Fall-back drug plans not needed

April 1, 2005

Legislators want to give the program a chance to work before making further changes.

WASHINGTON, D.C.-Enough insurance companies and PBMs (pharmacy benefit managers) have applied to sponsor Medicare prescription drug plans (PDPs) across the country to rule out the need for government-run "fall-back" plans. The U.S. Department of Health and Human Services (HHS) would have provided drug coverage directly if fewer than two PDPs had signed up in any of the 34 Medicare Part D regions.

Even before PDP sponsors filed formal applications in March, Aetna and UnitedHealth Group (partnering with Walgreen) said they would establish national PDPs, and many PBMs and Blue Cross Blue Shield plans signed up to sponsor PDPs in specific regions.

PIECE OF THE PIE Despite uncertainty about how Medicare PDPs will operate or be profitable, insurers and PBMs decided that the estimated $60 billion annual business of providing drugs to 41 million Medicare beneficiaries is "just too large to be ignored," commented Dr. Mark McClellan, administrator of the Centers for Medicare and Medicaid Services (CMS). Seniors account for 40% of drug use now, and the market is projected to grow even more with Medicare subsidizing pharmacy benefits.

During debate on the 2006 federal budget last month, Senate Republicans narrowly defeated (by a 50-49 vote) efforts to grant CMS power to negotiate Medicare drug prices with manufacturers, instead of leaving the job to PDPs. Even though the change was promoted as a way to reduce drug spending by putting pressure on pharma companies to lower their rates, enough legislators want to give the Medicare drug program a chance to work before making further changes.