LEXIS-NEXIS® Congressional Universe-Document

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Document 58 of 60.

JUNE 23, 1999, WEDNESDAY

SECTION: IN THE NEWS

LENGTH: 4359 words

HEADLINE: PREPARED TESTIMONY BY
DR. MORRIS B. MELLION
SENIOR VICE PRESIDENT, HEALTH CARE POLICY
AND CHIEF MEDICAL OFFICER
BLUE CROSS AND BLUE SHIELD OF NEBRASKA
OF THE BLUE CROSS AND BLUE SHIELD ASSOCIATION
BEFORE THE SENATE COMMITTEE ON FINANCE
SUBJECT - PRESCRIPTION DRUG BENEFITS AND THE MEDICARE PROGRAM

BODY:

Mr. Chairman and members of the committee, I am Dr. Morris B. Mellion, Senior Vice President of Health Care Policy and Chief Medical Officer at Blue Cross and Blue Shield of Nebraska.
Today, I am testifying on behalf of the Blue Cross and Blue Shield Association (BCBSA). BCBSA represents the 51 independent Blue Cross and Blue Shield Plans throughout the nation that together provide health coverage to 73 million Americans. I appreciate the opportunity to testify on prescription drug benefits.
Blue Cross and Blue Shield Plans have extensive experience in providing prescription drug coverage to both working and retired Americans. -- Blue Cross and Blue Shield Plans underwrite and deliver the government-wide Service Benefit Plan under the Federal Employee Health Benefits Program (FEHBP). This plan has been in the federal program since its inception in 1960. It covers over 1.9 million contracts and more than 3.7 million lives. The Service Benefit Plan provides outpatient prescription drag benefits to its members, many of whom are retired.
-- BCBS Plans offer health coverage to working Americans through a variety of managed care and indemnity products, including health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point of service (POS) plans. Nearly all of these plans provide prescription drag benefits to their members.
-- Collectively, BCBS Plans provide Medicare HMO coverage to more than one million Medicare beneficiaries, making them the second largest Medicare+Choice (M+C) provider in the country. Most of the BCBS M+C plans provide outpatient prescription drug benefits to their members.
-- BCBS Plans also provide Medigap coverage, which offers seniors varying levels of protection from Medicare's cost sharing requirements. Three of the 10 standardized Medigap packages include outpatient prescription drug coverage.
Our constant challenge, which Congress will face if they include prescription drug benefits under Medicare, is to provide a meaningful level of coverage for prescription drug costs while keeping premiums as affordable as possible. It is a major challenge and we have a harsh consequence if we fail to structure the right premiums -the customer will not select our products.
In my testimony today, I will address four areas:
-- Background on the costs of providing outpatient prescription drug coverage.
-- Strategies used by BCBS Plans to manage prescription drug benefits.
-- Comments on proposals to mandate that all Medigap policies cover prescription drugs.
-- Considerations in adding a prescription drug benefit to Medicare.
I. BACKGROUND ON PRESCRIPTION DRUG BENEFITS
Prescription drugs have significantly increased Americans' life span and contributed to their improved health status in the 20th century. Recognizing the potential for pharmaceuticals to prevent and treat disease, BCBS Plans offer pharmacy benefits to their members. However, the cost of drag benefits is high and accelerating at rates well above those of other benefit costs. As a result, drags account for a growing share of BCBS Plans' total medical costs and our members' premium dollars. BCBSA expects these costs to continue to grow rapidly.
Historical Trends in Pharmacy Costs:
-- From 1993 to 1998, it is estimated that BCBS Plans' aggregate spending on outpatient drugs increased almost 60 percent, from $7.6 billion to $12 billion (on a stable population base). Some Plans have experienced even more rapid growth in pharmacy costs. For example, payments made by one Blue Cross and Blue Shield Plan rose by 26 percent just in 1997 and were expected to rise by another 25 percent in 1998.
-- Earlier this year, a large, self-insured customer of BCBS of Nebraska expressed surprise at its rising pharmaceutical costs and requested further analysis. We compared its 1996 and 1998 pharmacy expenditures and found that:
- The average number of prescriptions per member had risen from 8.2 to 9.4;
- The average ingredient cost per brand drag prescription had increased from $43.36 to $57.72;
- The use of generic drugs had declined from 41.95 percent to 38.45 percent; and
- The average annual prescription cost per member had climbed from $188.21 to $319.13.
-- Other private insurers have experienced similar increases. In May 1999, the Employee Benefit Research Institute reported that private insurance payments for prescription drugs increased 17.7 percent in 1997, after growing 22.1 percent in 1995 and 18.7 percent in 1996. This growth in prescription drug payments compares with 4 percent or less annual growth in overall private payments for each of these three years.
-- For BCBS Plans, aggregate drag costs increased from an estimated 12 percent of total medical costs in 1993 to 14 percent by 1997, while other components remained relatively stable. For some Plans, payments for prescription drugs now exceed those for inpatient hospitalization. In the broader U.S. private insurance market, analysts estimate that prescription drugs now account for 11 to 14 percent of total medical expenses for most health plans, up from 7 percent just a few years ago.
-- Prescription drug costs may be even higher for some health plans, especially those that provide drag benefits to older populations. For example, the Service Benefit Plan under FEHBP, which covers a large number of retired workers, has experienced rapidly escalating prescription drug costs. Today, these costs are approaching 30 percent of total benefit costs. Factors Contributing to Increased Prescription Drug Spending:
While BCBS Plans use a range of strategies to manage growing prescription drag costs on behalf of their subscribers, spending is being propelled by a number of market and structural forces over which private insurers have little control.

