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8 Cards in this Set
- Front
- Back
Questions/Difficulties in Adding a Drug Coverage to Medicare:
Questions |
How will it be funded? (government? private?)
COB with other drug coverages? Who will administer it? One fiscal intermediary? one per geographical area? several competitors? Will they assume financial risk? Design of the drug program itself benefits cost sharing (copays) Risk Adjustment use? Which pharmacies will provide the drugs? Which cost incentives will be used? formulary generics cost less mail-order |
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Difficulties
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huge financial effect (98% of seniors are covered by Medicare)
Some drug cost factors are out of the control of the PBM or Insurer the age/sex/health of insureds the mix of drugs on the market Inflation; leveraging Disease Mgmt programs in use by MCO’s (can increase drug use) Prescription drug covg is more exposed to antiselection than hospital covg Solutions: make coverage mandatory not too many levels of options |
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HOW PRESCRIPTION DRUG PRICING WORKS
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Market Structure of the Prescription Drug Industry
Manufacturer ---- Pharmacy ----- PBM ----- Insurer ----- Patient `-----------------------^ `----------------------------------------’ |
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Pricing by Pharmacies
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The 3 categories of drugs: single-source brand, multiple-source brand, generic
Therapeutically Equivalent = different drugs; Bioequivalent drugs = a generic equivalent Pricing Methods AWP method (Average Wholesale Price) Pharmacy’s price = 90% AWP + dispensing fee. Maximum Allowable Cost method Pharmacy’s price = scheduled price + dispensing fee |
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Differences between Drug Plan Pricing and Health Plan Pricing
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Drug claims are high-frequency, low-severity, long duration
80/20 rule doesn’t apply to drugs. |
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PHARMACY BENEFIT MANAGERS (PBM’s)
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Fiscal intermediaries
May or may not assume risk |
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PBM’s (or MCO’s) manage drug costs & utilization in the following ways:
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Establishing retail relationships / rebates with manufacturers
Problems with rebates: PBM has incentive to choose highest rebate, not cheapest drug disincentive to choose generic drugs will use its owning manufacturer. obtaining discounts from pharmacies using formularies open formulary, incentive formulary, closed formulary Closed saves cost, but is difficult to administer Problems With Formularies: No standard one exists don’t include enough children’s drugs have to be modified frequently, b/c of: new drugs therapeutic equivalents (if cheaper) generic drugs become available using cost-sharing encouraging generic substitution (through copays) using mail-order pharmacies exclusion of “lifestyle” drugs using Drug Utilization Review (UR) (Drug Mgmt Mechanisms) Prospective Drug UR educate patients Concurrent Drug UR Prior Authorization — check for: dangerous drugs drug interactions expensive drugs new, high-demand drugs (not medically necessary) Maximum Dispensing limit prevents consumer stockpiling of pills Step Therapies use first-line drugs before intensive drugs Retrospective Drug UR study the drug use over time Problems with Drug UR (Drug Mgmt Mechanisms) Disruptive to the Insurer’s claims adjudication process consumer demand Requires good information systems. “Some drug cost factors are out of the control of the PBM” (see above). |
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PATIENT COST SHARING DESIGN ISSUES
(“Motivating Patients through Cost Sharing”) |
Coinsurance
Advantage: gives direct financial incentive. Deductible and Copay Advantage: more acceptable to patients Disadv: Leveraging Have to be raised periodically Out-of-Pocket Maximum Disadv: Leveraging Implicitly allows manufacture of expensive drugs Benefit Maximums on brand drugs Adv: Reverse leveraging Incentive not to overuse drugs Incentive to use generics Disadv: Exposes insurer to antiselection Combinations of the above Disadv: Patients don’t understand obscures the incentives Done. |