SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 5840 words

COMMITTEE: HOUSE ENERGY

SUBCOMMITTEE: HEALTH AND THE ENVIRONMENT

HEADLINE: TESTIMONY PRESCRIPTION DRUG BENEFIT FOR SENIORS

TESTIMONY-BY: JAMES F. SMITH , SENIOR VICE PRESIDENT

AFFILIATION: HEALTH CARE SERVICES

BODY:
February, 15, 2001 James F. Smith, R.Ph. Senior Vice President, Health Care Services CVS Corporation Woonsocket, Rhode Island U. S. House of Representatives Committee on Energy and Commerce Subcommittee on Health Mr. Chairman and Members of the Subcommitee. I am Jim Smith, Senior Vice President of Health Care Services of CVS Corporation. As the largest pharmacy provider in the nation, CVS operates 4,126 community pharmacies in 27 states. In 2001, we will provide an estimated 320 million prescriptions. CVS operates 278 pharmacies in districts of this subcommittee's members. I am also here on behalf of the National Association of Chain Drug Stores (NACDS). NACDS represents about 170 chain pharmacy companies that operate about 33,000 retail pharmacies all across the United States. Chain pharmacy is the single largest segment of pharmacy practice. We filled about 60 percent of the 3.1 billion prescriptions provided across the nation last year. NACDS operates 2,112 stores in the districts of this subcommittee's members. We very much appreciate this opportunity to testify before the subcommittee today. We believe that our experience in delivering and managing pharmacy benefits can be of value to the subcommittee as you begin your important work this year in determining what works, and doesn't work, for seniors in helping them obtain their vital prescription medication and pharmacy services. Develop a Pharmacy Benefit, not only a "Drug" Benefit Today, when a patient arrives at their local community pharmacy, be it a chain pharmacy or an independent, they come into contact with one of the most accessible and trusted providers in the entire health care system. It is estimated that 95 percent of Americans live within five miles of a retail community pharmacy. Thus, the vast majority of Americans are never far from a highly trained health professional that can provide medications or advice on a wide range of health care issues. Convenient access to community pharmacies makes us a critical part of society's health care safety net. Prescription medications are the most widely used and cost- effective health care interventions used by patients today. Modern prescription drugs have extended and improved the lives of millions of Americans and saved millions of dollars through shortened length of illnesses, increased productivity, and reductions in hospitalization and medical procedures. Community pharmacy is proud of the role we have in assuring the safe and effective use of these therapies. That is why we believe that any new program to expand prescription drug coverage to seniors should be a pharmacy benefit, not just a prescription drug benefit. Too often, we think of a prescription drug benefit as only providing a "drug product" to seniors. We believe that this is a serious mistake. Seniors take so many more prescription medications than younger individuals. For that reason, seniors need ready access to community-pharmacy-based education, counseling, and medication therapy management, in addition to the drug product, so they can take their medications appropriately to achieve the intended medical outcomes. We believe that insurers, payors, pharmaceutical manufacturers, and seniors themselves can agree that these important community- based pharmacy services help make better use of prescription products. To play off a popular catch-phrase, "pharmacy doesn't make the drugs, but pharmacy does make the drugs work more effectively." We applaud forward thinking members of this House who supported inclusion of medication therapy management services in various prescription drug proposals introduced last year. Mr. Chairman, we especially applaud your leadership for recognizing the essential nature of these services by including a comprehensive medication management benefit in your legislation, H.R.5151. It is absolutely critical that any Medicare prescription drug benefit that Congress approves includes coverage for these services. Existing Prescription Coverage Sources for Seniors Now let me turn to our perspectives on the various approaches being used to provide prescription drug benefits to seniors, and what pharmacies already do to help uninsured seniors obtain their prescription medications. As the Committee knows, about 69 percent of seniors have some form of prescription drug coverage through a variety of sources.