Some of the most important forces are the following:
Demographic Trends
As the U.S. population ages, the number of people at risk for chronic and disabling diseases is rising dramatically. The single largest market for prescription drags is the aging baby boom generation. According to U.S. Census data, the 54-to-64 age group will expand by 59 percent between 1998 and 2010. The drags used by the middle aged and elderly tend to be expensive and often treat chronic conditions, such as hypertension, high cholesterol, diabetes and arthritis, which require a steady regimen throughout the patient's remaining life.
Rapid Flow of New Drugs to Market
Over the past decade, many new prescription drags have come to market. One of the most robust measures of the flow of pharmaceutical technology is the annual number of new molecular entities (NMEs) approved by the FDA. NMEs are compounds that have never before been marketed in this country. Over the course of a generation -- from the early 1960s to the mid 1990s -- the annual number of new molecular entities (NMEs) receiving FDA approval nearly doubled. From an average of 13.7 in the 1960s, annual NME approvals rose to 25.6 in the first half of the 1990s. Since then, the number has nearly doubled again. In the two-year period 1996-1997, the FDA approved a total of 92 NMEs, at an average rate of 46 per year.
Some of these new drugs are "breakthrough" products, which treat diseases and conditions that previously lacked effective therapies. Others are differentiated from older drugs by having less prevalent or severe side effects, or easier dosing forms. Physicians tend to adopt such new technology rapidly. While these new products often provide important clinical benefits, they also increase health insurance premiums.
For example, new immune system drugs have been developed which provide a powerful new treatment for serious ailments like Crohn's disease and arthritis. As a Chief Medical Officer of a health plan, I recognize that no other drug comes close to achieving the same result. Yet, these drags are very expensive and contribute to premium increases. These are the types of challenges that health plans now face.
The National Institute for Health Care Management (NIHCM), a non- profit, non-partisan research organization based in Washington, D.C., will soon release a report on trends in pharmacy spending. This report, which was prepared by the Barents Group LLC, examines the growth of retail prescription drag sales. The report found that:
-- Over the five year period 1993 - 1998, prescription drug spending rose from $51 billion to $93 billion, or by 84 percent.
-- $27.6 billion, or 65 percent of this $42 billion increase, was associated with new prescription drugs: that is, those approved by the FDA after 1992.
-- By 1998, new drugs accounted for $30 billion or 32 percent of retail drug expenditures even though they represented just 17 percent of all prescriptions. In some therapeutic categories, however, new drugs accounted for over half of spending. For example, an estimated 98 percent of the 1998 sales of antihistamines, 68 percent of anti- cholesterol agents, and 51 percent of antidepressants were derived from new drugs.
-- In 1998, the average price per prescription of a new drag was $71.49 per prescription, compared with $30.47 for older drags. However, for some new drugs, the average price per prescription was three to seven times that of the older drug it replaced.
We expect this flow of new drag technology to continue. Over the past two decades, the pharmaceutical industry and the federal government, through the National Institutes of Health, have made massive investments in research and development. For example, the Pharmaceutical Research and Manufacturers of America (PhRMA) has estimated that the pharmaceutical industry spent $21.1 billion on R&D in 1998. This represents more than twice the amount, $8.4 billion, that private industry invested in pharmaceutical R&D in 1990, and more than ten times the $2 billion spent in 1980. This spending has resulted in full product pipelines that can be expected to bring forth a comucopia of new products in the next century. According to PhRMA, drag manufacturers are now developing 316 new medicines for cancer; 96 for cardiovascular disease; and 124 for HIV disease, to name a few.
