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Federal Document Clearing House
Congressional Testimony
April 24, 2001, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4267 words
COMMITTEE:
SENATE FINANCE
HEADLINE: TESTIMONY
PRESCRIPTION DRUG COVERAGE
TESTIMONY-BY: RAYMOND C.
SCHEPPACH , EXECUTIVE DIRECTOR
AFFILIATION: NATIONAL
GOVERNORS ASSOCIATION
BODY: April 24, 2001
Statement of RAY SCHEPPACH, EXECUTIVE DIRECTOR NATIONAL GOVERNORS ASSOCIATION
before the SENATE FINANCE COMMITTEE on FINDING THE RIGHT FIT:
MEDICARE,
PRESCRIPTION DRUGS, AND CURRENT COVERAGE OPTIONS Mr. Chairman and
members of the committee, I appreciate the opportunity to appear before you
today on behalf of the nation's Governors. Prescription Drug Coverage for
Seniors One of the most critical responsibilities we have is to protect and
improve the health of our nation's citizens. To this end, the Medicare and
Medicaid programs have been tremendously successful. Seniors are more likely to
have health insurance coverage than any other group, and, together with Social
Security, Medicare and Medicaid have drastically reduced the number of seniors
living in poverty. In addition, they have given American families the assurance
that they will not have to bear by themselves the burden of illness of their
elderly or disabled parents or other family members. Despite Medicare's success,
the program faces enormous challenges. The benefits package simply does not meet
the health care needs of seniors today. There is no comprehensive long-term care
benefit, no real focus on preventive health and wellness, and as we will discuss
today, no comprehensive outpatient drug benefit either. For the 5.4 million
seniors fully eligible for both Medicaid and Medicare (dual eligibles), Medicaid
provides coverage for all of their pharmaceutical needs. Other seniors receive
drug coverage through Medicare+Choice plans, Medigap, employer-sponsored retiree
coverage, state-funded assistance programs, or through costly out-of-pocket
expenditures. Any consideration of adding a prescription drug. benefit to the
Medicare program must recognize that states have shouldered much of these costs
for years through Medicaid and state assistance programs, while these costs
should have been borne by the federal Medicare program. If a drug benefit is
added to Medicare, it should be administered through the Medicare program, not
merely delegated to the states to administer on behalf of the federal
government. States have gained valuable lessons in providing drug benefits for
Medicaid beneficiaries and would share best practices with the Health Care
Financing Administration (HCFA) in making coverage decisions, negotiating rates,
and contracting with pharmacy benefits managers. For low-income Medicare
beneficiaries, Medicaid fills the gaps in Medicare coverage by providing
assistance for Medicare premiums and cost-sharing expenses and by covering the
costs of outpatient prescription drugs and long-term care. Medicaid serves not
only low-income Medicare beneficiaries but also higher income Medicare
beneficiaries as well, who turn to Medicaid after exhausting their own resources
to pay for their care. Moreover, because Medicaid's role in providing coverage
for these individuals is supplementary to Medicare, states are in an untenable
position. States share the responsibility for providing coverage but lack any
way to affect the policies that govern Medicare or to manage the up-front
primary and acute care treatment decisions that drive beneficiaries' use of
long-term care services and Medicaid spending. Governors ask that you remember
the interrelation of the two programs and consider the potential implications
for Medicaid before proposing changes to Medicare. Since 1988, the federal
government has increasingly passed on to the states the responsibility to cover
the cost-sharing burdens of many low-income Medicare beneficiaries (e.g., the
Qualified Medicare Beneficiary (QMB) Program, the Specified Low-Income Medicare
Beneficiary (SLMB) Program, and the new groups of beneficiaries created by the
Balanced Budget Act of 1997 (BBA) - the Qualifying Individuals (Ql)). The
nation's Governors want to ensure that elderly beneficiaries receive the best
possible care and are committed to providing the highest quality of services to
seniors who are eligible for Medicaid benefits. But for the QMBs and SLMBs and
other groups, Congress should recognize that the strength and responsibility of
the Medicaid program is in providing high quality services, not in cutting
checks. The Governors would therefore recommend that the patchwork of
eligibility categories that provide only cost- sharing assistance be
stream-lined, simplified, and fully federalized. Medicaid Enacted at the same
time as Medicare in 1965, and authorized under Title XIX of the Social Security
