10-Year Cost Projection for Medicare Drug Benefit Drops From $737B to $678B, According to New CMS Report

The net cost to the federal government of the Medicare prescription drug benefit in 2006 is projected to be $30.5 billion, 20% less than the government's previous estimate of $38.1 billion, CMS Administrator Mark McClellan said Thursday at a hearing of the Senate Special Committee on Aging, the New York Times reports. The projected cost of the program from 2006 to 2015 is projected to be $678 billion, an 8% decrease from a previous estimate of $737 billion, McClellan said (Pear, New York Times, 2/3). In addition, McClellan said the average monthly premium for beneficiaries now is estimated to be about $25 (Lueck, Wall Street Journal, 2/3). In August, CMS estimated that the average monthly beneficiary premium would be about $32.20 per month (Kaiser Daily Health Policy Report, 8/10). In addition, McClellan said paperwork would be available Thursday for states to apply to the federal government for reimbursement for expenses they incurred by providing medications to beneficiaries who are eligible for both Medicaid and Medicare (Daniels, Arkansas Democrat-Gazette, 2/3).

Remarks by McClellan
McClellan said the estimated costs have decreased because drug plans are offering lower premiums than expected and because beneficiaries "are choosing the plans that offer them the best deal" (Wall Street Journal, 2/3). McClellan also said "stronger-than-expected competition with lower drugs costs" contributed to the reduced cost projections (Appleby/Wolf, USA Today, 2/3). He acknowledged problems with the start of the drug benefit but added, "A change this big in a short period of time is bound to have some problems" (Freking, AP/Philadelphia Inquirer, 2/3). He continued, "We make no excuses for these problems. They are important, they are ours to solve, and we are finding and fixing them" (Lipman, Cox/Albany Times Union, 2/3). He added, "Simplification is absolutely the next step in this process, now that we've got the benefit in place" (Alonso-Zaldivar, Los Angeles Times, 2/3). McClellan continued, "We're going to see competition lead to more simplicity. We do want to make it even easier" for beneficiaries to enroll (Schuler, CQ HealthBeat, 2/2). McClellan said the administration currently does not support an extension of the May 15 enrollment deadline (Wall Street Journal, 2/3). "We've not been focused on what would happen with the May 15 deadline," he said, adding, "The focus is now on addressing February's issues" (Schuler, CQ Today, 2/2). However, he added, "There's plenty of time to think about whether an extension may be necessary down the road" (Wall Street Journal, 2/3).

Senators Question McClellan
Senate Aging Committee Chair Gordon Smith (R-Ore.) said the Bush administration has not done enough to ensure a smooth transition from Medicaid to Medicare of drug coverage for dual eligibles (New York Times, 2/3). Smith asked McClellan why CMS had not taken action earlier, adding, "Many of these problems are problems we foresaw." McClellan said that CMS had made adjustments before the benefit began and that the agency is "watching very closely" for additional problems (CQ HealthBeat, 2/2). Sen. Blanche Lincoln (D-Ark.) said the "timing" for ensuring drug plans reimburse states and pharmacies that have taken action to pay for beneficiaries' medications is "incredibly important." Lincoln asked McClellan, "Are you going to guarantee that in 30 days all these people are going to be reimbursed?" McClellan said, "The state is going to be reimbursed." Lincoln asked if CMS has "sufficient authority and people on point." McClellan said, "At this point, we do" (Arkansas Democrat-Gazette, 2/3). Sen. Elizabeth Dole (R-N.C.) said many low-income beneficiaries in North Carolina are having problems with the drug benefit. "This is simply unacceptable and clearly not what was intended," she said (Funk, Charlotte Observer, 2/3). Dole added, "It is nearly impossible to avoid startup challenges, but ... now we must identify those individuals who are vulnerable and make certain that their needs are met" (Freking, AP/San Francisco Chronicle, 2/3). Sen. Ron Wyden (D-Ore.) said McClellan has done "great damage to the cause of private-sector choice." Wyden, who voted for the 2003 Medicare drug law, said, "I did not conceive that the rollout of the new program would be bungled in this way" (New York Times, 2/3).

