Medicare beneficiaries could have 30 choices of Part D drug plans in certain regions based on estimates that CMS received 1,000 bids.

"We are hearing from some of the consultants that there may be more than 1,000 bids that went in," Schering-Plough Exec Director-Public Policy & Reimbursement Lawrence Atkins told a Strategic Research Institute Medicare Part D conference June 27 in Washington, D.C.

Drug industry consultants believe the Centers for Medicare & Medicaid Services received about 10 national and 300 regional stand-alone prescription drug plan (PDP) bids, in addition to 700 regional and 350 local bids for Medicare Advantage prescription drug plans (MA-PD), Atkins noted.

"You can see that for any beneficiary in any region, if all these plans end up getting approved and get to market - which is a big question - Medicare beneficiaries could be facing something on the order of over 20 MA-PD kind of variations and combinations in a region...and eight to nine PDPs. So it sounds like there's going to be a lot of choice."

The deadline for submitting bids for Part D drug plans was June 6. CMS expects to approve plans by Sept. 15. Plans may begin marketing Oct. 1; open enrollment will begin Nov. 15; and the benefit starts Jan. 1.

CMS Administrator Mark McClellan described the response to the bidding as "very robust," but the agency has not yet disclosed the number of bids it received (¹ [A#00670240010], p. 18).

The number of bids do not reflect the number of companies participating, but the number of plan designs that have been submitted for CMS approval. Many companies may have submitted multiple drug packages with different features, and some may have submitted bids for multiple regions, of which there are 34 for PDPs and 26 for MA-PDs.

However, since every bid will not necessarily be approved, some in the drug industry believe there will be about 450 Medicare drug plans in 2006.

Amgen Associate Director-Global Government Affairs Chris Mancill said "it appears that most people are quoting about 150 free-standing prescription drug plans and somewhere north of 300 Medicare advantage plans." The MA-PDs "will probably have less of a market share," he added.

CMS Senior Advisor Abby Block told the SRI conference that one goal of the bid approval process is to ensure beneficiaries have a wide range of choices, while not overwhelming patients.

In addition to reviewing bids for actuarial equivalence to the standard Part D benefit and assessing formularies to ensure they do not discriminate against any patient populations, CMS will "ensure as well that there is reasonable distinction among or between the bids of single organizations."

The intent is to avoid a "proliferation of bids out there that would be confusing to beneficiaries and have no real added value," Block said.

Schering's Atkins predicted that many plan sponsors will offer multiple products in the same market, each with different benefit designs, copayment structures and approaches to the "donut hole" gap in coverage.

"A lot of plans are floating multiple products to test what's going to work: the super low-cost options, high-premium options [or] enhanced benefit add-ons," the exec noted.

"All of those are going to be in the mix for beneficiaries," because "nobody knows who the competition is going to be and...nobody even knows what beneficiaries are going to go for."

Atkins predicted that many plans will try to take as much Medicare market share as possible in the first year by offering low-premium options.

"There seems to be some evidence that a lot of plans are...bidding with very low premiums to start with, with the idea that the first thing they have to do is get enrollment," Atkins said. He predicted there will likely be "some zero premium options in the MA-PD area."

"A lot of plans are putting their margins at risk the first year, going in with very low bids, and relying on the risk corridors to save them."

The Gorman Health Group has advised plans that they could still be profitable as a PDP even if drug costs exceed their bid estimates by 15% (² Also see "Medicare Rx Plans Have 15% Margin Of Error In Bids, Consultant Says" - Pink Sheet, 23 May, 2005., p. 20).

"One thing you have to think about going to market with these plans is it's a little bit like the Oklahoma land rush," Atkins said. "There's nobody out there now...and on Oct. 1 they drop the rope and all these plans take off starting to look for beneficiaries. The game is how many beneficiaries can you get" during the open enrollment period of Nov. 15 to May 15.

One area where Medicare drug plans are likely to differ from typical commercial plans is in the copayment structure for non-preferred drugs, Atkins said.

"What you will see different in the Medicare plans is probably some very high copay tiers," he predicted.

"Don't forget they have to have actuarial equivalence to a 25% coinsurance to start with, so actuarial equivalence to that means that if you are going to offer a preferred in the 25% range or a little lower than that, you're going to offer a non-preferred at a much higher coinsurance than people have been seeing in the commercial sector."

Partnering with outside entities - particularly chain drug stores that can communicate plan benefits to a large Medicare audience - will be important in enrolling members, Atkins noted.

He cited UnitedHealth's partnership with Walgreens and AARP as well as Universal American Financial Corporation's alliance with CVS PharmaCare to form national PDPs.

CVS has been striking agreements with other insurers with national PDP bids to help with their outreach campaigns to beneficiaries.

The pharmacy chain announced agreements with UnitedHealth and Aetna during the week of July 4 to develop programs to help consumers understand their drug coverage options under Medicare.

In addition to sorting through the large number of plan options, beneficiaries may need help understanding changes to plans as they are implemented in later years.

Because bids for 2007 Medicare drug plans are due in June - just a few weeks after the open enrollment period ends - Atkins said plan designs will probably be similar in the first and second years of the program, then change significantly in 2008.

"The bids for 2007 go in almost immediately after plans start in the marketplace...so there's not a lot of time to take into account enrollment results or anything like that in making their second year bids," Atkins explained.

"The first two years are pretty much momentum, and then in 2008...you're going to see a lot of shake out of plan options, because a lot of the stuff that gets thrown out there just isn't going to take....You're going to see variations, a lot of change in premiums, a lot of change in benefit design and access limitations as they figure out what works out there."

As the plans "shake out," they will also start to seek deeper pricing discounts from drug manufacturers, Atkins predicted.

While the market will be defined during the first few years of the benefit, "round two is a very different kind of game in terms of pricing and competition," he said.

"There's going to be a lot more pressure from plans in round two to push on these exclusive relationships...and get those prices down."

Despite the potential for beneficiaries to receive formulary exceptions, Atkins claimed Medicare formularies would have a big impact on drugs' market shares.

"I would anticipate we will see fairly substantial swings in market share going on around this Medicare area over the first several months of the benefit," the Schering exec said.

One other adjustment manufacturers will need to make is in their marketing to physicians. "It is going to be very hard to figure out on a physician-by-physician basis how their practice...aligns with the various...PDP and MA-PD formularies," Atkins said.

"Detailing becomes much less significant in this environment over the next several years, as a lot of the other resources become available to physicians through the Medicare program that haven't been there before."

He named e-prescribing, medication therapy management programs and comparative drug information provided by the Agency for Healthcare Quality & Research as examples.

Medicare Rx Bids Could Yield 30 Plan Choices Per Region – Schering Exec

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