Health-System Pharmacists, Bethesda, MD...... 83
THIRD IN SERIES ON MEDICARE REFORM: LAYING THE GROUNDWORK FOR A RX DRUG
BENEFIT
----------
TUESDAY, MARCH 27, 2001
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:11 p.m., in
room 1100 Longworth House Office Building, Hon. Nancy Johnson
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 20, 2001
HL-3
Johnson Announces Third Hearing in Series on
Medicare Reform: Laying the Groundwork
for a Rx Drug Benefit
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the addition of an outpatient
prescription drug benefit to the Medicare program. The hearing will
take place on Tuesday, March 27, 2001, in the main Committee hearing
room, 1100 Longworth, beginning at 2:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include beneficiaries as well as experts on prescription
drug coverage patterns, elements of benefit design, and the costs of
drug coverage. However, any individual or organization not scheduled
for an oral appearance may submit a written statement for consideration
by the Committee and for inclusion in the printed record of the
hearing.
BACKGROUND:
This hearing will be the third in a series of Subcommittee hearings
intended to lay the groundwork for the development of legislation to
improve and strengthen the Medicare program--and the first to focus
specifically on adding a much needed prescription drug benefit to the
program. The first Subcommittee hearing, held on February 28th, gave
Members a general overview of the reform debate. Our second hearing, on
March 15th, addressed the need to bring regulatory relief while still
protecting the program from waste, fraud, and abuse. Subsequent
hearings will continue to target various aspects of the Medicare
program in need of improvement.
In announcing the hearing, Chairman Johnson stated: ``Nobody would
design a seniors health program today which does not fully integrate
prescription drugs. Adding a prescription drug benefit to an improved
and modernized Medicare program is one of the most important tasks this
Congress must accomplish this year. It will not be easy--the issues we
will confront are extremely complicated. But it must be done. Next
week's hearing will help us get started.''
FOCUS OF THE HEARING:
This hearing begins the Subcommittee's consideration of the many
issues surrounding the development of an outpatient prescription drug
benefit within the Medicare program. The first panel will outline
existing patterns of prescription drug coverage and spending, and
witnesses will help Members begin to identify the many design decisions
that will have to be made in structuring a new benefit. The second
panel will turn to current and future beneficiaries to hear directly
from them what they would like to see in a new drug benefit.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
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April 10, 2001, to Allison Giles, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
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noted above.
Chairwoman Johnson. The hearing will come to order.
Today's hearing continues the Subcommittee's examination of
Medicare modernization. Our first hearing focused on
fundamental Medicare reform ideas, and our second hearing
addressed Medicare's complexity and the regulatory burden on
the providers that served beneficiaries. Last week, we heard
from the Medicare trustees that the overall fiscal challenges
to the program remained formidable. Today, we will examine the
inadequacy of the current benefit package, specifically the
absence of outpatient prescription drug coverage.
Every Member of this Committee understands the importance
of this issue to Medicare beneficiaries. Increasingly,
medicines are the preferred method of treatment for a variety
of ailments. This is particularly true for those with chronic
diseases that disproportionately affect the Medicare
beneficiary. Prescription drugs will only become more important
as the biotechnology products currently in the pipeline are
approved by the FDA for illnesses such as Alzheimer's,
arthritis, cancer, osteoporosis, heart disease and stroke.
Nevertheless, since its inception in 1965, the Medicare
Program has generally excluded coverage of outpatient
prescription drugs. While more than seven out of 10
beneficiaries do have supplemental prescription coverage,
millions of beneficiaries have none, and much of the current
supplemental prescription drug coverage such as Medigap remains
expensive and inadequate.
Medicare beneficiaries consume more prescription drugs than
any other demographic group, yet those without coverage have
the least bargaining power and are therefore often paying the
highest prices. Further, low-income beneficiaries often have to
make unacceptable decisions between taking their medicines and
having food on their table. No one would design a seniors'
health plan today without fully integrating prescription drugs.
The lack of coverage symbolizes just one of the many ways in
which the Medicare benefit package has not kept pace with
modern medical care.
Today, we will hear testimony from the Congressional Budget
Office about its new projections that any prescription drug
benefit will cost us one-third more than projected last year.
We will also hear CBO's analysis of the critical design
elements that drive or constrain costs. Then, we will hear
testimony from a researcher at the Health Care Financing
Administration that seniors' prescription drug coverage
increased from about 65 percent in 1976 to 73 percent in 1998.
The research also makes clear that those seniors without
coverage tend to consume far fewer drugs than those with
coverage: not surprising but very unfortunate.
Additionally, we will hear from Michael Cohen about ideas
to reduce prescription drug errors and improve quality,
critical aspects of any successful drug benefit. Finally, we
will hear from current and future Medicare beneficiaries about
the principles they think are important in the design of a
prescription drug benefit. We will hear from a beneficiary
without coverage, a beneficiary with good retiree coverage who
wants to keep it that way, a young person representing the
Third Millennium, concerned with the cost and structure of a
Medicare benefit, and an advocate representing the National
Committee to Preserve Social Security and Medicare.
In short, this hearing will bring us up to speed on the
status of prescription drug coverage and the challenges we face
to successfully integrate drug coverage into a modernized
Medicare program. Last year, our respective political parties
toiled on this issue in separate rooms. It is my hope that
through this series of hearings and our regular member
seminars, we can bridge differences and develop a bipartisan
consensus on how to tackle the complex and difficult issue of
integrating prescription drugs into Medicare.
Mr. Kleczka.
[The opening statement of Chairwoman Johnson follows:]
OPENING STATEMENT OF HON. NANCY L. JOHNSON, M.C., CONNECTICUT, AND
CHAIRMAN, SUBCOMMITTEE ON HEALTH
Today's hearing continues the Subcommittee's examination of
Medicare modernization. Our first hearing focused on fundamental
Medicare reform ideas. Our second hearing addressed Medicare's
complexity and the regulatory burden on the providers that serve
beneficiaries. Last week, we heard from the Medicare Trustees that the
fiscal challenges to the program remain formidable.
Today we will examine the inadequacy of the current benefit
package--specifically, the absence of an out-patient prescription drug
benefit. Every member of this committee understands the importance of
this issue to Medicare beneficiaries. Increasingly, medicines are the
preferred method of treatment for a variety of ailments. This is
particularly true for those with chronic conditions, that
disproportionately impact the Medicare beneficiary. Prescription drugs
will only become more important, as the biotechnology products
currently in the pipeline are approved by the FDA for illnesses such as
Alzheimer's, arthritis, cancer, osteoporosis, heart disease and stroke.
Nevertheless, since its inception in 1965, the Medicare program has
generally excluded coverage of outpatient prescription drugs. While
more than 7 out of 10 beneficiaries do have supplemental prescription
drug coverage, millions of beneficiaries do not. And much of the
current supplemental prescription drug coverage, such as Medigap,
remains expensive and generally inadequate.
Medicare beneficiaries consume more prescription drugs than any
other demographic group. Yet those without coverage have the least
bargaining power and are therefore often paying the highest prices.
Further, low income beneficiaries often have to make unacceptable
decisions between taking their medicines and other necessities of life.
No one would design a seniors' health program without fully integrating
prescription drugs. The lack of coverage symbolizes just one of the
many ways Medicare has not kept up with modern health care.
Today, we will hear testimony from the Congressional Budget Office,
about its new projections that any prescription drug benefit will cost
us one-third more than it projected last year. We will also hear CBO's
analysis of the critical design elements of a prescription drug benefit
that drive or constrain costs.
Then we will hear testimony from a researcher at the Health Care
Financing Administration that seniors' prescription drug coverage
increased from about 65% in 1996 to 73% in 1998. The research also
makes clear that those seniors without coverage tend to consume far
fewer drugs than those with coverage. Additionally, we will hear from
an academic about ideas to reduce prescription drug errors and improve
quality, critical aspects of any successful prescription drug benefit.
Finally, we will hear from current and future Medicare
beneficiaries about principles they think are important in the design
of a prescription drug benefit. We will hear from a beneficiary without
coverage, a beneficiary with good retiree coverage who wants to keep
it, a young person representing ``Third Millennium,'' concerned with
the cost and structure of a Medicare drug benefit, and an advocate
representing the National Committee to Preserve Social Security and
Medicare.
In short, this hearing will bring us up to speed on the status of
prescription drug coverage, and the challenges in successfully
integrating drug coverage into a modernized Medicare program. Last
year, our respective political parties toiled on this issue in separate
rooms. It is my hope that through this series of hearings and our
regular Member seminars we can bridge differences and develop a
bipartisan consensus on how to tackle the difficult and complex
challenge of modernizing Medicare.
Mr. Kleczka. Thank you, Madam Chair.
Madam Chair and Members, the Ranking Member, Mr. Stark, is
running a little late. So on behalf of himself and myself, I
would like to deliver the opening statement today.
Madam Chair, thank you for holding today's hearings. This
Subcommittee has been given a very important charge: crafting a
meaningful prescription drug benefit for our Nation's seniors.
And I appreciate the chairwoman's leadership and thoughtful
approach to further educate Members on the various policy
options. The year is young, and there is ample opportunity for
us to try to find a bipartisan agreement on issues of mutual
interest.
Adding prescription drug coverage under Medicare is by far
the single most important Medicare reform or modernization
proposal under consideration this year. No matter where each of
us lives, whether it is in Connecticut, Minnesota, Florida,
Washington State or Wisconsin, we have seniors looking to us to
modernize the Medicare Program and provide some assistance to
help with the escalating costs of life-enhancing and life-
saving prescription medications.
Unfortunately, if we are held to the budget before us, we
are less likely to succeed. A budget is a statement of
priorities, and drug coverage is clearly not a priority of this
budget. Right now, our task is to develop a bipartisan
prescription drug benefit that will provide adequate,
sustainable assistance to senior citizens and disabled persons
who depend on Medicare. The bottom line is that the Health
Subcommittee should not be held hostage to a budget that
shortchanges a Medicare drug benefit.
If it turns out that a package that we believe is necessary
to meet the needs of the Medicare beneficiaries doesn't fit
within the budget currently before us, then the House will have
to prioritize. Does Congress want an adequate prescription drug
benefit for the elderly, or does it want to repeal the estate
tax? Does Congress want an adequate drug benefit for senior
citizens, or does it want a new missile defense system called
Star Wars?
The chairwoman is proceeding in the right way. She is
holding educational seminars to help our Members focus on the
important areas in the prescription drug debate and other
issues before the Committee. We have scheduled hearings that
will enable us to determine how best to help Medicare
beneficiaries with prescription drug costs. However, so far
this year, we have yet to see an appropriate drug benefit
proposal, and I am not being partisan. I am putting the
responsibility on all of us. I think we would be better off
reporting no drug benefit than reporting a $105 billion to $153
billion plan that would undoubtably fall so dramatically short
of what is needed.
We should develop a meaningful package. If the decision is
made not to proceed with it, so be it. But we will have done a
real service by developing a package that can work if and when
we are willing to dedicate the necessary resources to make it
work. We can even specify or suggest routes to obtain the
needed resources through taxes, through premiums, through
surplus expenditures or through a combination.
In this era of record surpluses, we should be able to move
with a real drug benefit, but if we cannot, then we should
continue working on mechanisms to lower drug costs through drug
reimportation, improved payment policies for the limited drugs
Medicare currently covers, patent reform and other proposals to
make drugs more affordable in the absence of coverage.
Finally, while I look forward to the testimony from our
witnesses, we should not be lulled into a sense of complacency
because it appears that many beneficiaries currently have drug
coverage. Coverage has declined since the study data were
collected in 1998, and recent data from the Commonwealth Fund
show that only 50 percent of beneficiaries have some type of
coverage throughout a given year. In addition, only the poorest
beneficiaries, who are also on Medicaid, have coverage that is
comprehensive, affordable and reliable.
That is why it is so important to have a Medicare drug
benefit that is universally available. CBO's baselines and
estimates should be a wakeup call to President Bush and
Congress. Creating a prescription drug benefit will be costly,
but we can afford it if we rearrange our priorities. I look
forward to working with the chairwoman and our colleagues on
the Committee to see if we can do better.
Thank you, Madam Chair.
[The opening statements of Mr. Kleczka and Mr. Ramstad
follow:]
OPENING STATEMENT OF HON. GERALD D. KLECZKA, M.C., WISCONSIN
Madam Chair, thank you for holding today's hearing. This
Subcommittee has been given a very important charge--crafting a
meaningful prescription drug benefit for our nation's seniors--and I
appreciate the Chairwoman's leadership and thoughtful approach to
further educate Members on various policy options.
The year is young, and there is ample opportunity for us to try to
find bipartisan agreement on issues of mutual interest.
Adding prescription drug coverage under Medicare is by far the
single most important Medicare reform or modernization proposal under
consideration this year. No matter where each of us lives--whether it
is Connecticut, Minnesota, Florida, or Washington State--we have
seniors looking to us to modernize the Medicare program and provide
some assistance to help with the escalating costs of life-enhancing and
life-saving prescription medications.
Unfortunately, if we are held to the budget before us, we are less
likely to succeed. A budget is a statement of priorities, and drug
coverage is clearly not a priority of this budget.
Right now, our task is to develop a bipartisan prescription drug
benefit that will provide adequate, sustainable assistance to senior
citizens and disabled persons who depend on Medicare. The bottom line
is that the Health Subcommittee should not be held hostage to a budget
that shortchanges a Medicare drug benefit.
If it turns out that the package we believe is necessary to meet
the needs of Medicare beneficiaries doesn't fit within the budget
currently before us, then the House will have to prioritize.
Does Congress want an adequate prescription drug benefit for the
elderly or does it want to repeal the estate tax? Does Congress want an
adequate drug benefit for senior citizens or does it want a new missile
defense Star Wars program?
The Chairwoman is proceeding in the right way. She is holding
educational seminars to help our members focus on the important areas
in the prescription drug debate and other issues before the Committee.
We have scheduled hearings that will enable us to determine how best to
help Medicare beneficiaries with prescription drug costs.
However, so far this year, we have yet to see an appropriate drug
benefit proposal. I am not being partisan--I am putting the
responsibility on all of us. I think we would be better off reporting
NO drug benefit than reporting a $105-153 billion plan that would
undoubtedly fall so dramatically short of what is needed.
We should develop a meaningful package. If the decision is made not
to proceed with it, so be it. But, we will have done a real service by
developing a package that can work if and when we are willing to
dedicate the necessary resources to make it work. We can even specify
or suggest routes to obtain the needed resources--through taxes,
through premiums, through surplus expenditures, or a combination.
In this era of record surpluses, we should be able to move forward
with a real Medicare benefit. But, if we cannot, then we should
continue working on mechanisms to lower drug costs through drug
reimportation, improved payment policies for the limited drugs Medicare
currently covers, patent reform, and other proposals to make drugs more
affordable in the absence of coverage.
Finally, while I am looking forward to the testimony from our
witnesses, we should not be lulled into a sense of complacency because
it appears that many beneficiaries currently have drug coverage.
Coverage has declined since the study data were collected in 1998,
and recent data from the Commonwealth Fund show that only 50 percent of
beneficiaries have some type of coverage throughout a given year. In
addition, only the poorest beneficiaries who are also on Medicaid have
coverage that is comprehensive, affordable and reliable. That's why
it's so important to have a Medicare benefit that is universally
available.
CBO's baselines and estimates should be a wake-up call to President
Bush and Congress. Creating a prescription drug benefit will be costly,
but we can afford it if we rearrange our priorities. I look forward to
working with the Chairwoman and our colleagues on the Committee to see
if we can do better.
Opening Statement of Hon. Jim Ramstad, M.C., Minnesota
Madam Chairwoman, thank you for calling this important hearing
today to review proposals to expand access to prescription drug
benefits for seniors.
As founder and co-chair of the House Medical Technology Caucus, I
appreciate the incredible advances that the medical technology and
pharmaceutical industries have made in recent years to treat and cure
many illnesses, diseases and conditions. These advances are truly
breathtaking in their scope and will become more and more prevalent as
medical science continues to advance.
Unfortunately, the Medicare system penalizes seniors by
incorporating these advances too late, if at all.
Congress needs to comprehensively reform Medicare to modernize the
program and expand access to critical new technologies and drugs. By
acting this year, we can improve health, save lives and save the system
money.
The question of course is how to maintain the standard of care
enjoyed by America's seniors, improve the system and meet the
incredible demographic challenges coming in the very near future. This
is not a simple task, and a prescription drug benefit will place new
pressure on Medicare as our nation's senior population grows.
Some propose to simply add a prescription drug benefit on top of
the current system. I believe we've tinkered too long. We must
modernize Medicare to provide these important new benefits and
streamline their delivery to seniors.
Since anything worth doing is worth doing well, we must carefully
review all of the ideas that have come forward for their strengths and
weaknesses, as well as for unintended consequences.
I applaud the work of Chairwoman Johnson in tackling these issues
and thank her for holding this hearing today to explore in depth the
challenges in adding a prescription drug benefit to Medicare. I look
forward to learning more from today's witnesses on how we can best
address the critical issue of including prescription drug coverage in
Medicare.
Chairwoman Johnson. I thank the gentleman, and I would just
want to say, because we will have a spirited debate on the
budget tomorrow on the floor, that if I didn't believe that a
prescription drug bill was a great priority of my leadership,
my colleagues and the President, I wouldn't be putting the kind
of effort into it that I am. I believe there is very deep
commitment on the Republican side as I believe there is on the
Democratic side to provide prescription drugs through Medicare,
and that is the course I am on and the course that I hope we
will be able to complete.
It is now my privilege to welcome Dr. Crippen of the
Congressional Budget Office here today and thank you in
advance, Dr. Crippen, for your extensive testimony and
particularly for your dwelling on the difficult issue of what
actually affects the national cost of a national prescription
drug program.
STATEMENT OF DAN L. CRIPPEN, PH.D., DIRECTOR, CONGRESSIONAL
BUDGET OFFICE
Dr. Crippen. Thank you, Madam Chairman, and Members of the
Subcommittee.
I hope today to describe some of the issues affecting the
design of a Medicare prescription drug benefit and to give you
some notion of what relative changes might do to the cost and
the effect of such a benefit. But first, I think I would be
remiss if I did not spend at least 30 seconds on the context in
which we are having this debate. The annual report released
last week by the Medicare Board of Trustees indicates that the
Hospital Insurance (HI) trust fund's expenses will exceed its
dedicated, noninterest revenues beginning in 2016. We actually
believe it will be sooner, as soon as 2011, perhaps.
And that is actually the good news. The bad news is that
the retirement of the baby boomers between 2010 and 2020 will
almost double Medicare's enrollment, while the number of
workers will only increase by 15 percent. The cost per
beneficiary will also continue to grow faster than the economy,
and as a result, Medicare will consume an ever-increasing share
of gross domestic product (GDP).
It is important to keep in mind that Medicare is only one
of the Federal programs that transfers resources from the
working population to the retired and disabled. This poster,
which you have all seen before, illustrates what the near
future might look like if we take no action (chart 1). Just
these three Federal programs--Medicare, Medicaid, and Social
Security--will grow from 7 percent of GDP to 15 percent of GDP
by the time the baby-boom generation is finished retiring in
2030, and their spending will constitute nearly three-quarters
of Federal spending as we now know it.
And then, there is ``worse'' news. In recent years, growth
in prescription drug spending has far outpaced growth in
spending for other types of health care. Even without a
Medicare drug benefit, the Congressional Budget Office (CBO)
expects prescription drug costs for the elderly to grow at an
average annual rate of over 10 percent per person--twice the
pace of Medicare's growth and much faster than the growth of
the economy--ultimately costing $1.5 trillion over the next 10
years.
In 1997, about one-third of the Medicare population had no
prescription drug coverage, but nearly 70 percent had it. The
next chart illustrates the distribution of spending for all
prescription drugs for Medicare in 1997 (chart 2). The single
largest component is out-of-pocket payments at 45 percent,
which compares with out-of-pocket costs of about 39 percent for
the total population. The second largest source of funding is
employer-sponsored retiree health benefits, and the third
largest is Medicaid. I should note that State-based programs,
which covered 5 percent of the total in 1997, have been growing
rapidly in both number and coverage and probably contribute a
larger share today.
Madam Chairman, virtually any Medicare drug benefit will
move a significant share of this non-Federal, mostly private
funding to the Federal budget, reducing and replacing State
funding, employer contributions, and other sources of current
funding. I have a few examples for the Committee today of the
comparative magnitudes of some of the many parameters in a
prescription drug benefit. For that purpose, we have
constructed a prototypical benefit, a straw man, if you will,
as a basis for comparison in making these changes. That base
case is not the same as any of the existing proposals that you
or we have seen before, and we present numbers for only 1 year,
assuming that the benefit in that year is fully phased in.
Conceptually, there are at least 6 steps we must go through
in developing the specifications of a proposal for covering the
prescription drug costs of Medicare beneficiaries. First, a
proposal has to specify the rules for joining the program. Is
the program voluntary or mandatory? If voluntary, is it a one-
time election? These rules, combined with the attractiveness of
the benefit and premium, will determine whether all or only
some Medicare beneficiaries participate. For the purposes of
our exercise today, we assume that all part B beneficiaries
enroll in the drug benefit and cannot disenroll in the future.
Second, the proposal needs to specify what part of drug
spending by or on behalf of the participants is excluded from
coverage, such as initial deductibles or amounts in excess of a
benefit cap. In our base case, there are no exclusions, no
deductibles, no benefit cap, and no ``hole'' in the benefit.
Third, a proposal should specify the share of covered
spending that is paid by beneficiaries through cost sharing.
Our prototype includes 50 percent coinsurance, up to the
catastrophic cap.
Fourth, a proposal should specify the share of benefit
payments that will be funded by beneficiaries' premiums and the
remainder, which, is paid for by Federal taxpayers in the form
of general revenues. The base case today assumes that
beneficiaries will pay for 50 percent of the program's
benefits.
Fifth, a proposal should specify what, if any, subsidy will
be provided to low-income beneficiaries and under what rules.
This, as the Committee is aware, is an exceedingly complex area
with complicated interactions between Medicaid and any new
Medicare drug benefit. Our base case assumes full Federal
coverage of premiums and cost sharing for anyone with income of
less than 135 percent of the poverty level and some subsidy for
the premiums of beneficiaries with income up to 150 percent of
the poverty level.
Finally, Madam Chairman, a proposal should specify the
rules for administering the benefit, such as the use of
pharmacy benefit managers (PBMs); the level and nature of
competition, constraints applying to cost controls on
beneficiaries, and so on. Our prototype assumes the use of one
PBM with some restrictions on cost controls.
Members of the Committee, this series of posters, of which
you have copies, is an attempt to depict some of these moving
parts in a way we hope is helpful. The first is the base case I
have just described (chart 3). As depicted, the beneficiary
pays 50 percent of the cost of each prescription filled until
his or her cost-sharing expenses reach the stop-loss amount.
Note that this cost sharing need not necessarily be paid
directly by beneficiaries; it could be paid by third parties.
Above the stop-loss amount, the costs of the benefit are
split between beneficiaries, who pay half the cost through
premiums, and Federal taxpayers. In addition, low-income
beneficiaries receive subsidies, as I have described. In this
case, the total cost to taxpayers is approximately $32
billion--$26 billion for the Medicare benefit and $6 billion
for low-income subsidies. Beneficiaries who purchased drugs
would pay (or have paid on their behalf by third parties) $57
billion in copayments; premiums from all enrollees, whether or
not they filled any prescriptions, would total $26 billion.
The first variation on the base case that we have made is
the addition of a $250 deductible (chart 4). As you would
expect, that change lowers taxpayers' costs, in this case by $2
billion, and raises beneficiaries' cost exposure by a similar
amount. That is Case A, the $250 deductible. Case B takes the
base case again and, with no deductible, simply raises the
catastrophic ceiling from $4,000 to $6,000 (chart 5).
Taxpayers' costs in this case are reduced by about $1 billion
from the base case, and beneficiaries' or third parties' costs
are increased by a similar amount.
The third variant on the theme here, Case C, again takes
the base case and adds a benefit cap of $2,500 in drug spending
(chart 6). The cap is well below the catastrophic ceiling of
$4,000, creating a hole in the benefit design similar to that
in many of the proposals that the Committee considered last
year. Again, the taxpayers' share drops, while the
beneficiaries' exposure increases.
Our final poster depicts all of the previous changes
applied to our prototype benefit: a $250 deductible, a benefit
maximum of $2,500, and a $6,000 catastrophic cap (chart 7). Not
surprisingly, the changes produce a more dramatic shift from
taxpayers to beneficiaries. Perhaps in this case what is more
important are the shifts within the two categories. The Federal
share includes more low-income subsidies and much less indirect
Medicare costs. The total cost exposure for beneficiaries is
not only increased in this case by $12 billion but the relative
contributions shift: Cost sharing by those who use drugs makes
up a bigger share and premiums paid by all Medicare recipients
a smaller share. In fact, the shift is so strong that this case
has the lowest monthly premium of the four variants we present
today.
Madam Chairman, there are more variations on these themes
in my written statement, and these themes, or policy levers,
cover only the basics. There are a myriad of details that can
have significant effects on our estimates. As a result, none of
the numbers we show here should be taken too literally. They
are meant to be illustrative, to show the relative effects of
these options and variations.
Let me conclude by returning to the amount currently spent
on outpatient prescription drugs by the elderly--in a content
of no Medicare benefit. That amount makes it obvious that it
will be costly to provide a generous benefit to all
beneficiaries. Either enrollees' costs or taxpayers' costs will
be high.
Over the period 2002 to 2011, CBO estimates that about $1.5
trillion will be spent on prescription drugs for the elderly.
Thus, a rough cut of a drug benefit that covered 50 percent of
current drug spending would suggest a gross cost, before
netting out any premiums, of at least $728 billion through
2011. If, instead, all costs above $1,000 a year were covered
for all beneficiaries, gross costs through 2011 would be $1.1
trillion. If only costs above $5,000 a year were covered, gross
costs through 2011 would be at least $365 billion.
Madam Chairman, just as we are currently paying for much of
our Medicare's benefits for our parents and grandparents
through payroll and income taxes, our children and
grandchildren will pay for us after we retire. Adding a drug
benefit would significantly increase Medicare's costs, and,
unless it was financed largely by enrollees, the burden on our
children would be even greater.
I look forward to answering your questions.
[The prepared statement of Dr. Crippen follows:]
STATEMENT OF DAN L. CRIPPEN, PH.D., DIRECTOR, CONGRESSIONAL BUDGET
OFFICE
Madam Chairman and Members of the Committee, I am pleased to be
here today to discuss some of the major issues affecting the design of
an outpatient prescription drug benefit for Medicare beneficiaries.
Those design issues present some difficult choices among desirable, but
potentially conflicting, objectives and need to be considered in the
context of the growing financial pressures facing the Medicare program.
FINANCIAL PRESSURES FACING THE MEDICARE PROGRAM
The growth of Medicare spending has been much slower in the past
few years than it has been historically. In fiscal years 1998 through
2001, the Congressional Budget Office (CBO) estimates that benefit
payments will grow at an average annual rate of 3.4 percent, compared
with 10.0 percent per year over the previous decade.
CBO further estimates that Medicare will spend $237 billion on
benefits for 40 million elderly and disabled people in fiscal year
2001. Despite the recent slowdown in spending growth, that amount is
almost 25 percent more than Medicare spent five years ago. The program
now accounts for about 12 percent of estimated total federal spending,
or 2.3 percent of gross domestic product (GDP).
Moreover, CBO is projecting faster Medicare growth over the next
decade. We estimate that Medicare spending will more than double--
reaching $491 billion--by fiscal year 2011, reflecting an average
increase of 7.7 percent per year (see Figure 1). At that rate, Medicare
spending in 2011 will constitute 19 percent of the federal budget,
assuming that no change occurs in current tax and spending policies. In
fact, the program will account for 36 percent of the projected increase
in federal spending by the end of the decade.
