New Medicare Drug Benefit Marks Biggest Change in 40 Years
Cover Story - June 2005
When the clock strikes midnight on Jan. 1, 2006, a new era will dawn in American medicine. In that instant, the way more than 40 million seniors pay for their prescription drugs will be transformed as the new Medicare drug benefit takes effect. Physicians will feel the impact as well.
Physicians, senior advocates, and others say it is the biggest change in the Medicare program since its inception in 1965, and they hope the new drug coverage, known as Medicare Part D, will play a vital role in improving the health and quality of life for elderly Americans.
"Any support for pharmaceutical costs helps people," said Lewis Foxhall, MD, chair of the Texas Medical Association's Council on Socioeconomics. "The cost of pharmaceuticals has been far and away the biggest area of increase in the cost of health care. Since those costs have been borne by the Medicare beneficiaries in the past, it has been a real challenge for a lot of people who have limited or fixed incomes."
But the new program will be costly and complex, and those following the rollout of Medicare Part D say there is ample potential for confusion among Medicare beneficiaries, physicians, pharmacists, and other health care professionals.
"When you're dealing with that many people and with issues as sensitive as your health care, and how individuals are going to receive a key component of their health care like prescription drugs, it's never an easy task," said George Kelemen, campaign manager for Medicare Rx Outreach for AARP.
Medicare beneficiaries can begin signing up for Medicare Part D drug coverage in November. But between now and then, they must weigh several options and make some important decisions about which one of a number of drug plans they're likely to be offered is best for them.
Meanwhile, government officials and advocates say physicians also need to quickly familiarize themselves with the new program. Not only are physicians going to have to be able to answer patients' questions about the new coverage and help them make good decisions, but they also will need to learn the intricacies of the drug formularies that will accompany the new benefit.
The Centers for Medicare & Medicaid Services (CMS) believes physicians may be the first source patients turn to for information about the new drug benefit. It is asking doctors to learn about the program so they can direct patients to sources of information or answer questions such as how beneficiaries can enroll or what the copayment amounts will be.
CMS has set up a special section on its Web site with information for physicians and other health care professionals at www.cms.hhs.gov/medlearn. Patients also can access information about the program by calling 800-MEDICARE or logging on to www.medicare.gov.
Medicare Part D is part of the 2003 Medicare Prescription Drug, Improvement, and Modernization Act (MMA). Initially under the MMA, beneficiaries were offered drug discount cards they could use to lower their prescription costs. Those cards, however, will be phased out when the more extensive drug coverage takes effect.
While some supporters of Medicare prescription drug coverage opposed the MMA because they did not believe the benefit was generous enough, AARP favored it and is educating its members about the program.
Educating beneficiaries and physicians will be critical to smooth implementation of Medicare Part D because of the complexity built into the program. In addition to AARP's efforts to educate seniors, CMS also has launched an extensive outreach campaign. CMS spokesman Peter Ashkenaz says the agency believes more than 90 percent of the 42 million current Medicare beneficiaries will opt into the new program.
"It's a large number, which makes the outreach effort even that much more challenging. So providers, physicians, clinicians are all going to be an integral part of that outreach," he said.
Filling the Doughnut Hole
While CMS believes the vast majority of beneficiaries will opt into the prescription benefit, it is not mandatory. Under the new program, beneficiaries can enroll in Part D, stick with their existing Medigap prescription drug coverage, or retain coverage provided through retiree benefits from former employers or labor unions. If they choose to enroll in Part D, they will pay a monthly premium of about $35.
The initial enrollment period begins Nov. 1 and runs through May 15, 2006. Beneficiaries who decide to stay with Medigap or retiree coverage can opt in later without penalty. But others who delay enrollment will pay higher premiums if they enroll after the deadline.
Part D coverage will be administered by private health plans that will compete for beneficiaries in various regional markets. That means that before enrolling, beneficiaries will have to consider significant differences among the plans, Mr. Kelemen says, such as variations in drug formularies or differences in copayments. The plans that will operate in Texas won't be announced until September, so it is unknown how the plans will be designed.
"The key tip we're giving beneficiaries right now is to make sure they take the time to read whatever information they get so that they are aware that changes are coming and that they may have to make a decision based on how their current coverage is impacted," Mr. Kelemen said. "Then, as the specifics roll out as far as what the plans are, what they look like, what their designs are like, we'll be able to point beneficiaries to specific resources that allow them to evaluate all of the various options that are going to be available in their area."
Beneficiaries likely will be able to choose either a stand-alone prescription drug plan or one tied to a so-called Medicare Advantage plan (formerly Medicare + Choice), which can be an HMO or PPO.
