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Medicare ‘doughnut hole’ relief could be offset by higher prescription drug prices

September 21, 2010 By: Nadia Category: HealthCare, Medicine Advice, Medtipster, Prescription News, Prescription Savings

www.Medtipster.com Source: The Washington Post – 9.21.2010

If you’ve ever seen a sale advertising 50 percent off, you might have wondered if the retail price was ratcheted up to make the discount possible.

Patient advocates are watching to see if a similar tactic undermines one of the most widely publicized benefits of the health-care overhaul that President Obama signed in March.

Beginning next year, at the expense of pharmaceutical companies, millions of senior citizens in the Medicare coverage gap known as the “doughnut hole” will receive 50 percent discounts off the price of brand-name prescription drugs.

The government does not control the underlying prices; the law leaves that to the market.

“There is legitimate concern that some manufacturers will steeply increase the price of drugs in order to offset the cost of the discount to the manufacturers at the expense of both consumers and the Medicare program itself,” the Center for Medicare Advocacy and the Medicare Rights Center said in a letter to the agency that oversees the federal health insurance program.

That agency, the Centers for Medicare & Medicaid Services, announced in August that the average monthly premium for Medicare prescription drug plans will rise next year by a dollar, to $30.

Officials at the agency and at the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group, said the average premium increase indicates that there has been no spike in prescription drug prices.

Competition in the drug market will serve as a restraint, they said.

“I am confident we will continue to see very low price growth” for the Medicare drug program, said Jonathan Blum, deputy administrator of the government’s Center for Medicare.

But others are worried about the long-term outlook. UnitedHealth Group, which sells prescription drug insurance, has expressed concern “that Manufacturers have not agreed . . . to protect the underlying pricing of the drugs.”

In a June letter to the Health and Human Services Department, UnitedHealth took the extraordinary step of calling for price controls, saying the government should “require Manufacturers to maintain a ceiling on prices that would preserve the value of the discount for beneficiaries.”

“I don’t think all savings will be lost. But they can certainly recoup some of those savings by increasing prices,” said John M. Coster, senior vice president for government affairs at the National Community Pharmacists Association.

The doughnut hole has been a financial abyss for many senior citizens since Medicare prescription drug coverage was first offered in 2006.

For 2010, beneficiaries enter the coverage gap when their prescription tab hits $2,830, including both their share and the amounts paid by insurance. Once in the gap, they are responsible for 100 percent of the cost and must spend $3,610 of their money before qualifying for catastrophic coverage, which typically pays 95 percent of the cost.

Some people in the doughnut hole forgo their medicine; others take less than the proper dosage.

The health-care law will close the coverage gap by 2020, Obama has said. To do that, it provides a combination of federal rebates and subsidies, and also requires drugmakers to foot the cost of the 50 percent discounts.

According to the consulting firm Avalere Health, the discounts will reduce drugmakers’ revenue by $32 billion over 10 years.

Despite that provision, the pharmaceutical lobby served as a key ally to Obama and congressional Democrats in the health-care battle.

For the industry, the outcome could have been worse. The legislation did not include proposals that posed a potentially greater threat to drugmakers – for example, empowering the federal government to negotiate prices.

And, by shrinking the number of uninsured, the legislation will expand the market for prescription drugs.

For drugmakers, offsetting the doughnut-hole discount would not be as simple as raising the price unilaterally.

There are different measures of prices, and the ones that will be discounted by 50 percent are the product of negotiations between retail pharmacies and intermediaries such as insurance plans. However, those negotiated prices are influenced by the ones that manufacturers set higher up the chain.

“I think you can say any price adjustments are independent of the discount,” Merck spokesman Ronald Rogers said by e-mail.

“What I can say is that all of the competitive market forces that were in place previously remain in place,” said PhRMA Senior Vice President Richard Smith.

But the government is trying to establish much lower prices than market forces alone produced.