On the horizon, discoveries in genetics also are expected to increase exponentially the number of targets for drug intervention in just a few years. The Human Genome project is a global initiative to map and sequence the whole human genome by the year 2005. According to PhRMA, drug interventions are being actively researched for about 500health conditions. Once the Human Genome project is completed, scientists anticipate research to increase six to 20 fold to 3,000 to 10,000 conditions. Thus, it seems likely that the drugs now coming to market are the beginning of a vastly expanded and revolutionized medical armory.
Direct-to-Consumer Advertising of Prescription Drugs
Over the past decade, direct-to-consumer (DTC) advertising has revolutionized the marketing of prescription drags. Traditionally, such advertising was limited to medical journals and trade publications aimed at physicians. Since 1985, when the FDA lifted its moratorium on promotion directed to consumers, this form of advertising has exploded. In 1991, pharmaceutical companies spent $55.3 million to promote prescription products directly to consumers. By 1998, outlays on DTC advertising had multiplied over 20 fold to reach $1.3 billion. Since the FDA relaxed its regulation of broadcast advertising in 1997, TV ads for prescription drugs have proliferated.
Surveys of both consumers and physicians show that DTC ads for prescription drags are effective in stimulating demand for branded products. The drags that tend to be advertised are those that are widely used and have a minimum of side effects. In March - April 1997, PREVENTION magazine and the American Pharmaceutical Association (APhA) jointly sponsored a telephone survey of 1,200 consumers nationwide. One of the purposes of this survey was to investigate consumers' response to prescription drug ads. At that time, the survey found that 63 percent of consumers could recall seeing a DTC prescription drug ad. Of this group, almost a third (31 percent) reported that they had asked their doctors about a medication that they had seen advertised. Nearly one in three of these people had asked the doctor for a prescription for the advertised drug. Nearly three-quarters (73 percent) of the time, the physician complied with the request.
Physicians report that an increasing number of their patients are aware of branded prescription drugs and ask for particular products because they have seen them advertised. In 1998, IMS Health surveyed 2,000 doctors nationwide to assess theirattitudes toward the expanding use of DTC advertising. Two-thirds of the physicians reported that DTC advertising was the source of brand awareness for their patients, versus 56 percent a year earlier. Over half (53 percent) also reported an increase in the number of patients requesting prescription drugs by brand name, versus 41 percent a year earlier.
Scott-Levin Associates, a Pennsylvania finn that provides consulting services to the pharmaceutical industry, found that physician visits made in connection with heavily advertised drugs rose last year. According to their 1998 Physician Drug and Diagnosis Audit, while overall visits to physicians rose 2 percent between January and September 1998, visits for heavily advertised conditions such as allergies rose 11 percent. For some conditions, the increases were even higher; patient visits for high cholesterol climbed 19 percent.
DTC advertising can promote the public health by encouraging patients with undiagnosed and untreated conditions to see their doctor. However, this consumer demand also contributes to health benefits costs. One Blue Cross and Blue Shield Plan found that five heavily advertised drugs accounted for approximately 10 percent of its prescription drug benefits costs in 1998. Table 1 below shows a comparison of the Plan's drug usage and costs for the first half of 1998 versus the same period a year earlier prior to the advertising campaign. The Plan found that its costs per member for each of these heavily advertised drugs rose from 32 to 90 percent during this period.

