DIVISION OF LEGISLATIVE SERVICES V I R G I N I A L E G I S L A T I V E ISSUE BRIEF N U M B E R 3 8 A U G U S T 2 0 0 4

Introduction under age 65, and people Medicare with end-stage renal disease Prescription Drug This Issue Brief focuses on (permanent kidney failure the prescription drug benefit treated with dialysis or a 3 Improvement and provisions of the new law, in transplant). Of this total particular the temporary pre- number of beneficiaries in Modernization Act scription drug discount card Virginia, the CMS estimates of 2003 (MMA): program, which began in the that 187,000 of them do not spring of 2004, and the prac- have any prescription drug 4 Prescription Drug tical implications of the dis- coverage. The new prescrip- Benefit Implementation count drug card program on tion drug benefit program, Virginians. A discussion of Medicare Part D, is aimed in Virginia and Review recent Virginia and pending primarily at helping these of Pending State and federal legislation aimed at individuals by providing them Federal Legislation addressing perceived short- with assistance in paying for comings of the MMA follows, the prescription drugs that including the issues of pre- they need, and beginning in scription drug importation 2006, all Medicare benefi- and government-leveraged ciaries will be able to enroll JEFFREY G ORE 5 price negotiation with drug in a prescription drug plan. STAFF A TTORNEY manufacturers, the coverage gap (or “doughnut hole”) and Despite potential varia- NICOLE SEEDS tions, in general the plans LEGISLATIVE I NTERN its effect on low-income indi- viduals, and various Medi- will entail the following: care-quality and cost-control measures.
A premium of approxi- mately $35 per month. Prescription Drug
A $250 deductible, paid igned into law by Presi- by the consumer. S Benefit
Medicare then pays 75 dent George W. Bush on percent of drug costs be- December 10, 2003, the Perhaps the most signifi- Medicare Prescription Drug tween $250 and $2,250. cant and certainly the most
The consumer pays 100 Improvement and Modern- talked about change to exist- ization Act of 2003 (MMA) percent of drug costs ing Medicare law is the addi- above $2,250, until out- provides the largest benefit tion of a prescription drug expansion in Medicare’s his- of-pocket costs reach benefit. Administered by the 6 tory.1 The legislation en- $3,600. Centers for Medicaid and
Catastrophic coverage: acted major substantive Medicare Services (CMS), changes to the Medicare pro- Medicare will then pay Medicare is the nation’s larg- approximately 95 percent gram that did not come with- est health insurance program out a high price tag. The of the costs after the con- with more than 40 million sumer has spent $3,600.7 prescription drug benefits beneficiaries nationally, in- alone are expected to cost cluding 947,000 in Virginia. In addition to these gen- just over $410 billion over 10 It covers people age 65 and years.2 eral provisions, the MMA in- over, many disabled people cludes targeted prescription Issue Brief 2 Number 38 August 2004 drug assistance for certain couple. Critics of the dual scription drugs until that low-income beneficiaries. income/asset test point out time. According to the CMS, Many people with incomes that an estimated 1.8 million the cards are expected to up to 135 percent of the individuals who would other- provide consumers with 10- poverty level ($12,569 for wise be eligible for benefits 15 percent average savings individuals and $16,862 for based on income may be ex- and as much as 25 percent married couples) will not be cluded from low-income pre- or more on individual pre- required to pay any premi- scription drug assistance for scriptions. The CMS esti- ums, and will only be sub- failure to meet the asset re- mates that in 2004 alone, ject to co-payments of $2 for quirements.9 7.3 million people will save generic drugs and $5 for a total of between $1.4 bil- brand name drugs. For in- Prescription Drug lion and $1.8 billion by en- dividuals with incomes be- Discount Card rolling in the program. tween 135 and 150 percent During the course of this of the poverty level, these Although the permanent program, the CMS estimates benefits start phasing out prescription drug benefit pro- that the drug card