Medco is "leaning" toward participating directly in the Medicare Part D stand-alone prescription drug insurance program in 2006, CEO David Snow said during an analyst meeting Nov. 11 in Philadelphia.

"Right now, we are leaning toward finding an innovative solution such that we can be a Part D sponsor," Snow said.

Medco remains concerned about the concept of at-risk stand-alone prescription drug plans, Snow stressed. However, he added, Medco has "come a long way" in its thinking about the program.

Medco (like the other major PBMs) has been clear from the beginning that it is eager to participate in the Medicare Rx program on behalf of managed care plans offering drug coverage under Medicare Advantage.

Earlier this year, Medco said it viewed the "fallback" plan - serving as a direct contractor to the Centers for Medicare & Medicaid Services in regions where the private drug insurance model fails - as its preferred way of working under Part D (¹ Also see "Medco Committed To Medicare Rx, But Not Part D; Backing The “Fallback”" - Pink Sheet, 14 June, 2004., p. 16).

Backing Away From The "Fallback"

Over the summer, Medco backed away from those statements and said it would be interested in working with CMS on a way that it could participate (see chart: " ² Medco Warms Up To Part D ").

Now, Medco "is leaning toward not participating on the back-up side," Snow said.

One factor in that position, Snow said, is that "you have to make a choice....If you participate on the back-up side, you can't participate on the Part D opportunity."

"We've been doing a lot of thinking into how we might structure this and we think we might be on to something," Snow said. "I'm hopeful that we will play in a meaningful way in this Part D benefit."

He suggested that Medco will have a "creative and innovative solution" to talk about in the near future. Without going into detail, he suggested that Medco would have an approach that could be "tweaked" to allow the company to work with managed care clients and employers under Part D.

"Ultimately, I think it is important to take risk out of the equation [so] that we have some alternatives beyond the ones that are on the table today."

Medco's thinking also reflects the outcome of the elections. Snow described the GOP victory as ensuring "stability" and allowing final decisions to be made on the implementing regulations.

Elections Mean "Stability"

"Now that the elections are over and there is some stability in Washington, I think we will get some of those missing answers in place and some decisions will be made."

The returning Administration also remains adamant that there will be no need for "fallback" plans in 2006. Democratic Presidential candidate John Kerry, in contrast, would have encouraged adoption of the direct-contracting process nationwide (³ Also see "Medicare Rx Course Is Clearer Following Bush Victory" - Pink Sheet, 8 November, 2004., p. 9).

After once describing the Part D benefit as "half baked" and unlikely to attract any plans, Snow now sees the potential for widespread participation.

"It is such a big opportunity" that most health plans have to consider participating, Snow said. "It is a huge amount of drug spend that is tied up in this."

"I would say the majority don't know what they are going to do," Snow said. "Most would articulate that they want to play. Most don't want to pass up the opportunity, but most don't know how."

Health plans have the same concerns as Medco, Snow said. "There is an underwriting science problem in the way that it is structured today," he said. "In addition, the USP diagnostic categories keep expanding, which has an effect on how you underwrite."

The U.S. Pharmacopeia is finalizing a therapeutic classification system that will form the backbone for CMS' analysis of Medicare formularies (⁴ Also see "Broad Medicare Formularies Would Negatively Impact Rx Industry – PCMA" - Pink Sheet, 1 November, 2004., p. 13).

Most Plans Want To Participate In Part D

Medco is aware of only two health plans - PacifiCare and Aetna - that have declared a firm intent to "do something, period." However, "there are several others that I think are leaning toward" participating, but "they don't know how."

Medco was asked how it expects clients to react if they end up essentially competing against Medco in the Medicare Part D market.

If health plans "are offering Part D, we would administer it for them," Snow said. "We have to make certain we can provide that service to them."

"The solution that we are focused on is also a very innovative solution that with minor tweaks I think would be appealing to our health plan customers as well," Snow said. "We are actually designing this solution with multiple customers in mind."

In addition to health plans, Medco expects to be able to offer its services to large employers and unions that provide retiree drug benefits, Snow said.

Retiree benefits managers are "all looking for quantitative help" to make decisions about how to proceed in 2006, Snow said.

The Medco CEO predicted that most retiree plans will find it too complicated to serve as secondary insurers with the new Medicare benefit. "It becomes, very quickly, an extremely complicated thing to do if you have a national presence, because you have to interface with PDPs all across the country."

Retiree Plans Face Decisions

"Administratively, it will become a nightmare to have a national presence and go secondary," he said. "They are probably going to stay primary for now," with the understanding that any decision for 2006 can be revisited in 2007.

"The onus is on us to provide them with some additional solutions over time, which is why I'm particularly excited" about Medco's current plan.

Medco's approach "may not meet everyone's needs," Snow acknowledged, "but it will meet a large number."

Snow predicted that Medco would finalize its thinking on Part D by the end of the year and be in a position to discuss its plans in greater depth early in 2005.

Regardless of its final decision, Medco will be ready for the start-up of the benefit, Snow said. "We're pretty confident that once we know the rules, we can deliver. We've got plenty of time."

Will Part D Start On Time?

Medco is "working through all the issues and all the things we need to do, and working with the entire company to get prepared for 2006," Snow said.

One possible complication, Snow said, may be that CMS will not have time to implement the program by the statutory start date. "I've always said there is a distinct possibility they will postpone," Snow said. "You saw they stumbled on the discount card."

If the full Part D benefit is pushed back a year, Medco would be "thrilled, relatively, because we've got a very large enrollment in that discount card and it gives me another year" to move more of those enrollees into the higher margin mail order side of Medco's operations, Snow said.

Snow provided updated numbers on Medco's Medicare discount card plans. The company claims to have enrolled a total of 779,000 beneficiaries across its cards, and estimates that annualized drug spending by card holders is $400 mil.-$500 mil.

Medco Says It Is Ready For Part D: Will CMS Be?

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