Table 1
Comparison of Drug Usage and Costs for A Blue Cross Blue Shield Plan,
First Six Months of 1998 Versus 1997
Increases in Generic Drug Prices
Generic drugs are the chemical equivalent to brand name drugs but are significantly less expensive. While generic drugs are typically used to lower health care spending, the price of generic drags has begun to rise as a result of consolidation in the industry. While not having as great an impact as the other trends we have highlighted (demographic trends, the flow of new drugs or DTC advertising), higher genetic drag prices are contributors to overall higher prescription drug costs.
In sum, BCBS Plans have experienced a rapid acceleration in prescription drug costs over the past few years. BCBSA expects pharmacy costs to continue to rise, propelled by the medical needs of an aging population, the flow of new technology, and strong consumer demand. As this occurs, health insurers will need to manage prescription drug benefits as effectively as possible in order to keep premiums affordable.
II. STRATEGIES FOR MANAGING DRUG BENEFITS
BCBS Plans use a range of programs to deliver pharmacy benefits and ensure that drugs are used in ways that are both clinically appropriate and cost effective. Some BCBS Plans contract with outside prescription benefit managers (PBMs) to perform claims processing, negotiate volume discounts on their behalf, and oversee the retail distribution of drugs to their members. Others provide these management functions in-house, and a few have created their own PBMs. In any case, some of the most important strategies for managing drug benefits are the following:
Formulary Administration:
Formularies are lists of drugs that health plans cover. Some Blue Cross and Blue Shield Plans maintain "open" formularies, which provide beneficiaries with broad access to all approved medications. However, many health plans are moving to selective formularies, which give certain drugs preferential status. Under selective formularies, drugs that are not on the "preferred" list are covered if the prescribing physician receives "preauthorization" from the plan. BCBS Plans generally have avoided the use of so-called "closed" formulades, which restrict coverage to drugs on an approved list without exception. BCBS Plans also maintain internal review procedures to consider cases in which a requested drag has been denied to a patient.
Most health plans develop formulades under the guidance of a pharmacy and therapeutics, or P & T, committee. P & T committees are comprised of pharmacists and physicians representing a range of clinical specialties. They evaluate available drugs on their clinical effectiveness, safety, and cost before deciding which drugs will be given preferential status on the plan's formulary. Typically, P & T committees give preferred status to breakthrough drugs or those lacking effective alternatives, and to safe and effective drugs that cost less than other drugs in the same therapeutic class. P & T committees may also develop guidelines for coverage of drags that are not on theformulary's "preferred" list. Plan administrators use these guidelines when they make "pre-authorization" decisions.
Preferred Provider Arrangements with Retail Pharmacies:
Health plans may also negotiate discounts by contracting with networks of retail pharmacies to become preferred providers in their geographic area. In general, networks will provide higher discounts in exchange for greater exclusivity (i.e., more volume). However, reducing network participation may limit beneficiaries' access to pharmacies. Hence, health plans must make a tradeoff between providing their members with convenient access to retail outlets and reducing costs. Some plans offer mail order pharmacies to obtain volume discounts and provide financial incentives (e.g., eliminating front-end deductibles for prescriptions filled by mail) to encourage their members to use them.
The emergence of Internet pharmacies recently has posed a challenge to preferred provider networks. Most plans have arrangements to reimburse members who purchase drugs outside preferred networks (e.g., in an emergency or when they travel). However, the Internet provides consumers with access to Web sites from which they can obtain prescriptions for popular drugs, such as Viagra (Pfizer's drug to treat impotence), simply by filling out an online questionnaire and paying a fee. The consumer may then visit an online pharmacy to have the prescription filled and be reimbursed by their health plan. The physicians and pharmacies that participate in this online drug distribution system may lack the appropriate credentials and operate beyond the reach of traditional regulatory safeguards. For this reason, health plans face increasing challenges to ensure that their enrolled populations use drugs safely and appropriately.
Beneficiary Cost Sharing:
BCBS and other health plans have recently increased the use of financial incentives to sensitize beneficiaries to the cost of drags, from which they have historically beeninsulated. Over the past year, many plans have implemented tiered-copayment structures. Under these structures, plan members share the cost of expensive drugs that have safe and effective, but less costly, alternatives. The intent is to encourage members to use drugs that are both clinically efficacious and cost effective.
Three-tiered structures, which classify drugs into three categories with differing levels of copayment, are now becoming popular. For example, one BCBS Plan recently established the three-part classification shown in Table 2 below. Tier 1, consisting of generic drugs, has the lowest copayment. Tier 2 contains branded drags that are clinically effective, cost effective, and meet the needs of most patients. These drags require a moderate copayment. Tier 3 drugs, with the highest copayment, are branded drugs with a generic equivalent or branded therapeutic equivalent in Tier 2. This tier also contains drugs that are rarely used as the first line of treatment of a disease or condition.
Table 2
An Example of Prescription Drug Tier Definitions and Copayments
Each health plan sets its own copayment structure using one of two approaches. Some plans require a fixed dollar copayment that varies by tier: for example, $10 for Tier 1; $20 for Tier 2; and $30-35 for Tier 3. Other plans prefer to use different percentages of co-insurance for Tiers 1, 2 and 3.Clearly, tiered cost sharing will be most effective in controlling costs in situations where generic drugs or less expensive branded alternatives exist. However, they will have little impact on the spending associated with breakthrough technology.
While drug benefit costs continue to rise, we hope these cost containment strategies will help to rein in drug costs. Unfortunately, some policymakers, at both the state and federal level, support proposals that would undermine these cost containment tools. For example, some have supported measures that would jeopardize the use of formularies. We urge Congress to reject these types of proposals.
III. MANDATING DRUG COVERAGE IN ALL MEDIGAP PRODUCTS
Congress and the Administration are concerned about the access of senior citizens to needed medication because the traditional fee-for- service Medicare program does not generally provide coverage of outpatient prescription drugs. Today, approximately twothirds of Medicare beneficiaries obtain such coverage from other sources: Medicare+Choice Plans, Medicaid, employer-sponsored retiree plans, and Medigap.
Medigap offers those who seek protection from Medicare's cost sharing the choice of 10 standardized packages, three of which provide prescription drag coverage. An estimated 15 percent of those enrolled in Medigap plans select one of these three plans. The remaining 85 percent choose one of the other 7 standard plans, which are more affordable because they lack prescription drug coverage. Medigap plans have proved popular in the market place. A July 1998 report from the Department of Health and Human Services Inspector General found that 88 percent of beneficiaries are satisfied with their Medigap policies.
Some federal policymakers have advocated restructuring Medigap so that all packages include coverage of prescription drugs. The intent behind these proposals is laudable; increasing seniors' access to needed medications.

