Congress' Medicare Legislation Leaves Unanswered Questions

Kenneth D. McArthur, Jr.
February 2, 2004

Unless you've been living in a spider hole in recent weeks, you've witnessed the media circus surrounding Congress' passage of the long-anticipated bill promising new drug benefits for Medicare beneficiaries. Most reporting has focused on the political machinations behind this landmark legislation.

Some more amusing stories have featured the drama of AARP executives accused of "selling out" their association members for a few pieces of insurance company gold. The 24-hour news channels have aired a seemingly endless stream of images of Republicans claiming a great victory for America's senior citizens juxtaposed against angst-ridden Democrats declaring that we are living in the end times of the Medicare program. As a health lawyer representing hundreds of Virginia's retail pharmacies, I've been parsing through many of these press accounts in search of answers to some important questions about this legislation raised by pharmacists. So far, these questions remain unanswered.

Do claims of new drug discounts take into account "senior citizen" discounts already provided by most retail pharmacies?

Beginning this spring, Medicare beneficiaries will be eligible to purchase drug benefit cards that, by most estimates, will allow them to save 10 to 15 percent on their drug purchases at retail pharmacies.

These cards are anticipated to cost beneficiaries around $30. Interestingly, most retail pharmacies already provide "senior citizen" discounts of between 10 and 15 percent - without any need to purchase or carry a special card. Are the estimated discounts expected to result from the new drug cards going to be in addition to the senior discounts already being provided? If not, will senior citizens who choose to purchase the new card be paying $30 (and further cluttering their wallets) to get something they already have?

Will Medicare beneficiaries lose their freedom to choose their pharmacists and personal pharmaceutical care?

Currently most Medicare beneficiaries are cash-paying customers. Once they enroll in any of the new Medicare drug plans they will become what the health care industry calls "third-party plan participants." The distinction is important: Cash-paying customers can freely choose their pharmacists; third-party plan participants often are not free to choose their pharmacy providers if they want the third party (e.g., the Medicare program) to pay a portion of their pharmacy bills. Moreover, for participants to receive their full benefits, many third-party plan participants must use out-of-state mail-order pharmacies rather than their local pharmacies. In gaining the benefit of the new Medicare drug plans, will beneficiaries lose their choice of pharmacists and the well-documented benefits of personal pharmaceutical care?

Is the burden of the new Medicare benefit being put on the wrong businesses?

According to published industry data, retail pharmacies pocket just over 20 percent of every dollar spent on prescription drugs in the U.S., while giant pharmaceutical manufacturers receive nearly 75 percent. When the new Medicare drug cards become available, which of these two will be shouldering the burden of providing Medicare beneficiaries with discounts on their drug purchases? Retail pharmacies.

At some point after the new Medicare drug plans are rolled out in 2006, it is anticipated that private health insurers (then managing these plans) will negotiate savings from current drug prices. Most health plans, however, "negotiate" most of their drug cost savings by demanding that retail pharmacies accept lower reimbursement rates as a condition of serving in provider networks serving their plan participants. Translation: Retail pharmacies will be expected to provide even deeper discounts to Medicare beneficiaries - or risk losing their most valuable, repeat customers. By contrast, pharmaceutical manufacturers receive a number of assurances under the new Medicare legislation that their drug prices in the U.S. will be protected from government controls and competition by foreign imports.

Are savings projected under the new Medicare drug plans predicated on unlawful conduct?

Pharmacy benefit management companies ("PBMs") stand to acquire tremendous amounts of new business from the new Medicare legislation. This new business will likely provide these companies with millions of dollars per year in additional administrative fees (funded by taxpayers) and rebates paid by drug manufacturers. Yet some of these PBMs are currently being accused in state and federal lawsuits filed around the country of unlawful conduct in government programs. In one such lawsuit, the U.S. Department of Justice alleges that one of the largest PBMs has:

. . . defrauded patients, clients, and the United States by canceling and destroying prescriptions, by failing to perform the professional pharmacists' services needed by patients and required by law, by switching patients' prescriptions to different drugs without their knowledge and consent, by shipping medications and billing patients for drugs they never ordered, by creating false records of contact with physicians, by soliciting and receiving inducements from pharmaceutical manufacturers to favor their products, and by making false and misleading statements to the United States about its conduct.

If these allegations are true, then it is disturbing to think that Congress has designed a new Medicare drug benefit that could place the health of America's senior citizens in the hands of such companies. It is also troubling that projected drug cost savings under this benefit may assume huge PBM negotiated discounts, when at least some of the practices that have generated these discounts in the past are the focus of the government's current allegations of misconduct. Are future drug discounts for the Medicare program now predicated on PBM practices the Justice Department considers unlawful?

Kenneth D. McArthur, Jr., a lawyer with DurretteBradshaw PLC, is chairman of the firm's health care practice group.