As new drugs are introduced, manufacturers will probably factor the doughnut discount into their pricing, said Daniel N. Mendelson, chief executive of Avalere.

Some of the most expensive drugs taken by people in the doughnut hole face minimal competition from generics or brand-name alternatives, making them particularly susceptible to price inflation, said Brit Pim, vice president of government programs development at benefits manager Express Scripts. Those include “specialty medications” for complex diseases, he said.

Express Scripts found that in 2009, the average price for specialty medications rose 13.5 percent.

Pharmacy Benefit Manager Fees Must Be Reported on Schedule C

February 22, 2010 By: Nadia Category: Medtipster, Prescription News

Source: U.S. Department of Labor, 2/2010

The Department of Labor published FAQs to supplement FAQs published in July 2008, and to provide further guidance in response to additional questions from plans and service providers on the requirements for reporting service provider fees and other compensation on the Schedule C of the 2009 Form 5500 Annual Return/Report of Employee Benefit Plan. Inquiries regarding these supplemental FAQs may be directed to EBSA’s Office of Regulations and Interpretations at 202.693.8523.

The new FAQs — numbers 26 and 27 — note that PBMs perform many services for which they are compensated, including services as a third-party administrator, claims processor, and developer of the plan’s formulary and pharmacy network. The FAQs make clear that fees for these services would be reportable as direct compensation on Schedule C.

Q26: Pharmacy Benefit Managers (PBMs) provide services to plans and are compensated for these services in various ways. How should this compensation be reported?

PBMs often act as third party administrators for ERISA plan prescription drug programs and perform many activities to manage their clients’ prescription drug insurance coverage. They are generally engaged to be responsible for processing and paying prescription drug claims. They can also be engaged to develop and maintain the plan’s formulary and assemble networks of retail pharmacies that a plan sponsor’s members can use to fill prescriptions. PBMs receive fees for these services that are reportable compensation for Schedule C purposes. For example, dispensing fees charged by the PBM for each prescription filled by its mail-order pharmacy, specialty pharmacy, or a pharmacy that is a member of the PBM’s retail network and paid with plan assets would be reportable as direct compensation. Likewise, administrative fees paid with plan assets, whether or not reflected as part of the dispensing fee, would be reportable direct compensation on the Schedule C. Payments by the plan or payments by the plan sponsor that are reimbursed by the plan for ancillary administrative services such as recordkeeping, data management and information reporting, formulary management, participant health desk service, benefit education, utilization review, claims adjudication, participant communications, reporting services, website services, prior authorization, clinical programs, pharmacy audits, and other services would also be reportable direct compensation.

Q27: PBMs may receive rebates or discounts from the pharmaceutical manufacturers based on the amount of drugs a PBM purchases or other factors. Do such rebates and discounts need to be reported as indirect compensation on Schedule C?

Because formulary listings will affect a drug’s sales, pharmaceutical manufacturers compete to ensure that their products are included on PBM formularies. For example, PBMs often negotiate discounts and rebates with drug manufacturers based on the drugs bought and sold by PBMs or dispensed under ERISA plans administered by a PBM. These discounts and rebates go under various names, for example, “formulary payments” to obtain formulary status and “market-share payments” to encourage PBMs to dispense particular drugs. The Department is currently considering the extent to which PBM discount and rebate revenue attributable to a PBM’s business with ERISA plans may properly be classified as compensation related to services provided to the plans. Thus, in the absence of further guidance from the Department, discount and rebate revenue received by PBMs from pharmaceutical companies generally do not need to be treated as reportable indirect compensation for Schedule C purposes, even if the discount or rebate may be based in part of the quantity of drugs dispensed under ERISA plans administered by the PBM. If, however, the plan and the PBM agree that such rebates or discounts (or earnings on rebates and discounts held by the PBM) would be used to compensate the PBM for managing the plan’s prescription drug coverage, dispensing prescriptions or other administrative and ancillary services, that revenue would be reportable indirect compensation notwithstanding that the funds were derived from rebates or discounts.

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