The Medicare trustees' report that was released last week projects
that total Medicare spending will increase substantially in the long
run, rising from 2.2 percent of GDP in 2000 to 8.5 percent in 2075. In
addition, the difference between projected total Medicare spending and
total federal revenues specifically dedicated to the program is
expected to grow substantially. Sources of those dedicated revenues
include the Medicare payroll tax, the portion of the income taxes on
Social Security benefits that is paid to the Hospital Insurance (HI)
trust fund (Part A of Medicare), and premiums paid by enrollees for
Supplementary Medical Insurance (SMI, or Part B of Medicare). According
to the Medicare trustees, the discrepancy between total Medicare
expenditures and dedicated revenues will be $64.0 billion in 2001, or
0.6 percent of GDP (see Figure 2). By 2075, that gap is projected to
grow to 6.0 percent of GDP. The growing difference between spending and
dedicated revenues indicates the Medicare program's increasing
dependence on general revenues to pay its bills.
These financial pressures have focused policymakers' attention on
restructuring the Medicare program. There are two potentially
conflicting considerations:
First, Medicare spending is expected to grow at a rapid
rate, making the program increasingly dependent on general revenues
and, ultimately, unsustainable in its present form.
Second, Medicare does not provide the protection offered
by most private insurance, since it lacks a stop-loss provision and
coverage for prescription drugs.
PROVIDING MEDICARE BENEFICIARIES WITH COVERAGE FOR PRESCRIPTION DRUGS
Modernizing Medicare's benefit package by adding a prescription
drug benefit could close a significant gap in program coverage but only
at a sizable cost to the federal government or to enrollees.
Beneficiaries' Current Spending on Prescription Drugs
In recent years, growth in prescription drug spending has far
outpaced growth in spending for other types of health care. Those
rising expenditures have had a significant impact not only on Medicare
beneficiaries but on employers who offer retiree health coverage and on
state governments as well.
Between 1990 and 2000, annual spending on prescription drugs in the
United States grew at nearly twice the rate as that for total national
health expenditures, and it has maintained a double-digit pace since
the mid-1990s. For the U.S. population as a whole, three factors
explain most of that growth: the introduction of new and costlier drug
treatments, broader use of prescription drugs by a larger number of
people, and lower cost-sharing requirements by private health plans.
Within some therapeutic classes, new brand-name drugs tend to be much
costlier than older drug therapies, which has also contributed to
growth in spending. Use of prescription drugs has broadened as well,
because many new drugs provide better treatment or have fewer side
effects than older alternatives and more people are aware of new drug
therapies through the ``direct to consumer'' advertising campaigns of
pharmaceutical manufacturers.
Even without a Medicare drug benefit, CBO expects prescription drug
costs for Medicare enrollees to grow at a rapid pace over the next
decade (see Table 1). At an average annual rate of 10.3 percent per
beneficiary, drug costs are expected to rise at nearly twice the pace
of combined costs for Medicare's HI and SMI programs, and much faster
than growth in the nation's economy. (CBO's estimates of rising drug
spending are based on the latest projections for prescription drug
costs within the national health accounts.)
CBO's baseline estimate of prescription drug costs for Medicare
enrollees is up significantly over last year because of higher
projections of the rate of growth in per capita drug costs. Last year's
analysis indicated that spending by Medicare enrollees on outpatient
drugs not covered by Medicare would total $1.1 trillion over the period
2001 through 2010 (see Table 2). This year, our projection for the same
period is $1.3 trillion, or about 18 percent higher.
Our estimate for 2002 through 2011, the current 10-year projection
period, is roughly $1.5 trillion--which is about 32 percent higher than
last year's projection for 2001 through 2010. The jump results from
assuming a higher growth rate and replacing an early low-cost year
(2001) with a late high-cost year (2011).
Those changes to CBO's baseline estimate--higher per capita drug
spending and the inclusion of a new high-cost year in the projection
window--imply that proposals for a prescription drug benefit will have
a higher price tag than they did last year. But for any given proposal,
the exact magnitude of the difference between CBO's estimate for last
year and its estimate for this year will also depend on the bill's
specific features.
Existing Coverage
While third-party coverage for prescription drugs has become more
generous over time for the population as a whole, that trend is less
clear for Medicare beneficiaries. In 1997, nearly one-third of the
Medicare population had no prescription drug coverage. On average,
Medicare beneficiaries paid about 45 percent of their drug expenditures
out of pocket (see Figure 3). By comparison, all people in the United
States paid an average of 39 percent of the cost of their
prescriptions. Because Medicare beneficiaries are elderly or disabled,
they are more likely to have chronic health conditions and use more
prescription drugs: nearly 89 percent filled at least one prescription
in 1997. Medicare beneficiaries made up 14 percent of the population
that year, yet they accounted for about 40 percent of the $75 billion
spent on prescription drugs in the United States.
Those factors suggest that growth in drug spending has a larger
financial impact on the Medicare population than on other population
groups. However, aggregate statistics mask a wide variety of personal
circumstances. Nearly 70 percent of beneficiaries obtain drug coverage
as part of a plan that supplements Medicare's benefits, but those
supplemental plans vary significantly in their generosity.
Traditionally, retiree health plans have provided prescription drug
coverage to more seniors than any other source, and their benefits have
been relatively generous. In 1997, about one-third of Medicare
beneficiaries had supplemental coverage through a current or former
employer, and most of those plans provided drug coverage (see Table 3).
Although specific benefits vary, it is common to find relatively low
deductibles and copayments in employer-sponsored drug plans.
However, because prescription drug spending by elderly retirees has
become a significant cost to employers, many have begun to restructure
their benefits. For example, a 1997 Hewitt Associates' study for the
Kaiser Family Foundation found that among large employers, drug
spending for people age 65 or older made up 40 percent to 60 percent of
the total cost of their retiree health plans. Average utilization of
prescription drugs among elderly retirees was more than double that for
active workers. Although relatively few employers in the Hewitt survey
have dropped retiree coverage altogether, most have taken steps to
control costs, such as tightening eligibility standards, requiring
retirees to contribute more toward premiums, placing caps on the amount
of benefits that plans will cover, and encouraging elderly
beneficiaries to enroll in managed care plans.
Medicare+Choice (M+C) plans are another means by which the elderly
and disabled have obtained prescription drug coverage. In 2000, for
example, 64 percent of Medicare beneficiaries had access to M+C plans
that offered some drug coverage, although a significantly smaller
fraction of elderly people signed up for those plans. Many M+C plans
have scaled back their drug benefits in response to rising costs and
slower growth in Medicare's payment rates. Nearly all such plans have
annual caps on drug benefits for enrollees--many at a level of only
$500 per year--and a growing share of plans charge a premium for
supplemental benefits.
While 26 percent of the Medicare population relied on individually
purchased (often medigap) plans as their sole form of supplemental
coverage in 1997, less than half of that group had policies that
covered prescription drugs. Medigap plans with drug coverage tend to be
much less generous than retiree health plans; medigap plans have a
deductible of $250, 50 percent coinsurance, and annual benefit limits
of either $1,250 or $3,000. Premiums for plans that include drug
coverage also tend to be much higher than premiums for other medigap
plans, due in part to their tendency to attract enrollees who have
higher-than-average health expenses.
Certain low-income Medicare beneficiaries also may be eligible for
Medicaid coverage, which generally includes a prescription drug
benefit. All state Medicaid programs offer prescription drug coverage
(usually involving little or no cost sharing) to people whose income
and assets fall below certain thresholds. In addition, as of January
2001, 26 states had authorized (but had not necessarily yet
implemented) some type of pharmaceutical assistance program, most of
which would provide direct aid for purchases to low-income seniors who
did not meet the Medicaid requirements. About 64 percent of the
Medicare population lives in those states.
Thus, middle- and higher-income seniors can usually obtain coverage
through retiree or M+C plans, while seniors with the lowest income
generally have access to state-based drug benefit programs. However,
beneficiaries with income between one and two times the poverty level
are more likely to be caught in the middle, with income or asset levels
that are too high to qualify for state programs and less access than
higher-income enrollees to drug coverage through former employers.
Design Choices for a Medicare Drug Benefit
A Medicare drug benefit might address a number of objectives. The
most fundamental would be to ensure that all beneficiaries had access
to reasonable coverage for outpatient prescription drug costs--but this
fundamental notion allows for considerable debate about what that would
mean. The various objectives that might be thought desirable in the
abstract are often mutually incompatible; as a result, difficult
choices must be made. For example, it is not possible to provide a
generous drug benefit to all Medicare beneficiaries at low cost--either
enrollees' premiums or the government's subsidy costs would be high. If
most of the costs were paid by enrollees' premiums to keep federal
costs low, some Medicare beneficiaries would be unwilling or unable to
participate in the program. If costs were limited by covering only
catastrophic expenses, few enrollees would benefit in any given year,
possibly reducing support for the program. If, instead, costs were
limited by capping the annual benefits paid to each enrollee, the
program would fail to protect participants from the impact of
catastrophic expenses.
In designing a drug benefit, policymakers must make four
fundamental decisions:
Who may participate?
How will program costs be financed?
How comprehensive will coverage be?
Who will administer the benefit and under what
conditions?
Participation.--Although most Medicare enrollees use some
prescription drugs, the bulk of such spending is concentrated among a
much smaller group. In 1997, about 13 percent of enrollees had
expenditures of $2,000 or more, accounting for 45 percent of total drug
spending by the Medicare population. Forty-six percent had expenditures
of $500 or less, making up about 8 percent of total spending. Most
spending is associated with treatment of chronic conditions--such as
hypertension, cardiovascular disease, and diabetes. The skewed
distribution of spending and the need for people with chronic
conditions to stay on drug therapies over the long term makes stand-
alone drug coverage particularly susceptible to adverse selection,
where enrollment is concentrated among those who expect to receive more
in benefits than they would pay in premiums.
Because of the likelihood of adverse selection, a premium-financed
drug benefit offered as a voluntary option for Medicare enrollees must
restrict participation in some way. If Medicare beneficiaries were free
to enroll in or leave the program at will, only those who expected to
gain from the benefit would participate each year. That would drive
premiums up, which would further reduce enrollment as enrollees with
below-average drug costs dropped out.
Most of the drug benefit proposals developed in 2000 would have
provided a voluntary drug option, but they attempted to mitigate the
potential for adverse selection by one of two approaches: either they
gave enrollees only one opportunity to choose the drug benefit at the
time enrollees first became eligible, or they imposed an actuarially
fair surcharge on premiums for those who delayed enrollment. Another
approach to avoiding the problem of adverse selection would be to
couple the drug benefit with Part B of Medicare, so that enrollees
could choose either Part B plus a drug benefit or no Part B and no drug
benefit. In that case, even if the drug portion of the benefit was not
heavily subsidized, the current 75 percent subsidy of Part B benefits
would ensure nearly universal participation in the coupled benefit.
Financing.--Program costs could be entirely financed by enrollees'
premiums, or some or all of the costs could be paid by the federal
government. Given a one-time-only enrollment option, participation
rates would be reasonably high, even if the program was largely
financed by enrollees' premiums. If enrollees lived long enough,
virtually all of them would benefit from drug coverage, and the erosion
now occurring in the comprehensive coverage provided by private plans
would also spur participation. Further, employer-sponsored health plans
would probably require that retirees eligible for a new Medicare drug
benefit if their costs under the new program were less than the cost of
the drug benefits now provided under Medicaid. However, if a generous
drug benefit was fully financed by enrollees, premiums would be high,
making the benefit difficult to afford for lower-income beneficiaries
ineligible for Medicaid. The drug proposals developed last year all
provided full subsidies to low-income people for both cost-sharing and
premium expenses, in addition to partially subsidizing premium costs
for all other enrollees.
Coverage.--A Medicare drug benefit could be designed to look like
the benefit typically provided by employer-sponsored plans. If so, it
would be integrated with the rest of the Medicare benefit. Further, it
would have low cost-sharing requirements (ranging from 20 percent to 25
percent coinsurance or a copayment per prescription of $10 to $25) and
stop-loss protection--a dollar limit above which no cost sharing would
be required. Such comprehensive coverage would provide good protection
for enrollees, but it would be very costly. Not only would it transfer
most of the costs of drugs currently used by enrollees to the Medicare
program, but it would also increase utilization among those who now
have less generous coverage.
One way to constrain costs and utilization is by limiting
coverage--covering only catastrophic costs, for example, or imposing a
cap on benefits paid per enrollee each year. If Medicare provided
coverage only for catastrophic costs, most enrollees would receive no
benefit payments in any given year. Nevertheless, it would be
inaccurate to say that those enrollees would receive no benefit, since
they would be protected against the possibility of catastrophic
expenses--the main function of insurance. Public support for a drug
benefit might be stronger, though, if most enrollees could reasonably
expect to receive some benefit payments each year.
Alternatively, policymakers could take the other approach to
limiting costs: covering a portion of all drug costs but only up to a
benefit cap. However, because that approach would not protect those
enrollees who were most in need, most of last year's proposals included
stop-loss protection. The end result was a benefit unlike anything
available in the private sector--a hybrid that had a capped benefit,
then a ``hole'' with no drug coverage, and finally a stop-loss
provision, beyond which the program would pay all drug costs (see
Figure 4). The larger the range of spending encompassed by the hole,
the less costly the program would be--but also the less coverage the
benefit would provide.
An approach to limiting costs within the context of a more
traditional benefit would be to have a higher initial deductible
amount, relatively high cost-sharing requirements, and a high stop-loss
threshold. Or the program could provide a more generous benefit similar
to those provided by employer-sponsored plans, with federal costs
limited by financing most of the program's costs through enrollees'
premiums.
Administration.--The way in which a drug benefit is administered
can also have a significant effect on how costly it is. All recent
proposals have envisioned adopting the now common private-sector
approach of using pharmacy benefit managers (PBMs) in each region.
Proposals have differed, however, in whether only one or several PBMs
would serve a region, in whether the responsible entities would assume
any insurance risk, and in the kind of restrictions that would be
placed on them.
Private health plans use PBMs to process claims and negotiate price
discounts with drug manufacturers and dispensing pharmacies. PBMs also
try to steer beneficiaries toward lower-cost drugs, such as generic,
preferred formulary, or mail-order drugs. In addition, because of their
centralized records for each enrollee's prescriptions, they can help
prevent adverse drug interactions. The likelihood that PBMs could
effectively constrain costs depends on their having both the authority
and the incentive to aggressively use the various cost-control
mechanisms at their disposal. In the private sector, PBMs often have
considerable leeway in the tools they can use, but they do not assume
any insurance risk for the drug benefit. At most, they may be subject
to a bonus or a penalty added to their administrative fee, based on how
well they meet prespecified goals for their performance.
Some of the proposals developed last year (such as the one
developed by the Clinton Administration) adopted the typical private-
sector model, with a single PBM selected periodically to serve each
region and with all insurance risk borne by Medicare, not the PBM.
There are two main concerns about that model: it might prove
politically difficult to allow the designated PBMs to use cost-control
tools aggressively if enrollees have no choice of provider in each
region, and non-risk-bearing PBMs might have too little incentive to
use strong tools, even if they were permitted.
Other proposals (such as the Breaux-Frist bills and the House-
passed drug bill) adopted a different model, more akin to the risk-
based competitive model characteristic of Medicare+Choice plans. Those
proposals envisioned multiple risk-bearing entities (such as PBM/
insurer partners) that would compete to serve enrollees in each region.
Enrollees would have some choice among providers, so that beneficiaries
who were willing to accept more-restrictive rules (such as a closed
formulary) in return for lower premium costs could do so, while others
could select a more expensive provider with fewer restrictions. If the
entities bore all of the insurance risk for the drug benefit, they
would have strong incentives to use whatever cost-control tools were
permitted. However, they would also have strong incentives to try to
achieve favorable selection by avoiding enrollees most in need of
coverage.
One of the concerns raised about this model was that no entities
might be willing to participate if they had to assume the full
insurance risk for a stand-alone drug benefit. To mitigate that
concern, the proposals included federally provided reinsurance for
high-cost enrollees. (Reinsurance means that the federal government
shares part or all of the costs of high-cost enrollees.) However,
reinsurance would tend to weaken the plans' incentives to control
costs. Another concern was that differences among plans in benefit
structures or strategies for cost control could result in some plans
attracting low-cost enrollees and others attracting more costly
enrollees. The risk of that kind of selection would lead plans to raise
the cost of the benefit. Moreover, to avoid such risks, plans would,
over time, come to offer very similar plan designs.
The Cost of Covering Prescription Drugs for Medicare Enrollees
There are numerous design parameters that must be specified in
developing a Medicare prescription drug benefit, and decisions
concerning those parameters can greatly affect the benefit's cost to
the taxpayer and to the beneficiary. CBO has not finished updating its
estimates for several of the proposals developed in the last session of
the 106th Congress. We can, however, provide some examples that show
how costs would be affected by varying certain aspects of the benefit's
design.
The estimates that follow are approximate and subject to change;
the cost of a detailed proposal would vary depending on its precise
specifications. The estimates are for 2004 only.
Base Case.--For purposes of this testimony, the base case is a
benefit that provides coverage for all of the outpatient drug costs of
Medicare enrollees (see Table 4). The enrollee would be responsible for
coinsurance equal to 50 percent of the cost of prescription drugs up to
$8,000 of spending. The new benefit would cover the entire cost of
drugs above that amount. Thus, the enrollee would be liable for up to
$4,000 in out-of-pocket spending before reaching the stop-loss amount.
To pay for this program, enrollees would be charged a monthly
premium designed to cover 50 percent of the cost of the benefit. The
federal government would pay for the other 50 percent. We assume that a
subsidy of that size would be sufficient to ensure that all enrollees
in Medicare Part B would participate in the prescription drug program.
Low-income enrollees would receive a subsidy to enable them to
participate in the Medicare drug program. Enrollees with income up to
135 percent of the federal poverty level would receive a full subsidy
of premiums and cost-sharing amounts. Those with income between 135
percent and 150 percent of the poverty level would receive a premium
subsidy (on a sliding scale that declined with income) but would be
responsible for any cost sharing. States and the federal government
would share in those subsidy costs for enrollees with income of less
than 100 percent of the poverty level and for those who were dually
eligible for Medicare and Medicaid.
The base case also assumes that a single PBM would administer the
program in each region, with all insurance risk borne by Medicare. The
cases presented in this testimony do not consider the other major
alternative for delivering a Medicare drug benefit: instead of a single
PBM, the program could be operated through multiple risk-bearing
entities who would compete for enrollees. Competing PBM/insurer
partners who bore insurance risk would have a strong incentive to use
such tools as restrictive formularies and three-tier copayment
structures to aggressively manage costs. However, they would also incur
certain ``load'' costs--such as marketing expenses to attract enrollees
and a premium for accepting insurance risk--that a single PBM would
not. The net impact on program costs would depend on the specific
details of the proposal.
The benefit design assumed for the base case would cost the federal
government about $31.6 billion in 2004. The Medicare benefit portion of
that total is $26.0 billion, and the low-income subsidy (and
interactions with the Medicaid program) account for the remaining $5.5
billion (see Table 5). As we will see in comparisons with other cases,
a less generous drug benefit would decrease Medicare costs but increase
the cost of the low-income subsidy.
In the aggregate, enrollees would pay a total of $26.0 billion in
premiums, reflecting a $55.50 monthly premium that they would pay under
the base case plan. That total includes premiums that are paid by
Medicaid on behalf of low-income enrollees. In addition, enrollees
would face about $57 billion in cost sharing for the prescription drugs
that they used. Again, that amount includes some cost sharing that
would be picked up by supplemental payers, including employer-sponsored
insurance and medigap plans. As we will demonstrate below, a less
generous benefit would lower premiums but raise the amount of cost
sharing paid by enrollees.
Federal costs could be reduced by imposing more cost sharing on
enrollees or by varying other aspects of the design. The following
discussion of alternative cases examines how the costs imposed on
taxpayers and beneficiaries would change if one or more features of the
program are varied.
Change Beneficiaries' Cost Sharing.--The overall federal cost of a
prescription drug proposal would fall if beneficiaries were responsible
for a greater share of program costs. Higher cost sharing would, of
course, increase the cost of the low-income subsidy.
Case 1-A is identical to the base case except for a $250 annual
deductible. Nearly 89 percent of enrollees have some prescription drug
spending during the year and would thus be liable for at least part of
the deductible. Including a deductible would lower Medicare costs but
raise low-income costs compared with the base case. On balance, the
federal cost of the program would fall to $29.6 billion in 2004, and
monthly premiums would decline to $50.90. Beneficiaries who had more
than $250 in drug spending that year would face higher costs under this
option because the added cost of the deductible would be only partly
offset by the reduced premium.
An even higher deductible would further reduce program costs. Case
1-B imposes a $500 deductible on the base case, and the federal cost
drops to $28.0 billion in 2004. Doubling the deductible amount from
Case 1-A does not double savings from the base case, however, because
some enrollees who would pay the full $250 deductible would spend less
than $500 on drugs in a year and thus would not pay the full amount of
the higher deductible.
Lowering the coinsurance rate could alter program costs
dramatically. The base case assumes a 50 percent coinsurance rate,
while Case 1-C lowers that rate to 25 percent. That adjustment
increases the program's net federal cost by one-third, to $42.0 billion
in 2004. Medicare's cost would increase to $37.8 billion, while the
low-income subsidy would fall to $4.3 billion.
The lower coinsurance would drive premiums upward as program costs
rose. Premiums would increase by nearly half, to $80.70 monthly. In the
aggregate, beneficiaries would pay about $38 billion in premiums.
However, aggregate cost sharing would decline precipitously as well, to
just over $30 billion. While all enrollees would face the higher
premiums, the lower coinsurance rate would primarily benefit enrollees
with significant drug costs.
Raise the Stop-Loss Amount.--The net federal program cost also
could be reduced by raising the stop-loss amount, although the
additional financial exposure would increase the cost of the low-income
subsidy. Under the base case, the stop-loss amount is set at $4,000
paid out of pocket: a beneficiary who had used $8,000 in covered
prescription drugs and paid 50 percent coinsurance would not be liable
for any additional costs incurred during the year. (Enrollees who spend
more than $8,000 account for about 23 percent of total baseline
spending in 2004.)
Case 2-A raises the stop-loss amount to $6,000 in out-of-pocket
spending. That higher level is equivalent to total spending by an
enrollee of $12,000, which will account for less than 10 percent of
total baseline spending in 2004. Under this option, the federal cost of
the program would fall to $30.7 billion, a reduction of 3 percent from
the base case. The low-income subsidy rises to $5.8 billion compared
with the base case. Total premiums fall to about $25 billion, and
aggregate cost sharing jumps to almost $60 billion.
Raising the stop-loss amount by an additional $2,000--to $8,000--
lowers program costs by less than the previous difference found in Case
2-A. The federal cost for Case 2-B is estimated to be $30.4 billion, or
4 percent lower than the base case.
Cap Benefits.--A third approach would place a limit on drug costs
covered under the Medicare benefit. Case 3 would impose such a limit
when the enrollee reached $2,500 in total drug spending. That is, the
enrollee would receive up to $1,250 in reimbursement for drug expenses
before reaching the benefit cap. Such a cap could be absolute, with no
additional reimbursement for spending at any level above the cap.
However, Case 3 keeps the same stop-loss provision as in the base case,
so that the beneficiary faces no cost sharing beyond $8,000 in total
charges. That structure leaves a ``hole'' in covered spending--a range
of prescription drug spending for which most enrollees must pay all of
their costs. (Individuals with income below 135 percent of the poverty
level, whose cost sharing is fully subsidized, would be unaffected by
this provision.)
Relative to the base case, the limit on coverage in Case 3 would
lower Medicare costs but increase the low-income subsidy. The net
federal cost would total approximately $28.1 billion in 2004. The
option's benefit cap would also lower premiums to about $22 billion and
raise aggregate cost sharing to about $66 billion. The lower premiums
simply reflect the less generous benefits under Case 3, compared with
the base case.
Combine Features.--The above options were designed to show how
varying one parameter of a prescription drug benefit would affect
program costs. This section looks at alternatives that combine several
changes at the same time.
Case 4-A combines the base case with many of the features described
above: a $250 deductible, benefits capped at $1,125 (after the enrollee
reaches $2,500 in total drug spending), and stop-loss protection after
the beneficiary spends $6,000 out of pocket. The costs of enrollees
with income below 135 percent of the poverty level would be fully
subsidized inside the benefit ``hole.''
Such a benefit would be significantly less generous than the base
case, but the costs of financing it would be significantly lower as
well. In 2004, federal costs would be approximately $23.4 billion, or
about one-quarter less than the base case. Likewise, monthly premiums
would fall from $55.50 under the base case to $35.20 under Case 4-A.
That causes total premiums to drop to $16.5 billion, with a
corresponding increase in aggregate cost sharing to $78.9 billion.
Case 4-B is identical to Case 4-A, except that low-income
individuals would not be subsidized inside the benefit ``hole.'' CBO
estimates that in 2004, federal costs would total $21.4 billion. Nearly
all of that savings comes from reductions in the cost of the low-income
subsidy. Premiums would drop negligibly compared with Case 4-A.
Case 4-C extends the low-income subsidy to individuals with higher
income than in previous cases. Specifically, it includes all of the
features of Case 4-A but provides a full subsidy for premiums and cost
sharing to enrollees who have income at or below 150 percent of the
federal poverty level. Enrollees with income between 150 percent and
175 percent of the poverty level would receive a premium subsidy on a
sliding scale. Medicare costs would remain roughly unchanged compared
with Case 4-A, but the low-income subsidy would increase to $7.9
billion in 2004.
Increasing the federal subsidy for beneficiary premiums would
substantially raise program costs. Case 4-D is identical to Case 4-A
except that the federal subsidy is raised to 75 percent of premiums.
That change increases Medicare costs by 50 percent compared with Case
4-A but lowers the cost of the low-income subsidy somewhat. The net
federal cost would rise to over $30 billion in 2004. The sharp increase
in Medicare costs is mirrored by the sharp drop in premiums, which fall
from about $16 billion in Case 4-A to about $8 billion in Case 4-D.
Because we have assumed throughout this discussion that the federal
subsidy would be at least 50 percent, the increase in Case 4-D does not
yield an increase in participation by Medicare enrollees. However, if
the federal subsidy declined below 50 percent, CBO assumes that
enrollment would decline somewhat.
CONCLUSIONS
While policymakers are well aware of Medicare's long-run financial
problems, they also know that its benefit package has deficiencies
relative to the benefits typically provided by private-sector insurance
plans. One such deficiency is that the program provides only very
limited coverage for outpatient prescription drugs--an increasingly
important component of modern medical care. But adding a drug benefit
would significantly increase Medicare's costs, and unless it was fully
financed by enrollees' premiums, it would exacerbate the imbalance
between the program's projected spending and its dedicated revenues.
We are extremely unlikely to see a new drug benefit that has no
adverse impact on Medicare's long-term financial status. But, as I have
discussed today, there are important design features that could be
built in to such a benefit to limit federal costs while providing
important insurance protection for enrollees. In developing a realistic
policy proposal, hard decisions must be made to establish the proper
balance among competing objectives.
TABLE 1.--CBO'S BASELINE PROJECTIONS OF PRESCRIPTION DRUG SPENDING AND
MEDICARE BENEFITS PER ENROLLEE, CALENDAR YEARS 2002-2011
[In dollars]
------------------------------------------------------------------------
Spending per Enrollee Average
-------------------------- Annual
Percentage
2002 2011 Change 2002-
2011
------------------------------------------------------------------------
Drug Spendinga................... 1,989 4,818 10.3
Medicare Benefitsb............... 6,512 10,538 5.5
Memorandum:
Gross Domestic Product per Capita 39,275 56,569 4.1
------------------------------------------------------------------------
a Total spending per enrollee on outpatient prescription drugs not
currently covered under Medicare, regardless of payer.
b Medicare benefits per enrollee under the Hospital Insurance and
Supplementary Medical Insurance programs.
Source: Congressional Budget Office.