(1) About 50 percent of seniors obtain their coverage through private sector sources, such as employer-sponsored retiree plans, Medigap plans, and Medicare managed care plans. The remaining seniors obtain their prescription coverage from public-sector sources, predominantly Medicaid and state-based pharmaceutical assistance programs. About 31 percent of seniors do not have any form of prescription coverage and pay for their prescriptions out of pocket. Clearly, we see first hand that many seniors without prescription drug coverage, and even those with it, struggle to pay their prescription drug bills. What do pharmacies do to help these seniors obtain their prescription drugs? First, our pharmacists work with patients and their doctors to try to maximize the use of lower-cost generics when they are available on the market. The savings from using generics are unmistakable. At CVS, the average brand name prescription price is about $65, while the average generic prescription price is about $15, a difference of 333 percent. Obviously, if a generic substitute is not available, we will try and work with the doctor to see if the patient can, in fact, take a generic version of another drug. With billions of dollars in brand name drugs coming off patent over the next few years, we believe that it is critical that any new Medicare drug benefit have both patient and pharmacy incentives in order to encourage greater generic use. We are concerned, however, about some of the tactics being used by brand name companies that may delay the availability of many of these lower cost generics, and thus raise costs for all prescription drug users. Second, many of our pharmacies also offer discounts to senior citizens on their prescription drug purchases. These discounts are usually about 10 percent, but each pharmacy has its own policy on discounting their prices for seniors. Consumers already reap the benefits of the highly-competitive retail pharmacy marketplace. We are a fiercely competitive industry, as evidenced by our 2 percent net profit margins. If you don't like the price at one pharmacy, you can go to another. Many pharmacies will match their competitors' prices. And yes, retail pharmacy prices do vary store to store, reflecting differences in cost of doing business, loss leaders, and other factors. The fact is, however, consumers can and should shop around for prices. Third, we can help the poorest seniors access the patient assistance programs that pharmaceutical manufacturers have established. Clearly, these programs provide a short-term benefit to some low income seniors, but they are not an adequate solution or appropriate substitute for meaningful, long-term prescription drug coverage. Don't Over Promise Seniors and Understand the Market Regardless of how seniors obtain for their prescription drugs, whether through public or private prescription programs, or pay out of pocket, community retail pharmacies are in a good position to help evaluate for the Committee the effectiveness of various options for prescription drug coverage. In other words, because we are at the point of service where the "rubber meets the road", we can help determine what works and what doesn't. When considering approaches to prescription drug coverage, we believe that two good principles for the Committee to keep in mind are: first, don't over promise seniors; and second, please make sure that you understand how all the pieces fit together in the pharmacy marketplace. For example, many of you often receive mail from constituents asking the simple question: "Why do my drugs costs so much?" Well, pharmacy economics 101 is not that difficult to understand. Reimbursement for almost 85 to 90 percent of all our prescriptions is set by third party plans, such as insurance companies, HMOs or PBMs. Third party plans keep squeezing down reimbursement rates in order to control exploding costs, but these policies do little to control escalating expenditures. Under these plans, most patients simply pay a copay for these prescriptions. Patient copays have been increasing over the last few years also because of the escalating costs of prescription benefit programs. Having said this, we are concerned about policy approaches, both at the Federal level and the state level, that would seek to target retail prescription prices as the solution to the high cost of prescription drugs for seniors. Here's why. The Committee should be aware that almost 80 percent of the cost of the average retail prescription price represents costs to the pharmacy over which we have absolutely no control (See Attached). These are predominantly the cost of acquiring the drug product from the manufacturer, which is passed through to the consumer, and thus reflected in the retail price charged. The remaining 20 percent of the prescription price represents our operating costs, such as heat, light, rent, salaries, computers, counseling, and other overhead expenses. Currently, our salary budgets are experiencing significant upward pressures as a result of the critical pharmacist shortage. We look forward to working with you this year, Mr. Chairman, on alleviating this shortage and assuring an adequate supply of pharmacists exists to serve all Americans, including Medicare beneficiaries. With this as background, let me now talk about some of our perspectives and cautions on other approaches that you may consider this year. Prescription Drug "Cash Discount Cards": Unfulfilled Promise We have no upward negotiating leverage with brand name drug manufacturers, so any initiatives that seek to control or limit our retail charges do nothing to affect our cost of buying the drug. For example, these so-called "cash discount" card programs essentially require pharmacies to provide a discount on the retail prescription price, without lowering our cost