AARP is suggesting tapping the Medicare trust fund surplus as a way to finesse the cost-estimate barrier to a comprehensive prescription drug benefit.

In a Feb. 26 letter to Senate Budget Committee Chairman Kent Conrad (D-N.D.) and House Budget Committee Chairman Jim Nussle (R-Iowa), AARP CEO William Novelli urged Congress to reserve $350 bil. in the current budget resolution for an Rx benefit, and to create a "reserve fund" from a projected $400 bil. in Medicare surpluses.

Novelli noted that Congress set aside $300 bil. over 10 years in the FY 2002 budget resolution. "An equivalent allocation this year, which would reflect both inflation and another year of coverage, would be closer to about $350 bil.," AARP said.

However, AARP declared, "it is clear that this level of funding is inadequate to fund what our members consider to be even a minimal benefit." Therefore, "Congress should create a reserve fund equal to the amount of surplus in the Medicare trust fund."

"The combination of the $350 bil. commitment based on last year plus the roughly $400 bil. reserve fund will enable Congress to craft a prescription drug benefit that is closer to what many believe adequate coverage will cost, and will better ensure that such a plan can be driven more by policy than by numbers."

AARP is not suggesting a firm cost number above the $350 bil. threshold. However, the total funding outlined by the association is more in line with figures Senate Democrats have been looking at as a benchmark for an Rx benefit.

During a recent Senate Budget Committee hearing, Conrad estimated that a Medicare Rx program that provides the same level of coverage as the Federal Employees Health Benefit Program would cost $750 bil. over 10 years (¹ Also see "White House Wants To “Manage” Expectations For Medicare Rx" - Pink Sheet, 18 February, 2002., p. 6).

The Bush Administration budget request sets aside $190 bil. over 10 years for Medicare reform and a drug benefit. House Republicans have been looking at a $300 bil. set-aside.

The wide disparity between the funding proposals favored by the two parties looks increasingly difficult to resolve heading into the elections.

The potential for a $750 bil. Medicare Rx benefit also puts manufacturers in a quandary. The level of funding is almost irresistibly attractive, but is clearly unacceptable to the industry's Republican allies.

The GOP refrain continues to be that a prescription drug benefit should only be added to Medicare in the context of broader reform.

Ways & Means Committee Chairman Bill Thomas (R-Calif.), for example, responded to the AARP proposal by declaring disappointment. "By insisting that Congress spend the Medicare Trust Fund on a new benefit, AARP is jeopardizing Medicare's viability for future generations, including their members between 50 and 65 years old."

From the industry perspective, the key to addressing the cost issue may lie in providing quantitative evidence of the broader medical savings that can be attributed to increased pharmaceutical use.

In a Feb. 28 statement on the cost debate, the Pharmaceutical Research & Manufacturers of America highlighted a National Pharmaceutical Council funded study by Columbia University's Frank Lichtenberg, PhD, which concluded that patients treated with newer, more expensive drugs had significantly lower non-drug medical costs (² Also see "NPC Study Says New Drugs Offset Nondrug Spending: Will CBO Agree?" - Pink Sheet, 24 September, 2001., p. 6).

Lichtenberg's analysis, published in Health Affairs last summer, concluded that an $18 increase in drug costs translates into a $71.09 reduction in other costs.

During the Health Industry Group Purchasing Association National Pharmacy Forum in New Orleans Feb. 22, Lichtenberg presented an updated analysis, including data from 1997 and 1998. The results published in Health Affairs continue to hold up, he said: an $18 increase in prescription drug costs translates into an $80.10 reduction in hospital costs. He also analyzed the reduction in Medicare spending associated with newer drugs, and came up with a savings of $26.10.

Lichtenberg said he has discussed his study with the Congressional Budget Office, and reported that CBO is "intrigued" by the findings.

The Centers for Medicare & Medicaid Services may generate its own cost-effectiveness data in the future via disease management demonstration projects (³ Also see "Medicare Disease Management Demonstration To Have Control Group Design" - Pink Sheet, 25 February, 2002., p. 3).

