Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Endnotes

04/01/2000

1 - National Association of Chain Drug Stores, The Chain Pharmacy: Industry Profile, Alexandria, VA, 1999.

2 - In general most of the relationships in this table have been established with at least two different sources of data.

3 - IMS Health Retail Method-of-Payment ReportTM 1999.

4 - Cash customers may also include customers with prescription drug coverage who decide to pay full price for a prescription that would cost less than their copay amount or pay full price for a prescription not covered by their insurance.

5 - There are cases in which the holder of a patent licenses other manufacturers to make or market the drug; in this case there can be several brand names and prices for a single drug that is not yet available in generic form.

6 - In establishing upper payment limits for state Medicaid programs, HCFA(now known as CMS) assumes that AWP overstates actual acquisition costs by 10 to 20 percent. (State Medicaid Manual, sec. 6305.1)

7 - A recent study by Mathematica Policy Research reviews the variety of measures used by PBMs to manage utilization of prescription drugs. Anna Cook, Thomas Kornfeld, and Marsha Gold, The Role of PBMs in Managing Drug Costs: Implications for a Medicare Drug Benefit, Mathematica Policy Research, prepared for the Henry J. Kaiser Family Foundation, January 2000.

8 - Although the dispensing fee was originally intended to cover the professional services of the pharmacist, recent information suggests that it is not longer sufficient to cover this cost. Rather it is simply an additional fixed amount that pharmacies collect for each prescription dispensed (Wyeth-Ayerst Prescription Drug Benefit Cost and Plan Design Survey Report, 1999 edition).

9 - The literature cited in Appendix A suggests that pharmacy margins have been falling in recent years.

10 - A pharmacy can usually substitute a generic equivalent for a brand-name drug on its own, although some state laws restrict this. However, the prescribing physician's permission is always needed to substitute one brand-name drug for another.

11 - Most of the remaining savings were attributed to maximum allowable cost limits for drugs with generic equivalents and to preauthorization and utilization review. U.S. General Accounting Office, Pharmacy Benefit Managers: FEHBP Plans Satisfied with Savings and Services, but Retail Pharmacies Have Concerns, Washington, Feb. 1997 [GAO/HEHS-97-47].

12 - HCFA(now known as CMS)'s Office of the Actuary, in estimating net 1997 private insurer drug expenditures for the National Health Expenditure series, assumes average rebates from manufacturers in the range of 7 percent.

13 - Peter D. Fox, Pharmacy Benefits Management-101. Paper presented at The National Health Policy Forum, October 27, 1999.

14 - Letter from Inspector General June Gibbs Brown to Representative Henry Waxman, November 22, 1999.

15 - In some instances the VA has separately negotiated a contractual price that is lower than the FSS established for other federal purchasers.

16 - U.S. General Accounting Office, Drug Prices: Effects of Opening Federal Supply Schedule for Pharmaceuticals Are Uncertain, Washington, June 1997 [GAO/HEHS-97-60].

17 - This "big four" price is not available to other agencies using the FSS.

18 - An innovator multiple-source drug is the version of a drug, for which competition exists, that is sold by the manufacturer that originally obtained FDA approval for the drug.

19 - This limit does not apply when a physician specifies that a brand-name version of the drug is to be dispensed.

20 - Congressional Budget Office, How the Medicaid Rebate on Prescription Drugs Affects Pricing in the Pharmaceutical Industry (January 1996).

21 - This exclusion was not originally part of OBRA 1990; the best price could be the price charged to the VA and other federal facilities. Some manufacturers raised their price to the VA in order to reduce their required Medicaid rebates. In response, Congress added the exclusion and set separate pricing rules for federal purchasers.

22 - Because of these differences in methodology, the findings of this report on price variation at the retail pharmacy level should not be interpreted as inconsistent with findings of the Minority Staff of the House Committee on Government Reform on price variations that were based on differences between observed cash prices in retail pharmacies and prices published in the federal supply schedule.

23 - When statistically matching a MEPS pharmacy drug event to a household drug event between different persons, it was not possible to require that potential payment sources for the two people be exactly matched. This created the possibility that the price of a specific drug paid by a covered person could be statistically matched to a drug mentioned by another person who might not have had drug coverage, or vice versa. The decision to restrict the sample to only matches that were between drugs for the same person, and to eliminate drugs with any price imputations to fill in missing data, or replace outliers in the pharmacy component, was to reduce the potential bias from these measurement error sources.

24 - When all the MEPS data are used-- including both imputed and non-imputed prices-- significant differences remain between the prices paid by the covered and noncovered groups. The full MEPS data therefore demonstrate price differences using a nationally representative sample.

25 - Preliminary efforts using MEPS data were made to estimate price differences for groups of drugs most frequently used by Medicare beneficiaries. Although this method required merging together drugs from different manufacturers or with different forms and strengths with potentially different price differentials, the results were generally consistent with the IMS data for individual drugs in the same groups.

26 - MEPS would treat the same individual as covered. Thus the cash/third-party distinction and the covered/noncovered distinction in the IMS and MEPS results (respectively) cannot be taken as identical. If some individuals with indemnity plans pay the cash price at the point of service, the price differences for people with and without coverage would appear smaller than the price differences faced by cash payers and people whose insurance pays the pharmacy directly.

27 - The USC, or Uniform System of Classification, is a coding system that assigns drugs to broad and then narrower categories, using increasing numbers of digits as the categories become more specific. The 39 categories identified for this study are at the USC3 (3-digit) level: for example, they included 31100, antihypertensives, and 52100, sex hormones.

28 - IMS Health

29 - Prednisone, the 16th most commonly prescribed drug for Medicare beneficiaries was not in the original list of USC categories for which data were obtained from IMS.