subsidies and a sliding-scale premium visions do not become effec- will total (or beneficiaries will be charged, co-pay- tive until January 1, 2006, will save) more than $8 bil- ments increased, and a $50 lion nationally, including since May of 2004 Medicare 10 deductible added. New in- beneficiaries have been able $194 million in Virginia. come limits for determining to enroll in the Medicare-Ap- eligibility for low-income as- Card sponsors can charge 8 proved Discount Drug Card sistance will be set in 2005. Program. Anyone eligible for up to $30 per year for enroll- Medicare Part A or Part B who ment, and fees for cards In addition to the income is not already receiving Med- available in Virginia range test, the MMA requires an icaid outpatient prescription from no enrollment fee up asset test in order to deter- drug coverage is eligible. to the $30 maximum, with mine eligibility for low-in- There are no income qualifi- the typical fee falling be- come prescription drug as- cations; however, certain low- tween $20 and $30. At least sistance. Beneficiaries liv- income beneficiaries may be 36 sponsors provide Medi- ing at or below 135 percent eligible for the $600 annual care-approved prescription of the poverty level may have credit (discussed below). drug cards in Virginia. In up to $6,000 in assets per States, pharmacies, retiree addition, Virginians have at individual or $9,000 per drug coverage, and various least eight statewide, com- couple, while those falling other programs will compete pany-sponsored programs between 135 and 150 per- with the Medicare-approved and seven regional and cent of the poverty level are cards by offering similar pre- membership programs from limited to $10,000 in assets scription drug discounts. which to choose. For a full individually or $20,000 per These programs, however, of- listing of all prescription fer alternatives to the Medi- drug programs in Virginia, including both Medicare- Virginia Legislative Issue Brief is care-approved discount drug cards and are not subject to approved cards and other an occasional publication of the alternatives, contact the Vir- Division of Legislative Services, all of the same requirements ginia Department for the an agency of the and standards regarding dis- General Assembly of Virginia. counts, coverage, and eligi- Aging at 1-800-552-3402 or see the listing provided on E.M. Miller, Jr., Director bility. R.J. Austin, Manager, Special Projects the Department’s website at K.C. Patterson, Editor This program is voluntary http://www.aging.state.va.us. For information contact: Special Projects for eligible applicants and is intended to bridge the gap As early as May 2004, Division of Legislative Services eligible applicants could 910 Capitol Street, 2nd Floor until the MMA’s drug benefit Richmond, VA 23219 takes effect in 2006 by provid- begin applying for a discount (804) 786-3591 card (to become effective in http://dls.state.va.us/ ing discounts for regular pre- Issue Brief 3 Number 38 August 2004 June). Beneficiaries can the prices it charges for those available from http:// apply for only one Medicare- drugs. Therefore it is impor- www.medicare.gov, or on approved card at a time (there tant for individuals to review the selected card sponsor’s are no limits on the number the lists of covered and dis- website. of non-Medicare-approved counted drugs when enroll- cards), and must remain with ing in drug card program to Individuals who qualify that card for the rest of the make sure it offers the best for the credit will pay the year. However, one may coverage and savings for the following portion for each change cards under the fol- individual. prescription: lowing circumstances: Information about card
Five percent of the dis-
Moving to another state sponsors’ formularies and counted price for each where the current card is prices, and changes to either, prescription until the not offered; are required to be posted in credit is used up if one’s
Entering or leaving a long- each card sponsor’s website monthly income is be- term care facility; and must be available through tween $0 and $776
Leaving or joining a Medi- their call center. This infor- (single) or between $0 care managed care plan; mation can also be obtained and $1,041 (married).