Act, Medicaid is a means- tested entitlement program financed by state and
federal governments and administered by the states. Within broad national
guidelines established by the federal government, each state establishes its own
eligibility standards; determines the type, amount, duration, and scope of
services; sets the rate of payment for such services; and administers its own
program. Since its enactment, Medicaid has changed and expansions require
coverage for many groups, including the elderly up to 120 percent of poverty. It
now covers more Americans than Medicare or any health insurer. It funds care for
1 in 8 Americans, I in 4 children, 40 percent of the births in the entire
country, and approximately one-half of nursing home care. In 1990, Medicaid
covered 28.9 million people. Due in large part to many state expansions, more
than 41 million Americans received services through Medicaid in 1999 at a total
cost exceeding $200 billion. Medicaid expenditures for prescription drugs almost
doubled in the years between 1993 and 1998, rising from $8 billion to almost $14
billion, despite a marked decrease in the total number of beneficiaries
utilizing prescription drugs (from 24 million to 19 million) over the same
period. Over that period, the average drug expenditures per beneficiary
increased from $333 to $699 per year. Prescription drug expenditures, at
approximately 10 percent, represent the third largest component of the Medicaid
budget, behind hospitals and nursing homes, and expenditures are increasing at
approximately 18 percent per year. Medicaid Drug Rebate Program Under current
Medicaid law, coverage of prescription drugs is an optional service. All states
have elected to cover prescription drugs and in order to do so, must abide by
the rules of the rebate program. Basically, the program provides an incentive
for states by requiring the drug companies to offer discounts to the states on
prescription drugs. In return, states are essentially obligated to cover all
prescription drugs developed by the major drug companies and approved by the
Food and Drug Administration (FDA). Because Medicaid is an "all-or-nothing"
program, every individual on the program is entitled to receive the drug
benefit. Medicaid will reimburse for essentially any pharmaceutical prescribed
by a physician with little or no cost-sharing requirement on the part of the
beneficiary. There is a brief list of prescription drugs that states are not
required to cover (hair growth, smoking cessation, weight loss/gain, fertility,
etc.), and some states have implemented limits on the number of prescriptions
per month that are available. There are increasing concerns from some state
Medicaid agencies that the Drug Rebate Program no longer adequately meets the
needs of state Medicaid programs. Considering the rapid growth already happening
in prescription drug costs and the changes that will happen in the health care
system as the baby boom generation ages, it is clear that some changes in the
program will help states better manage the pharmaceutical benefit. One of the
biggest concerns is that in the more than ten years since the enactment of the
Drug Rebate Program into law, final regulations on the program have never been
promulgated. The absence of effective, enforceable final regulations creates
uncertainty for federal and state policymakers in assessing how well the program
works, how best to resolve disputes over prices and rebates, and the full range
of cost-control options available under the law. Dual Eligibles Although states
play a key role in funding the services provided to many low-income seniors, the
most evident connection between Medicare and states is for individuals eligible
for both Medicare and Medicaid coverage. Approximately 15 percent of Medicare
beneficiaries also are eligible for Medicaid. These dually eligible
beneficiaries, however, account for 30 percent of all Medicare spending, or
about $62 billion in fiscal 1997. Dually eligible beneficiaries also are an
expensive population for Medicaid programs. Although they account for only 16
percent of Medicaid recipients, dual eligibles account for 35 percent of
Medicaid expenditures, or about $58 billion in fiscal 1997. Dually eligible
beneficiaries are a particularly vulnerable and high-cost group. Compared with
other Medicare beneficiaries, dual eligibles are more likely to suffer from
chronic illness and require significant long-term care and social support
services. They also are more likely to live alone or in a nursing facility and
are less likely to have a living spouse. Of course, dually eligible
beneficiaries are much poorer, on average, than other Medicare beneficiaries,
with 80 percent of dual eligibles having annual incomes of less than $ 1 0,000.
