The other prescription drug benefit plan. (View on Washington).

Two nationwide initiatives to reduce the cost burden of medication for the elderly were launched in December. The more widely publicized is President George W. Bush's proposed legislative reform, in which older and disabled Americans could receive a prescription benefit in return for enrolling in a managed Medicare program. The President's proposal was mentioned (in four sentences) in his January 28th State of the Union address to Congress. However, while the White House was campaigning for its version of Medicare reform, several state governments were forming a coalition that takes a completely different route toward reducing the costs of prescription drugs. Nursing homes should pay attention, because the fates of these initiatives could affect their bottom lines.

The President's initiative is part of his stated goal to ensure "high-quality, affordable healthcare for all Americans." He declared that this cannot be accomplished through "a nationalized healthcare system," but rather through a series of reforms. Through these reforms, he envisions "a system in which all Americans have a good insurance policy, choose their own doctors, and seniors and low-income Americans receive the help they need."

In his 2003 State of the Union address, President Bush said:

Healthcare reform must begin with Medicare; Medicare is the binding commitment of a caring society. we must renew that commitment by giving seniors access to the preventive medicine and new drugs that are transforming ,healthcare in America. Seniors happy with the current Medicare system should he able to keep their coverage just the way it is. And, just like you--the members of Congress and your staffs and other federal employees--all seniors should have the choice of a healthcare plan that provides prescription drugs.

In other words, the President proposes that Medicare recipients should choose between receiving Medicare on a fee-for-service basis without a prescription benefit, or receiving Medicare through a managed-care plan that will include some type of access to pharmaceuticals at reduced prices.

Millions of older Americans already have the choice proposed in Bush's State of the Union address. Medicare + Choice, available in many states, provides reduced prices for prescription medicine or other benefits in exchange for enrollment of Medicare recipients in managed care. President Bush reportedly wants to reinvigorate the Medicare + Choice program by requiring future Medicare enrollees to participate in one of the managed-care plans. Oddly enough, moments before highlighting the proposed prescription drug benefit, the President had declared that, "Instead of bureaucrats... and HMOs, we must put doctors and nurses and patients back in charge of American medicine."

There is little doubt that for long-term care facilities that purchase medications for residents, the White House approach to prescription drug access could be an accounting nightmare. Some nursing home residents will be eligible for reduced-price prescriptions through their enrollment in a Medicare managed care plan. If more than one plan is available, residents enrolled in Medicare managed care in a single facility might have different costs for the same prescription, as well as different menus of rules governing use of the medication brands preferred by their Medicare provider. Meanwhile, residents eligible for Medicaid will have additional state regulations affecting both the cost of their medication and access to specific brands.

With these difficulties in mind, the National Legislative Association on Prescription Drug Prices (NIA) offers an alternative strategy that could permit nursing homes to provide identical medication benefits to all residents. NLA was established in December 2002 as an offshoot of the Northeast Legislative Association on Prescription Drug Prices, a coalition of legislators that began with six states and the District of Columbia. Today the group includes lawmakers from Connecticut, Hawaii, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont, and the District of Columbia. Financial support for the project comes from the Heinz Family Philanthropies, which represent the charitable interests of the late Republican senator John Heinz of Pennsylvania.

Essentially, the NLA will establish a nonprofit, public-sector, pharmacy-benefit management (PBM) program. As constituted today, PBMs are agencies that negotiate directly with pharmaceutical manufacturers based on the buying power of their enrollees to obtain reduced prices for medication. Private-sector, for-profit PBMs have their own approach to this practice, however. Jeffrey Lewis, executive director of the Heinz Family Philanthropies, explained this in December to an audience of state government officials:

In the PBM world today, the three leading PBMs are publicly traded corporations that, first and foremost, have a commitment to their shareholders to achieve the greatest level of profit possible. But taxpayers are also shareholders--shareholders whose hard-earned tax dollars are used to help finance the cost of Medicaid programs, senior pharmacy programs, and other state programs that provide prescription drug benefits....

Typically, there are three ways that PBMs make a profit:

* Share of ingredient costs--where they contract for one rate with pharmacies and then sell at a mark-up to employers like you.

* Fees--including claims-processing fees, clinical management fees, and reselling data. PBMs sell the pharmaceutical industry your claims data so manufacturers can do market-share analysis, look for prescribing patterns, etc. As you know, the fees paid to PBMs for 'your data are not returned to you.

* Rebates--for which they contract with pharmaceutical manufacturers. You are often told that the rebates are returned to you, but this is really a great unknown. You simply do not know whether pharmaceutical manufacturers have offered rebate incentives or administrative fees to the PBMs.

According to former Vermont State Senator Cheryl Rivers (D-Windsor), executive director of NLA, the new nonprofit PBM could make its savings on prescription drugs available to governments, employers, and individuals, with access to low-cost medication varying, depending on the decision of each state that chooses to participate in the program. Rivers believes that long-term care facilities have already benefited from reduced drug costs in Vermont, where this strategy was pioneered.

Over time, if the NLA is successful, nursing homes throughout the country will be able to purchase medication directly for all of their residents--and perhaps for their staff members as well--at prices significantly below those available today. According to Rivers, "The NLA is eager to be educated by the long-term care industry on their needs."

The two strategies proposed by the President and the NLA theoretically could work in tandem, with Medicare managed-care organizations making use of the nonprofit PBM to achieve the lowest possible prices for Medicare recipients. In practice, however, Rivers points out that Medicare + Choice programs with prescription benefits already are failing in many states and have not proven to be cost-effective for either the managed-care organizations or the government. In states with relatively large rural populations of elderly, including Vermont and Alaska, no for-profit organizations have shown interest in providing managed care for Medicare with or without a prescription benefit.

Additional information on the NLA's plans and proposals is available from the National Legislative Association on Prescription Drug Prices, 133 State Street, Room 313, Montpelier, VT 05602, or e-mail [e-mail].

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