Private company stops through 1-800-MEDICARE,
Ten percent of the dis- offering that particular or http://www.medicare.gov/ counted price for each discount card; or , which is updated weekly prescription until the
During the coordinated and contains a useful and credit is used up if one’s election period (Novem- confidential guide to choos- monthly income is be- ber 15–December 31, ing a Medicare-approved dis- tween $777 and $1,048 2004), pursuant to which count drug card. (single) or between the new card will become $1,042 and $1,406 (mar- effective January 1, Transitional Assistance ried). 2005.11 Program for Low- Once the $600 credit is used Beneficiaries can use Income Individuals up, eligible beneficiaries will their discount cards to pur- then pay the full discounted chase covered prescription As mentioned above, the price for each prescription drugs from pharmacies or MMA also provides a $600 offered through the Medi- mail order suppliers that credit per year in 2004 and care-approved drug dis- participate in their card 2005 on Medicare-approved count card program in sponsor’s network. All cards discount cards for beneficia- which they are enrolled.13 are required to offer at least ries whose incomes are 135 one drug in each of the 209 percent, or below, the federal The CMS estimates that categories that the CMS has poverty level. Medicare will seven million Medicare ben- identified as the most fre- pay the discount drug card eficiaries, including 162,000 quently used by Medicare enrollment fee for these indi- in Virginia, are eligible for beneficiaries, in addition to viduals. Meanwhile, when this program. The CMS ex- at least one generic drug in utilizing the $600 credit, pects about 4.5 million ben- a minimum of 115 of those those earning at or below 100 eficiaries to participate, sav- 209 categories.12 However, percent of the poverty level ing more than $5 billion all cards do not offer the ($9,310 for individuals or nationally, while 105,000 same drugs, nor are they $12,490 for couples) will pay participants in Virginia will required to offer discounts five percent coinsurance, and save approximately $126 on all drugs that they in- those earning between 100 million over the two-year clude in their formulary. In percent and 135 percent will duration of the program.14 addition, a sponsor may with- pay 10 percent. Joint pre- On an individual basis, the out prior notice change scription drug card/$600 CMS estimates average an- which drugs it covers and credit eligibility forms are nual drug costs for this Issue Brief 4 Number 38 August 2004 population at $1,400, so a on each of the controversial measure, however, is not $600 credit will equal a 43 provisions of the MMA, which expected to be a part of the percent savings, on average. the Senator refers to as a “good final spending bill.16 first step.”15 However, the ma- Issues Addressed By jority of the proposed legisla- Another bill gaining sup- Recent State and tion has been on much smaller port is a bipartisan effort scale, thus the following bills entitled “Pharmaceutical Federal Legislation are summarized and catego- Market Access and Drug rized by the specific issues Safety Act of 2004.” The Numerous bills have sur- they target. bill, introduced in the Sen- faced in Congress and the ate on April 21, 2004, and General Assembly during the Importation of considered by the Senate past six months that address Prescription Drugs Committe on the Judiciary or seek to modify the MMA as and Price Negotiation on July 14, 2004, recog- signed into law in December nizes six findings includ- 2003. The proposed bills ing: target the perceived problem The most frequently pro- areas such as the “doughnut posed bills this year have called for the repeal of the [T]he United States is hole,” the prohibition on the largest market for negotiation and importation, provision prohibiting the Sec- retary of Health and Human pharmaceuticals in the and the overall quality and world, yet American cost of the program. In addi- Services from negotiating lower prices for prescription consumers pay the tion, due to concern over the highest prices for complexity of the MMA and drugs. House Bills 3672 and 3671 and Senate Bill 1999 all brand pharmaceuti- the discount drug card pro- cals in the world; and, gram, the General Assembly provide for the Secretary to enter into negotiations with allowing open phar- took steps this year to dis- maceutical markets seminate information and drug companies to lower prices for America’s seniors. could save American educate the public. consumers at least $38 billion each year.17 Although a large number On July 13, 2004, the House of Representatives ap- of legislators are attempting Clearly, the focus of this to “fix” the MMA, many think proved a measure by a 389-31 margin that would allow proposed legislation is en- that the bill will be an impor- suring lower prescription tant part of President Bush’s Americans to buy prescrip- tion drugs from Canada and drug costs for seniors. The re-election strategy, and as bill would allow importa- such, any attempt to target other countries. At the urging of Representative Marcy tion of drugs by waiving the legislation is unlikely to certain import restrictions pass. Kaptur (D-Ohio) in June, a subcommittee added the pro- that are currently making Moreover, since the bulk of that practice difficult un- the new Medicare law does vision to a $16 billion bill to fund the Agriculture Depart- der the MMA. However, the not fully take effect until bill does much more than 2006, there may also be sub- ment and the Food and Drug Administration and prohibit simply state that “drugs stantial resistance to any shall