TABLE 2.--COMPARING CBO'S JANUARY 2001 AND MARCH 2000 BASELINE
PROJECTIONS OF PRESCRIPTION DRUG SPENDING
[By calendar year, in billions of dollars]
------------------------------------------------------------------------
January 2001 March 2000
Year Estimates Estimates
------------------------------------------------------------------------
2001.................................. 71 66
2002.................................. 81 74
2003.................................. 92 82
2004.................................. 104 91
2005.................................. 117 101
2006.................................. 131 112
2007.................................. 148 124
2008.................................. 165 137
2009.................................. 185 152
2010.................................. 205 167
2011.................................. 228 n.a.
---------------------------------
Total:
2001-2010....................... 1,299 1,105
2002-2011....................... 1,456 n.a.
Memorandum:
Percentage increase in total spending, ............... 17.6
January 2001 estimates over March
2000 estimates, for 10 years ending
in 2010..............................
Percentage increase in total spending, ............... 31.8
10 years ending in 2011 (using
January 2001 estimates) over 10 years
ending in 2010 (using March 2000
estimates)...........................
------------------------------------------------------------------------
Source: Congressional Budget Office.
Notes: Numbers may not add up to totals because of rounding.
n.a. = not applicable.
TABLE 3.--PRESCRIPTION DRUG COVERAGE AMONG MEDICARE ENROLLEES, BY TYPE OF SUPPLEMENTAL COVERAGE, CALENDAR YEAR
1997
----------------------------------------------------------------------------------------------------------------
Number of Medicare Enrollees Percentage of All Enrollees
(Thousands) ----------------------------------
-----------------------------------
No Drug Drug No Drug Drug Total
Coverage Coverage Total Coverage Coverage
----------------------------------------------------------------------------------------------------------------
No Supplemental Coverage.................. 2,941 0 2,941 7.4 0 7.4
Any Medicaid Coveragea.................... 1,448 5,449 6,897 3.6 13.7 17.4
Employer-Sponsored Plans.................. 1,671 11,163 12,834 4.2 28.1 32.3
Individually Purchased Policies........... 5,753 4,532 10,286 14.5 11.4 25.9
Other Public Coverageb.................... 0 1,396 1,396 0 3.5 3.5
HMOs Not Elsewhere Classifiedc............ 678 4,696 5,374 1.7 11.8 13.5
---------------------------------------------------------------------
Total............................... 12,491 27,236 39,728 31.4 68.6 100.0
----------------------------------------------------------------------------------------------------------------
a Comprises beneficiaries who received any Medicaid benefits during the year, including those eligible for a
state's full package of benefits as well as others who received assistance for Medicare premiums or cost
sharing through the Qualified Medicare Beneficiary, Specified Low-Income Medicare Beneficiary, and Qualifying
Individual programs.
b Beneficiaries who received aid for their drug spending through state-sponsored pharmacy assistance programs
for low-income elderly make up 60 percent of this category. The remainder received prescription drug benefits
through the Veterans Administration.
c Primarily HMOs under Medicare+Choice risk contracts.
Source: Congressional Budget Office based on data from the 1997 Medicare Current Beneficiary Survey.
Notes: Some beneficiaries hold several types of coverage at once. The categories in this table are mutually
exclusive, and CBO assigned people to groups in the order shown above. The numbers in the table may not add up
to totals because of rounding.
HMO = health maintenance organization.
TABLE 4.--OPTIONS FOR A PRESCRIPTION DRUG BENEFIT THROUGH MEDICARE IN
2004
------------------------------------------------------------------------
Federal Cost Beneficiaries'
Case Description a (Billions of Monthly Premium
dollars) (Dollars)
------------------------------------------------------------------------
Base...... Federal government pays 31.6 55.50
50 percent of premiums;
no deductible is
required; beneficiaries
pay 50 percent
coinsurance; stop-loss
protection is provided
after $4,000 in out-of-
pocket spending.
Option 1: Change Beneficiaries' Cost Sharing
1-A....... Require a $250 29.6 50.90
deductible.
1-B....... Require a $500 28.0 47.00
deductible.
1-C....... Reduce beneficiaries' 42.0 80.70
coinsurance to 25
percent.
Option 2: Increase the Stop-Loss Amount
2-A....... Raise the stop-loss 30.7 53.10
amount to $6,000.
2-B....... Raise the stop-loss 30.4 52.40
amount to $8,000.
Option 3: Cap the Benefit
3......... Cap the benefit after 28.1 47.10
$2,500 in total drug
spending; provide stop-
loss protection after
$4,000 in out-of-pocket
spending; subsidize low-
income beneficiaries'
spending in the
``hole''.
Option 4: Combinations
4-A....... Require a $250 23.4 35.20
deductible; cap
benefits after $2,500
in total drug spending;
provide stop-loss
protection after $6,000
in out-of-pocket
spending; subsidize low-
income beneficiaries'
spending in the
``hole''.
4-B....... Require a $250 21.4 35.00
deductible; cap
benefits after $2,500
in total drug spending;
provide stop-loss
protection after $6,000
in out-of-pocket
spending; provide no
subsidies for low-
income beneficiaries'
spending in the
``hole''.
4-C....... Require a $250 24.4 35.20
deductible; cap
benefits after $2,500
in total drug spending;
provide stop-loss
protection after $6,000
in out-of-pocket
spending; subsidize
some or all cost
sharing in the ``hole''
for beneficiaries with
income at or below 175
percent of the poverty
level.
4-D....... Increase the share of 30.3 17.60
premiums paid by the
federal government to
75 percent; require a
$250 deductible; cap
benefits after $2,500
in total drug spending;
provide stop-loss
protection after $6,000
in out-of-pocket
spending; subsidize low-
income beneficiaries'
spending in the
``hole''.
------------------------------------------------------------------------
a The options represent changes relative to the base case. The ``hole''
is the range of prescription drug spending above the benefit cap and
below the stop-loss amount. To ``subsidize low-income beneficiaries'
spending in the 'hole,''' the federal government and the states would
provide aid through one of two approaches: beneficiaries with income
at or below 135 percent of the poverty level could receive some or all
cost sharing and premium assistance; and beneficiaries with income
between 135 percent and 150 percent of the poverty level could receive
premium assistance on a sliding scale.
Source: Congressional Budget Office.
TABLE 5.--APPROXIMATE COST OF ILLUSTRATIVE CASES IN CALENDAR YEAR 2004
[In billions of dollars]
----------------------------------------------------------------------------------------------------------------
Federal Cost to Taxpayers Payments by or for
-------------------------------------- Beneficiaries
Net of Low- --------------------------------
Casea Income
Medicare Subsidies and Total Medicare Cost Total
Medicaid Premiums Sharing
----------------------------------------------------------------------------------------------------------------
Base..................................... 26.0 5.5 31.6 26.0 57.0 83.0
1-A...................................... 23.8 5.8 29.6 23.8 61.7 85.5
1-B...................................... 22.0 6.0 28.0 22.0 65.8 87.8
1-C...................................... 37.8 4.3 42.0 37.8 31.4 69.2
2-A...................................... 24.9 5.8 30.7 24.9 59.6 84.5
2-B...................................... 24.5 5.9 30.4 24.5 60.4 85.0
3........................................ 22.1 6.1 28.1 22.1 66.0 88.1
4-A...................................... 16.5 7.0 23.4 16.5 78.9 95.3
4-B...................................... 16.4 5.0 21.4 16.4 78.7 95.0
4-C...................................... 16.5 7.9 24.4 16.5 79.0 95.5
4-D...................................... 24.7 5.6 30.3 8.2 78.9 87.1
----------------------------------------------------------------------------------------------------------------
a For descriptions of the illustrative cases, see Table 4.
Source: Congressional Budget Office.
Note: Estimates assume that all costs are phased in fully by 2004. Numbers may not add up to totals because of
rounding.
FIGURE 1. ANNUAL AVERAGE MEDICARE SPENDING GROWTH FOR VARIOUS PERIODS
[GRAPHIC] [TIFF OMITTED] T3534A.001
SOURCE: Historical data from the Health Care Financing Administration
and projections by the Congressional Budget Office.
[GRAPHIC] [TIFF OMITTED] T3534A.002
FIGURE 3. DISTRIBUTION OF DRUG SPENDING FOR MEDICARE ENROLLEES, BY
PAYER, 1997
[GRAPHIC] [TIFF OMITTED] T3534A.003
SOURCE: Congressional Budget Office tabulations from the 1997 Medicare
Current Beneficiary Survey. Drugs currently covered by Medicare are not
included here.
FIGURE 4. POSSIBLE FEATURES OF A PRESCRIPTION DRUG INSURANCE BENEFIT
[GRAPHIC] [TIFF OMITTED] T3534A.004
SOURCE: Congressional Budget Office.
CHARTS PRESENTED AT THE HEARING
[GRAPHIC] [TIFF OMITTED] T3534A.005
[GRAPHIC] [TIFF OMITTED] T3534A.006
[GRAPHIC] [TIFF OMITTED] T3534A.007
[GRAPHIC] [TIFF OMITTED] T3534A.008
[GRAPHIC] [TIFF OMITTED] T3534A.009
[GRAPHIC] [TIFF OMITTED] T3534A.010
[GRAPHIC] [TIFF OMITTED] T3534A.011
Chairwoman Johnson. Thank you, Dr. Crippen.
I just call Members' attention to the last chart which does
have the monthly premiums of the cases that you described. I
just want to run through some quick things, and then, I want to
give everybody a chance to question, so I will try to keep my
time limited.
Do your estimates--first of all, does this presentation,
particularly where there is a cap, assume that during the hole,
so to speak, there is a discount that seniors enjoy? Do you
take that into account in your estimate of patient burden?
Dr. Crippen. No, we do not. In one variation, we assume no
coverage at all other than the low-income subsidies.
Chairwoman Johnson. I see. So if we were to negotiate that,
that a PBM would have to provide a discount during that period,
that would shift these numbers.
Dr. Crippen. It would shift them slightly, yes.
Chairwoman Johnson. Then, in terms of the role of the PBM,
you do mention in your written testimony that the costs would
shift depending on the powers of the PBM to control costs. How
much would they shift, and what would be the key tools?
Dr. Crippen. There are, of course, several tools that PBMs
could use, ranging from formularies to discounts. Whether or
not the PBM assumes risk is also important. So costs would
depend critically on how all of those factors apply--as well as
on whether there is more than one PBM. I don't have for you
today a range of figures on what would help, but certainly, the
more tools that the PBMs are allowed to have, and the fewer the
restrictions on things like formularies, the more the discount
could be.
Chairwoman Johnson. Well, we would certainly need to know
that. We would certainly need to know what would be the
implications of the PBMs having the right to negotiate
formularies, because if you were going to give them that right
because it would impact costs, you would certainly want to have
more than one PBM. So the issue of whether you have one or more
PBMs has to do to some extent with what powers you give them.
Another thought that has come forward is to require that
every PBM who participates provide two options, you know, a
tight option with a lower premium and a looser option with a
higher premium. So actually, if you had two PBMs, you would
have four plan choices. So if you could pursue that for us, I
would appreciate it.
Then, briefly, do your estimates take into account the
reduced hospital and ER usage of having a prescription drug
plan? I mean, over and over again, our community providers tell
us and our doctors tell us, everybody tells us, that if they
had prescription drugs, they would not end up back in the ER
and in the hospital and needing home care and so on. Do you
take that into account in your estimates?
Dr. Crippen. We have looked very carefully at that issue
and at what evidence is available, and frankly, it is a mixed
bag. Most of the studies that suggest there are savings to
overall medical expenditures from access to pharmaceuticals are
not very compelling, although there are a couple that are more
so. But on the other side, there are costs as well, having to
do with things like adverse events from prescriptions. So at
the moment, we assume no net savings to other parts of Medicare
from the implementation of a pharmaceutical benefit.
Chairwoman Johnson. OK.
Dr. Crippen. It would save some, but it would also cost
some.
Chairwoman Johnson. On the issue of errors, of prescription
drug errors and interactions, if we put in place a system that
reduced errors and reduced the likelihood of adverse
interactions, would that help the scoring, and might that help
the scoring on this first point too?
Dr. Crippen. It could, in theory. Again, at the moment,
given the evidence we have seen, we don't assume that PBMs in
and of themselves reduce dramatically the number of adverse
events.
Chairwoman Johnson. So you would need to know whether--and
we would need to know from you--whether or not we adopted some
of the recommendations in the National Institutes of Medicine
study to reduce errors was if we developed a fairly tight
system that we thought would do that?
Dr. Crippen. Yes. The places that seem to show the most
promise are hospitals that have implemented very tight systems
of control, including integration of the results of lab tests
and control of prescriptions. In contrast, PBMs look mainly for
drug interactions among different prescriptions. But there is a
lot more to it than that; drug interactions are just a small
piece of what ultimately you might want to be able to control
to avoid adverse outcomes.
Chairwoman Johnson. And then, along the same line, if we
were able to involve more seniors with chronic illness in
disease management plans so that they actually stuck to their
regimen more effectively and thereby benefitted from the
medications recommended by the physician, would there be any
implications of that kind of provision for scoring?
Dr. Crippen. Yes, there should be--again, depending in part
on whether the acceptance of such a disease management plan by
a beneficiary was voluntary on whether a person got into the
plan only after developing the condition, and so on. The
acceptance of case management can reduce costs, but how much it
reduced them would depend a lot on the rules of the road and
how people got in and out.
Chairwoman Johnson. And lastly, you did mention this
briefly, that a prescription drug benefit in Medicare would
have an impact, would have the effect of shifting costs from
the State public sector to the Federal public sector. Would you
enlarge a little bit on the impact that we might have on the
employer sector and if there are things that we could do to
reduce the likelihood that employers would drop their retiree
plans.
In the bills that were presented in the last Congress,
there was quite a variation in your analysis of the degree to
which a public plan would encourage employers to drop their
plans. Could you just bring to our attention the factors that
would most affect that employer decision?
Dr. Crippen. It would depend a great deal, again, on the
details of the plan itself. It varies a lot, as our analysis
last year suggested. For example, if the program were
constructed, say, like our Case D here, our fourth case, with
more beneficiary exposure but a lower premium, it might induce
employers to subsidize or pay for the premium for their
retirees and then get out of the program altogether. So
employers' decisions will depend critically on how the program
is constructed and what the beneficiaries are exposed to. We
would expect some employers to find ways to shift some of their
prescription drug benefit costs, to eliminate their benefit, or
change their benefit's structure so that it wraps around the
Medicare benefit.
Chairwoman Johnson. Thank you, Dr. Crippen. Mr. Stark, and
welcome back.
Mr. Stark. Thank you, Madam Chairman.
I apologize, Dr. Crippen, for being late, but let me just
see if you can help me out a little bit. A lot of what I am
trying to understand here regarding the costs of these various
plans I presume depends on adverse selection. And I don't know
how big a factor that is in how the estimates change.
Dr. Crippen. In these examples, we haven't included an
assumption about adverse selection.
Mr. Stark. OK.
Dr. Crippen. Certainly, it could have an effect.
Mr. Stark. OK. What do you assume the cost of the
pharmaceutical drugs is under these estimate? In other words, I
guess if you would say the top end of the range were full
retail, and the bottom end were I have always been under the
assumption that the VA buys at about 50 percent of retail.
Where in that range did you assume we would come in, or
whatever plan it was, what would be the actual cost to the
plan? Did you have an assumption on that?
Dr. Crippen. We made an assumption for today's purposes; it
is a combination of price and utilization controls that comes
to about 12.5 percent.
Mr. Stark. Off retail?
Dr. Crippen. Yes, but that is 12.5 percent off the gross
amount, figured as price times the number of prescriptions.
Mr. Stark. So it is pretty linear? In other words, if you
could get down, if you get a third off retail, would the cost
drop quite a bit?
Dr. Crippen. Sure.
Mr. Stark. If it is fairly linear and easy to do, could you
give us some idea of the estimates for a plan with somewhere
between 12 and 35 percent off retail?
Dr. Crippen. Part of the problem, Mr. Stark, is that there
are offsetting factors. The more you get the price of a drug
down, the more likely you are to increase utilization. So in
terms of gross spending, you may have more drugs out there,
which may be part of the----
Mr. Stark. You mean utilization by number of beneficiaries
signing up or----
Dr. Crippen. It could be just in the number of
prescriptions, which is what we are seeing in the VA, for
example. The cost of prescription drugs at the Veterans
Administration is going up, not so much because of prices--they
have a fairly strict regimen and formulary--but because the
same people are getting more prescriptions and using more
drugs.
Mr. Stark. I would have no way of knowing what that means.
Is that good or bad?
Dr. Crippen. I don't know either. All I am saying is that
for purposes of----
Mr. Stark. Arguably, physicians may disagree about what is
overutilization and what is underutilization. And I don't know
that we have any way of determining that.
Dr. Crippen. We don't. All I am saying is that for costing
purposes, you have two main factors that can change. The price
may go down, but the number of drugs being used may go up.
Mr. Stark. OK, but it is limited to drugs prescribed by the
doctors, I would guess, but I don't know.
Do you have any idea of where the prices might be on any of
these plans? If we just made this basically not voluntary, made
it like part A: you want Medicare, you have got to be in the
drug benefit plan. Would the cost drop substantially?
Dr. Crippen. Not according to what we have assumed here. We
assumed, for the purpose of these examples, that the benefit
was not voluntary.
Mr. Stark. No, but that is what I meant. What if you
assumed that it was not voluntary, that everybody was in?
Dr. Crippen. That is what we assumed.
Mr. Stark. You assumed that?
Dr. Crippen. Yes, we assumed that every Part B beneficiary
would enroll in this plan because the subsidies were big enough
to entice them.
Mr. Stark. You are figuring there are going to be 40
million whatever people in it? All right. Does the cost go up a
lot if you are wrong, I mean, if it is only 50 percent
participation because they stay in private plans?
Dr. Crippen. It could. That is where adverse selection
could be a major factor--if you had less than 100 percent
participation and/or let people move in and out at will.
Mr. Stark. I guess my last question: is this stuff all
fairly linear? I mean, I don't want to have you invite us to
send you a lot of what ifs, but with your modeling, are what
ifs relatively easy using your scales here if we wanted to fine
tune? Could we send you a letter and say what if we went to
1,500 instead of 2,000.
Dr. Crippen. Yes, we can certainly analyze many of those
variations that we couldn't before, and we would be happy to do
that. However, I would not characterize the relationships as
linear.
Mr. Stark. OK.
Dr. Crippen. They do change as you move things around.
Mr. Stark. Yes.
Dr. Crippen. Let me give you a stark example, one that is
not here. If you used reinsurance, so that you are paying an
after-the-fact risk adjustment, the more reinsurance you
introduce, the more the benefit looks like the fee-for-service
side of Medicare and the less risk the provider has, whether it
is a PBM or another provider. Thus, you have some benefit from
reinsurance in the first instance, but as you increase that
reinsurance, you start losing some of the benefits of requiring
providers to bear some of the insurance risk.
In sum, there are continuums here and things that work at
cross purposes. Some factors may go up, and some may go down.
You cannot just take something and multiply it by the number of
years or divide it by something.
Mr. Stark. You have given us a lot to chew on, and I just
hope you are leaving the door open for us to come back.
Dr. Crippen. Oh, absolutely.
Mr. Stark. Because I appreciate it, and it will be very
helpful. Thank you.
Dr. Crippen. Part of what we are trying to do is to show
you how we do these estimates so that you have some
understanding of our methods. These things are not black boxes;
you might not agree with all of our assumptions, and we can
talk about that.
Mr. Stark. No, it isn't that. It is just that having fussed
with this off and on over 10 years, I have never found
universal agreement that we should have a big copay or a big
deductible or have the catastrophic level at a low rate or a
high rate. Everybody kind of wants to--has their own assumption
of what would be most useful to a beneficiary, and I include
myself because I am not sure, but this will give us a lot to
stew on. Thank you. Thank you, Madam Chair.
Chairwoman Johnson. I would note that this only deals with
a few variables, and as Dr. Crippen has pointed out, then the
Committee would have to discuss what level of participation
this would incentivize, because that has a big--so it is a
bigger picture, but if we begin with the building blocks, I
think we will all be able to be better architects. Mr. McCrery.
Mr. McCrery. Thank you.
Dr. Crippen, Mr. Stark asked you if we only had 50 percent
participation, the cost would go up, and you said yes. Do you
mean per capita costs would go up?
Dr. Crippen. Yes.
Mr. McCrery. You don't mean overall program costs.
Dr. Crippen. No, that would not be likely, no; I meant----
Mr. McCrery. In fact, if we had fewer seniors
participating, the overall program costs would likely be
smaller than you have predicted.
Dr. Crippen. Yes, depending on what you were covering for
that number of people. If, for example, the benefit had a low
catastrophic, or stop-lose, amount and somehow you had adverse
selection operating, you could spend a lot of money per capita
on those beneficiaries. But, you are absolutely right: I did
not mean to say that total program costs would go up but that
the cost per beneficiary would.
Mr. McCrery. So if we could figure out a way to get a
benefit through Medicare that would not supplant all of the
coverage that is out there in the private sector already, we
would substantially reduce the program costs compared to what
you have predicted in your testimony.
Dr. Crippen. Yes, certainly you would.
Mr. McCrery. In your testimony and in another response to
Mr. Stark, you said that these predictions are based on only
using one PBM per region, and you said that the use of a PBM is
likely to result in a 12 and a half percent discount from
retail, let us say. Last year, when we were debating
prescription drugs, you testified that if we use multiple PBMs
per region, we would get a discount of about 25 percent. But
your testimony today equivocates a little bit on that. In fact,
in my quick reading of it, you seem to say that you don't know
whether multiple PBMs would in fact result in a bigger
discount. What is the status of your thinking today?
Dr. Crippen. There are two points I would make. First, what
we said last year was in the context of a specific proposal,
and it may be possible to get back to that kind of a discount
depending on the details of the proposal. But the point we
would make here today is that in general, more PBMs--that is,
more competition--offer the prospect of saving more in a gross
sense, through the discount.
There are, however, offsetting factors that we need to be
aware of and think about when we look at a proposal. Those
offsetting factors are things such as marketing costs. If you
have competition, there will be some marketing. And how much
will the risk premium be? If you have more than one PBM, and
you require them to bear some risk, we assume that the PBMs
would demand a risk premium that would reduce the net discount
somewhat.
These are some of the other factors that we look at in
addition to the number of PBMs. The size of the discount that
we estimated last year was in the context of a very specific
proposal.
Mr. McCrery. And in the context of that specific proposal,
you haven't changed your estimate of the savings of multiple
PBMs versus a single PBM.
Dr. Crippen. We haven't, reestimated that proposal under
our new baseline.
Mr. McCrery. So at least last year, in the context of that
specific proposal, your best estimate was that multiple PBMs
would save twice as much in terms of getting a discount on the
price of drugs as the single PBM.
Dr. Crippen. Yes, last year, in the context of that
proposal, we did estimate that.
Mr. McCrery. So I take it, then, that regardless of what
some may read in your testimony today that you are not here
today to pooh-pooh, if you will, the use of multiple PBMs per
region; you are simply saying that you would have to see a
specific proposal in order to specifically estimate what
savings there might be, what greater savings there might be
with the use of multiple PBMs.
Dr. Crippen. Yes, that is absolutely right. For this
prototype case, we just assumed one PBM. Assuming more than one
would change the assumptions we applied to all of these
alternatives.
Mr. McCrery. And on your colorful chart that was up, you
cut it off at 2030, and you were here the other day, and I
asked you if you extended this chart out to the 75-year
actuarial window that the trustees look at, this would actually
get a lot higher, wouldn't it?
Dr. Crippen. It would go higher--not as dramatically, of
course, in the next----
Mr. McCrery. Social Security would level off.
Dr. Crippen. Yes.
Mr. McCrery. But Medicare and Medicaid keep rising.
Dr. Crippen. Keep going up.
Mr. McCrery. And I believe you testified that by 2030,
these program costs, these three program costs, could account
for as much as 75 percent of the budget of the United States.
Dr. Crippen. Yes, as we now know it.
Mr. McCrery. Yes, and if you were to carry this out, again,
to 2075, I believe you testified last time that these program
costs could account for as much as 100 percent of the budget of
the United States.
Dr. Crippen. Yes, using roughly what we are spending
today----
Mr. McCrery. Right.
Dr. Crippen. Or 20 percent of GDP.
Mr. McCrery. If we continue to spend about 19 percent of
GDP----
Dr. Crippen. Yes.
Mr. McCrery. That would account for 100 percent of the
budget.
And finally, just one quick question. It appears that based
on the figures you have given us, total Medicare spending over
the next 10 years if we added a prescription drug benefit that
is about $365 billion or so, which you estimated the cost would
be, that we would increase total program spending by about 30
percent if we added the prescription drug benefit.
Dr. Crippen. I am trying to remember what the 10-year----
Mr. McCrery. You said $1.3 trillion was the 10-year cost, I
believe.
Dr. Crippen. That $1.3 trillion figure is the estimated 8-
year cost of a pharmaceutical benefit.
Mr. McCrery. No, no, no; OK.
Dr. Crippen. CBO projects a 10-year cost for Medicare, I am
told, of $3.6 trillion.
Mr. McCrery. OK; and 10-year cost?
Dr. Crippen. So $360 billion would be 10 percent.
Mr. McCrery. OK; thank you.
Chairwoman Johnson. Mr. Kleczka.
Mr. Kleczka. Thank you, Madam Chairman.
Dr. Crippen, could you repeat for me a statement you made
in your opening remarks? It was right at the beginning. I
cannot find it in your printed remarks. It was to the effect of
Medicare being the only program and transferring something to
retirees or seniors. Could you just reread that?
Dr. Crippen. I think that this may be what you are looking
for: ``It is important to keep in mind that Medicare is only
one of the Federal programs that transfer resources from the
working population to the retired and disabled.''
Mr. Kleczka. OK; what is the significance of that
statement? Because we, as the Federal government, also transfer
resources for the poor when we provide for Medicaid. We also
transfer resources to only students when we provide Pell grants
and other educational aids. Are you being critical on that
point, or are you just stating a fact?
Dr. Crippen. No, I am trying to state a fact, Mr. Kleczka.
Retiree programs are somewhat unique; that is, we are taking
resources from the current working population and transferring
them to the retired and disabled people who are not working.
Mr. Kleczka. Well, we do that with tax revenues every day
and in every annual budget here.
Dr. Crippen. But in these retirement program, we have made
long-term commitments over at least the next 75 years, and they
involve intergenerational transfers of very large magnitudes.
Mr. Kleczka. OK.
Dr. Crippen. The point I am trying to make is that when you
and I retire, we are going to have a significant impact on what
our kids are able to afford for themselves and to provide in
support for us. That is why these programs are unique in that
we are going to go from 7 percent of GDP----
Mr. Kleczka. Well, I heard that same statement last week by
another speaker before the Committee. It might have been the
full Committee, and I cannot recall if it was the Secretary of
the Treasury, but it seems to be some kind of a theme going on
here that we have to be careful of these programs that spend
money for our seniors and our retirees, but other Federal
expenditures are OK, and I just--I am saying, you know, as a
nation, we try to take care of all of our individuals, all of
our people. And some are retirees; some are poor; some are
students; some are military, you know, manufacturers, you know.
That is what makes up the entire budget.
So being that this is the second time I heard it in such a
short period, I was getting a little concerned.
I have before us a copy of a chart from the Budget
Committee, and it shows the House Budget Resolution. Now, we
are talking about modernizing Medicare. The Committee is
involved in trying to put together a drug benefit. You
presented four options that we can, you know, just look at to
see what the cost might be, and they range from $29 billion to
$31 billion per year, and costed over 10 years that is, you
know, almost $300 billion for a modest drug benefit which
covers half the drug costs for $55 per month premiums.
Let me ask you, Dr. Crippen, if you look at the pie chart,
we have a contingency reserve in the budget that will be coming
up on the House floor for debate today and vote tomorrow, and
there is a contingency reserve made up of three components, two
of which are Medicare-related. One is a contingency for
Medicare of $240 billion and another one a Medicare
modernization of $153 billion, which I assume is earmarked to
be the drug benefit.
Now, clearly, that is less than half of any proposal you
have shared with the Committee today. Is it your opinion that
that amount of money would still provide a pretty slim benefit
package?
