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1
Assessing the Medicare Prescription Drug Benefit Impact on Medicaid
Vernon K. Smith, Ph.D.HEALTH MANGEMENT ASSOCIATES
For
Invitational Summit for State Policy MakersMedicare Part D Implementation Issues
Conducted by
AcademyHealth andThe Rutgers Center for State Health Policy
PhiladelphiaOctober 7, 2004
2
Medicaid in 2004: The Nation’s Largest Public Health Care Program
– Medicaid Spending in FY 2004 ~ $300 billion (Compared to Medicare ~ $290 billion)
• $130 billion state and local funds
• $170 billion federal (44% of all federal funds to states)
– Health coverage for over 52 million in U.S. (Compared to Medicare: 42 million)
Sources: CMS, CBO Medicaid Baseline March 2004
3
Medicaid’s Role in the Health System, 2002
17% 17%12%
18%
49%
TotalPersonal
Health Care
HospitalCare
ProfessionalServices
NursingHome Care
PrescriptionDrugs
SOURCE: Levit, et al, 2004. Based on National Health Care Expenditure Data, Centers for Medicare and Medicaid Services, Office of the Actuary.
Total National
Spending(billions)
$1,340 $486.5 $501.5 $103 $162
Medicaid as a share of national personal health care spending:
4
Medicaid Pharmacy Costs: A Major Share of State Spending
• “The total cost of the pharmacy benefit alone in TennCare has become greater than the total cost of Tennessee’s higher education system. Just two drugs in TennCare – Zyprexa and Zocor – cost our state more than we appropriate to run the University of Tennessee medical school. That is a fire bell in the night.”
– Tennessee Governor Phil Bredesen, in address to General Assembly, February 17, 2004
5
Average Annual Growth Rates of Total Medicaid Spending
10.0%
3.6%
7.8%
11.9%
9.4% 9.5%
1992-95 1995-98 1998-2000 2000-2002 2003 2004
SOURCE: For 1992-2002: Urban Institute estimates based on data from Medicaid Financial Management Reports (HCFA/CMS Form 64); For 2003 and 2004: Health Management Associates estimates based on information provided by state officials.
Annual growth rate:
6
Medicaid – Medicare Dual Eligibles: Key Factor in Medicaid Spending
• Medicaid covers over 6.2 million low-income elderly and disabled persons also on Medicare for Rx, nursing home care, other services, premiums, coinsurance and deductibles
• Duals account for 42% of all Medicaid spending
• Duals account for slightly more than half of all Medicaid spending for prescription drugs.
7
States Undertaking New Medicaid Cost Containment Strategies FY 2002 – FY 2005
32
22
8 9
4
117
4650
25
18
1310
4850
2018
14
9 9
28
17171921
47
14
43
ControllingDrug Costs
Reducing/FreezingProvider
Payments
Reducing/RestrictingEligibility
ReducingBenefits
IncreasingCopayments
DiseaseManagement
Long-TermCare
Implemented 2002 Implemented 2003 Implemented 2004 Adopted for 2005
SOURCE: KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management Associates, September and December 2003 and October 2004.
8
Medicaid Prescription Drug Policy Changes FY 2004 and FY 2005
7
8
15
19
21
27
33
3
8
3
26
16
29
21
Reduce Dispensing Fee
AWP Less Greater Discount
New or Higher Copays
Seek Supplemental Rebates
New or Lower State MAC Rates
Preferred Drug List
More Rx Under Prior Authorization
FY 2004 FY 2005
SOURCE: KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management Associates. See: October 2004.
9
Growth in U.S. Health Care Per Capita Spending, by Service: 1991-2003
-5.0
0.0
5.0
10.0
15.0
20.0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
An
nu
al
Pe
rce
nt
Ch
an
ge
Pe
r C
ap
ita
Source: Bradley Strunk and Paul Ginsburg, “Tracking Health Care Costs:
Trends Turn Downward in 2003,” Health Affairs, Web Exclusive, 9 June 2004.
Hospital Inpatient
Physician
Prescription Drugs
Hospital Outpatient
All Services
10
Part D Drug Benefit : The Basics• Coverage is to begin: …… Jan. 1, 2006
• Enrollment: …………….... Voluntary
• Initial enrollment period: ... Nov. 15, 2005 for 6 mos.