of providing the product. In other words, the pain doesn't flow upstream. We also believe that these prescription cash discount cards create unfulfilled promises for seniors. If a senior cannot afford a drug at $100, it is very unlikely that the senior can afford it at $90. In addition, as stated above, many of our pharmacies already give senior citizen discounts, which reduce the retail price essentially to the price that the senior would pay under the cash discount card. Finally, many of these cash discount card programs also often use out-of-state mail order as an incentive to steer patients to certain drugs that may be inappropriate for the senior. Mail order also takes the senior out of the neighborhood pharmacy setting. On this topic, we'd like to draw your attention to a recent report from the Massachusetts Institute of Technology that said, "the individuals who face the greatest burden lack insurance coverage for prescription drugs are in relatively poor health with severe chronic conditions, have relatively low income, and do not qualify for existing state prescription drug coverage programs. These individuals need benefits that far exceed the savings attainable from a pure discount card program."(2) The Myth of Volume Pharmaceutical Purchasing Some may say that you can obtain better prescription prices for the elderly by "pooling their purchasing power" so that they can get the same volume discounts obtained by other pharmaceutical purchasers. What I am here to tell you is be wary of this line of argument - the pharmaceutical marketplace doesn't work that way. Volume purchasing does not drive pharmaceutical manufacturers to give discounts - you have to move a manufacturer's "market share" to obtain these discounts. Let me give you a case in point. If "volume purchasing" drove manufacturer discounts, then why do the largest pharmaceutical purchasers, such as CVS and other large chain pharmacies, as well as many of the independent pharmacies that belong to large buying groups, pay higher prices for brand name drugs than smaller pharmaceutical purchasers who buy less volume? Here's what the proponents of "volume purchasing" for seniors don't and won't tell you. All this really amounts to is simply discounting the retail prescription price that seniors pay at their pharmacy, without affecting our cost of buying the drug or without requiring the insurance plan or PBM to "pass through" to the senior any and all of the financial incentives that are given to them by the manufacturer. If these plans were required to pass through all the discounts that they negotiate, both pharmacy discounts and manufacturer discounts, the senior would truly benefit from lower prescription drug prices. Without these other "pass throughs", the entire burden of so-called "volume purchasing" falls squarely and unfairly on the shoulders of community pharmacies. We also believe that some of the estimates being made of the size of the discounts that volume pharmaceutical purchasing would attain for seniors are unrealistic and will create serious unfulfilled promises. For example, there were several numbers floating around last year that indicated that private sector entities, or PBMs, would be able to lower retail prescription prices paid by consumers by 25 percent, with some estimates as high as 30 to 39 percent. (3) We do not know where these numbers come from or how they are calculated. The only remotely conceivable way that this discount size could be attained is if the PBM is required to pass along to the consumer any and all financial incentives (e.g. rebates or discounts) that they negotiate with pharmaceutical manufacturers. I am here to tell you that this does not happen today in the marketplace and is creating false and unrealistic expectations. "Drugs Only" Plans and Insurance-Based Models We understand that there is support among Members for creating "drugs only" insurance-based models to provide prescription drug coverage to seniors. Recent experience in Nevada should tell us that, just because you "build it", doesn't mean that "seniors will come." In a genuine effort to help seniors obtain prescription drugs, Nevada embarked upon establishing an insurance-based model to provide prescription drug coverage to seniors. After several attempts to finally find a company that wanted to administer the program, reports are that only a handful of seniors have signed up because of the high premiums and cost sharing in the program. We are concerned about a similar fate if such an approach is tried at the Federal level. In general, these programs are subject to significant "risk selection", and tend only to attract those seniors that need protection against high prescription drug bills. Many seniors will not see the benefit in obtaining this coverage because of the significant deductibles and premiums that have to be paid before any benefit is derived from the coverage. Thus, because the cost will keep many seniors out of the "risk pool", premiums will keep increasing for those remaining in the pool, making it less and less affordable for those that need the coverage. Moreover, the cost of these private-sector insurance plans can also be prohibitive, as was reported last week in the New York Times. The premiums for Medigap plans with prescription drug coverage, the model on which these insurance-based programs are based, will increase 31 percent in New York, 26 percent in Illinois, 24 percent in Wisconsin, 16 percent in Arizona, and 14 percent in Ohio.