The AARP proposal outlined by Novelli does not appear to include any cost-containment provisions that manufacturers would find unacceptable.

"We recognize that, to be affordable, the Medicare drug benefit will need strong and effective cost containment measures," AARP wrote. However, the only specific proposal cited by the association is "the promotion of generic drugs." The association plans a national educational campaign to promote generic drug use (⁴ [A#00640050006], p. 11).

AARP wants to ensure that cost containment methods "don't compromise patient safety and well-being, or impede access to prescription drugs."

AARP is also preparing to argue in the context of both a Medicare drug benefit and PDUFA reauthorization that direct-to-consumer ads drive brand-name drug utilization and the higher costs related to their use.

AARP's letter outlines what it believes are the "minimum" features of a Medicare drug benefit: affordable premium and coinsurance; catastrophic stop-loss protection; no gaps in insurance coverage; additional assistance for low-income people; and "quality and safety features to curb unnecessary costs and prevent dangerous drug interactions."

While AARP has not set a specific premium level, it did note that national surveys have shown seniors believe $50 a month to be too high.

Sen. Bob Graham (D-Fla.) is planning to lower the monthly premium associated with his Medicare prescription drug proposal from the $52 estimated by the Congressional Budget Office to $25-$30.

"The program that we presented last year using the $300 bil. included an over $50 a month premium," Graham told a Feb. 27 press conference. "Many seniors said we cannot afford $50....This would result in a drug benefit being out of reach of many Medicare beneficiaries."

"We've been working to develop a plan that would have the essential elements of last year's $300 bil. plan, but would reduce the amount of that monthly [premium] to in the range of $25-$30 a month," he said. "I will be revising my proposal to include a premium in this range."

"That benefit must also include affordable coinsurance and full protection against drug costs above $4,000 a year."

Graham's bill, the "Medicare Reform Act" (S 1135), would create a committee to establish drug formulary standards for pharmacy benefit management companies and would have performance-based PBM fees (⁵ Also see "Medicare PBM Formulary Standards Set By Drug Cmte. Under Graham Bill" - Pink Sheet, 9 July, 2001., p. 4).

Graham will make the premium changes to his bill after the Senate budget resolution is complete, but he does not expect to make other substantial changes.

Sen. Edward Kennedy (D-Mass.), who did not endorse Graham's bill in 2001, also spoke at the press conference and suggested that he is close to lending his support to the bill after it is revised.

Kennedy said he supports Graham's drug program "concepts," such as "having a realistic premium," low deductibles and reducing the "donut hole."

However, Kennedy apparently wants an even bigger cut in the premium. Premiums are "going to have to be somewhere down in the low 20's," Kennedy added. However, "the way he described it, I'm in complete support of and we'll work out those particular details."

He added that "having just come from the chairman's meeting in the Senate, there was very broad...support for what [Graham] outlined here today....It seems to me...in the next two to three weeks it will be reflected in the Democratic budget."

Commenting on AARP's proposal to create reserve from the Medicare trust fund surplus, Graham said that "everything else that the federal government pays for is coming in part out of the Social Security trust fund, so it's hard to isolate and say just this area of expenditure is going to be paid from the Social Security trust fund."

Kennedy repeated his suggestion that eliminating proposed tax cuts from Bush's budget would free up additional dollars for a drug benefit. "You pick up $600 bil. if you defer even the proposed additional tax breaks," he said (⁶ Also see "Healthcare Reform Returns To Political Agenda Heading Into 2002 Elections" - Pink Sheet, 21 January, 2002., p. 27).

The AARP letter includes another provision that could provide politically difficult: "We believe that it would be irresponsible to use Medicare (or Social Security) surplus dollars to increase provider payments without first ensuring that older Americans get the prescription drug coverage they need and deserve."

AARP Medicare Rx “Reserve” Proposal Seeks To Bypass Cost Debate

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