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CMS proposal would limit industry practice that raises costs for
some Medicare Drug Plan beneficiaries
[Jul
22, 2008] A
CMS proposal under consideration would
limit a practice used by pharmacy benefit
managers known as "lock-in pricing" that can
increase costs for beneficiaries enrolled in
the Medicare drug benefit and bring them
into the so-called "doughnut hole" coverage
gap more quickly, the
Wall
Street Journal reports.
The doughnut hole begins when total annual
drug spending by beneficiaries and their
health insurers reaches $2,510.
When in the doughnut hole, a beneficiary is
responsible for 100% of prescription drug
costs until total spending reaches $5,726
for the year.
Under lock-in pricing, PBMs charge a higher
rate to insurers with whom they have
contracted to administer their drug benefit
than what they pay pharmacies to dispense
the drugs to beneficiaries, according to the
Journal.
The PBMs then keep the difference.
Beneficiaries can reach the doughnut hole
faster under lock-in pricing because the
insurer is charged more than a drug's actual
cost, increasing total annual spending more
quickly.
According
to the
Journal,
the proposal would mitigate that effect by
requiring insurers to break down PBM
payments into two rates: the cost of the
drug and an "administrative" cost.
The administrative cost would be the
difference between a PBM's drug price and
the insurer's payment. The proposal would
not ban lock-in pricing.
CMS estimates that about 19% of drug benefit
plans are using lock-in pricing. The agency
says the practice affects about 14% of the
25.8 million beneficiaries enrolled in the
drug benefit program.
According to the
Journal,
the price difference from using lock-in
pricing is much higher for generic drugs
than brand-name drugs.
The
Journal reports that CMS
officials have been attempting to counter
the effect of lock-in pricing almost since
the inception of the Medicare drug benefit.
Abby
Block, director of the
Center for Drug and Health Plan Choice
at CMS, said that the agency thought lock-in
pricing was prohibited when the drug benefit
was created.
"We thought we had a clear policy," Block
said, adding, "We learned that there are
different ways of interpreting a policy
statement."
CMS plans to make a final rule later this
summer that would go into effect in 2010.
PBMs, Insurers Defend
Practice
According to the
Journal,
some PBMs defend lock-in pricing, saying
that it is common in the private insurance
market and that they use the extra money to
encourage beneficiaries to use less
expensive drugs.
Some insurers say they will be forced to increase premiums
if they are not permitted to add the extra
charge to plans' total annual drug spending,
the
Journal reports.
Steve Littlejohn, a spokesperson for the PBM
Express Scripts, said the company's
overall per-prescription profit margin from
using lock-in pricing is a "single digit"
percentage.
He also said that the company's pricing on generics "is
generally far better than (uninsured)
cash-paying customers obtain on their own"
(Rubenstein,
Wall Street Journal, 7/22).
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