Dr. Crippen. There are at least two points to be made.
First, you can't just multiply these numbers by any given
number of years. There are only eight policy years.
Mr. Kleczka. Right, but in the ball park, you know.
Dr. Crippen. Second, we don't know--and maybe the Committee
has more information than we do, which is entirely possible--
but we don't know what that $153 billion is in the resolution.
It could be a prescription drug benefit. It could be a net
benefit--that is, a savings somewhere netted out with something
else. So we can't tell. But the relationship is certainly true:
starting with $1.5 trillion, roughly, in estimated spending for
a drug benefit, that $153 billion would cover about 10 percent
of total Medicare spending if you were going to provide a
uniform benefit to every beneficiary.
On the other hand, if you were going to provide a benefit
to the 12 million beneficiaries who currently appear to have no
prescription drug coverage, it could cover up to 40 percent of
their annual spending on average.
Mr. Kleczka. So the concern I have, first of all, it is my
understanding that that is the drug benefit that is going to be
provided for in this budget bill, and Mr. McDermott and I serve
on the Budget Committee, and that was my impression. Maybe Mr.
McCrery differs with that. But the problem I have with that is
we are taking those dollars out of Medicare hospitalization
revenues. Now, the trustee was before the Committee last week
indicating the Medicare Hospitalization Trust Fund will be
solvent through approximately the year 2029. But, now, if
Congress keeps dipping into those revenues and not only taking
money out of the hospital portion, which is not drugs--I didn't
say drugs; I said hospital--but if we take it out of the
hospital revenues, that is less for hospital coverage, and if
we take another $240 million out of the Hospital Trust Fund for
modernization, that is less for the hospital benefit.
And so, we are going to come to a day here in Congress
where all of a sudden, there will be very little money left in
the hospital benefit, and we are going to tell our seniors that
money is gone. Well, if you rob Peter to pay Paul time after
time, yes, the money is going to be gone. And so, we are just
setting ourselves up for a real fall in this budget that is
coming up on the House floor shortly by taking those dollars
out for purposes other than what the workers of the country
intended them to be used for when they were deducted from the
paychecks. Thank you, Madam Chair.
Chairwoman Johnson. Before I recognize Mr. Crane, I just
want to remind the Members and the public that is watching that
in Clinton's last budget, he cut Medicare deeply. In a number
of bills he brought up, he cut Medicare more to get money to
pay for other things. It is up to us in the end to determine
what we are going to spend the tax dollars of the nation on,
and in the budget fund that is over and above the 4 percent of
spending that is included in the baseline, that is an
assumption that every year, spending will go up 4 percent, and
that is more than inflation, we think, in most years.
In that fund, there is money outside of the Hospital Trust
Fund that I am assured can be used for prescription drugs. But
our job is to try to design a prescription drug benefit that is
adequate for our seniors but takes into account what Dr.
Crippen commented on at the beginning of his testimony. There
are three large programs that transfer resources from working
people to people over 65, and if we aren't careful, the
majority of the Federal budget will be a generational transfer
which would make it very hard for our kids to fund public
education, environmental enforcement, roads and bridges and all
of those things.
So, I mean, in the end, we are going to work together to
construct a cost-effective but beneficiary-friendly
prescription drug bill, and while that is not going to be
clearly evidenced in the budget we are going to debate, because
we don't have a plan yet, we are going to be able to fund the
plan we think is responsible. There may be differences amongst
us as to what is responsible emanating from our decision as to
what that generational transfer can and should be, but here
today, the purpose of this hearing is to get a better
understanding of how we could construct a benefit that would be
both good for beneficiaries and fiscally responsible in the
light of the burden our children are going to carry for
retirees in the future, which will be larger than the burden
that we carry for current retirees; larger than the burden that
any generation in the history of our country has ever carried
for retirees.
So that budget debate tomorrow is there for all of us to
participate in, but I am very pleased, Dr. Crippen, that you
brought such specific knowledge of the building blocks to us,
and I hope to have a very fruitful discussion. Mr. Crane.
Mr. Crane. Thank you, Madam Chairman.
Dr. Crippen, some lawmakers believe that the Medicare
trustees' projection of 4 more years of Medicare solvency is a
sign that we should not address fundamental reforms to the
Medicare program but rather focus on adding additional benefits
to the program like a prescription drug benefit.
In your opinion, if the Congress were to simply add on a
prescription drug benefit to the existing program, how would
that change the outlook of the program?
Dr. Crippen. Mr. Crane, as I have testified before this
Committee and others, the trust fund accounting mechanism
performs only the very narrow purpose of looking at one
program. In this case, it is only part of Medicare; it is not
even just one program. And so the fact that the trust fund's
solvency date has been extended doesn't give me any comfort
whatsoever. For example, you could do anything you wanted with
the surplus or the budget for next year. You could spend all
$5.6 trillion in surpluses over the next 10 years. You could
cut taxes by $5.6 trillion, and it would not change the
trustees' report one iota. The solvency date would stay the
same.
But the rest of the budget would change, and, potentially,
the impact of those actions on the economy would change,
depending on what you are doing with that money. So the
actuarial extension doesn't give me much comfort.
Moreover, adding a prescription drug benefit on top of
current spending--on top of the picture that I showed initially
of Medicare and other retirement programs going to 15 percent
of GDP--would mean that those programs were going to be more
than 15 percent of GDP. That may be entirely possible, doable,
appropriate, but to me, the real measure is, what percentage of
the economy that our kids are generating, that they are
earning, are we going to force them to give us? Adding a
prescription drug benefit to this 15-percent picture will just
make it worse.
Mr. Crane. I am concerned about the increase in the CBO's
recent study that found annual pharmaceutical spending for
seniors will likely rise from $1,989 in 2002 to $4,818 in 2011,
a 30 percent higher than previous estimate. Given the
uncertainty about and the recent surge in drug estimates or
prices, rather, how confident can we be about future
projections relating to the cost of Medicare prescription drug
benefits?
Dr. Crippen. Well, about as confident as we can be about
other things. In this case, the price increases that we adopted
came from the Health Care Financing Administration (HCFA)
actuaries, so we are in accord with what they are doing on
their national surveys. Their estimates are thought to be
fairly good; however, the projections have gone up more than
expected.
The other piece of why our estimates over the 10-year
projection period are going up is that, just as in the case of
the surplus totals, we have substituted a more expensive year,
2011, for a less expensive year, 2001. So in total, about half
of the change we made over last year's estimate is due to just
switching those years, moving the projection forward by one
year. The other half is due to increased cost trends that the
HCFA actuaries believe have shown up in the last 12 to 18
months.
So it is a combination. Regarding your question of how
confident are we, these estimates are probably better than most
because a number of agencies look at them and outside reviewers
do a lot of work with them. And they have gone up significantly
just in 1 year.
Mr. Crane. Thank you, Dr. Crippen, and I yield back the
balance of my time.
Chairwoman Johnson. Thank you. Dr. McDermott.
Mr. McDermott. Thank you, Madam Chair.
Dr. Crippen, on page 10 of your testimony, it says to pay
for this program, enrollees will be charged a monthly premium
designed to cover 50 percent of the cost of the benefit. The
Federal government would pay the other 50 percent. I assume
that you stand by those. But then, I go to page 21, and I look
at these illustrative cases. The base case, it looks like the
cost to the Federal taxpayer on the base case is $31.6 billion,
and the payments for the beneficiaries are $83 billion. I am
having a little bit of trouble meshing, because it does not
seem like 31 is half of 83. It seems like it is about a third
by the Federal Government and two-thirds by the patients. Could
you help me out here?
Dr. Crippen. I will try. If you can go to the chart on the
base case, which I think you have up there, it will help show--
--
Mr. McDermott. Is there a number on that one? Or which one
of your many----
Dr. Crippen. It says base case.
Mr. McDermott. Ah, yes, base case.
Dr. Crippen. The base case.
Mr. McDermott. OK.
Dr. Crippen. The chart shows how much the beneficiaries pay
in this case and, over what terms, and what the taxpayers'
share is. At the bottom, it summarizes the same numbers you
have cited from the table on page 21 of my statement.
Mr. McDermott. So basically, the patients are paying two-
thirds of the cost of it, and one-third comes from the Federal
Government rather than 50-50.
Dr. Crippen. In this case, yes; I mean, in total. What we
were talking about, though--the part that you cited earlier--
was premiums.
Mr. McDermott. Yes.
Dr. Crippen. And here, as you see, Medicare premiums----
Mr. McDermott. I don't want old people to get confused with
the difference between the cost and the premium.
Dr. Crippen. Right.
Mr. McDermott. Because the premium is one part of what they
are paying, but then, they are going to have to pay this 50
percent on top of that.
Dr. Crippen. Yes. The difference I tried to emphasize in my
statement is that the premiums are paid by everybody in the
program. More than 39 million people will be paying the
premiums, whether or not they fill a prescription. The cost-
sharing piece, which changes between these variations, is what
people who actually use the drugs will face. In the first
instance--the base case--they pay 50 percent of the value of
the drugs they are buying. So that is the difference, and it is
a distinction that is important: the elderly will be paying $83
billion in our base case, $26 billion of it through premiums
and the rest through cost sharing.
Mr. McDermott. And the thing that I found probably the most
amazing here was that you assume that everybody will enroll.
Dr. Crippen. We do.
Mr. McDermott. So in spite of all this stuff we have been
hearing around here about people who already have coverage
under their retirement plans, or they have got a Medigap policy
or whatever, you think they are all going to drop their
coverage and jump into this Federal program.
Dr. Crippen. We think that the 50 percent coinsurance and
50 percent subsidy and premium is enough to induce everybody
who is in part B to enroll in the drug program. But that
doesn't mean that they will necessarily drop other coverage.
They may drop Medigap, or new type of Medigap policies may be
formed. Again, the cost sharing part of this doesn't mean that
beneficiaries pay it themselves. They can insure against it, or
their employer could pay it. In many cases, Medicaid or the
States will pay it, or Medicaid will pay premiums. So there are
third parties involved in paying this money, too. It is not
strictly from beneficiaries.
Mr. McDermott. So what you are saying is you think it is
generous enough that everybody is going to want to get in to
get the Federal piece----
Dr. Crippen. Yes.
Mr. McDermott. Of whatever they can.
Dr. Crippen. Exactly.
Mr. McDermott. OK; now, I want to come back with something
that Mr. Kleczka was pushing on. That is the whole question of
how much money is in the budget that we are going to vote on in
an hour or two or five on the floor. My remembrance of the
proposal put forward by the Republicans last year was that it
was cost out by CBO at $159 billion; is that correct?
Dr. Crippen. I don't remember exactly, but that sounds
about right, yes.
Mr. McDermott. OK; and the President, in his campaign, said
we are going to put $153 billion in for the drug benefit,
right?
Dr. Crippen. Yes--I am sorry; I shouldn't say that so
quickly. I don't know what the $153 billion is. I mean, is it
just a drug benefit? Is it something else? We don't have
anything to tell us in the President's budget blueprint, in
anything we have gotten from the Office of Management and
Budget (OMB). We don't know.
Mr. McDermott. So you are saying that the Congress is
flying blind at this point.
Dr. Crippen. The $153 billion could be a net number. It
could be anything as far as we know.
Mr. McDermott. I think you are confirming what all of us
believe, which is that nobody in the House knows what they are
doing on this budget, because the President hasn't said. But
the $153 billion has been told to us as the amount for the drug
benefit.
Dr. Crippen. OK.
Mr. McDermott. But my understanding is that the recosting
of the Republican plan from last year now puts it up over $200
billion.
Dr. Crippen. We haven't reestimated.
Mr. McDermott. Nobody has recosted it?
Dr. Crippen. No. Presumably, it is going to be more, but I
don't know how much more.
Mr. McDermott. Boy, it is going to be interesting over
there on the floor to hear the argument, won't it be? Everybody
will talk like they know what they are talking about, and no
one will know, because CBO doesn't know.
Dr. Crippen. We don't know what you are talking about. You
might know, but we don't know.
Mr. McDermott. Well, I know you would never question a
Member certainly, but what we are going to hear over there is a
lot of wind. None of it is based on any facts that anybody
really knows.
Chairwoman Johnson. Mr. Johnson.
Mr. Johnson OF TEXAS. Thank you, Madam Chairman.
Let us talk about some facts that somebody knows; what do
you think? According to your testimony, the average beneficiary
spends about $1,989 on prescription drugs in 2002, and the
median is about $1,163. HCFA says the average beneficiary
spends $550 on drugs in 1997. Do you agree with their analysis,
first, and how can the spending go up so much in just 5 years?
Dr. Crippen. There are two factors in the analysis that
account for the difference, and your two questions address
them. First, we think that the spending per capita is a little
higher than HCFA thinks it is because there are two elements
that HCFA has not taken into account. One is the
institutionalized population--that is, anyone who might be in a
nursing home or in the hospital for an extended stay.
Prescription drug use by those elderly people is not included
in the HCFA numbers.
Mr. Johnson OF TEXAS. Why are they not?
Dr. Crippen. Up until now, their analysts have not included
the institutionalized population. They are going to. We have
not seen their new baseline for this year.
Mr. Johnson OF TEXAS. That says HCFA is never up-to-date.
Dr. Crippen. I would not say that of my friends at HCFA,
but we have included them at population for the last couple of
years, and I think they will this year. We have not seen their
baseline. So that is part of why the base on which HCFA is
figuring per capita spending is smaller. The second is that
there is pretty good evidence----
Mr. Johnson OF TEXAS. Well, could I interrupt you just a
moment? Do we have good data on those institutionalized
patients?
Dr. Crippen. We have some data that we consider to be
fairly good, and so we make the adjustment. We do adjust up,
but I think it is about 25 percent of the total--I am sorry, it
is 5 percent of the total. So we add 5 percent to the total for
the institutionalized population.
Mr. Johnson OF TEXAS. OK.
Dr. Crippen. The second factor, which I think is 25
percent, is underreporting. We believe that the survey from
which HCFA develops its numbers has a fair amount of
underreporting. People aren't telling HCFA what they are
spending, or if they are, they're doing it inaccurately. And so
we add a certain amount for that underreporting. HCFA does some
of that as well. Last year, its analysts added 15 percent; we
added 25.
So for those reasons, some of HCFA's base numbers are
lower. But there has also been tremendous growth in spending in
the past few years. I mean, if spending grows at a rate of 8
percent to 10 percent a year, it does not take long to double
it, as you well know.
Mr. Johnson OF TEXAS. Why do people underreport?
Dr. Crippen. In many cases, they don't remember what they
spend. I wouldn't--if someone asked me what I spent on drugs
last year, I wouldn't know exactly. So there seems to be a bias
in the survey toward reporting less drug spending than actually
occurs.
Mr. Johnson OF TEXAS. Some people deduct it from their
income tax.
Dr. Crippen. I am sure they know what it is.
Mr. Johnson OF TEXAS. That is right.
As you know, the current fee-for-service programs and any
willing provider program, if we perpetuated that structure in a
prescription drug program and prohibited the use of restrictive
formularies and selected contracting with pharmacies, what
impact would that have on our ability to control costs? And
additionally, what are the incentives to control costs if we
let the government provide 100 percent of the risk?
Dr. Crippen. To answer your last question first, we think
that having the PBMs share some risk will give them incentives
to help control costs.
Mr. Johnson OF TEXAS. Right.
Dr. Crippen. So in our estimate, we give some credit for
that. However, as I said a little bit earlier, there is a limit
to how much of that you can do without adverse consequences as
well. But if PBMs bore some risk, there would be some
additional control of costs.
In terms of other controls, the more the Congress says you
cannot have a formulary or you, cannot use these other cost-
control mechanisms that are now common tools then the less cost
control we think the program can have and the more expensive it
will be. Is that responsive to your first question?
Mr. Johnson OF TEXAS. Yes; thank you very much.
Dr. Crippen. OK.
Mr. Johnson OF TEXAS. One other question if I might, Madam
Chairman. The cost of prescription drugs is defined within a
fairly wide margin. Nobody really knows what it is. Do you
think we can do it for the amount that is set aside in the
budget?
Dr. Crippen. That depends, Mr. Johnson, on a number of
things and is part of the conversation we have been having with
Mr. McDermott as well. If you target the drug benefit toward a
very specific population, then $150 billion can buy a lot of
drugs. If you give a uniform universal benefit, it is about 10
percent of what everybody spends in total. So you could do a
drug benefit of substantial size for a small number of people
at that rate. But I would also stress again that I don't know--
and I don't know if anybody does--exactly what the $153 billion
in the President's budget blueprint is. It could be a net
number, with a prescription drug benefit, for example, that
costs $300 billion minus savings from Medicare reform of $150
billion. We don't know what the number represents, so it is
kind of hard for us to say what it will do or will not do. I
can tell you roughly what $150 billion would do, but I don't
know what that number represents.
Mr. Johnson OF TEXAS. Well, if we don't know the actual
costs, we also can surmise that we can do it for that number.
Dr. Crippen. Yes.
Mr. Johnson OF TEXAS. Thank you very much. Thank you, Madam
Chairman.
Chairwoman Johnson. Representative Thurman.
Mrs. Thurman. Thank you, Madam Chairman.
Dr. Crippen, let me--so, then, you would have to agree that
none of the plans that you have run A through D would fit under
the $153 billion.
Dr. Crippen. Probably not.
Mrs. Thurman. I know that number keeps showing up.
Dr. Crippen. The dollar amount in our examples are 1-year
numbers, and you can't just assume that you can multiply them
by eight to see the long-term policy implications or anything
else. We constructed these cases to look only at 1-year costs,
because there are numerous details that we have not made
assumptions about. My purpose today was not to show you exactly
what a drug benefit would cost but rather to give you relative
scenarios, to show what would change if you changed deductibles
or catastrophic coverage or other factors and how those changes
would affect the cost to beneficiaries and taxpayers.
So my attempt today was not to----
Mrs. Thurman. OK.
Dr. Crippen. Estimate what the cost of a reasonable drug
benefit might be. In fact, we are trying very hard not to say
that these illustrations are proposals.
Mrs. Thurman. And I don't blame you, because I know that we
have got the Senate stuff that says----
Dr. Crippen. Right.
Mrs. Thurman. One-hundred and fifty-three billion dollars
would give us a very narrow or not much of a drug benefit at
all.
So let me ask you, though, because as you know, there is a
lot of conversation up here about how we are going to change
Medicare, potentially change Medicare and modernize or redo. In
looking at any of these numbers, have you all done any
comparisons to--and let us take one that certainly we are
involved with the Medicare choice programs, specifically
looking at what the copayment and then also what the
beneficiary would pay in a premium.
Have you looked at anything comparable in the private
sector or something that we do in the Medicare choice just to
get an idea of kind of what we are looking at here?
Dr. Crippen. Do you mean, as to how people behave?
Mrs. Thurman. Well, not behave but just in the cost part of
it, because, I mean, we know we have specifically a Medicare
choice program. We recognize today that first of all, some of
us are very unhappy with the Medicare choice program because
they move in and out, but one of the reasons people sign up for
it is a prescription drug benefit. And if the success part of
this program is based on potentially 100 percent of Medicare
beneficiaries signing up, you know, you have to have an
incentive for why they would want to come over here, and we are
seeing a lot of changes in that market. There used to be zero
premium. Now, there is--actually, I have seen it go up as far
as $179 in premium but not with the benefit in itself. Have you
done a comparison on that in particular?
Dr. Crippen. We haven't. We are aware of some of the
developments you are talking about: the enrollment flattening
out, in fact, probably declining; the number of withdrawals by
plans; and the fact that the drug benefits are either getting
thinner--less generous--or the premiums are going up. We have
not done a thorough comparison across Medicare+Choice plans to
know exactly how they are developing, but we have the same
kinds of both anecdotal and underlying evidence that you do
about the changes.
Mrs. Thurman. It would seem to me that would be something
we would want to look at, because if we are going to look at a
Medicare benefit, we need to figure out----
Dr. Crippen. Right.
Mrs. Thurman. How we best do this.
Dr. Crippen. Part of the problem with doing that--and I
think we have talked about this before in this setting--is that
there is a very substantial lag in the data that are collected.
You see us using data from 1997, for example, or maybe even
1998, but those are the newest ones we have. Much of the M-
plus-C developments that we are all talking about here have
taken place since 1997 or 1998. So it is a little hard to get
as current an analysis as you would like in order to make good
decisions.
Mrs. Thurman. Let us go back a little bit to the PBMs,
because those obviously have a big effect on what the cost or
not cost. Can you review for me the various private sector
mechanisms that the pharmacy benefit providers used to contain
the prescription drug cost? And what I am most concerned about
is, you know, we give them the opportunity to go in and
negotiate, which would be the competitive part of this, but are
there any things that we do to make sure that this cost savings
is given back to the beneficiary so that they could actually
see a reduction in their cost?
Dr. Crippen. To answer the last question first, we assume
that if you have multiple PBMs, a good portion of whatever they
save goes back to beneficiaries because of competition.
Regarding the first part of your question--what are some of the
things that we assume PBMs do to cut costs and that therefore
have an effect on our estimates--we consider such factors as
the level and nature of the competition, whether there is one
or more PBMs and how they compete; constraints on the cost
controls that they can institute--if the PBM is told, you
cannot do certain things, that will make a difference in how
much they can save for themselves and for beneficiaries; rules
for establishing formularies; and conditions for determining
pharmacy networks. Those are some of the things that we look at
to say whether or not PBMs have effective cost-control tools.
Mrs. Thurman. But even in using multiple, I mean, you have
looked at the administrative costs when you use a lot more that
you are spending a lot more on administrative----
Dr. Crippen. Yes.
Mrs. Thurman. And/or marketing that where some of the
savings that you actually would hope to retain and use to
subsidize or lower the cost would not necessarily be there.
Dr. Crippen. There are two offsetting factors that we look
at. One is marketing costs, and another is risk. Because there
is more risk to the prover in a multiple-PBM setting, we
consider the amount that the PBMs need to compensate them for
the risk they are undertaking. So there are offsetting costs.
Mrs. Thurman. Thank you.
Chairwoman Johnson. And thank you, Representative Thurman,
and thank you very much, Dr. Crippen. There are lots more
questions I am sure we will have for you as we get into
weighing these things as a group, and we appreciate your
testimony today.
I am going to call the next two panels together so that
Members will have at least the chance to hear the testimony of
each of our last six guests, and as you are coming forward,
John Poisal, who will start, is from the Office of Strategic
Planning at the Health Care Financing Administration. He is a
long-time employee of HCFA with a great depth of knowledge in
this area, and we are pleased to have him.
Michael Cohen, who is president of the Institute for Safe
Medication Practices; Helen Frederick of Crownsville, Maryland;
Lore Wilkinson of Durham, North Carolina--we appreciate how far
you have come, Lore, and also, Helen, your participation; Max
Richtman, the executive vice-president of the National
Committee to Preserve Social Security and Medicare; and Maya
MacGuineas, the national board Member from the Third
Millennium, who has come down from New York, and we thank you
for being here with us.
Let us start with John Poisal.
STATEMENT OF JOHN A. POISAL, STATISTICIAN, OFFICE OF STRATEGIC
PLANNING, HEALTH CARE FINANCING ADMINISTRATION
Mr. Poisal. Good afternoon. Good afternoon, Chairman
Johnson, Congressman Stark, distinguished Subcommittee members.
Thank you today for inviting me to discuss my analysis of data
on prescription drug use and spending patterns of Medicare
beneficiaries recently published in Health Affairs, entitled
Growing Differences Between Medicare Beneficiaries With and
Without Drug Coverage.
This research, as presented in the article, is based on
data collected by the Health Care Financing Administration
through the Medicare Current Beneficiary Survey (or the MCBS)
from 1998 as well as survey data collected in previous years.
The MCBS is an ongoing survey of a representative sample of the
entire Medicare population. One of the strengths of the MCBS is
that it collects information about what Medicare does and does
not cover, which would include prescription drugs. My research
focuses on historical prescription drug coverage, utilization
and spending.
The research resulted in two main findings regarding drug
coverage among the Medicare population. First, the proportion
of Medicare beneficiaries with prescription drug coverage at
some point in the year did not change between 1997 and 1998,
after having increased annually over a number of years. Second,
the differences in the levels of use of prescription drugs and
total spending on prescription drugs in 1998 widened between
beneficiaries with drug coverage and those without drug
coverage.
Since 1992, the first year of the MCBS, the data have shown
that the prescription drug coverage rate for Medicare
beneficiaries has risen steadily. In 1998, however, coverage
levels remained flat. In 1998, we estimate 73 percent of
noninstitutionalized Medicare beneficiaries had drug coverage
at some point during the year. On the other hand, slightly more
than 27 percent of beneficiaries, or about 10 million, had no
drug coverage whatsoever. These findings are identical to what
was found in the 1997 survey data.
Although a fairly high proportion of Medicare beneficiaries
had some type of supplemental prescription drug coverage in the
1990s, a month-by-month analysis of the data revealed that this
coverage was far from stable. The trends in use and spending
for beneficiaries with and without prescription drug coverage
differed for the first time in 1998. The data showed that
beneficiaries without coverage purchased fewer medications than
the year before, while their expenditures were nearly
identical. By contrast, beneficiaries with coverage in 1998
continued their previous trend of increases in utilization of
drugs and in total expenditures. Their drug purchases increased
by 9 percent, and their total expenditures increased by 14
percent.
Also, the gaps in utilization and expenditures between the
two populations increased from a difference of five
prescriptions in 1997 to a difference of eight prescriptions in
1998. Their total expenditure gap also increased from a
difference of $330 in 1997 to a difference of $453 in 1998. The
data also show, in the aggregate that utilization and total
expenditures for all levels of income were higher for
beneficiaries with drug coverage than for those without such
coverage.
The differences in both utilization and total expenditures
were particularly notable in certain subgroups. For example,
the differences for beneficiaries with and without coverage
were greatest for the disabled population under age 65.
Beneficiaries without drug coverage in that age group used less
than half as many prescriptions, and their total expenditures
were only one-third as high when compared to disabled
beneficiaries with drug coverage.
In addition, there were large differences in utilization
and spending between those with and without drug coverage for
beneficiaries below the poverty line. The gap in utilization
between the two groups was nearly 14 prescriptions in 1998.
Moreover, differences in total expenditures for beneficiaries
with and without coverage and who had five or more chronic
conditions increased by about 70 percent and increased by
approximately 30 percent for all other beneficiaries with
chronic conditions. Utilization differences between these
groups of beneficiaries also increased in 1998.
Clearly, prescription drugs continue to play an
increasingly important role in the health care of Medicare
beneficiaries. Having prescription drug coverage makes a
difference in beneficiary drug use and spending, particularly
for low-income seniors and those with many chronic health
problems.
Thank you again for the opportunity to testify today, and I
will be happy to answer any questions you have.
[The prepared statement of Mr. Poisal follows:]
STATEMENT OF JOHN A. POISAL, STATISTICIAN, OFFICE OF STRATEGIC
PLANNING, HEALTH CARE FINANCING ADMINISTRATION
Chairman Johnson, Congressman Stark, distinguished Committee
members, thank you for inviting me here today to discuss an analysis of
data on prescription drug use and spending patterns of Medicare
beneficiaries recently published in Health Affairs, ``Growing
Differences Between Medicare Beneficiaries With and Without Drug
Coverage Volume 20, Number 2. Prescription drugs provide a vital tool
for our nation's young and old in treating both chronic and acute
medical conditions. In 1998, total spending for prescription drugs in
the United States totaled $91 billion, more than double the total 10
years ago.
The research, as presented in the article, is based on data
collected by the Health Care Financing Administration through the
Medicare Current Beneficiary Survey (MCBS) from 1998, as well as survey
data collected in prior years. The MCBS is an ongoing survey of a
representative sample of the entire Medicare population. Survey
respondents are interviewed every four months and are asked to record
their drug purchases and save their medicine containers to assist them
in recalling their drug purchases.