However, a report recently released by BCBSA and the Health Insurance Association of America (HIAA) suggests that theseproposals, if enacted into law, would actually reduce seniors' access to Medigap coverage because they would raise average premium costs for beneficiaries by at least $1,000 annually. Such an increase would force many Medicare beneficiaries to drop Medigap, thus leaving them to bear the full cost of Medicare copayments and deductibles. As you consider reforming Medicare, we urge that you keep Medigap affordable and ensure that beneficiaries have a choice of products by not mandating drug coverage for all products.
Because three Medigap plans are now available for seniors who want prescription drug coverage, these proposals would not increase Medicare beneficiaries' access to drug benefits so much as reduce the access of those with lower incomes to any supplemental coverage.
IV. ADDING A DRUG BENEFIT TO MEDICARE
BCBSA shares Congress's concern that Medicare beneficiaries have access to affordable prescription drug coverage. We recognize that since Medicare's inception prescription drugs have assumed an increasingly important role in improving and maintaining the quality of health care. However, we would urge Congress to proceed with caution in developing a Medicare prescription drag benefit, as drug costs are the fastest growing segment of health care.
As my testimony has outlined, private-sector experience suggests that a Medicare drug benefit would be very costly. It will be critical that any Medicare drug proposal include incentives for appropriate drag utilization, as well as programs to manage costs.
A key design element will be whether the new drug benefit is mandatory or voluntary for beneficiaries. The cost of the program will be lower if all Medicare beneficiaries are enrolled in the prescription drug program. However, many beneficiaries now obtain their drug coverage from their previous employers and may pay nominal costs. If the program is mandatory, these individuals may perceive that they are being "forced" to pay for something they already have.If the new benefit is voluntary for Medicare beneficiaries, we would anticipate that the individuals who are most likely to opt-in are those who have high prescription drug costs. This would make the program more expensive for everyone. Finally, even with state-of-the-art cost-containment tools, prescription drag costs continue to rise in the private sector. Congress must be willing to confront the challenge of managing costs and ensuring adequate benefit design if it moves toward adding a new Medicare drug benefit.
V. Conclusion
Health plans have developed a number of strategies for addressing the rising cost of prescription drugs, although it is still too soon to tell how successful they will be.
As you debate the benefits and costs of adding a prescription drag benefit to Medicare, I would urge you to familiarize yourselves with what the private sector is doing to contain drug costs - the government would need to use these types of strategies for Medicare. As a first step, Congress should not enact legislation that would undermine these cost containment efforts. Congress should also avoid the unintended consequences of proposed Medigap changes by not mandating prescription drug coverage under all standardized options.
Thank you again for the opportunity to testify today.
END

LOAD-DATE: June 25, 1999

Document 58 of 60.


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