While there may be some differences in how each plan is structured, the basic benefit will be the same. Beneficiaries will be responsible for the first $250 in prescription drug costs each year, and Medicare will pay 75 percent of the next $2,000. Then there is no coverage until the beneficiary has paid another $2,850 in drug expenses, or until the beneficiary's total drug expenses for the year reach $5,100. Medicare will pay 95 percent of any drug costs above $5,100. For high users of prescription drugs, out-of-pocket costs could total more than $3,600.
Stakeholders call the gap in coverage between $2,250 and $5,100 a "doughnut hole" and fear it will prompt some seniors to shy away from enrolling in Medicare Part D. Mr. Kelemen says there is concern that seniors may decide that Part D is not financially advantageous compared with what they're currently spending on prescription drugs.
"But it is a decision that should be weighed really carefully and not so much within the vacuum of a simple 'kitchen table test' of today's expenses versus today's needs," he said. Seniors may be glad they "invested a little today even though they may not need it today" because there will come a time when they do need it, he says.
Dr. Foxhall says the concept of the doughnut hole was to require some level of personal responsibility for beneficiaries without inhibiting their ability to get needed medications.
The Medicaid Claw
While premiums and out-of-pocket costs will be substantial for most Medicare beneficiaries, low-income seniors will receive assistance. Those below 135 percent of the federal poverty level, or $12,920 for an individual or $17,320 for a couple, will pay no monthly premiums or deductibles. Plus, there will be no gap, or doughnut hole, in their coverage.
The new drug benefit also will bring big changes in state Medicaid programs for seniors eligible for both Medicare and Medicaid. Texas' Medicaid program currently covers more than 300,000 low-income seniors who are considered "full dual eligibles" through its Medicaid Vendor Drug Program. Medicaid currently pays all prescription drug costs for dual-eligible beneficiaries in nursing homes, with no deductibles or copayments. Those low-income seniors not in nursing homes also have no deductibles or copayments, but Medicaid will only pay for a maximum of three prescriptions per month.
Dual-eligible beneficiaries now will get their drug coverage through Medicare (see "What Medicare Part D Pays").
The transition to Medicare Part D means that state Medicaid programs will see significant savings in their vendor drug programs, but it will not be a windfall for the states. In fact, Texas officials expect the transition to create a net loss for the state, at least in the short term, for several reasons.
"By giving that population away to Medicare, we obviously don't have to pay that state share of drug costs anymore, but we don't draw the federal matching share anymore either," said Trey Berndt, senior policy advisor at the Texas Health and Human Services Commission (HHSC) and the state project director for Medicare Part D transition. He says Texas also will lose rebates from pharmaceutical manufacturers and will be required to make annual "claw back" payments to the federal government.
The claw-back payment is based on an estimate of what the state would have spent on drug coverage for the dual-eligible beneficiaries, Mr. Berndt says. For the first year of the new program, the state will have to remit 90 percent of the estimated amount to the federal government. Over the next 10 to 15 years, the claw-back payment will gradually decrease to about 75 percent of the estimate of what the state would have spent on those beneficiaries.
HHSC estimates Texas will have to send the federal government about $300 million in fiscal 2007, the first full year it will have to make the claw-back payment, Mr. Berndt says.
Tossing the Three-Script Limit
The transition from the Medicaid Vendor Drug Program to Medicare Part D is both good and bad news for the dual-eligible beneficiaries. Under Medicaid, some have been limited to three prescription drugs per month, meaning they had to pay out of their own pocket if they needed additional prescriptions. That limit will no longer apply under Medicare Part D, Mr. Berndt says.
However, formularies in Medicare Part D are expected to be more restrictive than what patients have experienced under Medicaid. That means patients may have to switch drugs if the ones they currently take are not on a plan's formulary.
In such cases, CMS regulations require the Part D plans to temporarily pay for the patient's current medication while a transition can be made to a drug that is on the plan's formulary, Mr. Berndt says.
Still, physicians are concerned that many elderly, low-income patients don't understand the difference between Medicare and Medicaid and, come January, won't understand why they can no longer get a drug that previously was covered.
"We still don't know what the transition is going to look like, said Helen Kent Davis, director of the TMA Office of Governmental Affairs. "Each plan gets to establish what its transition plan means. We're going to have situations where physicians are going to have to help patients walk through the grievance and appeals mechanism so they can continue to get those drugs."
Many of the dual-eligible beneficiaries, who are in nursing homes and institutions, may not understand the enrollment process. If they don't pick a plan, one will be assigned for them, probably the cheapest, Ms. Davis says. "The plans have to be actuarially equivalent, but it doesn't mean that some of the really expensive, newer generation medications will be covered."