be imported with no changes prior to that time. the FDA from spending money to enforce its prohibition on restrictions.” Rather, it sets the importation of drugs it has up a program whereby cer- Despite such consider- tain countries are deemed ations, many bills have been already approved. Proponents of the measure claim that it “registered importers” and introduced and gained both “registered exporters.” bi-partisan and public sup- will save Americans up to two- thirds on what they spend Approved pharmacists and port. Senator Kent Conrad wholesalers in the United (D-North Dakota) introduced currently for some medica- tions, while opponents cite States would be able to a comprehensive bill (Sen- import from Canada in the ate Bill 2343) that touched the usual safety concerns. The Issue Brief 5 Number 38 August 2004 first year of enactment, and sion of the General Assembly age, House Bill 4437 pro- then one year after enact- in support of the importation vides for the automatic en- ment those same pharma- of drugs from Canada. House rollment of certain low-in- cists and wholesalers would Bill 190 directed the Depart- come beneficiaries in Medi- be able to import from the ment of Human Resource care Savings programs. It European Union, Switzer- Management, in consultation also automatically enrolls land, Australia, New with the Office of the Attorney low-income beneficiaries in Zealand, and Japan. The General and the Executive the transitional assistance bill also limits importation Director of the Board of Phar- program, making them eli- to certain qualifying drugs macy, to evaluate and permit gible for the $600 per year and excludes controlled sub- the implementation of a pro- in low-income discount card stances, biological products, cess for purchasing reduced- assistance without requir- infused drugs, intravenously cost prescription drugs from ing a separate enrollment injected drugs, and certain Canada for state employees process. Each individual au- drugs used during surgery. in the State Health Benefits tomatically enrolled will Program. The bill recognizes have 60 days to enroll in a Another important con- that prescription drugs from different endorsed discount cern of the bill is consumer Canada are up to 50 percent card, should they feel dis- safety, as it includes a num- less expensive because of price satisfied with the card they ber of measures to ensure controls, and that prescrip- have automatically assigned that the importation of drugs tion drugs comprise the fast- to them. This legislation is done safely. Those mea- est growing segment of health was recently referred to the sures include a registration care expenditures, thus war- House Subcommittee on requirement for both export- ranting consideration of the Health, where it awaits de- ers and importers and the issue. It was passed by the bate. requirement that each ex- committee on Health, Wel- porter agree to permit the fare, and Institutions in the The MMA does not allow Secretary to conduct onsite House but got no further, so any health plan to assist inspections, in addition to the Commonwealth can an- beneficiaries in reaching the having access on a day-to- ticipate at least another year “catastrophic coverage” level, day basis to records of the before the issue goes forward, and instead requires out-of- exporter and samples of ex- if at all. pocket spending to bridge ported drugs. Finally, the the coverage gap, which is bill requires the Secretary House Joint Resolution currently between $2,250 or employee of the Secre- 199 (2004) called for memori- and $3,600, before cata- tary to inspect the premises alizing Congress to remove strophic benefits (95 per- of the exporter every three current restrictions on the cent coverage) kick in. Fur- weeks. This bill has received purchasing of prescription thermore, according to in- publicity because it repre- drugs from Canada. The Gen- dexing provisions, the sents a bipartisan compro- eral Assembly continued this $3,600 limit is expected to mise between 28 Republi- resolution until 2005, per- rise to $6,400 by 2013.19 can and Democratic spon- haps to give the drug discount Critics assert that this cov- sors and because the card program a chance to get erage gap or “doughnut nation’s largest senior advo- off the ground before Virginia hole” will disproportionately cacy group, the AARP, re- urges Congress to lift the re- harm those with chronic cently endorsed it.18 strictions on importation. health conditions who are most in need of financial General Assembly Low-Income Beneficiaries relief, and that “it is exactly Legislation and the “Doughnut Hole” in this spending range where better coverage of drugs In Virginia, two measures In an effort to ensure that could ultimately help to were introduced (neither the United States’ poorest citi- lower health care spending passed) during the 2004 Ses- zens have prescription cover- elsewhere.”20 Issue Brief 6 Number 38 August 2004 Thus, several bills target nually to Congress compar- rects the President to sub- this issue, including Senate ing the average retail cost in mit to Congress proposed Bill 2339, which allows em- the U.S. for each of the 20 legislation responding to ployers to contribute to drug most utilized prescription such a warning within 15 costs, lessening the out-of- drugs for individuals age 65 days after the budget sub- pocket spending for their or older with: mission to Congress. The employees. The bill also bill demands that legisla- allows the provision of wrap- 1. The average price at which tion submitted by the Presi- around prescription drug private health plans ac- dent in response to a warn- coverage through Medigap quire