Closing the Medicare D gap

Well, two minutes ago the deadline passed. Drug manufacturers were supposed to have signed an agreement with both CMS and third-party administrators for Medicare D plans by 11:59 PM on September 1 in order to have their medications covered for the 2011 Medicare D benefit year. (link to story here)

It's part of the Affordable Care Act, which is supposed to eliminate the doughnut hole for Medicare D beneficiaries by 2020.

Here's how the system is supposed to work. It is my analysis of the information presented in the link above.

Manufacturers must agree to discount the price of medications for selected beneficiaries once they reach the gap (or doughnut hole) in their Medicare D coverage. If you don't discount the price of the medication, it will not be covered by the third-party administrator.

The bulk of the responsibility for the program falls into the hands of the third-party administrators. By the design of the Medicare Coverage Gap Discount Program, the third-party administrator will:

• Determine which beneficiaries are eligible for the discount
• Determine if the drugs are discountable (should be all drugs since CMS says only drugs that will be discounted will be covered under Medicare D)
• Calculate the amount of the discount, depending on doughnut hole status
• Send the discount information to the dispensing pharmacy as part of the on-line adjudication process
• Reimburse the pharmacy for the discount within 14 days of the online claim

Call me a cynic, but I see all kinds of potential problems with this. Maybe I'm just a tad jaded from working with third-parties for the past fifteen years. Maybe I've actually read a third-party contract and understand how the third-party will nickle and dime the retail pharmacy on this. Maybe I can see what is going to happen to drug prices as a result of this program.

Before renewing any contracts with Medicare D plans, a smart pharmacist should carefully read the contract. Look for changes in the reimbursement rates. I can foresee terms for brand name medications to read something like AWP-18% + 1.75 or the MCGDP* + 1.75, whichever is less.

* Medicare Coverage Gap Discount Price, I just made it up but I can see it as a new formula to join FUL, MAC, WAC, and GEAP.

Right there, the plans will attempt to reimburse at the lowest rate possible. And I can guarantee that many pharmacies will sign without even looking. There will also be some terms that allow the plan to delay payment for discounted prescriptions pending audits. Of course every claim will be flagged for an audit. Again, this is just the cynic in me speaking here.

But let's assume that the third-party administrators will be on the up-and-up. Let's think about what the manufacturers are going to do.

Over the last week or so on Twitter, I have seen several links to stories that talk about how the brand name medications have seen price increases of about 8 percent over the past year.

Now we have CMS requiring that the manufacturers discount prices for people who are in the doughnut hole. The manufacturers never discount prices, they pass the cost of the discounts on to others. That means that the non-Medicare D plans and self-paying patients will see prices skyrocket.

The $180 bottle of Nexium that we see on our shelves. Medicare D patients in the gap will see the discount. Let's be nice and say they will only have to pay $120. That sixty dollar discount isn't going to be written off. It's going to drive the price up to $250 per bottle for everybody else. Classic move. The manufacturers aren't going to see any change in profits. Heck, between now and January I wouldn't be surprised to see the big-name medications to see hefty price increases.

In an effort to help out the Medicare D patients, CMS has screwed everybody who is not on a government funded prescription drug plan. Like I said earlier, maybe I'm just cynical but I see multiple places where the system can be hijacked. And in just about every instance it will be the pharmacist who gets the short end of the stick.