The research resulted in two main findings regarding drug coverage
among the Medicare beneficiary population. First, the proportion of
Medicare beneficiaries with prescription drug coverage at some point in
the year did not change between 1997 and 1998, after having increased
annually over a number of years. Second, the differences in the levels
of use of prescription drugs and total spending on prescription drugs,
in 1998, widened between beneficiaries with drug coverage and those
without.
PRESCRIPTION DRUG COVERAGE
Since Medicare currently provides very limited coverage of
outpatient prescription drugs, Medicare beneficiaries obtain coverage
from a variety of sources. For example, many beneficiaries receive
coverage through Medigap plans, their employer-sponsored retiree
insurance plan, as well as through enrollment in Medicare HMOs, the
Medicaid program, or State-sponsored prescription drug assistance
programs. The MCBS collects information on the number of Medicare
beneficiaries with prescription drug coverage and the sources of that
coverage.
Since 1992, the first year of the MCBS, the data have shown that
the prescription drug coverage rate for Medicare beneficiaries has
risen steadily. From 1995 to 1997, the level of estimated drug coverage
increased, but in 1998 coverage levels remained flat. As indicated in
Chart 1, in 1998, 73 percent of non-institutionalized Medicare
beneficiaries had drug coverage at some point during the year. On the
other hand, slightly more than 27 percent of beneficiaries, about 10
million, had no drug coverage whatsoever. These findings are identical
to what was found in the 1997 survey data.
The increase in the proportion of beneficiaries with drug coverage
in the mid-1990s appears to most likely be a result of increased
beneficiary enrollment in Medicare HMOs offering an additional drug
benefit (Chart 2). During the mid-to late 1990s, Medicare HMO
enrollment was growing at about 30 percent annually. The provision of
drug benefits by Medicare HMOs during this period, as well as the
increase in beneficiary enrollment resulted in more than 15 percent of
all Medicare beneficiaries receiving drug coverage from a Medicare HMO
in 1998, an increase of 2 percent since 1997, and of 7 percent since
1995.
Although a fairly high proportion of Medicare beneficiaries had
some type of supplemental prescription drug coverage in the 1990s, a
month-by-month analysis of the data revealed that this coverage was far
from stable. For instance, only 46 percent of beneficiaries were
covered for all 24 months of 1995 and 1996. In 1997, only 54 percent of
beneficiaries had drug coverage for the entire year, and 27 percent had
no coverage at any time (Chart 3)
PRESCRIPTION DRUG USE AND SPENDING
The trends in use and spending for beneficiaries with and without
prescription drug coverage differed for the first time in 1998. The
1998 data showed that beneficiaries without drug coverage purchased
fewer medications than they purchased the year before, filling an
average of 16.7 prescriptions, a 2.4 percent decline from 1997. At the
same time, those same beneficiaries spent an average of about $550 on
their prescription purchases, nearly identical to their expenditures
the previous year.
Beneficiaries with coverage continued the trend of increases in
both utilization and total expenditures. They purchased a little more
than 24 prescriptions per person, up 9 percent from 1997, and total
expenditures, including out-of-pocket and payments from drug insurance
coverage, increased 14 percent, totaling $999. The gap in utilization
between the two populations grew from an average difference of 5
prescriptions in 1997 to 8 in 1998. The difference in total
expenditures between the two populations also increased from about $330
in 1997 to $453 in 1998. In addition, the survey data have been
consistent in demonstrating gaps in utilization between beneficiaries
in both populations for almost every demographic category including
age, race, health status, and income.
These differences in utilization and expenditures were particularly
notable in certain sub-groups. The differences were greatest for
disabled beneficiaries under age 65, a group that has a high level of
drug use. Disabled beneficiaries under age 65 without drug coverage
used less than one-half as many prescriptions (16 prescriptions), as
disabled beneficiaries with coverage used (33 prescriptions). In
addition, total drug expenditures for disabled beneficiaries without
drug coverage were only one-third as high ($493) in per capita spending
as disabled beneficiaries with drug coverage ($1483).
Utilization differences between beneficiaries, with or without drug
coverage, with varying levels of chronic conditions also increased in
1998, by approximately two prescriptions per beneficiary. For example,
the utilization gap between beneficiaries, with or without coverage,
who had five or more chronic conditions, grew from eight prescriptions
in 1997 to 10.8 in 1998. Differences in total expenditures for
beneficiaries with and without drug coverage also increased by about 70
percent for beneficiaries with five or more chronic conditions and by
approximately 30 percent for all other beneficiaries with chronic
conditions.
In 1998, total drug expenditures for beneficiaries in poor health
with drug coverage were $910 higher than total expenditures for
beneficiaries in poor health without drug coverage. This represented a
30 percent increase over the 1997 difference of $695. Average drug
expenditures for beneficiaries in excellent health were $250 higher for
those with coverage than for beneficiaries with identical self-reported
health status who were without coverage. In 1997, the difference in
expenditures between these two groups was $203.
Utilization and total expenditures, for all levels of income, were
higher for beneficiaries with drug coverage than for those without such
coverage. Differences in utilization and total expenditures were
greatest between beneficiaries with and without drug coverage below the
poverty line and reached a difference of almost 14 prescriptions per
beneficiary in 1998.
Beneficiaries without drug coverage spent more out-of-pocket, than
those with coverage, but continued to receive fewer medications.
Beneficiaries without drug coverage had to pay an average of $546 out-
of-pocket in 1998, compared to $325 for beneficiaries with coverage. In
other words, beneficiaries without drug coverage paid an average of $33
per prescription compared to $13 for beneficiaries with drug coverage
(Chart 4). For beneficiaries without drug coverage, out-of-pocket
expenditures, which are equal to their total expenditures, were
virtually unchanged from 1997 to 1998, while out-of-pocket and total
expenditures for beneficiaries with drug coverage increased by almost
18 percent. Moreover, beneficiaries with drug coverage paid a slightly
larger portion of their total drug expenditures (33 percent) in 1998
than they did in 1997 (31 percent). Beneficiaries in Medicare HMOs with
drug coverage and those enrolled in individually purchased supplemental
plans experienced the greatest out-of-pocket cost increases between
1997 and 1998.
CONCLUSION
Prescription drugs continue to play an increasingly important role
in the health care of Medicare beneficiaries. The research presented in
the Health Affairs article demonstrates that beneficiaries with drug
coverage used more drugs and had higher total expenditures than
beneficiaries without coverage, and the gap in expenditures and
utilization between those with and without coverage increased. Clearly,
having prescription drug coverage makes a difference in beneficiary
drug use and spending, particularly for low-income seniors and those
with many chronic health problems.
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Chairwoman Johnson. Thank you very much for your testimony.
Mr. Cohen. We will come back for questions when everyone
is--Mr. Cohen.
STATEMENT OF MICHAEL R. COHEN, PRESIDENT, INSTITUTE FOR SAFE
MEDICATION PRACTICES, HUNTINGDON VALLEY, PENNSYLVANIA
Mr. Cohen. Good afternoon, Madam Chairman.
I represent a nonprofit organization called the Institute
for Safe Medication Practices. It is independent, and it is
composed of physicians, nurses, pharmacists and consumers, and
our focus has been on medication safety for many years. We work
with the United States Pharmacopeia's medication error
reporting program and also with the Food and Drug
Administration's Medwatch program data to review reported
errors from practitioners and make recommendations for
prevention. This is published widely, and all the hospitals get
our material; a number of journals and newsletters.
We think that the proposed legislation is important to
drive medication safety, or it can be, at least. And so, we
really appreciate having the opportunity to speak today. To a
large extent, payers such as Medicare bear some responsibility
for medication errors if they don't support basic quality
issues and safety requirements. It has to be more than just
dispensing accurately. It also has to be looking at the drug
therapy and monitoring it and making sure that it is important
for the patients. I think that is critical.
So we have identified three areas to think about that we
believe are appropriate for legislation related to this
prescription drug benefit: continuous quality improvement
activities to enhance safety in our nation's pharmacies and
other practice sites; largely, that is not done now; better
clinical utilization of community pharmacists and the
beneficiaries themselves and expanded use of effective
technology, the computerized prescribing, barcoded drug
administration, and so forth.
We know what to do to prevent medication errors. There is
loads of research out there. People, out of altruism, the
practitioners, the doctors, nurses, pharmacists are willing to
come forward and give us the story about errors that they have
made and tell us how they have prevented future events.
And we have found that they are repetitive in nature. What
happens in California happens in Connecticut and Massachusetts
and everywhere else. And I think it is time that we put a stop
to this. One of the things I think that we could really use
help with here would be the idea of legislation that requires,
as a condition of participation, that pharmacies would perform
continuous quality improvement. So far, this is only done in
three States that we know of where it is required, where the
pharmacist and the pharmacy teams and anybody that dispenses
medication, frankly, would seek out information about errors
and then apply this information and the expert recommendations
to make sure that they don't happen again rather than waiting
for another incident to take place. We think that that is
critical.
And we have publications that provide this information. I
think it should also involve the PBMs and the payers. I think
some of the policies that are out there cause some serious
problems: lots of interruptions. We talked about the formulary
considerations before. It is a mess out there trying to keep
things straight about who is getting reimbursed for what, and
the pharmacists spend a lot of time with that right now.
Importantly, I think if we are going to do this, the
information has to be protected from discovery in a lawsuit. I
think that is critical, and the legislation that we have seen
so far in the three States that I mentioned have moved in this
direction. I also want to tell you that we believe that each
provider should do, on an annual basis, a self-assessment. We
actually prepared a self-assessment along with the American
Hospital Association last year which has 200 characteristics of
a safe medication system for hospitals, and currently, along
with the American Pharmaceutical Association and National
Association of Chain Drug Stores, although we prepared it
independently, they are helping to support it, and we have
developed a similar project for community pharmacies where they
can actually find areas of weakness where they need to focus.
And I think that is something also that can drive quality
improvement projects. So I think that is another thing that
ought to be required in this legislation.
As far as utilization of pharmacists, it bothers me
tremendously that we are wasting a tremendous quality resource
in the community pharmacists. Right now, they are frequently
tied up with the dispensing activities, the technical
activities, but where they could be monitoring drug therapy,
they could be, for example, looking at new drugs that patients
are on, trying to identify side effects and adverse reactions
quickly, even looking at drugs that might otherwise come off
the market and making recommendations for improvement.
They could be doing reviews of a patient's drug regimens.
We have seen this in the long-term care industry, for example.
The pharmacists there, the consultant pharmacists, have done a
tremendous job, and research has shown a decrease in cost of
$3.6 billion in the long-term care field, and improvements in
outcome in patients in long-term care are 43 percent. This same
thing could be required for Medicare beneficiaries, and I
really don't think there is a reason that we should not look
into this activity at least.
We have about 80,000 certified technicians. We have
automated technology that is going to help. We have pharmacists
now who are graduating at the doctoral level. I believe, we
believe, that they can cut down on the number of drugs that are
being provided. I think they can really help to reduce the
possibility of errors with this drug regimen review.
I also think that another important area that we should be
involved with is the technology. We are at the cusp of using
devices like this to reduce ambiguity: the look-alike names,
for example; the sound-alike names. I would think that there
ought to be some incentive in the bill for physicians that
actually use computerized prescribing, because it cuts down on
the possibility of medication errors. And I think most
important, it allows communication of patient information. We
don't have that right now in the pharmacy. We don't know when a
patient has renal impairment, kidney disease, for example, and
a drug dose might have to be changed. We don't even know for
sure what drugs they are on, because right now, the
beneficiaries may go to several different pharmacies to get
their medication. With devices like this, I think we can pull
all that together and reduce the possibility of patient harm
and also reduce some of the costs that you are concerned about.
Thank you.
[The prepared statement of Mr. Cohen follows:]
STATEMENT OF MICHAEL R. COHEN, PRESIDENT, INSTITUTE FOR SAFE MEDICATION
PRACTICES, HUNTINGDON VALLEY, PENNSYLVANIA
Good afternoon. Madame Chairman and Members of the Committee, thank
you for the opportunity to speak with you this afternoon about
important health care quality issues related to the design of a
prescription drug benefit program for Medicare beneficiaries. I am
Michael R. Cohen, a pharmacist and president of the Institute for Safe
Medication Practices (ISMP). ISMP is an independent, nonprofit
organization that works closely with practitioners, regulatory
agencies, health care institutions, professional organizations and the
pharmaceutical industry to provide education about adverse drug events
and their prevention. A board of trustees representing the health care
community at large governs this interdisciplinary effort by nurses,
pharmacists, physicians and health care consumers. Our primary focus
has been on proper and safe use of medications. We have a long history
of learning about medication errors from health care practitioners and
consumers who voluntarily report medication errors and hazardous
conditions through a national reporting program operated by the United
States Pharmacopeia. All reports are shared directly with the US Food
and Drug Administration, Office of Post-marketing Drug Risk Assessment.
Dialog with FDA is ongoing when reports relate to drug nomenclature
issues (proprietary and nonproprietary names), or pharmaceutical
labeling, packaging and medical device design.
Information about medication errors, other adverse drug events, and
recommendations for prevention are shared with the medical community
through our web site (www.ismp.org); ongoing columns in 16 professional
journals that reach nurses, nurse practitioners, pharmacists,
physicians, and physician assistants; and a biweekly publication, ISMP
Medication Safety Alert! that reaches all US hospitals. Currently, we
are preparing to launch a similar newsletter for chain and independent
community pharmacies. In addition, we reach regulatory authorities and
pharmaceutical manufacturers internationally through regular
publications in international journals and newsletters. Information
from ISMP has been used to effect thousands of improvements in
professional practice and commercial drug labeling, packaging and
nomenclature. The organization has gained the trust and respect of
practitioners and senior officials in health care throughout the
nation.
Recommendations to Reduce Error and Improve the Quality of Medication
Use
Medications are a blessing, but humans must safely prescribe,
prepare, dispense, and administer these drugs. Yet humans are fallible,
and as clearly articulated in the recent reports by the Institute of
Medicine (IOM), errors and other adverse events occur and cause
unbearable human and financial cost. Medication use has been further
complicated by the large number of new drugs and technologies
introduced every year, an increasing elderly population with chronic
and acute conditions requiring complex treatment strategies, and the
proliferation of over-the-counter products. In light of this fact, much
can and should be done to enhance medication safety.
The current prescription drug benefit legislation is a strong and
appropriate vehicle to drive medication safety. Payers bear
responsibility for medication errors when they occur because of
insufficient support of basic services and lack of quality/safety
requirements. As purchasers of pharmacy services through mail and
community pharmacies, payers--including Medicare--should require
providers to comply with standards most likely to enhance medication
safety. They should offer their beneficiaries some assurance of safe
pharmaceutical care, which includes important monitoring of the
appropriateness of drug therapy and its effects, not just accurate
dispensing.
ISMP has identified several focal points that would be most
appropriate for legislation related to prescription drug benefits:
Continuous quality improvement activities to enhance
safety in our nation's pharmacies;
Better clinical utilization of community pharmacists
and pharmacy beneficiaries; and
Expanded use of effective technology.
Achieving and maintaining standards related to these focal points will
likely require resources that are not currently available. Thus,
legislation must also include changes in the current reimbursement
systems to properly support any required safety enhancements.
Continuous Quality Improvement
Data from the USP-ISMP Medication Error Reporting Program reveals
that medication-related problems are repetitive in nature. An incident
of misuse in one setting is likely to repeat itself in another. Most
importantly, the system changes necessary to prevent errors are similar
and a growing body of literature is available to guide these efforts.
Tragically, too many organizations and individual providers do not
believe similar incidents could happen to them. They fail to use
information about errors occurring elsewhere as a roadmap for
improvement in their own organization or practice. It is not until a
serious error hits home that aggressive prevention efforts are
implemented. With so much evidence-based information about error
prevention at hand, there is little excuse for reacting to errors after
they happen instead of preventing them. We need Congress to help
shorten the interval between the lessons taught by errors and the
widespread corrective action to prevent future errors.
The development and implementation of continuous quality
improvement (CQI) efforts should be the highest priority in all
pharmacies. Such efforts must be aimed specifically at preventing well-
known and repetitive categories of prescribing and dispensing errors,
which erode patient confidence in our health care system. For example,
in order to participate in the prescription drug benefit program,
pharmacies should be required to seek out medication safety information
and use it proactively to prevent medication errors. At the same time,
safety issues recognized internally and reported by patients must be
documented and analyzed, and a process must be established to determine
the best strategies to prevent future problems and ensure its
implementation. An annual survey to assess consumer perceptions of the
quality of pharmaceutical products and professional services might also
be required to supply additional information upon which to base
improvement strategies.
Informational tools like our ISMP Medication Safety Alert!
publication, or ISMP's Quarterly Action Agenda, which is a readily
available list of medication problems compiled from our nation's
reporting programs, can be a backbone of any CQI effort. The very
purpose of the USP-ISMP Medication Error Reporting Program--indeed the
purpose of any type of safety reporting program and the expert
recommendations that stem from it--is to guide the implementation of
quality improvement initiatives by practitioners and organizations. If
this is not accomplished, the value of any medical safety-reporting
program is diminished. Thus, appropriate funding is needed to ensure
that information flowing from error reporting programs are efficiently
transformed into learning programs to prevent future errors. Research-
based information, anecdotal reports of adverse events, reports from
the Joint Commission on Accreditation of Healthcare Organization's
Sentinel Event Newsletter, and information from other sources are also
instrumental in this effort. ISMP is prepared to assist the Secretary
of Health and Human Services, as well as the nation's professional
licensing boards, health departments, accreditation agencies,
regulatory authorities, and individual organizations in using such
informational tools to develop effective CQI strategies that can
successfully stop repetitive medical errors.
Practice sites should also be required to conduct self-assessments
to help prioritize improvement projects at least annually. In a
cooperative project with the American Hospital Association (AHA), ISMP
recently developed and distributed the ISMP Medication Safety Self-
Assessment to virtually all US hospitals. This weighted self-assessment
instrument provides a list of nearly 200 effective medication error
reduction strategies in the general hospital setting. Nearly 1,500
hospitals participated fully in the project, which resulted in a large
national database of hospital efforts to improve patient safety with
medications. This database will allow health care providers to identify
areas of weakness and focus improvement activities upon system elements
and characteristics that are known to be effective for preventing
patient harm. We will also be able to track improvement efforts in the
nation's hospitals over time by repeating the process at a later date.
While 1,500 hospitals completed the assessment and sent data to
ISMP, there are approximately 6,000 acute care hospitals in the US.
Through 1,000 follow-up telephone calls to a randomized list of
hospitals, we learned that many more hospitals would have participated
had it not been for advice given them by a national risk management
organization to seek legal counsel before returning data to us. This
letter instilled a renewed fear of discoverability in a future lawsuit,
which had a chilling effect on the ability of hospitals to participate
in this extremely valuable project. Unless the basic problem--
discoverability of information used in quality improvement projects
like this one--is addressed by Congress, we will continue to lose
valuable opportunities to address costly (both human and financial)
patient safety issues. Records of quality improvement activities must
be afforded protection under available state peer review or other
protective statutes and thus protected from discovery during civil
litigation. It should be noted that Governor Gray Davis of California
signed legislation last August to require quality improvement
activities following written policies and procedures in the state's
pharmacies. A process must be in place to detect and analyze medication
errors. Importantly, information that is part of the proceedings and
records of review are protected from discovery. Texas and Florida also
have quality improvement requirements that include the above protective
provisions and several other states are now considering them. This
should be a nationwide standard.
Recently, the American Pharmaceutical Association Foundation and
the National Association of Chain Drug Stores agreed to fund ISMP to
independently develop and implement a similar self-assessment tool for
the nation's community pharmacies (chain, independent as well as
hospital and clinic ambulatory care pharmacies).
Quality improvement requirements should involve all participants in
pharmaceutical care, including claims processors and pharmacy benefit
managers. Unfortunately, payment policies actually contribute to error.
Underpayment of pharmacists, lack of standards for claims processing,
numerous interruptions, and phone calls for prescription reimbursement
adjudication and pre-approval have resulted in less time available for
drug monitoring and patient education activities. An example is
requiring pharmacists to dispense drugs at a dose higher than
prescribed and making patients split the tablets--an error-prone
process--to decrease the cost of a prescription medication. For
example, the manufacturer may similarly price an 80 mg, 40 mg, 20 mg,
and 10 mg tablet. Although the physician may prescribe 20 mg tablets to
be taken four times a day, the pharmacist is required to dispense the
80 mg tablet and tell the patient to take \1/4\ tablet four times a
day. Some patients may become confused and take the full tablet or
inaccurately split the tablet. In many cases, to assure that the
patient takes the medication properly, a pharmacist will actually break
the tablets into one-quarter size. However, the split tablets may begin
to crumble in the prescription vial, leading to inaccurate doses.
I would also underscore the need for Congress to oversee providers
and payer activities and that participants agree, as a condition of
participation, to periodic visits from appropriate authorities to
review documentation of quality improvement activities. Currently,
little or no oversight exists from standards organizations such as the
Joint Commission on Accreditation of Healthcare Organizations (JCAHO)
or the Medicare Peer Review Organizations, state professional boards,
departments of health, etc. Without oversight, the private sector has
not solved problems associated with safe medication use.
Surely, continuous quality improvement activities are better for
the health care provider and public since it offers the potential for
reducing the number of prescription errors. A new study released in the
American Pharmaceutical Association's (APhA) March/April Journal of the
American Pharmaceutical Association (JAPhA) has updated an analysis of
prescription drug use problems in the United States. It estimates that
drug misuse costs the economy more than $177 billion each year. The
estimated number of patient deaths has increased from 198,000 in 1995
to 218,000 in 2000. Clearly, we must have required quality improvement
activities to reduce this unnecessary burden. In the legislation, the
Secretary of Human Health and Services should be directed to form a
task force to examine these and other suggestions to formulate quality
improvement requirements that would accompany the prescription drug
benefit program. Funding for these activities must be assured.
Improved utilization of pharmacists and pharmacy beneficiaries
The value of medications used appropriately is immense. But, if
pharmaceutical care involves reimbursement for only dispensing
activities, the drug safety problem will only worsen. Worse, we are
overlooking one of the nation's most valuable allies in assuring proper
drug use. A trip to the local pharmacy often provides clear evidence
that many pharmacy graduates, now educated at the doctoral level with
advanced clinical training, are sorely underutilized in the fight
against costly adverse drug events. Instead of performing clinical
functions for which they are well trained--overseeing a competent
technical dispensing staff, screening new prescriptions for safety
concerns, educating patients on proper drug use, monitoring patients
for side effects--many are tied instead to dispensing activities,
managing pharmacy benefit plans and drug inventories, and performing
clerical tasks. Further, with improving technologies (robotics, bar
coding of pharmaceuticals and computerized prescriptions) and
increasing numbers of certified pharmacy technicians (over 80,000
currently), more of the pharmacist's time will be available for
clinical functions.
The Institute of Medicine (IOM) Committee on the Quality of Health
Care in America, in their most recent report, Crossing the Quality
Chasm: A New Health System for the 21st Century IOM urges a strong
national commitment to improve health care across six broad dimensions
of quality: safety, effectiveness, responsiveness to patients,
timeliness, efficiency, and equity. The authors suggest that the
current health care system is failing to provide safe, high-quality
care consistently to all Americans because it is poorly designed and
relies on outdated systems. The report envisions a revamped system
which is centered on patient needs and preferences, encourages teamwork
among health care providers, and makes greater use of evidence-based
approaches to care and information technology. The IOM Committee
members recognized that, if organizations are expected to change the
processes of care, broader environmental changes are also needed.
Importantly, examination of current payment methods (e.g., fee for
service, capitation, etc.) to remove barriers to innovation and
quality, and testing of options to better align payment methods with
quality goals. Realigning the payment to recognize pharmacist clinical
services fits right into that idea.
To prevent adverse drug reactions, we need better ways to detect
problems early. Pharmacists can serve well in this role, also. They
could manage the risk of existing technologies by aggressively
monitoring the effects of new drugs on the market and identifying the
need for special monitoring to prevent serious adverse events. Thus,
pharmacists could safely monitor new and useful drugs that might
otherwise be removed from the market because they are being prescribed
inappropriately. With the new prescription drug benefit program, strong
consideration should be given to reimbursing pharmacists for time spent
monitoring patients closely to detect and report anticipated or
previously unrecognized problems to the FDA. This would result in
earlier detection of medication-related problems and their timely
resolution.
Further, we should learn from the valuable experience of the HCFA-
required drug regimen review process in long term care, which has saved
billions of dollars in prescription drug benefits while also protecting
residents from preventable adverse drug events. A comprehensive, on
site, drug regimen review is conducted initially upon a patient's
admission to a facility and reassessed monthly. As part of drug regimen
review, the pharmacist evaluates appropriateness and safety of
medication orders and verifies documentation. The pharmacist
investigates possible adverse drug reactions in residents who exhibit
various identified disorders. A current written diagnosis or identified
need and relevant diagnostic data must support medication orders. As
needed (PRN) medication orders must include specific written
indications for use. Medications selected must be consistent with
patients' care plans and shall have a favorable benefit-to-cost ratio
reflecting consideration of medical history, the significance of any
past drug reactions, and cost. When problems arise, the pharmacist
makes recommendations (including identification of the concern,
specific means to correct the situation and a determination of how and
when improvement will be measured) to appropriate personnel. Consultant
pharmacist-conducted drug regimen review improves optimal therapeutic
outcomes by 43% and saves $3.6 billion annually in costs from avoided
medication-related problems. (Bootman JL, Harrison DL, Cox E: The
health care costs of drug-related morbidity and mortality in nursing
facilities. Arch Int Med 1997; 157:1531-36. The recommendations must be
addressed as a condition of participation.
In the ambulatory care setting, beneficiaries themselves should be
required to undergo at least a quarterly review of their prescription
and over-the-counter medication regimen by a pharmacist. Similar to the
above functions, the requirement would establish that presently
prescribed drugs are necessary, that possible adverse effects are
identified and reported to the patient's primary care provider, that
the beneficiary is aware of proper storage requirements, dosing
schedules, side effects, and so on. Pharmacists would be paid to
monitor patients closely to detect problems with new drugs or for
suspected problems. Not only would this improve care and vastly reduce
the nearly $200 billion dollar cost of adverse drug events, it would
also eliminate the cost of unneeded medications that patients may still
be receiving! The savings to Americans would be enormous. We believe
that the legislation should not move forward without a provision for
this drug monitoring review with logistics determined by the Secretary.
Another important component is improving patient understanding of
their important role in safe medication use and error prevention. About
25% of medication errors reported to our program and FDA's MedWatch
program stem from confusion between proprietary and nonproprietary
names. An educated patient or caregiver can be a crucial last check on
the safety of any medication. For example, if patients are aware of the
name and purpose of their medication, they are better able to recognize
if a pharmacist misread the prescription and dispenses a different
medication for an unexpected purpose. Legislation should require that
the medication's purpose and full instructions be written on each new
prescription so that pharmacists can educate patients properly and
prevent errors if the purpose and prescribed drug do not match. Listed
indications for the drug will also help patients and pharmacists ensure
that their interpretation of the prescription is consistent with the
prescriber's intent.
Regrettably, the requirement for patient counseling in OBRA 90
legislation is vastly underutilized. Few patients take advantage of the
pharmacist's offer to counsel. Instead, they rush the pharmacist to
fill a prescription and may not read accompanying drug information
material that could prevent adverse events. The new legislation must
address the issue by insisting that patients and caregivers have full
explanations of new medications while in the doctor's office or
pharmacy.
Further, legislation should facilitate health care practitioners'
access to crucial information about the patient. Harvard researchers
(Leape LL et al. Systems analysis of adverse drug events. JAMA 1995;
274:35-43) showed that over 40% of adverse drug events can be tied to
insufficient information about the patient or drug at the time of
prescribing, dispensing and administration of medications. The most
recent IOM report notes that clinicians operate in silos without the
benefit of complete information about the patient's conditions, medical
history, treatment received in other settings, or medications
prescribed by other clinicians. The report encourages cooperation among
clinicians to exchange appropriate information and coordinate care.