30 - In order to assure that cash/third-party price differentials for the most common form and strength were representative of the differentials for other forms and strengths of the same drug, the results for the top 50 drugs were compared to average results for all forms and strengths (weighted either by dollar volume or by number of prescriptions). For the vast majority of the drugs, the results were very similar.

31 - As noted previously, for all analyses in this chapter, the price of a prescription drug is the total amount paid by all payers to the pharmacy that filled the prescription. For example, if the pharmacy received a $15.00 payment from a third-party payer and a $5.00 copayment from the consumer, the price of the drug is $20.00.

32 - A different result was reported in Chapter 2. With regard to hypertension drugs, those with coverage were more likely to use generics. Further research is needed to understand how the use of generics varies by insurance coverage and specific health conditions.

33 - Since the MEPS data are composed of every "drug event" (individual prescription) for the responding individuals, these averages are, in effect, weighted by the volume of prescriptions (i.e., drugs that are more commonly used will be more heavily represented in the average). A different approach would have weighted the averages by drug expenditures. For the tables that show brand name and generic drugs combined, this would have given more importance to brand name drugs. It would have given more weight to extremely high cost drugs and thus would have been less reflective of typical drug use by consumers. The Medicare category in this and other MEPS tables in this chapter includes a small number of elderly individuals--only 10 survey respondents--who did not report having Medicare.

34 - For most drugs, a "unit" is a pill. However, with liquid drugs and inhalers, the unit is the measured and metered dose, respectively.

35 - The comparisons between unit prices for covered and uncovered individuals are not statistically significant for brand name and all drugs. The comparable results for generic drugs are significant on a one-tail test only.

36 - Mott, D.A., Kreling, D.H., "The Association of Insurance Type with Costs of Dispensed Drugs," Inquiry 35: 23-35, Spring 1998.

37 - The private company reports the most common wholesale price charged to the retailer, which we use as our benchmark. It determines this price by a variety of methods. If a manufacturer has a suggested AWP, this value is used as the initial entry of this price. If a manufacturer does not provide a suggested AWP, then a statistical review of the actual wholesale price is conducted, and the price used is the mode (most common) price obtained from the wholesalers surveyed. When no clear mode price is evident, a statistical mean price is computed. The number is also indexed over time through a proprietary model designed by the company. It is important to note that this methodology produces a value different than the AWP (list) price described earlier in the chapter.

38 - This ratio is computed separately for each filled prescription, and then averaged across all drug events. The figure shown is the average of the ratios, not the ratio of the average of all retail prices to the average of all benchmark prices. Thus the differential between the covered and non-covered groups may be interpreted as the difference in percent over benchmark price on the average drug purchase.

39 - In the total and non-Medicare categories, the difference between part-year coverage and no coverage is not statistically significant. In the Medicare category, only the difference between full-year and part-year coverage is not statistically significant.

40 - IMS retail pharmacy data classify indemnity insurance arrangements - in which a customer pays cash for a prescription and then submits a claim to an insurer for reimbursement - as cash payments. Although this type of insurance arrangement has been declining in recent years, the lack of data on these reimbursements means that analyses that use the IMS cash pay group as a proxy for people without prescription drug coverage will incorrectly state the true difference in prices paid between people with and without coverage. However, including indemnity insurance in the cash pay group is not entirely inappropriate. Persons with indemnity insurance bear a higher portion of drug prices directly, relative to other insured groups, because indemnity style insurance more often entails a dollar cap on prescription drug coverage and co-insurance (payment of a percentage of the price) unlike the flat co-pays common with most types of prescription drug coverage.

41 - As discussed previously, to develop the list of the 200 most commonly purchased drugs we used the most recent full calendar year that IMS data were available, 1998. Results do not include 23 of these drugs for 1999 and 34 of these drugs for 1996, because data for these drugs were not included in the USC3 groupings that were obtained from IMS or the drugs were not on the market in 1996.

42 - These results and all those presented subsequently are based on unweighted distributions across the most commonly prescribed drugs. The distributions count each of the top 200 drugs equally, rather than (for example) placing greater weight on higher volume drugs.

43 - The drug ranked 16, Prednisone, was not in the original list of USC categories for which data were obtained from IMS. In a separate IMS data set covering 1998, Prednisone had a 32 percent difference in prices between cash and third-party payers. MCBS, rather than MEPS, rankings were used because of the larger MCBS sample of Medicare beneficiaries. However, 8 of the top 10 MCBS drugs would also have been among the top 10 MEPS drugs.

44 - That the cash price for the most commonly used drugs - especially generic drugs - could be lower than the third-party price is not surprising. These are the drugs that retailers are most likely to discount for cash customers in order to attract their business; in effect, they are the "loss leaders."

45 - During this time period, the proportion of beneficiaries in Medicare risk plans increased substantially (in 1996, 11 percent of Medicare beneficiaries were in risk plans; by 1999, this proportion had increased to 16 percent), and these beneficiaries would be grouped in the IMS third-party payment group.

46 - This percentage is the interquartile range (the 75th percentile value minus the 25th percentile value) divided by the median. The figures cited are the unweighted average for the 166 of the 200 most prescribed drugs for which the data needed for the calculation were available.

47 - When brand name drugs are further separated into the categories of "with generic competition" and "without generic competition," the drugs without competition have a fairly higher median cash and third-party unit price compared to the drugs with competition. However, the difference between the median of differences between drugs with competition and those without was not substantial. Moreover, a distribution of the 111 brand name drugs separated into the "with" and without competition" categories did not differ greatly from the general distribution of all brand name drugs.

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