each such drug; ing be designed to com- to help seniors reach that 2. The average price at which pletely eliminate excess catastrophic limit with less the Department of Defense general revenue Medicare out-of-pocket expense. As under the Defense Health funding. This effort is most many as 40 percent of all Program acquires each likely in response to con- beneficiaries could have such drug; cerns that any cost explo- drug expenses greater than 3. The average price at which sion in the Medicare pro- $2,250 in 2006, the initial the Department of Veter- gram must be borne by fu- implementation year, which ans Affairs under the laws ture generations and that would translate into total administered by the Sec- every dollar spent is already costs of $70 billion to fill the retary of Veterans Affairs borrowed money. By forc- gap over 10 years.21 At this acquires each such drug; ing Congress and the Presi- point, no legislation has and dent to take action, this bill been offered that simply fills 4. The average negotiated could help control any un- in the entire gap and elimi- price for each such drug foreseen rise in necessary nates the doughnut hole. that eligible beneficiaries funding and promote ac- have access to under a countability on the part of Various Quality and Medicare prescription the President and Congress. Cost Control Measures drug plan that provides only basic prescription Senate Bill 2512 calls for In addition to allowing the drug coverage. a streamlined process in the Secretary of Health and Hu- newly created drug discount man Services to negotiate This review also ensures card program. The bill would prescription drug prices, that drug companies will not require the Secretary of Senate Bill 2053 directs the arbitrarily raise their prices Health and Human Services Comptroller General to re- when the drug discount pro- to choose three cards to be view and report to Congress gram goes into effect. Finally, marketed in each region of on the retail cost of prescrip- this bill amends the Internal the nation. This measure is tion drugs in the United Revenue Code to disallow a intended to spur competi- States between 2000 and tax deduction for advertising tion among companies of- 2003, with an emphasis on expenditures of taxpayers fering discount cards, as the prescription drugs most who discriminate against for- there are more than 73 dis- utilized for individuals age eign sellers of prescription count cards offering prices 65 or older. It also directs drugs to domestic customers. on more than 60,000 drugs. the Comptroller to review The Secretary would choose continuously the retail cost In another attempt to curb cards that provide the great- of such drugs through April Medicare costs, Senate Bill est access to pharmacies, 2006 to determine changes 2130 directs the Secretary of offer the deepest discounts, in costs. Health and Human Services and provide access to the to warn Congress when ex- widest range of drugs. Fi- So that Congress may cess Medicare prescription nally, the bill would prevent make more informed deci- drug funding is projected for pharmaceutical companies sions, the bill requires that the fiscal year for which the from raising prices above the Comptroller report an- budget is submitted and di- those advertised when se- niors signed up for that par- Issue Brief 7 Number 38 August 2004 ticular card and also pre- Commissioner of the Virginia Conclusions vent them from dropping Department for the Aging to coverage of a particular drug develop a strategy, in coordi- Clearly, the addition of a promised to seniors. This nation with the Virginia Area prescription drug benefit to would allay the fears of some Agencies on Aging, for dis- Medicare constitutes land- seniors who have yet to sign seminating to the public in- mark social legislation. The up for the card because of formation concerning the growing population of eld- those concerns. Currently, availability of prescription erly Americans due to the the measure awaits hearing assistance programs and for aging baby boom genera- and debate in the Senate training senior citizen volun- tion and increased costs for Committee on Finance. teers to assist in completing prescription drugs are fac- applications for prescription tors that have driven and assistance programs and the Education and will continue to drive policy drug discount cards. Public Information makers in this area. And undoubtedly, attempts to As a result of this legisla- Senate Bill 158 was the reform this sweeping legis- tion, the elderly of Virginia one measure on this issue lation will continue on both will have concrete assistance that passed during the 2004 the federal and state level. General Assembly ses- in deciding whether or not to 22 sign up for the new drug dis- sion. Anticipating confu- The first provisions of the count card, as well as assis- sion due to the complexity MMA, the temporary dis- tance with the paperwork once of the MMA, this legislation count drug cards, have just the decision to sign up has requires the Commissioner recently come on-line and been made. The Virginia of Health and the Depart- the bulk of the provisions Department for the Aging pro- ment for the Aging to dis- will not take effect until vides useful information on seminate to the public in- 2006. Meanwhile, citizens its website, including tips on formation about the drug should try to stay informed enrolling in prescription drug benefits being provided un- on the current state of the card programs in Virginia.23 der the MMA. Further, the law and how it applies to law requires the Commis- them, and fortunately there sioner of Health and the are numerous resources for doing so.