• Annual enrollment periods: Nov. 15 to Dec. 31
• Premiums: ……………… Est. $35/month in 2006Those who don’t enroll initially, or who don’t maintain
continuous coverage, will pay higher premiums
• Employers: ……………… Incentive subsidy to maintain retiree
Rx benefit 28% between $250 & $5,000
11
Administration of Part D Benefit• The Part D benefit will be administered by:
– PDPs: Prescription Drug Plans
– MA-PDs: Medicare Advantage Prescription Drug plans
– Federal fall-back plan
• PDPs & MA-PDs will be risk-bearing private plans.• Beneficiaries will be able to choose from at least 2
plans, if available, or the fall-back.– A fall-back non-risk bearing plan will be available if other
plans are not offered in an area.
• HHS is prohibited from controlling or negotiating prices for PDPs & MA-PDs.
12
Part D Standard Benefit in 2006 :Beneficiary Coverage and Out-of-Pocket Drug Costs
Medicare Pays 95%
$2,850 Gap (“Doughnut Hole”)
25% Medicare Pays 75%
5%
Deductible
Partial Coverage Up to a Limit
Coverage
No Coverage
Catastrophic Coverage
$250
$2,250 (initial coverage limit”)
$5,100 (equivalent to $3,600 in out-of-pocket spending)
Beneficiary Out-of-Pocket
Spending
+~$420 in annual premiums
SOURCE: Adapted from The Henry J. Kaiser Family Foundation, “Medicare Fact Sheet: The Medicare Prescription Drug Law,” March 2004.
13
Part D Beneficiary Out-Of-Pocket Costs Indexed
Growth in Out-of-Pocket Costs Below the Catastrophic Threshold (Excluding Premiums)
$0
$2,000
$4,000
$6,000
$8,000
2006 2007 2008 2009 2010 2011 2012 2013
Deductible 25% Coinsurance Doughnut Hole
$6,400
Projected Increases from 2006 to 2013: Deductible: from $250 to $445
Donut hole: from $2,850 to 5,066
Catastrophic threshold: from $5,100 to $9,600
SOURCE: Congressional Budget Office letter to the Honorable Don Nickles, November 20, 2003.
$3,600
14
2004 Federal Poverty Levels (FPL)
HHS Poverty Guidelines for 2004Family Size 100% FPL 135% FPL 150% FPL
1 $ 9,310 $12,568 $13,965
2 12,490 16,862 18,735
3 15,670 21,155 23,505
SOURCE: Federal Register, Vol. 69, No.30, February 13, 2004, pp. 7336-7338.
15
FPL in 2004: $13,965 (individual)$18,735 (couple)
Asset Test:$10,000 (individual) $20,000 (couple)
Premium: Sliding Scale, based on income
Deductible: $50
Coinsurance: 15% before catastrophic threshold
Donut Hole: None
Catastrophic: $2 for generics and $5 for brands
Part D “Partial” Low-Income Subsidies Non-Medicaid Beneficiaries
Individuals w/ Incomes Up to 150% FPL
16
Part D “Full” Low-Income Subsidy Non-Medicaid Beneficiaries
Individuals w/ Incomes Up to 135% FPL
FPL in 2004: $12,568 (individual)$16,862 (couple)
Asset Test:$6,000 (individual) & $9,000 (couple)
Premium: $0 up to Low-Income Benchmark
Deductible: $0
Copayment: $2 for generics and $5 for brands
before catastrophic threshold Donut Hole: None
Catastrophic: No copayments
17
Part D Low-Income Subsidy Beneficiaries on Medicaid (the Duals)
Premium: $0 up to Low-Income Benchmark Deductible: $0
Copayments:$1 for generics & $3 for brandsup to 100% FPL*$2 for generics and $5 for brands at & above 100% FPL**$0 copay, if institutionalized
Donut Hole: None Catastrophic: $0 copay
Beyond 2006, copays * For persons below 100% FPL, copays indexed to growth in CPI. ** For persons above 100% FPL, copays indexed to Part D growth.