(4) "Premium Support", Capitation and PBMs We also believe that the subcommittee should take a good, hard look at the use of the competition-based "premium support" model and pharmaceutical benefit managers, also known as PBMs, in providing any new Medicare drug benefit. For example, how do PBMs achieve most of their savings? By focusing on squeezing pharmacy reimbursement or negotiating rebates and discounts from drug manufacturers? The track record of PBMs in being able to manage pharmaceutical costs was called into question by CBO in a 1998 study, which said: "Much of the savings that PBMs achieve appear to come from the lower prices paid to pharmacies rather than from the rebates offered by drug manufacturers." (5) The study found that 50 percent to 70 percent of the drop in the plans' spending on prescription drugs resulted from lower retail prescription prices. Only 2 to 21 percent of the savings resulted from manufacturer rebates that the PBMs shared with the health insurance plans. This study reflected the experience of the three largest PBMs that manage the 9-million member Federal Employees Health Benefits Program (FEHBP). Members of Congress should be aware that this program, which is being talked about as the basis for a future Medicare "premium support" model, has been experiencing double-digit increases in prescription drug expenditures over the last several years, 22 percent for 1998 alone. In announcing significant health premium increases for the 2000 FEHBP plan year, a significant percentage of which was to account for escalating prescription drug costs, Office of Personnel Management (OPM) Director Janice LaChance said that "it is clear that competition in the marketplace has not effectively slowed the growth in FEHBP premiums."(6) We believe that the experience of FEHBP should be instructive to Members of Congress as they consider the "premium support" model for Medicare. Please note that these prescription drug cost increases are occurring in a population that is not representative of the Medicare population. FEHBP generally serves a younger population that uses fewer prescription drugs than the Medicare population. More significant increases are likely to occur in an older, Medicare-based population. Moreover, some of the proposed "premium support" models would pay a fixed, "capitated" rate to providers of the pharmacy benefit. Past experiences is using capitation models for pharmacy benefits have been unsuccessful. There is no reason to believe that they would be any more successful today, given the impact that manufacturer direct-to-consumer advertising has had on fostering increased prescription drug use. We are concerned with this model and the impact that it would likely have on the health of Medicare beneficiaries and on the economic viability of community pharmacies. So. . .What Works for Seniors? What works for seniors in terms of providing them a meaningful pharmacy benefit? First, let me say that we support the establishment of a meaningful, voluntary pharmacy benefit program for all seniors that need and want it. For the short term, we believe that the best course that Congress can take is to provide Federal funds to states to help low income seniors obtain this pharmacy benefit. We know that there are many mixed feelings among Members of Congress about this approach. However, given that almost every state is now considering enacting or developing some form of prescription assistance program for seniors, we believe that states are in a good position, right now, to help those most in need. And data indicate that 60 percent of those seniors without prescription drug coverage, or about 7.2 million seniors, have incomes of less than 200 percent of poverty.(7) We see many of these seniors in our pharmacies every day, struggling to pay their prescription bills. For them, they just want some help to get them their medications. For the long term, we want to work with this Committee, the rest of the Congress, and the Administration to achieve long term reform of the Medicare program to provide the type of quality pharmacy benefit that seniors need and deserve. We believe that this benefit should: - promote the utilization of generic drugs when appropriate; - provide seniors with access to meaningful, community-based medication therapy management services with appropriate compensation for pharmacies; - give seniors access to the community-based pharmacy provider of their choice; - not economically coerce seniors to use other prescription delivery mechanisms, such as out-of-state mail order; - not include price controls on retail pharmacy prices, including prescription cash discount card programs; and, - assure that community pharmacies are adequately compensated in providing services to meet the needs of our nation's seniors. We look forward to working with you and the Committee on these issues, and that you for the opportunity to testify today.

LOAD-DATE: February 17, 2001, Saturday