The following is a list of organizations with web-links and telephone numbers where citizens can seek enrollment assistance and find other useful information on the MMA and prescription drug cards:

K Virginia Department for the Aging: http://www.aging.state.va.us/, or 1-800-552- 3402 K Virginia Department of Medical Assistance Services: http://www.dmas. virginia.gov/ K Centers for Medicaid and Medicare Services: http://www.cms.hhs.gov/, or 1-800- MEDICARE K Medicare:http://www.medicare.gov/MedicareReform/ K The American Geriatrics Society: http://www.americangeriatrics.org/ K Health Assistance Partnership: http://www.healthassistancepartnership.org/ K The National Council on Aging: http://www.ncoa.org/ Issue Brief 8 Number 38 August 2004 threshold will increase in future for_drug_card2.pdf). Notes years pursuant to MMA index for- 15 Press Release, “Conrad Intro- mulas. duces Medicare Mend Bill,” 1 “How beneficiaries Fare Un- 8 Id. (Apr. 22, 2004). der the New Medicare Drug 9 “How beneficiaries Fare Under 16 New York Times News Service, Bill,” June 2004 Issue Brief, the New Medicare Drug Bill”, July 14, 2004. Marilyn Moon, American Insti- June 2004 Issue Brief, Marilyn 17 S.B. 2328, 108th Cong. tutes for Research. Moon, American Institutes for (2004). 2 Letter from the Congressional Research, p 6, citing the Con- 18 William D. Novelli, As We See Budget Office to Congressman gressional Budget Office (CBO). It: Yes to Importation, AARP Bul- Bill Thomas, Chairman, Ways 10 CMS Office of Legislation 5/ letin Online, July-August 2004. and Means Committee, Nov. 20, 19/04. 19 “How Beneficiaries Fare Un- 2003. 11 “The Medicare-Approved Dis- der the New Medicare Drug 3 http://www.medicare.gov. count Card Program” (presenta- Bill”, June 2004 Issue Brief, 4 http://www.cms.hhs.gov/ tion available at: http://www. Marilyn Moon, American Insti- medicarereform/drugcard/ cms.hhs.gov/partnerships/tools/ tutes for Research p 6; citing sponsorinfostate_summaries_for_drug_ materials/medicaretraining/ Congressional Budget Office card2.pdf. english/docs/Mod4Final.ppt). (CBO) estimates. 5 Id. 12 Health Assistance Partnership: 20 Id. at 3. 6 Critics of the legislation refer http://www. healthassistance 21 Id. at 4. to this coverage gap as the partnership.org. 22 VA. CODE ANN. § 32.1-23.1 “Doughnut Hole.” 13 http://www.medicare.gov (2004). 7 CMS Publication No. CMS- 14 http://www.cms.hhs.gov/ 23 http:// 1105, January 2004. Note that medicarereform/drugcard/ www.aging.state.va.us. this out-of-pocket spending sponsorinfo/state_summaries_