18
Part D Benefit: Covered Drugs• Part D coverages include:
– Drugs & biologicals required for Medicaid
– Insulin & supplies for its administration
– Smoking cessation products
• Plans can create closed formularies (i.e., exclude specific drugs within classes)
• Formularies must include at least two drugs in each therapeutic category
19
Part D Benefit Excludes Coverage for Some Drugs
– Weight loss/gain
– Fertility– Cosmetic or hair growth– Cough or cold relief– Vitamins and minerals– Over-the-counter (OTC) drugs, normally
available without a prescription– Barbiturates– Benzodiazepines– Drugs covered under Medicare Parts A or B
20
Implications of Part D for Medicaid
• Medicaid pharmacy coverage for duals ends on January 1, 2006– MMA prohibits federal Medicaid matching
funds to states for Part D drugs
• Part D drugs are only from Medicare plans (PDPs, MA-PDs or federal Fall-Back plans)
• States continue to pay deductible & coinsurance amounts for Part B drugs
21
Part D Has Significant Issues for State Medicaid Programs
• Clawback
• Rebate impacts
• Woodwork effect
• Overall financial impact
22
Clawback Formula
Multiply:
1Per Capita
Monthly Amount
2Full-Benefit DualsEnrolled in Month
3Monthly Factor
AdjustmentX
X
A1/12th
CY 03 Rx Payments
Full-Benefit Duals
BState
Match Rate For
Clawback Month
X
75%2015 & After
76.67%2014
78.33%2013
80%2012
81.67%2011
83.33%2010
85%2009
86.67%2008
88.33%2007
90%2006
FactorFor a month in:
Clawback Total Amount
Clawback Basics
X XC
MfgRebate
%
D Growth Factor
23
Clawback – Base Year Calculation• The Clawback base-year calculation is complex
– “We are calculating the clawback. It is proving to be more difficult than anticipated due to the spend downs – they are in and out of Medicaid.”
– “I don’t think anyone’s base year will reflect the way things will be in 2006.”
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured. Report forthcoming, October 2004.
24
National Health Expenditure Growth Factor for Pharmacy
11.90% 11.30% 11.10%
38.40%
0.00%
5.00%10.00%
15.00%
20.00%25.00%
30.00%
35.00%40.00%
45.00%
2004 2005 2006 2004 - 20063-Year Total
25
Clawback – Other Issues
• Clawback base does not adjust for Third Party “pay & chase” recoveries, post-payment audits, or state actions to control drug spending
– The Clawback offsets hoped-for state savings
– “The legislature thinks we are going to get 10% savings. We don’t see any savings there.”
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured. Forthcoming, October 2004.
26
Other Financial Impacts for Medicaid
• Rebates: Decreased market share erodes States’ ability to negotiate manufacturer supplemental rebates
• Enrollment: A “Woodwork Effect’ is expected.– There will be more dual eligibles on Medicaid as
more low-income Medicare beneficiaries find they are eligible for Medicaid.
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured. Forthcoming, October 2004.
27
States Indicated Concerns about Beneficiary Impacts of Part D Coverage
• Dual eligibles will almost certainly have less coverage under Part D plans
• States cannot receive FMAP if they “wrap-around” to fill the gaps or subsidize copayments– “If we cover four anti-psychotics, and Part D covers
one, what do we do?” – Part D drug exception process is likely to be less
responsive than Medicaid
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured, Forthcoming October 2004.
28
Beneficiary Issues for Medicaid Copayments & Nursing Homes
• Part D copayments are set nationally– “Dual eligibles [in our state] currently have
no cost sharing for pharmacy. Under Part D, cost sharing will be required.”
• Nursing home patients under Part D present a difficult challenge
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured, Forthcoming October 2004.
29
Beneficiary Issues for Medicaid Medical Management
• Medicaid has invested much effort into Drug Utilization Review and Disease Management
– “The biggest issue is loss of data. We have duals in disease management programs and in nursing homes.”
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured, Forthcoming October 2004.
30
Administrative Impacts for Medicaid
• Eligibility determination for benefits for low-income beneficiaries
• System change requirements & timeframes
• Availability of staff and resources
• Other administrative implications
31
Administrative Issues for MedicaidNew Eligibility Determinations
• States must determine eligibility for low-income subsidies
– “Eligibility will be an enormous problem for us. There won’t be enough time to implement.”
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured, Forthcoming October 2004.
32
Administrative Issues for Medicaid System Development & Operations
• States must make major eligibility system changes to implement Part D.
– “We are going to have to request more funds to do this.”
Source: Health Management Associates interviews of State Medicaid Directors,for Kaiser Commission on Medicaid and the Uninsured, Forthcoming October 2004.
33
Summary• All States must be ready for significant
Medicaid impacts from Part D.– Clawback.– Eligibility determinations for low-income
subsidies.– Prepare for enrollment of duals into Part D.
• Some new costs, some new savings.– Net impact still not clear