Indeed, the same researchers (Leape LL et al. Pharmacist
participation on physician rounds and adverse drug events in the
intensive care unit. JAMA 1999;282:267-270) showed that pharmacists
could prevent 66% of adverse drug events if given access to clinical
information to screen and adjust doses and suggest other interventions
when clinical indicated.
For example, if a physician fails to adjust the dose of a
potentially toxic medication that is excreted through the kidneys in a
patient with poor renal function, costly hospitalization, dialysis,
transplant, or death may result. While renal function and other
important clinical information may be residing in hospital or physician
office records, it is often inaccessible to community pharmacists. But
with better access to clinical information such as laboratory data,
chronic diseases, organ function, allergies, and weight, the pharmacist
can screen drug orders appropriately and prevent untold numbers of
errors, injuries, and associated costs. The use of web sites or ``smart
cards'' where patients could voluntarily maintain confidential clinical
information accessible to their health care practitioners could
significantly improve access to information.
Improved use of technology
Health care remains relatively untouched by information technology
that has transformed so many other aspects of society. Patient
information, including medication prescriptions, is still dispersed on
paper, poorly organized, often illegible, and difficult to retrieve.
Yet, research shows (Bates DW et al. Effect of computerized physician
order entry and a team intervention on prevention of serious medication
errors. JAMA 1998;280:1311-16) that over half of all medication errors
can be prevented through computerization physician order entry (CPOE).
An ISMP survey (ISMP Medication Safety Alert! February 10, 1999--
www.ismp.org) of our nation's computer systems shows that fewer than
13% of US hospitals even have the capability for CPOE. Even fewer
ambulatory care physicians are using electronic prescribing technology
(estimated to be under 5%). Nevertheless, our survey shows that most
in-use prescribing software today does not alert users to errors in an
accurate and efficient manner. System vendors and organizations must
jointly accept responsibility for designing and implementing systems
that offer clinical support to providers and warn about potentially
unsafe prescriptions.
Most of the technology software problems stem from the lack of
interface and compatibility standards to allow stand alone systems to
be fully integrated with each other to ensure that appropriate patient
and drug information is available to providers. For example, standards
are needed to ensure that any physician can send a prescription to any
pharmacy electronically. This eliminates the risk of misinterpreting a
handwritten prescription while increasing the detection of potential
adverse drug events. We also need to address regulatory and legal
barriers that prevent use of electronic prescribing. For example, in
many states, verified electronic signatures are not acceptable, thus
prescribers must physically sign each prescription. Further, incentives
should be provided to reward health care practitioners and
organizations that adopt technology known to reduce medication errors,
such as electronic prescribing and bar code technology.
Bar coding technology can greatly enhance the accuracy of drug
dispensing and administration. Although the use of such technology is
expanding in ambulatory care pharmacies, mainly through robotics, the
pharmaceutical industry must join in this effort by assuring that all
drug packages have a standardized, readable bar code or other machine-
readable code.
Chairwoman Johnson. Thanks very much, Mr. Cohen. Helen
Frederick, from Maryland.
STATEMENT OF HELEN FREDERICK, CROWNSVILLE, MARYLAND
Ms. Frederick. Good afternoon. My name is Helen Frederick.
Chairwoman Johnson. Excuse me, Ms. Frederick. Could you
pull the microphone down a little bit, the top of the
microphone down there? That is good. There.
Ms. Frederick. Good afternoon. My name is Helen Frederick.
I am very happy to be here today, and I am really glad to hear
that Congress is trying to make Medicare better for senior
citizens. I would like to tell you a little about my own
situation, because I think there are many other people on
Medicare just like me who need some help.
I live in Crownsville, Maryland, a small town outside of
Baltimore. I am 80 years old, and I have Medicare along with a
supplemental policy, United Methodist American. My supplemental
policy does a good job of paying for many of the things that
Medicare doesn't pay for, but it doesn't pay for prescription
drugs. Not all insurance companies of Medicare supplement
policies cover prescription drugs, and my insurance company is
one of those. The cost of a supplement policy that would have
covered my prescriptions would have cost quite a bit more. I
couldn't afford it, since I am living on a fixed income.
I am very lucky that I have a home that my husband and I
bought. It is paid for now, so I don't have to pay rent,
because otherwise, I probably wouldn't be able to pay for the
cost of my supplemental policy. Most of the other senior
citizens I know also don't have coverage for their
prescriptions, but I know a few who have prescription drug
coverage through their supplementary policies or through their
former employers.
I have diabetes, heart trouble, glaucoma, arthritis, high
blood pressure. My medications together cost about $400 a
month. And one of my medications by itself costs $109 a month.
It is a big part of my total monthly income. And sometimes, I
have to skimp on groceries to afford my medication.
I am happy that the prescription drugs I take helped me all
these years, but it seems like each year, the costs get higher
and higher; that I need to take more medicine. I would like to
go to work to help pay for these medications, but my doctor
says no, no, I can't.
In the area where I live, there aren't any Medicare HMOs
available, so I don't have the option to get on that type of
plan. I would like to be able to stay with the doctor I go to
now anyway, since I have several different medical problems,
and they know my medical history. But I know that some people
like HMOs and that they are able to get some of their drugs
covered in those plans. I think everyone should be able to
choose the plan that is best for them.
I do wonder why we haven't changed Medicare in all these
years, since there are so many advances in medical treatments
and in medicines. The policies young people have seem to cover
most services all on one policy, including prescriptions. I
have been on Medicare for 15 years, and it hasn't changed much
at all. The hospital deductible has increased, of course, but
the outpatient deductible has been $100 as long as I can
remember. I don't exactly understand why Medicare is divided
into two parts, and it is hard to believe that a health
insurance for everybody today would not cover prescriptions as
expensive as they are. But since I know that my own
prescriptions are so expensive, I wonder how the Government
could pay all that cost for everyone. It seems like it would
have to be paid for from somewhere.
I don't have a solution to offer today, but I hope that
whatever Congress does, it will look at the whole Medicare
program and try to bring it up to date. I also hope that people
will have choices so that we all don't have to have the exact
same type of coverage or all go to the same doctors. Even
though I really like to have help with my prescriptions right
now, but I worry about how people will be covered in the future
and what options my grandson will have when he gets old, and I
hope when we do get coverage for prescription drugs, we will,
though, think about how it will be paid for, because we need a
benefit that will be around for the future.
Thank you for inviting me today. May God bless all who have
a voice in planning for our future health.
[The prepared statement of Ms. Frederick follows:]
STATEMENT OF HELEN FREDERICK, CROWNSVILLE, MARYLAND
Good afternoon. My name is Helen Frederick. I'm very happy to be
here today, and I'm really glad to hear that Congress is trying to make
Medicare better for senior citizens. I'd like to tell you a little bit
about my own situation, because I think there are many other people on
Medicare just like me who need some help.
I live in Crownsville, Maryland. Crownsville is a small community
just outside of Baltimore. I'm 80 years old, and have Medicare along
with a supplemental policy with United American. My supplemental policy
does a good job of paying for many of the things that Medicare doesn't
pay for, but it doesn't pay for prescription drugs. Not all insurance
companies offer Medicare supplement policies that cover prescription
drugs, and my insurance company is one of those. The cost of a
supplemental policy that would have covered my prescriptions would have
cost quite a bit more, and I couldn't afford it since I am living on a
fixed income. I am very lucky that the home my husband and I bought is
paid for now so that I don't have to pay rent, because otherwise I
probably wouldn't be able to pay for the cost of my supplemental
policy.
Most of the other senior citizens I know also don't have coverage
for their prescriptions, but I know a few who have prescription drug
coverage through a supplemental policy or through a former employer.
I have diabetes, heart trouble, glaucoma, and arthritis. My
medicines together cost about $400 a month, and one of the medicines by
itself costs $109. $400 a month is a big part of my total monthly
income, and sometimes I have to skimp on groceries to afford my
prescriptions. I'm happy that the prescription drugs I take have helped
me all of these years, but it seems like each year the costs get higher
and higher and that I need to take more medicines. I'd like to go to
work to help pay for these medicines, but my doctor says I just can't.
In the area where I live, there aren't any Medicare HMOs available,
so I don't have the option to get on that type of plan. I would like to
be able to stay with the doctors I go to now anyway since I have
several different medical problems and they know my medical history.
But I know that some people like HMOs and that they are able to get
some of their drugs covered in those plans. I think everyone should be
able to choose the plan that is best for them.
I do wonder why we haven't changed Medicare in all these years
since we have so many advances in medical treatments and in medicines.
The policies younger people have seem to cover more services all on one
policy, including prescriptions. I've been on Medicare for fifteen
years and it hasn't changed much at all. The hospital deductible has
increased of course, but the outpatient deductible has been $100 for as
long as I can remember. I don't exactly understand why Medicare is
divided into two parts, and it's hard to believe that a health
insurance policy for anybody today wouldn't cover prescriptions, as
expensive as they are. But since I know that my own prescriptions are
so expensive, I wonder how the government could pay all of that cost
for everyone. It seems like it would have to be paid for from
somewhere.
I don't have a solution to offer today, but I hope that whatever
Congress does, it will look at the whole Medicare program and try to
bring it up to date. I also hope that people will have choices so that
we don't all have to have exactly the same type of coverage, or all go
to the same doctors. Even though I'd really like to have help with my
prescriptions right now, I worry about how people will be covered in
the future and what options my grandson will have when he gets older.
And, I hope when we do get coverage for prescription drugs, we've
thought about how it will be paid for, because we need a benefit that
will be around for the future.
Thank you for inviting me today.
Chairwoman Johnson. Thank you very much, Ms. Frederick.
Mrs. Wilkinson.
Ms. Frederick. You are welcome.
STATEMENT OF LORE WILKINSON, DURHAM, NORTH CAROLINA
Mrs. Wilkinson. Good afternoon. It is a great honor to be
here today before the Committee on Ways and Means to share my
thoughts about the Medicare program and prescription drugs.
My name is Lore Wilkinson, and I am 70 years young, and I
live in Durham, North Carolina. I live a very active lifestyle.
I teach a computer class at a magnet school, and I tutor second
graders. In addition to that, I walk three miles every day in
order to stay healthy.
I am a firm believer in the importance of wellness and
preventive care. To that end, I also take some prescription
medicines on a daily basis. Because of osteoarthritis and a
hypertensive condition in my eyes, I take three doses of
medications daily. These medications keep me active and
therefore keep me well. One of the reasons I appreciate my
private retiree plan coverage is because I have a range of
options. Recently, retirees of the company I worked for learned
that we would have the option of enrolling in an HMO coverage
or choosing one of the other employer-sponsored plan options
available to us.
I am enrolling in the HMO coverage because it will continue
coverage of my prescription drug needs, and the doctors I see
participate in this particular HMO. I made this decision after
I learned that the medicines I take were included in their
approved list, because not all are. I used the information my
employer gave me to comparison shop and found a plan that best
suited my medical and financial needs.
I am here today because it is very important to me to have
those choices, and I appreciate having an employer-sponsored
coverage. I am concerned that if the government decides to
offer a one-size-fits-all Government-run plan, I and millions
of others will no longer be able to make these choices about
their coverage. I do not want a government plan to disrupt my
ability to choose a private coverage that best meets my needs.
The even more important issue I would like to raise is the
possibility that employers will not continue offering coverage
if a government-run plan is adopted. If employers see that the
Government will finance coverage for retirees, I am positive
that employers would make business decisions to stop offering
health care coverage to retirees. The result for many seniors
like me would be to lose our choices of coverage and face
increased costs and hassles in a government-run program.
I agree that it is important for seniors to have access to
prescription drug coverage, but I also think it is very
important that it is structured in such a manner that employers
will continue to maintain coverage for the millions of retirees
who are happy with their employer-sponsored plans. Such plans
were, in essence, computed into retirees' compensation, and we
were told that every year.
Earlier, I referenced some medical conditions which I am
currently taking medications to manage. I would like to share
with you a little bit of background about one experience I had
relating to another condition. Last year, at a long-overdue
physical after 10 years as I was recovering from a hip
fracture, my physician pointed out to me that I was measuring
one and a half inches shorter than what I had always been. The
recommendation was that I needed to have a bone density test
done to determine the severity of my condition.
After obtaining the results, the doctor was able to
recommend calcium pills which helped me to regain my strength
and maintain my exercise and community service commitments.
Yet, Part B Medicare run by the Government initially denied my
claim for the bone density measurement, and it took me 3 months
of fighting with Medicare representatives to finally get
reimbursed for my test, even after a diagnosis of being three-
tenths of a percent away from having osteoporosis. I know I am
one of the lucky ones to have been able to resolve the claim in
only 3 months.
There are two problems with this situation. One is that the
inefficiency and bureaucracy of the government-administered
program makes obtaining health care services a daunting task
for many seniors and actually more expensive for the Government
to administer. I have no problem asking questions, and I am
well-informed and a careful consumer. I have learned how to ask
questions and shop around to find the right solution for my
needs. Those skills were developed because I have options and
have not been forced into a large Government program.
The second problem is something I also ask you to keep in
mind as you begin your important work on modernizing Medicare.
I would like to take this opportunity today to emphasize the
importance of preventive medicine and wellness. If I only had
the government-run Medicare plan, some of the medical
conditions I have had would not have been treated at all until
it was a debilitating condition warranting an inpatient
hospital stay and/or surgery.
Yet there are so many new treatments available which help
seniors to achieve wellness, remain active in our communities,
enriching other lives, and help us to get more out of lives
ourselves. I know how fortunate I am to have a good employer-
sponsored coverage which affords me the choice of private
coverage that best meets my needs, but I do worry that a big
new Government program plan could eliminate those choices for
me and millions of others like me.
I ask you to keep my experience in mind as you begin
crafting your proposal to improve access for all seniors to the
prescription drug coverage. Thank you.
[The prepared statement of Mrs. Wilkinson follows:]
STATEMENT OF LORE WILKINSON, DURHAM, NORTH CAROLINA
Good morning. It is a great honor to be here today before the
Committee on Ways and Means to share my thoughts about the Medicare
program and prescription drugs.
My name is Lore Wilkinson. I am 70 years old and I live in Durham,
North Carolina. I live a very active lifestyle, volunteering in various
community service projects and I also walk 3 miles every day. I am a
firm believer in the importance of wellness and preventive care. To
that end, I also take some prescription medicines on a daily basis.
Because of arthritis and a hypertensive condition, I take 3 doses of
medication daily. These medications keep me active and therefore keep
me well.
One of the reasons I appreciate my private retiree plan coverage is
because I have a range of options. Recently, retirees of the company I
worked for learned that we would have the option of enrolling in HMO
coverage or choosing one of the other employer-sponsored plan options
available to us. I am enrolling in the HMO coverage because it will
continue coverage for my prescription drug needs and the doctors I see
participate in this HMO. After some research, I learned that the
medicines I take were included on their approved list. I used the
information my employer gave me to comparison shop and found a plan
that best suited my needs.
I am here today because it is important to me to have those choices
and I appreciate having employer-sponsored coverage. I am concerned
that if the government decides to offer a ``one size fits all''
government-run plan, I will not be able to make choices about my
coverage. I do not want a government plan to disrupt my ability to
choose private coverage that best meets my needs.
The even more important issue I would like to raise is the
possibility that employers will not continue offering coverage if a
government-run plan is adopted. If employers see that the government
will finance coverage for retirees, I am sure employers would make
business decisions to stop offering health care coverage to retirees.
The result for many seniors like me would be to lose our choices of
coverage and face increased costs and hassles in a new government-run
program. I agree that it is important for seniors to have access to
prescription drug coverage. But, I think it is very important that it
is structured so that employers will continue to maintain coverage for
the millions of retirees who are happy with their employer-sponsored
plans. Such plans were, in essence, computed into retirees'
compensation.
Earlier, I referenced some medical conditions which I am currently
taking medications to manage. I would like to share with you a little
bit of background about one experience I had relating to another
condition. Last year, at an examination as I was recovering from a hip
fracture, my physician pointed out to me that I was measuring at one
and a half inches shorter than what had always been my height. Her
recommendation was that I needed to have a bone mass measurement done
to determine the severity of my condition. After obtaining the results,
my doctor was able to recommend calcium pills which helped me to regain
my strength and maintain my exercise and community service commitments.
Yet, Part B Medicare, run by the government, initially denied the claim
for the bone density measurement and it took me three months of
fighting with Medicare representatives to finally get reimbursement for
my test. I know I am one of the lucky ones to have been able to resolve
the claim in only three months.
There are two problems with this situation. One is that the
inefficiency and bureaucracy of the government-administered program
makes obtaining health care services a daunting task to many seniors.
I have no problem asking questions. I am a well-informed and
careful consumer. I have learned how to ask questions and shop around
to find the right solution for me. Those skills were developed because
I have options and have not been forced into a large government
program.
The second problem is something I also ask you to keep in mind as
you begin your important work on modernizing Medicare. I want to take
this opportunity today to emphasize the importance of preventive
medicine and wellness. If I only had the government-run Medicare plan,
some of the medical conditions I have had in retirement would have been
treated by doing nothing about it until it was a debilitating condition
warranting an inpatient hospital stay and surgery. Yet, there are so
many new treatments available which help seniors to achieve wellness,
remain active in our communities and help us to get more out of life.
I know how fortunate I am to have good employer-sponsored coverage
which affords me the choice of private coverage that best meets my
needs. But, I do worry that a big, new government plan could eliminate
those choices for me. I ask you to keep my experience in mind as you
begin crafting your proposal to improve access for all seniors to
prescription drug coverage.
Chairwoman Johnson. Thank you very much, Mrs. Wilkinson.
Mr. Richtman
STATEMENT OF MAX RICHTMAN, EXECUTIVE VICE PRESIDENT, NATIONAL
COMMITTEE TO PRESERVE SOCIAL SECURITY AND MEDICARE
Mr. Richtman. Good afternoon, Madam Chairwoman and Members
of the Subcommittee. I am Max Richtman, executive vice
president of the National Committee to Preserve Social Security
and Medicare. The National Committee is also currently chairing
the Leadership Council of Aging Organizations, and as you know,
that is a coalition of 46 national nonprofit organizations
dedicated to the concerns of aging America.
Although Americans have been enjoying a period of economic
prosperity, we have not yet addressed one of the most dire
health needs of seniors today, and that is access to affordable
prescription drugs. A CNN-Gallup-USA Today poll conducted
earlier this year ranked 13 possible priorities for the new
administration's use of the Federal surplus dollars.
Strengthening Social Security, helping seniors pay for
prescription drugs and ensuring the long-term strength of
Medicare all ranked among the top five priorities, while
cutting Federal income taxes ranked second to last.
President Bush has said repeatedly that a large part of the
budget surplus is the people's money and should be returned to
the people. We believe that a fair way to return part of this
surplus to the people would be in the form of a universal
voluntary and affordable prescription drug benefit as part of
the Medicare Program for all seniors. This polling reflects the
views of our Members as well. Medicare solvency and access to
prescription drug benefits remain two of our top priorities.
In February of last year, the National Committee to
Preserve Social Security and Medicare joined the Leadership
Council of Aging Organizations in developing a set of
principles for a Medicare prescription drug benefit which I
have attached to my testimony. These principles continue to
guide our efforts in this Congress. Essentially, we believe
that seniors deserve a prescription drug benefit that is
comprehensive in coverage; affordable and regularly adjusted to
account for inflation; voluntary but guaranteed to all who want
it regardless of income or health status and available as part
of the Medicare Program, including traditional fee-for-service
Medicare.
We are concerned about various proposals that do not meet
our basic standards and principles. We are concerned about
proposals to pay for the prescription drug benefit by using
Medicare Part A Trust Fund moneys. This would have a major
impact on the solvency of the existing trust funds which
finances benefits under the current law. Some premium support
proposals suggest that private managed-care organizations offer
seniors drug coverage. However, access to Medicare managed care
has already proven to be unreliable.
Following the Balanced Budget Act of 1997, many seniors
enrolled in managed care plans, in large part for the
prescription drug coverage. As of January of this year, nearly
a million people, one out of every six Medicare plus choice
enrollees, were dropped from their managed care plus choice
plans. More and more managed care plans are deciding not to
participate in Medicare, abruptly dropping seniors,
particularly those in rural and hard-to-serve areas.
The dramatic increase in Medigap premiums that include
prescription drugs is clear evidence that the private sector
cannot provide adequate access to prescription drug coverage
for a reasonable cost.
Another concern of the National Committee and the
Leadership Council is that managed care plans, as they have
historically done, could participate in favorable risk
selection by offering Medicare beneficiaries low-cost, low-
coverage plans that will attract younger, healthier seniors,
leaving the sickest and oldest unable to afford the more
generous plans. As you know, the President's blueprint budget
provides $153 billion for Medicare reform, including $48
billion for a prescription drug plan called Immediate Helping
Hand.
The Immediate Helping Hand proposal will only reach the
lowest-income seniors through State-based plans. Even the
National Governors' Association has said that it does not want
the Federal Government to impose the responsibility of
prescription drug plans on States. The 23 States that already
provide such assistance reach, on average, about one-fourth of
those in need. The National Committee and the Leadership
Council agree that these plans do not meet our principles.
Most premium support models being considered cannot
guarantee affordability for all seniors, and the President's
proposal is far from universal in coverage. About one-half of
seniors who lack prescription coverage today have incomes above
175 percent of poverty.
I am going to skip my example because I am running out of
time, but let me just finish by saying it is unclear exactly
how much it would cost to provide a prescription drug benefit.
We heard today from the CBO that it could cost nearly $1.5
trillion over the next 10 years. The National Committee and the
Leadership Council estimates that a meaningful, comprehensive
benefit to match what seniors truly need and expect would
require a 10-year commitment of about twice what the
President's Medicare reform proposal calls for. Precise numbers
are not available, but it is obvious that there could be cost
savings from the overall system due to the dramatic decrease in
costs for treatment and hospitalization as a result of
patients' ability to comply with their physician's prescribed
drug regimes.
The Leadership Council and the National Committee asks the
Congress--this Subcommittee, this Committee and the Congress--
to pass a prescription drug bill that makes drugs affordable;
that it is included in the basic Medicare package; is universal
and includes a broad spectrum of financing elements including
beneficiary contributions and general revenue contributions
and, very importantly, utilizes Medicare's size to achieve
volume price discounts for beneficiaries.
Thank you very much.
[The prepared statement of Mr. Richtman follows:]
STATEMENT OF MAX RICHTMAN, EXECUTIVE VICE PRESIDENT, NATIONAL COMMITTEE
TO PRESERVE SOCIAL SECURITY AND MEDICARE
Good Morning, Madam Chair and distinguished Members of the
Committee. I am Max Richtman, Executive Vice President of the National
Committee to Preserve Social Security and Medicare, a grassroots
education and advocacy organization with several millions of members
and supporters around the country. The National Committee is currently
chairing the Leadership Council of Aging Organizations, a coalition of
forty-six national, non-profit organizations dedicated to the concerns
of an aging America.
Although Americans have been enjoying a period of economic
prosperity, we have not yet addressed one of the most dire health needs
of seniors today, access to affordable prescription drugs. In the year
2000, eight out of ten Medicare beneficiaries reported using
prescription drugs on a daily basis, with the average senior taking
four prescriptions daily and filling an average of 28 prescriptions a
year. Because people are living longer, they are experiencing more
chronic conditions than ever before. According to HCFA, 73 percent of
women and 65 percent of men who are Medicare beneficiaries have two or
more chronic conditions, which are more likely to require prescription
drug treatments. The high cost of prescription drug prices, which
continues to rise, creates an additional burden for the majority of
seniors who are on low, fixed incomes. The SPRY Foundation, a research
and education arm of the National Committee, predicted that seniors
spend approximately three times as much on out-of-pocket expenses as
the under 65 population, due substantially to the fact that just over
one-third of the beneficiaries (12 million seniors) have no drug
coverage, with access for the remaining two-thirds either declining, or
becoming more costly, or both. In the year 2000, the average
expenditure for prescription drugs for a senior was $1,205, with an
average of $590 as their out-of-pocket expense. Drug costs for seniors
are also expected to double by 2008, partly due to the rising cost of
development of breakthrough drugs and the increased cost of advertising
to consumers. In 1996, overall drug spending has increased from $30
billion in 1996 to $50 billion in the year 2000. Escalating drug costs
and increased prescription drug use are not just problems for our
senior population. It also is becoming a burden for the younger
generations, who must help support their parents, as well as their own
families.
A CNN/Gallup/USA Today Poll conducted earlier this year ranked
thirteen possible priorities for the new administration's use of
federal surplus dollars. Strengthening Social Security, helping seniors
pay for prescription drugs, and ensuring the long term strength of
Medicare all ranked among the top five priorities while cutting federal
income taxes ranked second to the last. President Bush has said
repeatedly that a large part of the budget surplus is the people's
money and should be returned to the people. A fair way to return part
of this surplus to the people would be in the form of a universal,
voluntary and affordable prescription drug benefit as a part of the
Medicare program for all seniors. This polling reflects the views of
our members as well. Medicare solvency and access to prescription drug
benefits remain two of our top priorities.
In February 2000, the National Committee to Preserve Social
Security and Medicare joined the Leadership Council of Aging
Organizations in developing a set of principles for a Medicare
Prescription Drug Benefit, which I have attached to my testimony. These
principles continue to guide our effort in the 107th Congress.
Essentially, we believe that seniors deserve a prescription drug
benefit that is comprehensive in coverage, affordable and regularly
adjusted to account for inflation, voluntary but guaranteed to all who
want it regardless of income or health status and available as part of
the Medicare program including traditional fee-for-service Medicare. We
are concerned about various proposals that do not meet our basic
standards and principles. We are also concerned about proposals to pay
for the prescription drug benefit by using Medicare Part A trust fund
monies. This would have a major impact on the solvency of the existing
trust fund, which finances benefits under the current law.
Some premium support proposals suggest that private managed care
organizations offer seniors drug coverage. However, access to Medicare
managed care has already proven to be unreliable. Following the
Balanced Budget Act of 1997, many seniors enrolled in managed care
plans, in large part for the prescription drug coverage. This year,
about one million beneficiaries in these plans have been dropped from
their managed care Plus Choice plans. More and more managed care plans
are deciding not to participate in Medicare, abruptly dropping seniors,
particularly those in rural and hard-to-serve areas. The dramatic
increase in Medigap premiums that include prescription drugs is clear
evidence that the private sector cannot provide adequate access to
prescription drug coverage for a reasonable cost.
Another concern of the National Committee and Leadership Council is
that managed care plans, as they have historically done, could
participate in favorable risk selection by offering Medicare
beneficiaries low-cost, low coverage plans that will attract younger,
healthier seniors, leaving the sickest and oldest unable to afford the
more generous plans.
As you know, President Bush's Blueprint Budget provides $153
billion over 10 years for Medicare reform, including $48 billion for a
prescription drug plan called Immediate Helping Hand. The Immediate
Helping Hand Proposal will only reach the lowest income seniors through
state-based plans. The bipartisan National Governors Association has
said that they do not want the federal government to impose the
responsibility of prescription drug plans on the states. The twenty-
three states that already provide such assistance reach, on average,
only about one-fourth of those in need. The National Committee and the
Leadership Council agree that these plans do not meet our principles.
Most premium support models being considered cannot guarantee
affordability for all seniors and the Bush proposal is far from
universal in coverage. About one-half of seniors who lack prescription
coverage today have incomes above 175 percent of poverty. Ms. Sylvia
Kessler, an 81-year-old National Committee member from Florida, is an
excellent example of a middle-income senior who does not qualify for
her state based prescription drug plan because she is above the income
level required. She also would not be eligible for Immediate Helping
Hand because she is over 175% of the poverty rate. Ms Kessler testified
in February of this year before the House Energy and Commerce
Committee's Subcommittee on Health, as a middle-income senior who can
barely afford her nine prescriptions for heart disease and high
cholesterol. Because her prescriptions cost $2,300 per year (over 10
percent of her annual income), Ms. Kessler must work two part-time jobs
at the local Board of Elections and a flea market in order to make ends
meet.