Mr. Berndt says HHSC initially worried that Medicare Part D formularies would be highly restrictive, but it appears several large health plans will compete in the Texas market with formularies similar to those they use in their commercial products.
"There has never been this many people change a formulary at one time," Mr. Berndt said. "We are a little worried that if the Part D plans are not flexible and don't do a good job of covering people's current medications, then this could be really confusing for all concerned and, frankly, for the Part D plans, as well."
Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by e-mail at Ken Ortolon.
What Medicare Part D Pays
(assets < $2,000/individual or $3,000/couple)
$1/generic drug copy
$3/brand-name drug copay
No copay for drug costs over $5,100
|Beneficiaries below 135% of poverty
(assets < $6,000/individual or $9,000/couple
|$2/generic drug copay
$5/brand-name drug copay
No copay for drug costs over $5,100
|Institutionalized dual-eligible beneficiaries
(such as those in nursing homes)
|No cost sharing
(unless they opt into plans with higher premiums)
|Beneficiaries between 135% and 150% of poverty
(assets < $10,000/individual or $20,000/couple and not eligible for above programs)
|Pay monthly premium based on sliding fee scale + $50 annual deductible + 15% of drug costs after deductible, up to $2,200. Medicare then pays all costs up to $5,100, and then beneficiaries pay $2/generic drug copay and $5/brand-name drug copay.
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Medicare Sustainable Growth Rate Unsustainable, Physicians Say
On the eve of the largest expansion of health care benefits for seniors in the Medicare program's history, physicians are warning that steep cuts in Medicare physician fees scheduled to take effect next year could doom the whole program.
Results of an American Medical Association survey released in April indicate that more than a third of physicians will reduce the number of new Medicare patients they accept if the scheduled 4.3-percent reduction in physician fees takes place in 2006.
"Physicians want to serve America's seniors, but they simply cannot afford to accept an unlimited number of new Medicare patients in their practices if Medicare payments do not keep up with the cost of providing care," AMA President-Elect J. Edward Hill, MD, said in announcing the survey results.
Medicare physician fees are based on a "sustainable growth rate" formula that forces payments to physicians, nurses, and other health professionals down to offset increases in the volume of services Medicare patients receive. In recent years, Congress has taken emergency action to stop projected cuts and replace them with modest increases, but lawmakers have failed to enact a permanent fix.
The 2005 Medicare Trustees Report, released in April, projects physician payment cuts of 26 percent over six years beginning in 2006. That same report projects the cost of running a practice and caring for patients to increase 15 percent during the same period.
"Medicare payments to physicians already seriously lag behind the increasing cost of providing medical care," Dr. Hill said. "If Congress and the administration fail to act soon, physician payment cuts of 26 percent over the six years will be devastating to the foundation of Medicare."
According to an impact analysis of the projected cuts developed by the AMA Division of Economic and Statistical Research, Texas physicians would lose $8.29 billion, or $21,000 per physician per year, between 2006 and 2014. Cuts in 2006 alone would total $169 million.
Lewis Foxhall, MD, chair of Texas Medical Association's Council on Socioeconomics, says cuts of that magnitude will severely damage access to care for seniors here.
"There comes a point when physicians just have a hard time being able to afford to see Medicare patients even though they may want to," Dr. Foxhall said. "It's especially more difficult as the ability to cost shift to take care of the underfunded population - whether that's Medicare or Medicaid or uninsured patients - becomes progressively more challenging."
The AMA survey also found that one in 10 physicians likely would retire if Medicare rates fall 5 percent next year, that 61 percent would defer the purchase of new medical equipment, and that 54 percent would delay the purchase of information technology.
AMA has launched a national lobby effort to convince Congress that now is the time to fix the problem once and for all. The association is urging its members to contact their representatives and senators, has organized a nationwide network of patients to oppose the cuts, and has developed posters for display in physician offices that say further cuts threaten "physicians' ability to serve Medicare patients in the future."
"Congress and the administration must act now to replace the flawed physician formula, which penalizes physicians for providing necessary care to Medicare patients," Temple cardiologist Jim Rohack, MD, chair of the AMA Board of Trustees, said in a statement released March 31 in reaction to the Medicare Trustees Report.
Rich Johnson, director of TMA's Division of Medical Economics, says both Health and Human Services Secretary Michael O. Leavitt and Mark B. McClellan, MD, PhD, administrator of the U.S. Centers for Medicare & Medicaid Services, voiced support for the payment fix during meetings with AMA leaders early this year.
"What they didn't talk about, of course, is how they're going to find the money to pay for it," Mr. Johnson said.
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