More Comments
Sen. Hillary Rodham Clinton (D-N.Y.) said, "It is an absolute embarrassment, outrage, deep heartbreaking disappointment to be in the presence of people who are so distraught, confused, upset and feeling abandoned." She continued, "I, for one, think we should scrap this and start over," adding that the drug benefit is "fatally flawed" (Cox/Albany Times Union, 2/3). In response, Sen. Rick Santorum (R-Pa.) said, "We should not be so flippant in casting out babies with bath waters," adding, "With compromise, you don't get the optimal solution. But [the drug benefit] was the best we could accomplish given the deep divisions in Washington" (CQ HealthBeat, 2/2). Meanwhile, Sen. Herb Kohl (D-Wis.) said it is "ludicrous" to base multiyear cost projections on data from the first month of the drug benefit. Rep. Henry Waxman (D-Calif.) said in a statement that CMS officials "tell us that prices are amazingly low when seniors can see with their own eyes that that isn't the case" (USA Today, 2/3).

Amendments
Later on Thursday, the Senate failed to approve two measures related to the drug benefit that were proposed as amendments to a tax package (S 2020). One amendment, introduced by Sen. Bill Nelson (D-Fla.), would have extended until Dec. 31 the deadline to enroll in the drug benefit without paying a penalty. The amendment also would have allowed beneficiaries to change plans once during the first year and required the federal government to reimburse state, pharmacies and beneficiaries for expenses incurred because of problems with the start of the drug benefit (CQ Today, 2/2). A majority of senators voted in favor of the amendment, but the 52-45 vote was short of the 60 votes necessary to pass under Senate rules for measures on budget and tax matters (Arkansas Democrat-Gazette, 2/3). The second amendment, by Senate Finance Committee Chair Chuck Grassley (R-Iowa), would have stated that Congress should not act to make changes to the drug benefit because the administration was capable of addressing problems with the program and that a deadline extension would not be necessary. Senators voted 42-54 on the amendment, with ten Republicans voting against it.

Comments on Amendments
Grassley said, "In my opinion, rushing to fix things through legislation could do more harm than good," adding that Nelson's amendment was "completely unnecessary." Nelson said of his amendment, 'We're going to take those seniors who are out of pocket, the pharmacies who are out of pocket and the states who are out of pocket because of the federal bungling. We are going to reimburse them" (CQ Today, 2/2).

Texas To Join Lawsuit
In other Medicare news, Texas officials on Thursday said that the state will join California and other states in a planned lawsuit against the federal government that seeks to block CMS from billing states for the cost of prescription drugs for dual eligibles, the Austin American-Statesman reports (MacLaggan, Austin American-Statesman, 2/3). California Attorney General Bill Lockyer on Wednesday said that California, Kentucky, New Jersey, Missouri and Texas plan to file a lawsuit later this month over the "clawback" provision of the Medicare prescription drug benefit. Under the provision, Medicare will assume the prescription drug costs for dual eligibles, but states will have to pay the federal government as much as 90% of the estimated amount that they would have spent on Medicaid coverage for medications for dual eligibles; the rate will decrease to 75% over time. However, the states that plan to file the lawsuit allege the federal government is overbilling them because of flaws in the formula used to calculate the payments (Kaiser Daily Health Policy Report, 2/3). On Thursday, Kathy Walt, a spokesperson for Texas Gov. Rick Perry (R), said, "We clearly do plan to file suit, probably later this month," adding, "This goes beyond cost. What's at the heart of the issue is the unconstitutional commandeering of the state treasury." Kentucky officials have said that the state also will join the lawsuit (Austin American-Statesman, 2/3).

Pharmaceutical Company Profits
Knight Ridder/Newark Star-Ledger on Friday examined how the Medicare prescription drug benefit "will give pharmaceutical companies up to $2 billion in extra profits this year because they are no longer required to pay rebates on drugs bought by the government for the elderly poor." According to a June 2005 survey conducted by Prudential Equity Group, the provision will most benefit pharmaceutical companies that manufacture the antipsychotic medications Seroquel, Lamictal and Zyprexa -- AstraZeneca, GlaxoSmithKline and Eli Lilly, respectively (Pugh, Knight Ridder/Newark Star-Ledger, 2/3).

Broadcast Coverage
APM's "Marketplace" on Thursday reported on the Medicare prescription drug benefit. The segment includes comments from Robert Laszewski, political analyst and health consultant for the insurance industry (Tong, "Marketplace," APM, 2/2). The complete segment is available online in RealPlayer.

In addition, PBS' "NewsHour with Jim Lehrer" on Thursday reported on the benefit. The segment includes comments from Mary Grealy, president of the Healthcare Leadership Council, and Ron Pollack, executive director of Families USA (Suarez, "NewsHour with Jim Lehrer," PBS, 2/2). The complete transcript is available online. The complete segment is available online in RealPlayer.