Cost shifting.

Katherine J. Paul, a freelance writer In Hiram, Ohio, is a frequent contributor to Contemporary Long Term Care.

How will Medicare pay for prescription drug coverage?

MEDICARE MAY SOON PAY FOR OUTPATIENT PRESCRIPTION drugs, bringing relief to a growing number of elderly and disabled burdened by soaring drug costs. Support for an affordable drug benefit is widespread. However, with SNF providers getting squeezed by PPS, some wonder if adding new benefits to an already cash-strapped Medicare program will hinder efforts to fix other gaps in Medicare coverage.

"This benefit has been needed for a long time," says Bob Deane, chief economist for the American Health Care Association (AHCA). "But how are we going to pay for it? How is it going to be administered?"

Republicans and Democrats are laying their proposals for a drug benefit on the table. President Clinton announced a Medicare reform plan in June that includes a $1,000-a-year prescription drug benefit beginning in 2002. The optional benefit would cost beneficiaries $24 per month, rising to $44 by 2008.

Other proposals include:

* The Access to Rx Medications in Medicare Act of 1999, introduced by Senator Edward M. Kennedy (D-Mass.) in April. It would create a new outpatient prescription drug benefit under Medicare Part B that would be delivered through the private sector, providing coverage of up to $1,700 a year, with annual out-of-pocket costs not to exceed $3,000.

* The Prescription Drug Fairness for Seniors Act of 1999, sponsored by Representative Thomas H. Allen (D-Maine), which would impose price controls on drugs prescribed for Medicare beneficiaries.

* The Medicare Prescription Drug Coverage Act of 1999, introduced in March by Representative Barney Frank (D-Mass.), which calls for full outpatient prescription drug coverage paid for with federal estate tax revenues.

* The Breaux-Thomas plan, which requires medication to be an option for patients in both Medicare HMOs and traditional fee-for-service Medicare programs. It does not require the federal government to help pay for those medicines.

Medicare was modeled after private insurance, which did not cover prescription drugs in 1965. It has never paid for outpatient prescription drugs. So why all the fuss now?

Drugs are becoming an increasingly critical component of chronic care. At the same time, drug prices are skyrocketing while most Medicare beneficiaries are living at or near the poverty level. And supplemental coverage--through pension plans, Medigap insurance and HMOs--is getting harder to come by.

In the past decade, drug companies have brought to market more than 150 new medicines for diseases common among the aging, according to the Pharmaceutical Research and Manufacturers of America. Many more are being developed, including 96 for heart disease and stroke, 316 for cancer, 17 for Alzheimer's disease, 29 for arthritis, 23 for osteoporosis, and 12 for Parkinson's. An estimated 77 to 85 percent of Medicare beneficiaries take these new drugs--but an increasing number can barely afford them, if at all.

"We have seen a large increase in the number of people telling us they can't pay for their medicines, or can't afford Medigap insurance," says Diane Archer, executive director of the Medicare Rights Center. "These people are having to choose between food and prescriptions. Some are taking half a pill or missing doses."

Prescription drugs are the largest single source of out-of-pocket health costs for Medicare beneficiaries. The average senior takes more than four prescription drugs daily and fills 18 prescriptions a year, at a cost of between $100 and $200 a month. And seniors who don't have a drug plan pay top dollar. Drug makers typically charge private customers higher prices to compensate for the discount they give managed care consumers. Medicare beneficiaries shoulder most of that burden.

"In the last 30 years, how you define medicine has changed," says Dan Schulder, legislative director for the National Council of Senior Citizens. "Medicine now includes pharmaceuticals to help people with chronic conditions. Without providing coverage for these drugs, we are not really providing good services to this population."

But where would Congress find the estimated $118 billion to pay for the new benefit in this era of zero-sum budgets? Groups like AHCA and the American Association of Homes and Services for the Aging argue that much more is needed in the way of Medicare reform, including a mechanism to appeal reimbursements under PPS that do not adequately cover the cost of goods and services provided.

The impact on SNFs of a new prescription drug benefit remains to be seen, especially if the new benefit means less money will be available to restore cuts under PPS. "It could hurt nursing homes. And it could hurt residents if nursing homes decide they can't afford to admit patients who require expensive drugs," says Deane.