VA Drug-Delivery Approach Would Lead to Fewer Choices for Seniors, Massive Cost-Shifting to Consumers in Private Marketplace

Washington, DC; 06.02.04 — Replicating a Veterans’ Administration-style model to delivering prescription drug benefits to more than 40 million Medicare beneficiaries is a flawed approach that would result in fewer choices for America’s seniors and would likely shift billions of dollars of prescription drug spending onto consumers in the private marketplace, the Pharmaceutical Care Management Association (PCMA) said today.

Barely 24 hours into the new Medicare prescription drug discount card program, opponents of the new program are, regrettably, pushing an agenda that would lead to fewer choices for seniors, the association added. Rather than working to sow fear and confusion, PCMA challenges policymakers to work to raise greater awareness about the value of the new drug card program, particularly the $600 transitional assistance available to low-income seniors.

PCMA believes that a private-public partnership providing more choice, competition, and information is the best avenue for lowering prescription drug costs for seniors and disabled beneficiaries. America’s PBMs have worked to drive down drug prices in other parts of the system and look forward to bringing these same benefits to seniors in Medicare. According to a PCMA industry survey, seniors enrolling in a PBM-administered prescription drug discount cards should expect discounts averaging 17 percent for brand-name drugs and 35 percent for generics.

In a 2000 report examining the viability of moving Medicare to the VA model, the non-partisan US General Accounting Office concluded that this approach would raise prescription drug prices and shift costs to other parts of the system. Specifically, the GAO noted that “mandating that federal prices for outpatient prescription drugs [such as the VA model] be extended to a large group of purchasers, such as Medicare beneficiaries, could lower the prices they pay, but raise prices for others.”

PCMA believes strongly that the VA prescription drug delivery model is not viable and sustainable in Medicare:

The VA model would lead to fewer choices for seniors. The VA national formulary requires access to prescription drugs in 31 classes. By contrast, the new Medicare drug discount card program requires that beneficiaries have access to drugs in 209 therapeutic classes.
The VA model relies upon a one-size-fits-all national formulary. The VA model relies upon a national formulary, delivering prescription drugs via VA-owned hospitals and pharmacies. The VA acts as the sole purchaser and the only distributor of prescription drugs; participating physicians are required to follow the one national formulary.
The VA model would lead to massive cost-shifting to other parts of the health care system, including the private marketplace. VA drug spending represents about one percent of all prescription drug spending. Medicare beneficiaries, by contrast, are estimated to account for about 40 percent of prescription drug spending. Because the VA drug spending represents only one percent of drug spending, cost shifting is kept to a minimum. Moreover, the VA pays fixed prices for drugs that are established by law. For example, brand-name drugs listed on the Federal Supply Schedule (FSS) are automatically provided to the VA at a 24 percent lower price than average private-sector price. Pulling 40 percent of all drug spending under the VA-style umbrella â?? and requiring an automatic 24 percent discount for brand-name drugs under the FSS â?? would represent a massive disruption in the marketplace and lead to billions of dollars of higher drug costs in other parts of the system.
The VA’s P&T committee structure would raise questions in Medicare. The VA’s pharmacy & therapeutic committee (P&T) representatives â?? the very individuals charged with designing the VA’s formulary â?? are employed directly by the VA. In contrast, private-sector P&T committees â?? including those envisioned to participate in the new Medicare drug benefit through PBMs â?? are comprised of physicians, pharmacists, and other parties with no financial interest in formulary recommendations and make their recommendations based solely upon clinical data. Replicating the VA model in the Medicare program would raise questions about whether Medicare was putting cost considerations ahead of clinical data.
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The Pharmaceutical Care Management Association (PCMA) is the national trade association representing America’s pharmaceutical benefit managers (PBMs). PCMA member companies provide pharmaceutical care management services to more than 200 million Americans.

Contact Information:
Phil Blando
202-207-3614