Last week, the Chairman of the Senate Finance Committee said that
President Bush's $153 billion would not be enough to offer drug
benefits to all 39 million elderly and disabled on Medicare. Exactly
how much is required to provide a drug benefit has been debated, but
CBO recently estimated that spending on prescription drugs for Medicare
beneficiaries would cost nearly $1.5 trillion from 2002 to 2011. The
National Committee and Leadership Council estimates that a meaningful,
comprehensive benefit to match what seniors truly need and expect would
require a 10 year commitment of more than twice President Bush's
Medicare reform amount for the drug benefit alone. Obviously, this
endeavor would be expensive. Although precise numbers are not
available, it is obvious that there would be cost savings for the
overall system due to the dramatic decrease in costs for treatment and
hospitalization as a result of patients' ability to comply with their
physician's prescribed drug regimes.
The Leadership Council and the National Committee calls on members
of this body to pass a prescription drug bill that makes drugs
affordable, includes drugs in the basic Medicare package, and is
universal. It should include a broad spectrum of financing elements
including beneficiary contributions and general revenue contributions
and utilize Medicare's size to achieve volume price discounts for
beneficiaries. Thank you for your time.
LEADERSHIP COUNCIL OF AGING ORGANIZATIONS
LCAO principles for a Medicare prescription drug benefit
In February 2000, the Leadership Council of Aging Organizations
(LCAO) forwarded a set of principles to the Congress and the
Administration outlining the critical issues that must be addressed in
any Medicare prescription drug benefit that will gain LCAO support. The
LCAO continues to support these principles as essential elements that
must be incorporated into any major legislation to expand seniors'
access to outpatient prescription drugs. Below are the highlights of
the LCAO principles:
Benefits
Medicare should guarantee access to a voluntary prescription drug
benefit as a part of its defined benefit package.
Medicare's prescription drug benefit should provide comprehensive
coverage, including the most current, effective, and individually
appropriate drug therapies.
Medicare's contribution toward the cost of the prescription drug
benefit must keep pace with the increase in prescription drug costs and
must not be tied to budgetary caps.
Adding a Medicare benefit must not reduce access to other Medicare
benefits.
Coverage
The Medicare prescription drug benefit should be available to all
Medicare eligible older Americans and persons with disabilities,
regardless of income or health status.
The Medicare prescription drug benefit must be voluntary and
provide safeguards against erosion of current prescription drug
coverage provided by others.
Affordability
The financing of a new Medicare prescription drug benefit should
protect all beneficiaries from burdensome out-of-pocket expenses and
unaffordable cost sharing, particularly low-income beneficiaries.
The new benefit must protect individuals from extraordinary
expenses for prescription drugs.
The government subsidy must be sufficient to guard against risk
selection and to provide an attractive benefit design.
Sufficient subsidies should be provided for low-income
beneficiaries to ensure that they have access to the benefit.
Administration
The new prescription drug benefit should be efficiently managed,
include appropriate cost-containment, and reflect the purchasing power
of the Medicare beneficiary pool.
Quality
The new Medicare prescription drug benefit must meet rigorous
standards for quality of care, including appropriate monitoring and
quality assurance activities.
The Medicare program should work to prevent the overuse, underuse,
and misuse of prescription drugs.
Adopted, February 2000
Chairwoman Johnson. Thank you, Mr. Richtman. Ms.
MacGuineas.
STATEMENT OF MAYA MacGUINEAS, NATIONAL BOARD MEMBER, THIRD
MILLENNIUM, NEW YORK, NEW YORK
Ms. MacGuineas. Good afternoon, Madam Chairwoman and
Members of the Subcommittee. My name is Maya MacGuineas, and I
am a board member of Third Millennium, a national, nonpartisan
organization founded by young adults to help offer solutions to
long-term problems facing the country. Professionally, I am a
fellow at a think tank here in Washington, D.C., the New
America Foundation, where I work on fiscal policy issues,
primarily the budget, taxes and entitlements.
Thank you for including us in the discussion today about
whether or not to include a prescription drug program in
Medicare. We are honored to be here and appreciate that you
have chosen to include the voices of young adults in this
discussion.
Madam Chairwoman, Members of my generation think that a
prescription drug benefit should be included in Medicare, but
we believe that if one is created, it should be targeted toward
poor and low-income seniors. When ranking their preferences for
spending initiatives, my peers put education, health care for
the uninsured and reforming Social Security all before
providing a new prescription drug benefit. As the trustees
reiterated last week, Medicare faces tremendous funding
pressures that will materialize before anyone in my generation
reaches retirement age.
The recent news paints a startling picture: we are now
talking about an astounding difference between benefits and
payroll taxes and premiums of $333 trillion over the next 75
years, and on its current course, by 2075, Medicare will
consume more than 8 percent of GDP. That number may not seem
relevant to many of us here today, but to our children and
grandchildren, it certainly will be.
The momentum to add a prescription drug program to Medicare
has accelerated rapidly, and there is indeed good reason to
consider this new benefit. Nonetheless, we believe that the
certainty that something should be done should not replace
contemplation of how to do it right. The structure of any new
benefit will have tremendous budgetary consequences for decades
to come. And this is nothing the Subcommittee doesn't already
know, but what you may not know are the specifics about how my
generation feel about creating a new prescription drug benefit,
and I would like to share with you the results of a just-
released national survey Third Millennium commissioned from the
bipartisan polling team of Democratic Jeffrey Pollock and
Republican Frank Luntz.
My peers clearly support a prescription drug benefit for
seniors, but the level of support dropped dramatically as the
would-be recipient's income increases. For example, more than
four out of five of my peers would support a prescription drug
benefit for seniors with household incomes of $20,000 or less.
Three out of five would support a benefit for seniors with
household incomes of $40,000 or less.
Above that $40,000 level, however, support drops off
considerably, and only one-third would give the benefit to
seniors with household incomes of $60,000 or more, and merely
one out of five would support it for those with incomes of
$100,000.
And let me put this another way: while most of my
generation is more than willing to help a low-income elderly
widow in Connecticut's Sixth District or California's
Thirteenth, 82 percent of my contemporaries say it is unfair to
give prescription drug benefits to Ross Perot or Larry King.
Young adults feel similarly when it comes to catastrophic
coverage. Thirty-five percent of them would support the program
to cover annual, out-of-pocket expenses of over $6,000, though
61 percent would not. However, if the program were targeted
toward seniors with low to moderate incomes, support is
overwhelming, with an 87 to 12 percent margin.
Now, we know that there are millions of middle to high
income seniors who would like a new prescription drug benefit,
and indeed, there are members of both parties who want to
provide one. My question is this: is it fair to ask low-wage
workers in each of your districts who themselves can barely
afford health care and prescription drugs and many of whom who
have no health insurance whatsoever to subsidize the drug
benefits of those who want a handout but don't, in fact, need
one?
And it is worth noting that many seniors are, in fact, far
wealthier than their incomes imply. Americans over 65 have an
80 percent homeownership rate, twice that of adults under 35
years old. More to the point, 80 percent of these older
homeowners own their houses outright, carrying no mortgage,
while only 24 percent of those under 65 are in that enviable
position.
Looking more broadly at total assets, our elderly families
between ages 65 and 74 have median assets of $147,000, the
highest of any age group. For all age groups, median assets are
$72,000. For those under 35, they are just $9,000. Third
Millennium is very excited about the kinds of innovations that
we are seeing in the field of medical technology, and as time
marches on, Medicare will be looking toward some of these new
programs and technologies to incorporate into the program. But
Third Millennium believes that the cost of these advances
cannot be borne entirely by younger generations, who already
face a tremendous financing burden.
We are currently on a budgetary path where Social Security
and Medicare and Medicaid will consume more than three-quarters
of the Federal revenues in the budget by 2030, and somewhere--
it looks like in the late 2040s--there will be nothing left to
pay for other programs besides these three programs.
Oftentimes, this discussion is painted as a battle between
young and old, and that blurs the point. This should be a
discussion about who among us, of all ages, receives the
benefits and who among us, of all ages, pays.
Madam Chairwoman, what I would like most to stress today is
this: adding a prescription drug benefit to the Medicare
Program must be part of a more comprehensive reform to
strengthen the Medicare Program. When a program is facing a
long-term financing shortfall, expanding benefits is not
reform. There are many options: raising the eligibility age,
means-testing premiums and boosting national savings, that will
help keep Medicare in balance.
We should also rely on increased premiums, deductibles and
copayments rather than just higher payroll taxes or general
revenue transfers. A new benefit should be targeted only toward
those who both need and cannot afford them on their own. Two-
thirds of seniors do currently have prescription drug coverage.
The answer is not, then, to provide a massive new universal
benefit. We must acknowledge that adding prescription drug
benefits may be a desirable thing to do, but at the same time,
it will affect the cost of other reforms. Therefore, the issue
of prescription drugs and Medicare reform are inseparable and
we hope will be treated accordingly.
Once again, I thank you for inviting Third Millennium to
appear before you today. I hope I have helped to shed some
light on how many in my generation hope the discussion will
proceed. Thank you.
[The prepared statement of Ms. MacGuineas follows:]
STATEMENT OF MAYA MACGUINEAS, NATIONAL BOARD MEMBER, THIRD MILLENNIUM,
NEW YORK, NEW YORK
Good afternoon, Madam Chairwoman, and members of the Subcommittee.
My name is Maya MacGuineas and I am a board member of Third Millennium,
a national non-partisan organization founded by young adults offering
solutions to long-term problems facing the United States.
Professionally, I am a fellow at the New America Foundation, a non-
partisan think tank here in Washington, where I study fiscal policy
issues, in particular those related to taxes, the budget and
entitlement programs.
Thank you for including us in the discussion today about whether to
include a prescription drug benefit in Medicare. We are honored to be
here and appreciate that you have chosen to include young adults in
this discussion.
Madam Chairwoman, members of my generation think that a
prescription drug benefit should be included in Medicare, but believe
that if one is created, the benefit should be targeted toward poor and
lower income seniors. Furthermore, among various new spending options
Congress might consider, a drug benefit is a much lower priority than
improving education, providing health insurance for the uninsured, and
fixing the Social Security system. Given the choice, my peers, young
Democrats, Republicans and Independents alike, would not rush to
subsidize prescription drugs.
As the Trustees reiterated on March 19th, Medicare faces tremendous
funding pressures that will materialize before anyone in my generation
reaches retirement age. The recent news paints a startling picture. We
are now talking about an astounding difference between benefits and
payroll taxes and premiums of $333 trillion over the next 75 years.
That's one-third of a quadrillion dollars!
Throughout its history, Medicare has grown more rapidly than the
economy and its growth is expected to accelerate with the retirement of
the Baby Boom generation and increasing health care costs, leading to
mounting expenses and an-ever expanding share of our nation's resources
needed to fund the program. On its current course, by 2075, Medicare
will consume more than 8% of GDP. That number may not seem relevant to
some of us here today, but to our children and grandchildren, it
certainly will be.
The momentum to add a prescription drug program to Medicare has
accelerated rapidly and there are indeed good reasons to consider this
new benefit, not the least of which is the many seniors who need but
cannot afford necessary medications. Nonetheless, we believe that the
certainty that ``something should be done'' must not replace thoughtful
contemplation of how to do it right.
First, we believe the issue should not be looked at in a vacuum,
but rather in the context of the entire Medicare program. To expand the
program without regard to the costs--both today's and tomorrow's--and
without addressing the current funding and structural problems plaguing
Medicare will only exacerbate the looming financing crisis. And the
costs we are talking about are not insignificant. A new prescription
drug benefit could easily eat up all of Medicare's surpluses over the
next decade and more. This is not a responsible way to prepare for the
tremendous costs we know are just around the corner.
This is nothing the subcommittee doesn't already know. But what you
may not know are the specifics about how younger generations feel about
creating a new prescription drug benefit. I would like to share with
you today the results of a just-released national survey Third
Millennium commissioned from the bipartisan polling team of Democrat
Jefrey Pollock and Republican Frank Luntz. I have submitted the results
in their entirety with my written testimony. After randomly
interviewing 500 young adults between the ages of 18 and 34, our poll
found the following:
My peers clearly support a prescription drug benefit for seniors,
but that level of support drops dramatically as the would-be
recipient's income increases. For example, more than four out of five
of my peers would support a prescription drug benefit in Medicare for
seniors with household incomes of $20,000 or less. Three out of five
would support a prescription drug benefit in Medicare for seniors with
household incomes of $40,000.
Above that $40,000 level, though, support drops off considerably.
Only one-third would give this benefit to seniors with household
incomes of $60,000, and a mere one out of five would support it for
those with incomes of $100,000.
Let me put it another way: While most of my generation is more than
willing to help a low-income elderly widow in Connecticut's 6th
District or California's 13th, 83% of my contemporaries say it is
unfair to give a prescription drug benefit to Hugh Hefner, Ross Perot,
or Larry King.
The subject of recipient income arises again when younger adults
are asked whether wealthy seniors should have their prescription bills
subsidized if their out-of-pocket expenses are more than $6,000
annually. While 35% would support such a subsidy, 61% would not.
However, when the exact same question is asked about seniors with low
to moderate incomes, supporters overwhelm opponents by an 87% to 12%
margin.
My generation's message to Congress is clear: If you want our
political support, you need to means-test a new prescription drug
benefit. We cannot afford to provide a massive new entitlement for
those who don't need it.
We know there are millions of middle-to-high income seniors who
would like a new prescription drug benefit. Indeed, there are members
of both parties who want to provide one. And my question is this: Is it
fair to ask low wage workers in each of your districts, who themselves
can barely afford prescription drugs and some of whom have no health
insurance at all, to subsidize the drug benefits of those who want a
handout but don't need one? Beyond that, is it wise? Two-thirds of
retirees currently have prescription drug benefits. If the government
introduces a universal program, many current corporate retirement
programs are likely to drop that component of their coverage. Couldn't
one argue that Uncle Sam's assuming this responsibility would be a form
of corporate welfare?
It is worth noting that many seniors are in fact far wealthier than
their incomes imply. Retirees are one of the best-off segments of the
population, wealthier, in fact, than any previous generation. This in
large part is due to the high home ownership rates of older Americans;
as many of you know, one's home is the most valuable asset for most
families.
The Census Bureau found Americans over 65 have an 80% home
ownership rate, twice that of adults under 35. More to the point,
according to AARP, 80% of these older homeowners own their homes
outright, carrying no mortgage, while only 24% of those under 65 are in
that enviable position. Looking more broadly at total assets, the
Census Bureau found elderly families between ages 65 and 74 have median
assets of $147,000, the highest of any age group. For all age groups,
median assets are $72,000; for those under 35, they are just $9,000.
Furthermore, Medicare has been and remains a very generous program.
Current retirees are expected to receive two to four times as much as
they paid in, according to economist Eugene Steuerle of the Urban
Institute. Because of the intergenerational nature of the program, each
new expansion provides a windfall for recipients who gain access to new
benefits they didn't support during their working years. Now this is
not entirely surprising; as time marches on, so too do medical
innovations. We are grateful for the many new life-saving and enhancing
medicines that have been brought to market over the past decades.
But Third Millennium believes that the costs of these advances
cannot be borne entirely by younger generations, who already face a
tremendous financing burden. As the GAO recently reported, we are
currently on a budgetary path where Social Security, Medicare, and
Medicaid will consume more than three-quarters of total federal
revenues by 2030. Somewhere in the 2040s, there will be nothing left
for any other government spending. The Medicare Trustees contend that
just to bring Medicare Part A back into line, program income will have
to be increased by 60%.
Oftentimes this discussion is painted as a battle between young and
old. That blurs the point. This should be a discussion about who among
us--of all ages--receives the benefits, and who among us--of all ages--
pays for them.
Therefore, we must target a new benefit only to those who have no
other options and who cannot afford prescription drugs on their own.
And we must spread those cost among those who can afford them--of all
ages. Additionally, we think there is a good argument for providing
some type of catastrophic benefit coverage for those who have
inordinately high drug costs. But again, we think this should only be
done with need and costs in mind.
Madam Chairwoman, what I would most like to stress today is this:
Adding a prescription drug benefit to the Medicare program must be part
of more comprehensive reforms to strengthen the Medicare program. Since
we know that Medicare will face a significant funding shortfall, to
ignore this reality while expanding the obligations of the program is
not a responsible approach to mending what ails the system. Rather, I
fear it will add to the cynicism many young people feel about
government and whether the programs they pay for today will be
available to them tomorrow.
Indeed, our survey found that nearly half (43%) of people 18-34
think that the TV soap opera ``General Hospital'' will outlast the
Medicare system!
When a program is facing a long-term financing shortfall, expanding
benefits is not reform. There are many options--raising the eligibility
age, means-testing premiums, relying more on managed care for seniors,
and boosting national savings--that will help keep Medicare in balance.
We should also rely on increased premiums, deductibles and co-payments
rather than just higher payroll taxes or general revenue transfers.
We must acknowledge that adding a prescription drug benefit may be
a desirable thing to do, but at the same time it will affect the cost
of other reforms. Therefore, the issue of prescription drugs and
Medicare reform are inseparable and we hope, will be treated
accordingly.
Once again, I thank you for inviting Third Millennium to appear
before you today to discuss this very important topic. I hope I have
helped to shed some light on where many in our generation hope the
discussion will go. I look forward to your questions.
Medicare/Prescription Drugs Phone Survey of 500 Americans Ages 18-34,
March 2001
Hello. This is ____ of ____, a national research firm. We are
calling people across the nation to get their views on important
national issues. Your views will help shape the issues being debated in
Congress. This will only take about eight minutes.
(DO NOT PAUSE)
(1) First, I need to find someone in your household that is between
18 and 34 years old. What is your age, please? (If not qualified, ask
for someone else in the Household who is. Otherwise, terminate)
26% 18-24
29% 25-29
45% 30-34
--Over 34 (Terminate)
--Under 18 (Terminate)
--Don't know/refused (terminate) (don't read)
The following set of questions deal with Medicare, the Federal
government program that provides health insurance for Americans age 65
and older, regardless of their income. As you may or may not know,
Medicare covers hospital costs, and seniors pay a small premium to help
cover doctor costs, but Medicare does not cover most prescription
drugs. About two-thirds of all seniors, however, have prescription drug
insurance through other sources, such as retiree benefits or private
insurance.
(2) Congress is currently debating whether to add a prescription
drug benefit to Medicare.* * *
Some Members of Congress want to provide prescription drug coverage
To All seniors regardless of income, at an estimated cost of roughly 98
billion dollars over four years. * * *
Other Members of Congress want to provide prescription drug
coverage to only lower income seniors at an estimated cost of roughly
48 billion dollars over four years. * * *
Which type of prescription drug plan do you think Congress should
create? (READ ALL ANSWERS--ROTATE)
38% a 98 billion dollar drug benefit for all seniors--
regardless of income; or
48% a 48 billion dollar drug benefit only for seniors with
lower incomes; or
4% the country cannot afford to offer seniors a drug benefit
of any type; or
10% don't know/refused (Don't read)
Would you strongly support, somewhat support, somewhat oppose or
strongly oppose allocating tax dollars to pay for prescription drugs
for seniors with household incomes of
(3) $16,000 per year?
48% strongly support
38% somewhat support
4% somewhat oppose
6% strongly oppose
3% don't know/refused (Don't read)
(Rotate top to bottom or bottom to top questions #4-#7)
(4) And what is your response if they had an annual income of
$20,000 per year?
47% strongly support
37% somewhat support
7% somewhat oppose
5% strongly oppose
5% don't know/refused (Don't read)
(5) And what if they had an annual income of $40,000 per year?
20% strongly support
41% somewhat support
21% somewhat oppose
14% strongly oppose
4% don't know/refused (Don't read)
(6) And what if they had an annual income of $60,000 a year?
9% strongly support
26% somewhat support
28% somewhat oppose
34% strongly oppose
4% don't know/refused (Don't read)
(7) And what if they had an annual income of $100,000 a year?
6% strongly support
14% somewhat support
18% somewhat oppose
61% strongly oppose
2% don't know/refused (Don't read)
(8a) (Split sample) And would you [Read responses] providing tax
dollars to wealthy seniors whose out-of-pocket prescription drug bills
are more than $6,000 per year?
11% strongly support
4% somewhat support
29% somewhat oppose
32% strongly oppose
5% don't know/refused (Don't read)
(8b) (Split sample) And would you [Read responses] providing tax
dollars to seniors with low to moderate incomes whose out-of-pocket
prescription drug bills are more than $6,000 per year?
55% strongly support
32% somewhat support
6% somewhat oppose
5% strongly oppose
1% don't know/refused (Don't read)
Now, according to official government projections, the Medicare
system will begin paying out more in benefits than it will receive in
taxes well before most of the Baby Boom generation is retired. Knowing
this, I'd like to ask whether you support or oppose the following
proposals for reforming Medicare.
(9) Currently, Medicare pays doctors and hospitals directly for
covered benefits received by seniors. One reform proposal would instead
provide each beneficiary with a fixed amount of money each year to buy
coverage from the private insurance plan of his or her choice. Seniors
could stay in the existing Medicare system if they preferred. Is this
something you would * * *?
23% strongly support
52% somewhat support
12% somewhat oppose
8% strongly oppose
2% no opinion (Don't read)
2% don't know/refused (Don't read)
(10a) (Split sample) Currently, individuals become eligible for
Medicare at age 65. [One proposal is to gradually raise the Medicare
eligibility age to 70 over the next 20 years. Is this something you
would * * * ?]
10% strongly support
13% somewhat support
24% somewhat oppose
52% strongly oppose
1% no opinion (Don't read)
--Don't know/refused (Don't read)
(10b) (Split sample) Currently, individuals become eligible for
Medicare at age 65. [One proposal would gradually raise the Medicare
eligibility age to 67 to mirror the Social Security eligibility age
increases that are already required by law. Is this something you would
* * * ?]
14% strongly support
26% somewhat support
27% somewhat oppose
28% strongly oppose
2% no opinion (Don't read)
2% don't know/refused (Don't read)
(11) Currently, all seniors pay the same amount of money for
Medicare coverage, regardless of their income. One proposal would tie
the amount of money seniors pay for Medicare to their household income,
so wealthier retirees would pay more and lower income seniors would pay
less. Is this something you * * *
49% strongly support
29% somewhat support
9% somewhat oppose
11% strongly oppose
1% no opinion (Don't read)
1% don't know/refused (Don't read)
(12) Today, workers and their employers pay a combined 2.9 percent
of their wages for a Medicare payroll tax. In the future, it is
projected that this tax will no longer generate enough money to cover
the cost of Medicare benefits for everyone who will need them. One
proposal is to increase this payroll tax rate on workers to fund
Medicare for the future. Is this something you would * * * ?
15% strongly support
40% somewhat support
19% somewhat oppose
23% strongly oppose
1% no opinion (Don't read)
2% don't know/refused (Don't read)
(13) Currently, only a small percentage of senior citizens get
their health care through managed care plans, such as HMOs. Would you
[Read responses] offering seniors financial incentives to enroll in
managed care plans in order to slow the growth of Medicare, as long as
they could choose another plan later if they were dissatisfied in any
way?
31% strongly support
48% somewhat support
9% somewhat oppose
8% strongly oppose
3% no opinion (Don't read)
2% don't know/refused (Don't read)
(14a) (Split sample) Currently, 36% of all federal spending goes to
programs for the elderly, mainly for Social Security and Medicare. Do
you think spending just over one-third of the federal budget on the
elderly is: (Read and rotate top to bottom or bottom to top)
16% too high
55% just right
21% not high enough
7% don't know/refused (Don't read)
(14b) (Split sample) Currently, 36% of all federal spending goes to
programs for the elderly, mainly for Social Security and Medicare.
[Thinking about all of the programs the Federal government needs to
spend money on,] do you think spending just over one-third of the
federal budget on the elderly is: (Read and rotate top to bottom or
bottom to top)
20% too high
48% just right
21% not high enough
11% don't know/refused (Don't read)
(15) And what do you believe should be the proper ratio of
government spending in the federal budget on seniors as compared to
children? (Read and rotate top to bottom or bottom to top)
3% $8 spent for seniors, for every $1 spent for children
9% $4 spent for seniors, for every $1 spent for children
38% $1 spent for seniors, for every $1 spent for children
31% $1 spent for seniors for every $4 spent for children
9% $1 spent for seniors for every $8 spent for children
9% don't know/refused (Don't read)
(16a) (Split sample) By most estimates, [adding a prescription drug
benefit to Medicare for all seniors would cost roughly 98 billion
dollars over the next four years]. With that in mind, which of the
following should be the most important funding priority? (Rotate)
9% paying down the national debt
19% Strengthening Social Security
34% Increasing spending on education
11% Adding a prescription drug benefit to medicare
22% Providing health care for the uninsured
5% Don't know/refused (don't read)
(16b) (Split sample) By most estimates, [adding a prescription drug
benefit to Medicare for low or modest income seniors would cost roughly
48 billion dollars over the next four years]. With that in mind, which
of the following should be the most important funding priority?
(Rotate)
12% Paying down the national debt
13% Strengthening Social Security
34% Increasing spending on education
8% Adding a prescription drug benefit to medicare
25% Providing health care for the uninsured
8% Don't know/refused (Don't read)
Now, please take the next two questions seriously:
(17) Considering that they both started in the mid-1960s, which do
you think will last longer, the Medicare system or the TV soap opera
``General Hospital``? (Rotate Answers)
43% General Hospital
52% Medicare
5% Don't know/refused (Don't read)
(18) In general, do you think it would be fair or unfair for
taxpayers to pay for part of the cost of prescription drugs for very
wealthy elderly people who might use them, such as Hugh Hefner, Larry
King or Ross Perot?
14% Fair
83% Unfair
3% Don't Know/Refused (Don't read)
Now a few final questions for demographic purposes only----
(19) In terms of family status, are you:
6% Single with children
30% Single without children
2% Divorced with children
1% Divorced without children
42% Married with children
16% Married without children
2% Other (Don't read)
(20) Do you have health insurance of any kind?
90% Yes
9% No
1% Don't know/refused (Don't read)
(21) In the 2000 Presidential election, did you vote for George
Bush, Al Gore, someone else, or did you not vote? If you were not
registered to vote, just say so.
35% Bush
29% Gore
6% Someone else
20% Did not vote
7% Not registered
4% Don't know/refused (Don't read)
(22) Do you generally consider yourself to be a Republican, a
Democrat or an Independent?
29% Democrat
31% Republican
34% Independent
6% Don`t know/refused (Don't read)
(23) And what is the final level of formal education you completed?
4% Less than high school
21% High school graduate
28% Some college or technical school
34% Four-year college graduate
12% A post-graduate degree of some kind
1% Don't know/refused (Don't read)
(24) Region (From sample)
24% Northeast
22% South
31% Industrial midwest
16% Midwest/west
6% Pacific
(25) Gender (By voice; do not ask)
48% Male
52% Female
Methodology: Using the traditional random digit dial technique, a
nationwide sample of 500 adults aged 18 to 34 was surveyed by telephone
from March 6-7, 2001 by the Republican polling firm The Luntz Research
Companies and the Democratic polling firm Global Strategy Group. The
margin of error for telephone surveys of this type is 4.5%.
Chairwoman Johnson. Well, thank you very much, Ms.
MacGuineas, and it is extremely important that your generation
be a part of this discussion, and I was pleased that Ms.
Frederick did note in her testimony that she is concerned about
what her grandson's options will be, and certainly, we want him
to have the opportunity to educate his children; to own a home
and to do those things as well as to discharge his
responsibilities to those over 65 with compassion and dignity.
I also want to mention, Mrs. Wilkinson, that it is just
frustrating to sit here. First of all, I am very interested
that so many of you spoke about choice. I just want you to know
how hard sometimes it is to provide benefits through Medicare,
and that is one reason why choice is so important. We did
actually deal with this issue of bone density testing in 1997,
and that you should have had such a hard time getting payment
for it so many years later is just one small evidence of the
difficulty we face in distributing benefits from Washington.
But for all three of you, your testimony was eloquent, and
to have your voices here at this table has been very important
for us, and I thank you for being here today.
Mr. Cohen, I did want to ask you--let us see; I am sorry; I
guess it was Mr. Poisal--no, it was Mr. Cohen on the----
Mr. Cohen. We will do it together.