Dually eligible beneficiaries also are different from other Medicare
beneficiaries in another, very important way: they do not have the same
financial incentive to choose among fee-for- service and managed care options,
based on differences in price and benefits, because Medicaid programs cover
their out-of-pocket costs and provide comprehensive coverage. National data show
that dual eligibles are 75 percent less likely than other Medicare beneficiaries
to enroll in managed care plans. The majority of the 6 million dually eligible
beneficiaries, about 5.4 million, receive full Medicaid coverage. Medicaid
provides coverage for their Medicare premium and cost-sharing expenses and for
services not covered by Medicare, including long- term care and outpatient
prescription drugs. The remaining 600,000 beneficiaries are not eligible for
full Medicaid coverage but do receive Medicaid assistance for Medicare premiums
and/or cost-sharing expenses. They include individuals with incomes up to 120
percent of the federal poverty level (i.e. QMBs and SLMBs) and, at least through
2002, individuals with incomes between 120 percent and 175 percent of the
poverty level (QIs). Not included in these population figures are low-income
Medicare beneficiaries who are eligible for Medicaid coverage but who decide to
forgo such assistance or who are not aware that assistance is available. States
have been criticized for failing to enroll 100 percent of eligible seniors in
these programs. Although states take their responsibilities seriously and are
working with HCFA to identify effective outreach methods, in many cases, the
cost of outreach exceeds the value of the benefit to the individual. It simply
is not worth the effort for many seniors to apply for federal assistance to
receive as little as $1.07 per month. Allowing the Social Security
Administration or some other federal agency to provide assistance to these
beneficiaries would streamline a cumbersome system and ensure greater program
participation. This common-sense solution would help reverse the trend of
creating a patchwork of optional and mandatory eligibility categories that is
confusing to both caseworkers and beneficiaries. It would also recognize that
the strength of the Medicaid program is in providing vital health care services
to low-income beneficiaries, not in cutting checks for a few dollars each month.
Lessons In order for a
Medicare prescription drug benefit to
maximize its potential, there are a number of key lessons to be learned. -If a
universal benefit is created within the Medicare program, it must be a truly
federal benefit. Although states have picked up an increasing share of the
burden through Medicaid and state- only programs, these are "Band-Aids" and
should not be viewed as an alternative to a comprehensive Medicare benefit.
States have borne the costs of the federal responsibility in this area for many
years and should not be penalized by maintenance of effort provisions, either in
Medicaid or in the state-funded assistance programs- -To the extent that full or
partial subsidies for the low-income are created or enhanced, it is critical
that they be federally financed. Otherwise, any benefit that relies on recipient
cost sharing will simply be a cost-shift to the Medicaid program, which finances
all forms of cost sharing for dual eligibles. To the extent to which states are
required to administer a subsidy program, 100 percent federal financing should
be provided not only for the cost of the benefit, but also for the cost of its
administration. -There must be the ability for. the federal government to
negotiate on the basis of price (or to be able to contract with entities that
can). Although imposing price controls is an extreme measure that would be
controversial, there must be recognition that the volume of drugs purchased
under Medicare should drive the market price down to an affordable level. -The
key to an effective pharmaceutical benefit is management. Whether this is
disease- specific management for conditions like diabetes or general case
management for seniors who take multiple prescriptions, this tool clearly
improves health outcomes and reduces waste and misuse. -Aggressive utilization
review is extremely important in reducing inappropriate prescribing. Reviews on
the front end, such as prior authorization or on the back end, such as a
comprehensive drug utilization review board, are vital to ensuring that
physicians are prescribing and seniors are receiving the most appropriate
medications. -Almost unheard of in 1965, prescription drugs are now as important
to seniors' health as hospital coverage and physician services. With the
increasing importance of both phannaceuticals and the pharmaceutical industry,
any decisions about coverage and costs will be highly visible and highly
politicized. -It is critical for Medicare to utilize an effective information
system. With the right hardware and software in place, pharmacists can have
enough information at their fingertips to know which doctors are prescribing
which drugs for each patient to be able to do real-time prior authorization; and
to be able to prevent contraindications from drug interactions. A well-trained,
well-equipped pharmacist is critically important to the smooth operation of a
drug benefit. -Because there is likely to be too little money in the system to
provide all drugs for all beneficiaries, and there are legitimate concerns about
subsidizing certain types of drugs, some choices will need to be made about
coverage. 'Me Medicaid program allows states to deny coverage for certain drugs,
such as those used for hair growth, weight loss/gain, fertility, and smoking
cessation. This list is appropriate as a model for Medicare but should also
contain provisions for dealing with so-called "lifestyle drugs." With limited
budgets, government programs should be focused on providing medically necessary
treatments. Therefore additional provisions need to be incorporated to allow the
program to target resources on necessary treatments. -If a voluntary benefit is
created within the Medicare program, there must be a mechanism to allow states
to require enrollment for individuals dually eligible for Medicare and Medicaid.
Dual eligibles currently have 100 percent of their out-of-pocket costs paid for
by the Medicaid program, and there is no incentive for them to enroll in a
voluntary drug benefit. This is also true for any aspect of the program that
relies on fiscal incentives or market decisions to influence beneficiary
behavior. I thank you again for the opportunity to be a part of this hearing. I
look forward to answering any questions you may have.
LOAD-DATE: April 25, 2001, Wednesday