Chairwoman Johnson. Coverage. And you may actually both be
interested in addressing this.
This issue of utilization and coverage, it is only common
sense that if you have coverage and help in paying for
prescription drugs that you can then buy the drugs that you
need. On the other hand, with the amount of advertising now
that is commonly associated with the drug industry, is there
any evidence, either from the experience of pharmacists or from
your research, Mr. Poisal, is there any evidence that some of
this utilization is actually not good for your health or
doesn't improve your health? And should we be cognizant of that
as we develop a prescription drug benefit so we get the
advantages of being able to afford the medicines you need
without the disadvantages to both the senior and the taxpayer
of drugs that you don't need?
Mr. Cohen. Well, I do have a concern about that, as a
matter of fact. I remember when FDA first approved the
prescription drug advertising, for example. I had hoped that it
was going to be more education than marketing, and I think that
has not been proven to be the case. For example, I certainly
would agree with advertising to consumers for a new vaccine
that they should get, like a pneumococcal vaccine, for example,
to prevent pneumonia. That is important but not what I am
seeing. And I think it does drive the prescription drug use. I
do know just yesterday, I saw that the Food and Drug
Administration was about to conduct a survey of both physicians
and consumers to try to gauge the impact, so I think that is
something that the agency is looking into right now.
Mr. Johnson OF TEXAS. Thank you.
Mr. Poisal.
Mr. Poisal. The Medicare Current Beneficiary Survey does,
in fact, demonstrate what you have indicated, and that is that
people with prescription drug coverage do indeed use more
prescription drugs than those who do not. Our research, looking
from 1997 into 1998, saw that the discrepancy between the two
populations grew from five prescriptions on average per
beneficiary to eight prescriptions on average.
Unfortunately, the Medicare beneficiary does not capture
health outcomes, so it is difficult to ascertain the effect on
a beneficiary's health by virtue of, you know, taking
medications or not getting medications. The survey is not
designed for that type of analysis.
Chairwoman Johnson. Mr. Cohen.
Mr. Cohen. Yes; may I just make one more comment? I think
that you should be concerned about the number of drugs that
patients take. We know that as the number of individual agents
that they consume go up, the number of adverse reactions and
drug interactions also go up exponentially. So it is a very
serious issue. And that is exactly why I was talking about this
need to have somebody, on a regular basis, looking at the
medication regimens and trying to discontinue unnecessary
drugs.
Chairwoman Johnson. I do think it is very important. You
could even be taking aspirin regularly, and that could be
undercutting other things that you are doing.
Mr. Richtman, you mentioned voluntariness twice in your
testimony. I don't know whether either of the bills that were
proposed last session that had broad backing would meet your
definition of voluntary. One of the bills allowed you a one-
time option to sign up, and then, you could not sign up again.
The one that went to the floor allowed you a one-time option,
but if you wanted to sign up again, then, you could do so, but
you lost community rating. You got to be health-rated, so your
premiums were going to be higher.
Now, if you did move from an employer-provided plan, you
could sign up, or if you moved from Medigap, you could sign up,
but you couldn't just wait until you needed it and then sign
up. So I just wonder whether that definition of voluntary,
which I consider terribly narrow but I see no way around,
frankly, because otherwise, people will wait until they need
it, and furthermore, we will have a terrible problem of
selectivity and so on. So whether that definition of
voluntariness does meet your----
Mr. Richtman. Well, I don't think we mean to take that
definition to an extreme. I think the way Medicare Part B works
and the way people are able to enroll in that, we would
consider that voluntary.
Chairwoman Johnson. OK; well, I think that is as far as I
am concerned----
Mr. Richtman. And I think that is a fair definition.
Chairwoman Johnson. What I call mandatory voluntary,
because you get all or nothing, and nobody in their right mind
could not take it. But if that is satisfactory, that is what I
wanted to know. Mr. Stark.
Mr. Stark. Well, I want to thank all of the panel very much
for their contribution, and your organizations' interest for
the seniors, we appreciate it, us seniors.
Ms. MacGuineas, your organization's concern I think is
important, too. In reading through your questionnaire, it
appears that a large majority of your group, which I think this
was in the 18-to-34-year-olds, voted, and you split it pretty
evenly, but I think 70 percent voted, which is about three
times as high as your age group in general. So you, some way or
another, in this poll were able to find those very
disproportionate share. Do you know why? Did you look for
people who voted in the survey?
Ms. MacGuineas. Oh, no, absolutely not. We interviewed a
random, selected population, and those were people who were
willing to respond.
Mr. Stark. You managed to come out pretty evenly on
Republican and Democrat and all of those things.
Ms. MacGuineas. Right.
Mr. Stark. But you are way off the scale as voters, which
is good.
Ms. MacGuineas. Yes, if only we did vote 70 percent.
Mr. Stark. I wish that were representative of your age
group. First, I would take quarrel with you on the issue of
home ownership, which is a wash. We decided that on a
bipartisan basis in the Reagan administration when we basically
gave home ownership as a way to qualify for SSI and other
things. The theory that most seniors have their home paid for,
as you indicated in your statistics, and at that point, they
may be paying $150 a month in taxes for a $147,000 or a
$100,000 house on average. If you made them sell the house,
their rent would immediately go up to $600 a month, and they
would pretty much go out the same door that they came in.
The statistics are right but we encourage you at a young
age to buy a home, get a mortgage, and pay it off. Then, you
can live in that home. But you are not getting rich on it. I
mean, it is an asset which does you no good. You have to pay
the taxes; you have to paint the house. And if you were not
there, you would be paying rent. And so, the idea that the
seniors have a lot of money because they own homes, I don't
think washes.
And I think we would all agree. Over 90 percent of the
seniors have less than $50,000 in income, and that is just what
your respondents said. They would strongly support--61 percent
of them would support a drug benefit for those under $40,000,
right? And then, at $60,000, you drop to 35 percent, so one
could assume that the majority of the people polled, if you had
split it at the $50,000 level, would support this drug benefit,
and that would be for over 90 percent of the seniors.
So your survey is right on target. I am further elated to
find that you think that 36 percent of all Federal spending
going to programs for the elderly is either just right, 48
percent, or not high enough, 21 percent, which is good. I mean,
that is generous of your respondents, more generous, perhaps,
than I would think people would suggest if they talk about a
disparity between the generations. And I think that you are
right on opposition to the idea of increasing the eligibility
age. Seventy-six percent of your group said they did not
support, either strongly opposed or somewhat opposed, raising
eligibility for Medicare to 70 and 55 percent said they opposed
even raising it to 67. They are correct.
The one area that I think there was some question is the
issue of encouraging people to join HMOs. Do you think that the
people taking this poll had a reason to suspect that HMOs save
money?
Ms. MacGuineas. Can I answer all of your questions or just
the last one?
Mr. Stark. None of the rest were questions. I was just
complimenting your group on their perspicuity. But now, I am
wondering: do you suppose they were aware that managed care
really costs Medicare money? So that for everybody who joins a
managed care plan, the evidence is that Medicare loses money.
Ms. MacGuineas. Right; I think what we have seen is that 17
percent of people are members of HMO programs, and 17 percent
of the costs still go to HMOs. I have also seen that part of
the problem is that the competition hasn't been complete yet;
that there are ways to restructure some of the competitive
forces, hopefully, so that HMOs could be more efficient.
Mr. Stark. But there is no evidence that----
Ms. MacGuineas. I am not sure whether that is true or not.
In answer to your question, I would imagine most people
taking this poll wouldn't know those details. This is a very
complicated topic and program, as both of you brought up, and
so, I don't think they would.
Mr. Stark. Well, it says here, ``would you enroll in
managed care plans in order to slow the growth of Medicare''? I
mean, that was your question. And I think that was kind of
assuming, don't you, that it would save money. That is how I
read the question, and I think that was a little tilted. Other
than that, I thought your poll was right on, and I thought your
group was doing the responsible thing. You are to be commended.
Ms. MacGuineas. Thank you. I am glad you thought we were--
--
Mr. Stark. I hope you will go back now and explain to them
that managed care costs us money, and we should find better
ways----
Ms. MacGuineas. Well, we will try to follow up with more
polls.
Mr. Stark. Great.
Ms. MacGuineas. One of the questions I just wanted to draw
to your attention also, though, was after it talks about how
much of the Federal budget should be spent on the elderly,
which I think you said you commended, the highest proportion of
people who were interviewed thought that the budget should be
split basically one-to-one, so we spend one dollar on the
elderly for every one dollar we spend on children.
As you all well know, that is not the case right now. We
spend $7 on the elderly for every $1 we spend on the children,
and there actually was extreme support in our poll for
increasing the amount we spend on children to at least as much
as we spend on the elderly.
Mr. Stark. But even more said you should spend between $4
and $8, $1 for every $4, $1 for every $8.
Ms. MacGuineas. I think that is right. There is even a
stronger preference to spend more on children. That is where a
lot of people think we should be making investments.
Mr. Stark. And which just goes to show that my kids are
more interested in their grandchildren--in my grandchildren
than they are in my grandchildren's grandparent. That makes
sense. Thank you.
Ms. MacGuineas. Thank you.
Mr. McCrery. [Presiding.] Thank you, Mr. Stark. Mr. Poisal.
Mr. Poisal. Yes, sir?
Mr. McCrery. You said that--or in your testimony, you noted
that seniors with prescription drug coverage tended to use more
prescriptions each year than those without such coverage.
Mr. Poisal. That is correct.
Mr. McCrery. Did your review attempt to compare differences
in health status or outcomes between those two groups?
Mr. Poisal. We did for health status. As I mentioned
earlier, the MCBS is designed to track health care utilization
and expenditures, and it is not, in fact, designed to follow
outcomes, to evaluate outcomes of beneficiaries' health.
However, that said, we do ask when we interview our
beneficiaries every 4 months, we go through and interview about
4,000 bennies in their homes every 4 months, three times a
year. We do ask them to self-report their health status.
And indeed, when you control for health status--that is to
say, regardless of whatever health status you are in--
beneficiaries with prescription drug coverage have higher
utilization and have higher total expenditures for their
prescription drugs than do beneficiaries in that same health
status without drug coverage.
Mr. McCrery. Can you draw any conclusions from that data as
to the outcomes?
Mr. Poisal. Again, the MCBS isn't designed to evaluate
outcomes. So I am afraid I can't answer that question.
Mr. McCrery. Did your study attempt to analyze whether the
presence of coverage led to inappropriate utilization, for
example, seniors getting unnecessary prescriptions or maybe a
branded product rather than a generic product?
Mr. Poisal. Well, we capture all of the utilization that
beneficiaries have; that is to say, whether they had a brand
name or a generic-named drug. The analysis that would look at
whether or not these particular prescriptions would be
considered inappropriate was beyond the scope of the research
that we did.
Mr. McCrery. Did your study attempt to identify whether the
differences between those with coverage and those without
coverage stemmed from the fact that those with coverage may
have been sicker and therefore had a greater likelihood of
purchasing coverage for drugs in the first place?
Mr. Poisal. What we know from looking at our data is that
the health status mix for the covered population and the non-
covered population, that mix is essentially the same across
both of those populations. However, the covered population is
slightly more likely to have slightly more chronic conditions
than the non-covered population. So, you know, again, self-
reported health status is essentially the same, but when you
examine chronic condition counts, they are slightly more likely
to have slightly more chronic conditions than the non-covered.
Mr. McCrery. Thank you. Mr. Kleczka.
Mr. Kleczka. We have had this discussion before about
people with drug coverage taking more drugs than people without
drug coverage, and as I think about that, it is also true that
people with cars drive more than people without cars. And so,
what I am trying to get at is people--and I found this in my
district--people without drug coverage go without. In fact, I
talked to a gentleman from my district who retired. He is 58
years old; his wife is 62. They have no supplemental. She just
gets her Medicare; he has no coverage. He has hypertension and
some other ailments, and I said, well, do you take drugs for
this? He said I do not; I cannot afford it.
So that is why we are getting the phenomenon that if you
don't have drug coverage, you are not going to use as much
drugs, because in that class, people aren't buying them because
they can't afford them. That is number one. The other thing
that strikes me is when we talk about Medicare and Social
Security and spending money on the seniors, my friends, this is
called a generational transfer. But every and any other program
the Federal Government spends money on is called an
authorization and an appropriation and an expenditure.
So now, we are getting into some nomenclature that is a
little scary, because if you are gray, and the Federal
Government spends money on you, it is a generational transfer,
as if we are stealing it from someone. But if you are student
going to school, and we are putting millions and billions of
dollars into Pell grants and student guaranteed loans, that is
an expenditure. And if we are going to go on and spend billions
of dollars for Star Wars and give all these billions of dollars
to defense contractors, that is an expenditure.
Do you see what I am getting at? There are two different
standards for expending the Federal receipts, and if you happen
to be old and gray, it is a generational transfer. And this is
just popping up this year. We are going to hear more and more
about it, OK? This is the second hearing that I have been at
where this has been used. And I know, Mrs. Wilkinson, you are
ready to answer me, but I am going to ask one question, and
then, I will ask you to answer me or respond to me.
Max, you couldn't see the chart I had up, but the reason is
because I had taken it to the House floor to use it in the
budget debate that is coming up at 5:00. But in this House
budget chart, the House Budget Resolution that we are going to
be debating, it is very evident that there are plans to spend
HI, Hospital Trust Fund, revenues on things other than hospital
care for seniors, and on this chart, $240 billion is called
Medicare Contingency Reserve, whatever that is. And then, there
is another chunk, $153 billion, for Medicare modernization. And
I suspect that is where the drug benefit is going to come out
of, because it is similar to the amount that has been
recommended by the President under this new welfare drug
proposal.
What is your group's view of using Hospital Trust Fund
dollars for something other than hospital costs?
Mr. Richtman. Well, Congressman, as I pointed out in my
testimony, we are concerned about the way the Part A Medicare
Trust Fund is designated in the budget and using it----
Mr. Kleczka. In the law; OK.
Mr. Richtman. And using it in the way you describe would
obviously affect the solvency of the Medicare Part A Trust
Fund, and we have made that very clear in the statement today
and in press conferences that we have held in the last couple
of weeks on Capitol Hill both on behalf of the organization
that I represent and the Leadership Council of Aging
Organizations.
Mr. Kleczka. Thank you.
And Mrs. Wilkinson, could you respond to my perplexion here
of this new nomenclature: for you, anytime I vote for a dollar,
it is a generational transfer, and when I vote for somebody,
for a dollar for another group around here, it is just an
expenditure. What is going on here?
Mrs. Wilkinson. Well, when we were raising children, we
were paying the school taxes, and the people before we were
raising children paid for school taxes, and after your children
graduate, you are still paying for school taxes. So it is a
continuum. So I don't consider it a generational transfer,
because we keep helping each other. We are a community of human
beings, and we have to keep helping each other.
And my reason for being here is just to implore you as you
wrestle with this difficult problem not to break the two-thirds
that work in order to fix the one-third that doesn't work.
Mr. Kleczka. Thank you very much.
Chairwoman Johnson. [Presiding.] Representative Thurman.
Mrs. Thurman. Thank you, Madam Chairman.
Just to follow along with Mr. Kleczka here on the using
Part A, they are not the only ones who are concerned about it.
I mean, we have got the American Hospital Association;
Association of American Medical Colleges; the Catholic Health
Association; Federation of American Hospitals. So, I guess it
seems to be kind of cutting across all lines here as to the
solvency and the issues of not using those dollars.
Mrs. Wilkinson, I need to ask a question because in
September 1999, IBM actually was getting ready to--a new,
controversial, new pension plan, and they came to their
Congresspeople, and we raised questions about it, and they
backed off, and things went forward, and you are getting a
great pension now. Well, I mean, at least you are getting what
you were told you were going to get, because some of those
things--but that is not my point, okay? My point is, and what I
am asking you is because in your testimony, you had said the
retirees of the company I worked for learned that we would have
the option of enrolling in HMO coverage or choosing one of the
other employer-sponsored plan options.
You decided to enroll in the HMO coverage because it would
continue coverage for your prescription drug needs, so I am
assuming, then, the others did not.
Mrs. Wilkinson. No.
Mrs. Thurman. OK.
Mrs. Wilkinson. That is not correct.
Mrs. Thurman. OK.
Mrs. Wilkinson. I did not want to run over my time.
Mrs. Thurman. OK.
Mrs. Wilkinson. I had actually six options.
Mrs. Thurman. OK.
Mrs. Wilkinson. One was to continue with the plan that I
had, which was part of my, quote, compensation up to this year,
but starting this year, I was supposed to pay for it.
Mrs. Thurman. So the benefit changes, so you went into the
HMO because you could get the same coverage as that particular
option.
Mrs. Wilkinson. I had four choices where I could pay
varying amounts.
Mrs. Thurman. But it did change.
Mrs. Wilkinson. Yes, definitely, it changed in January
2001.
Mrs. Thurman. OK; so that was an issue for you when you
were looking at it. The other thing----
Mrs. Wilkinson. But the one other point that I wanted to
make is that fortunately, we can make a choice every year. So
if this plan does not work for me this year, I can switch in
December to another plan.
Mrs. Thurman. OK; and then, you also have this insurance
through your company, but Part B Medicare actually, which is
run by the Government, in fact, did pay for your bone density.
It was not your company that paid for that.
Mrs. Wilkinson. When you turn 65, Medicare becomes your
primary, and you are required to pay for Part B, or you have no
company insurance.
Mrs. Thurman. OK.
Ms. MacGuineas, I need to ask you a question, because one
of the things that was interesting about the survey and
certainly one that would skew my feelings about any of the
coverage that I had or was looking at for somebody else, 90
percent of the participants in your survey specifically have
insurance, correct? I mean, that is what the survey said,
which, of course, is not necessarily what we see in some of the
other parts of it.
If you wouldn't mind, because we are sitting here talking
about prescription drugs, could you tell us about your coverage
right now?
Ms. MacGuineas. My personal coverage?
Mrs. Thurman. Do you have insurance, and do you have a
prescription drug?
Ms. MacGuineas. That is sort of personal, but I will tell
you. I do have insurance, but I had a preexisting condition, so
it was very difficult for me to get insurance. So I pay for my
own insurance. It is rather costly, and I don't have
prescription drug coverage.
Mrs. Thurman. OK.
Ms. MacGuineas. So----
Mrs. Thurman. And do you know about any of these other
participants? I mean, did you all look at any of what they
have? What I am trying to get at--of the coverage that they
might have. Do they have HMO coverage? Did they----
Ms. Macguineas. I don't believe our survey looked at the
details of their coverage. We were limited both with resources
and time for how many questions we could ask them.
Mrs. Thurman. Mr. Richtman, let me ask you a question,
because when I go to my district, and I have a large senior
population who has had a very uncomfortable relationship with
Medicare choice programs pulling in, pulling out; in any
surveys that you have done, has there been any conversation
about seniors who participate in Medicare or who have been in
Medicare choice and are now back into Medicare? Do you feel
that--or questions that have been asked to them--that they
would prefer to have a Medicare prescription drug program as
versus all of these other things that are going on in their
lives and why?
Mr. Richtman. Well, we have not focused on that specific
question in surveys, but we, as you know, conduct a lot of town
meetings all over the country with our Members, and that issue
comes up every time. Medicare is a known entity and is a
trusted entity, and the way our Membership looks at Medicare is
that it has worked well and that it makes sense to add--whether
you call it a Part D or some other designation--a prescription
drug benefit, and I know there is a lot of talk around
Washington, around the country, about this big surplus. Whose
money is it, who do you trust with this money, and that is
apparently the way the issue is--some are trying to frame the
issue that way: ``who do you trust``?
For us, the issue is really a question of priorities. There
is this large surplus, and what are the priorities that we
should really be looking at in dealing with the surplus?
Mrs. Thurman. But do you get the impression because they
have had to do premiums before in Medigap or whatever that they
would be willing to help pay for this cost if the benefit was--
--
Mr. Richtman. Absolutely.
Mrs. Thurman. Provided through Medicare?
Mr. Richtman. Absolutely, and during the Clinton
administration's proposal that was floated during the last
year, year and a half, some of the numbers were--starting at
$25 a month and going up over, I think, 4 or 5 years to $44 a
month. There was no rebellion at the meetings we were involved
in with those numbers, as long as there was some consideration
of a cap for catastrophic, out-of-pocket costs. That kind of a
ball park figure was talked about.
Chairwoman Johnson. Thank you. Just to close off, Mr.
Richtman, are you aware that Title 18 of the Social Security
Act is the section of the law that makes Medicare an
entitlement?
Mr. Richtman. I am sorry; say that again, please?
Chairwoman Johnson. That Title 18 of the Social Security
Act is the section of the law that creates the entitlement of
Medicare?
Mr. Richtman. I take your word for it.
Chairwoman Johnson. Are you aware that both the bills from
both parties last year amended Title 18?
Mr. Richtman. Yes.
Chairwoman Johnson. Was it accurate, then, to say that the
House-passed prescription drug bill rejected a drug benefit in
Medicare?
Mr. Richtman. Well, we didn't think it was--the way it was
going to be administered, the way we interpreted----
Chairwoman Johnson. I understand that. But please, as we
move forward in this debate, you see what a challenging debate
it is. You see how important it is that we provide prescription
drugs. You see how important it is that we provide it in such a
way that we don't make seniors sicker instead of better. You
see that it is important that we provide it in a way that young
people have a burden that they can bear in the future. You see
that it is important that we provide it in a way that the
benefits actually get to the senior.
So I hope that your organization, which has had quite an
honorable history in a number of debates, would try to make
sure that your participation in this debate is a little more
accurate and a little more constructive. There should be no
doubt in anyone's mind who heard the Congressional Budget
Office at the beginning of the debate that this is going to be
expensive and a challenging endeavor, and we really have to all
work together.
The hearing is adjourned.
[Whereupon, at 4:30 p.m., the hearing was adjourned.]
[Submission for the record follows:]
STATEMENT OF THE AMERICAN SOCIETY OF HEALTH-SYSTEM PHARMACISTS,
BETHESDA, MARYLAND
The American Society of Health-System Pharmacists (ASHP) is writing
to commend the chairwoman and members of the subcommittee for holding
the March 27, 2001 hearing on Medicare reform and allowing the
subcommittee to hear from a broad spectrum of interested parties. The
hearing provided valuable information on devising a drug benefit that
will meet the needs of all seniors and enhance their quality of care.
ASHP hopes that the committee will continue to hear from interested
parties, such as pharmacists, who will play a critical role in
achieving this goal. We stand ready to provide any requested
information.
ASHP strongly supports efforts to add a drug benefit and to reform
the overall Medicare program. We take this opportunity to share with
the subcommittee the pharmacists' role in devising a rational and cost-
effective benefit. ASHP is the 30,000-member national professional
association that represents pharmacists who practice in hospitals,
long-term care facilities, home care, hospice, health maintenance
organizations, and other components of health care systems.
ASHP believes it is the role of the pharmacist to help patients
make the best use of their medicines. The first step in this process is
of course to ensure that beneficiaries have access to the prescribed
dosage at the prescribed time; to ensure that beneficiaries are not
splitting pills or skipping doses in order to make their supplies last.
A true drug benefit, rather than mere price reductions, will go a long
way towards achieving this goal.
Increasing access to pharmaceutical products however, is only part
of the challenge. Assuring appropriate outcomes, preventing adverse
effects and medication errors, and enhancing patient understanding and
involvement in their drug therapy are equally important components of a
successful Medicare outpatient pharmacy benefit. Simply increasing
access, without taking this other piece into consideration, will not
assure the safe and effective use of medications and could actually
result in increased medication-related errors. This is particularly
true for seniors who see several doctors or take multiple medications.
Pharmacists are the health professional uniquely trained and
committed to assuring appropriate drug therapy regimens. Working in a
true collaborative relationship with patients and the prescribing
physician, pharmacists are the best ally for ensuring that medications
are being used in a clinically appropriate, cost-effective manner, free
from preventable side effects, drug interactions, and other medication-
related problems.
As the November 1999 Institute of Medicine report, ``To Err is
Human: Building a Safer Health System'' points out: ``Because of the
immense variety and complexity of medications now available, it is
impossible for nurses and doctors to keep up with all of the
information required for safe medication use. The pharmacist has become
an essential resource * * * thus access to his or her expertise must be
possible at all times.''
Currently, the expertise and value that pharmacists bring to
patient care is not widely accessible through Medicare. This is because
pharmacists are the only primary health care professional not
recognized under the Medicare program as health care providers. As a
result, pharmacists are not eligible to bill Medicare for the services
they provide to beneficiaries.
This lack of recognition for pharmacists is consistent with the
lack of coverage for pharmaceuticals. Thirty-six years ago, when the
Medicare program was established, both pharmacists and prescription
drugs were a miniscule part of health care. Since then times have
changed. Drug therapy has become the preferred method of treatment for
most illnesses. According to a recent ASHP consumer survey,
approximately half of the senior population is now taking 5 or more
medications each day. At the same time, the pharmacist's traditional
role of ensuring accurate, safe medication compounding and dispensing
has evolved into a more comprehensive set of clinical, consultative,
and educational services.
Medicare must update its policy to be consistent with current
health care practice. The new IOM report, ``Crossing the Quality Chasm:
A New Health System for the 21st Century,'' recognizes that financial
barriers embodied in both public and private payers payment methods
create significant obstacles to high-quality health care. The report
states: ``[e]ven among health professionals motivated to provide the
best care possible, the structure of payment incentives may not
facilitate the actions needed to systematically improve the quality of
care, and may even prevent such actions.'' Our members have
increasingly reported this to be true for pharmacists. Health systems
often, even when acknowledging the pharmacists specialized expertise,
cannot afford to fully utilize the pharmacists' services since they are
non-revenue generating. This is especially contrary to modern practice
in the Veterans Health Administration and the Indian Health Service
where pharmacists are explicitly recognized as clinical specialists and
are providing these services on a broad basis. But again, are not
eligible to bill Medicare for the services they provide. Moreover,
thirty states have authorized pharmacists to provide these patient care
services in collaboration with physicians. Most other states are in the
process of doing so.
Research has overwhelmingly demonstrated that quality improvement
measures, such as the improved coordination and preventive care that
results from pharmacists' drug therapy management services, can
translate into dollar savings. This is true for Medicare since it is
already paying for the increased hospitalizations, emergency room and
physician office visits, as well as nursing home admissions, that
result from medication-related complications. According to a 1995 study
published in Archives of Internal Medicine, drug-related morbidity and
mortality in the ambulatory setting alone cost the nation $76.6 billion
annually.\1\ An updated analysis, projected this number to have more
than doubled in the last 6 years to $177 billion annually.\2\ According
to the 1995 study, the addition of pharmacists' collaborative drug
therapy management services would reduce negative therapeutic outcomes
by 53-63% and avoid $45.6 billion in direct health care costs.\3\
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\1\ Johnson and Bootman. Drug-Related Morbidity and Mortality.
Archives of Internal Medicine. 1995; 155:1949-1956.
\2\ Ernest & Grizzle. Drug-Related Morbidity and Mortality:
Updating the Cost-of-Illness Model. Journal of the American
Pharmaceutical Association 2001; 41: 192-199.
\3\ Johnson and Bootman. Supra. FN1.
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A key provision therefore to achieving a comprehensive drug benefit
and obtaining even incremental reform to Medicare is the formal
recognition of pharmacists as providers under the Social Security Act.
This recognition will ensure that the drug ``benefit'' is beneficial to
both Medicare beneficiaries (improving quality of care) and the
Medicare system as a whole (improving quality of care and enhancing the
efficient use of limited Medicare dollars).
ASHP appreciates this opportunity to present its views to the
Subcommittee and looks forward to a continuing dialog on this important
health issue. ASHP, in conjunction with the American College of
Clinical Pharmacy (ACCP), has established the Pharmacy Provider
Coalition to improve patient outcomes through collaborative drug
therapy management. Do not hesitate to call either organization as you
continue your deliberations and develop meaningful, bipartisan
legislation. We look forward to assisting you in this significant
undertaking.