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

04/01/2000

Prescription drugs play an ever-increasing role in modern medicine. New medications are improving health outcomes and quality of life, replacing surgery and other invasive treatments, and quickening recovery for patients who receive these treatments. Drugs can reduce the need for bypass surgery, help prevent brain damage in stroke victims, lower cholesterol levels, or provide relief for chronic pain. Continued progress in biotechnology and genetic research promises still more innovative therapies in the coming years.

As important as prescription drugs are, not everyone has access to them. The newest drugs are often the most expensive, and millions of Americans have inadequate or no insurance coverage for drugs. The problems are especially acute for elderly and disabled Medicare beneficiaries. Many have chronic conditions for which drug treatments may be especially effective, such as osteoporosis, hypertension, diabetes, or depression. Medications for these conditions must be taken for extended periods, and beneficiaries with multiple problems may need several different drugs, many costing $1,000 a year or more. And nearly all take some drug in a given year. Yet nearly a third of all Medicare beneficiaries, many with very limited incomes, have no financial protection for the costs of these drugs, if they can obtain them at all. Many more beneficiaries find themselves moving in and out of the protection provided by insurance.

Medicare has never included coverage of outpatient prescription drugs, with very limited exceptions such as cancer chemotherapy drugs, and anti-transplant rejection drugs. The exclusion of drugs was common in private health plans when Medicare was enacted in 1965. Since then drug coverage has become a standard feature of private insurance, and it has become clear that the omission of outpatient drug coverage represents a crucial gap in protection for the most vulnerable Medicare beneficiaries. Beneficiaries without drug coverage face heavy financial burdens, and many go without needed medications or purchase less than the amount prescribed. Even many beneficiaries who have coverage today are at risk of losing it, paying higher premiums, or receiving more limited benefits as the cost of prescription drugs continues to grow. The problem is not limited to Medicare beneficiaries: millions of other Americans are without drug coverage, and some insurers and employers are responding to spending increases by requiring health plan participants to pay a larger share of their own costs.

As part of a broader plan to modernize Medicare, President Clinton has proposed a new, voluntary Medicare drug benefit that would offer all beneficiaries access to affordable, high-quality prescription drug coverage while maintaining the fiscal integrity of the program. In Congress, there has also been growing bipartisan interest in finding ways of extending drug coverage. At the same time, there has been increasing attention to the prices beneficiaries without coverage must pay for some needed medications. Congress is considering proposals that would give individual beneficiaries access to the discounts offered to group purchasers, or that would speed the availability of lower-cost substitutes for the newest and most expensive drugs.

As policymakers consider options to assure that every American can have access to innovative drug treatments, there is an urgent need for comprehensive and reliable information on drug coverage, drug spending, and drug prices. On October 25, 1999, the President directed the Secretary of Health and Human Services to study prescription drug costs and trends for Medicare beneficiaries. He asked that the study investigate:

  • price differences for the most commonly used drugs for people with and without coverage;
  • drug spending by people of various ages, as a percentage of income and of total health spending; and
  • trends in drug expenditures by people of different ages, as a percentage of income and of total health spending.

This report is the Department’s response to that request. It represents the work of individuals and agencies throughout the Department, including the Agency for Healthcare Research and Quality (AHRQ), the Food and Drug Administration (FDA), the Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)) (HCFA(now known as CMS)), and the Office of the Assistant Secretary for Planning and Evaluation (ASPE).

In Chapter 1, the report provides estimates of the extent of prescription drug coverage among both Medicare beneficiaries and the general population. Chapter 2 provides evidence of the consequences of lacking coverage, including reduced utilization and expenditures for drugs, higher financial burdens, and failure to obtain needed treatments. Chapter 3 examines drug prices, highlighting growing disparities between what is paid by employers and insurers and what is paid by individuals who must purchase drugs on their own. In addition, several issues relating to geographic variation in prescription drug coverage, utilization, and pricing – where results are not definitive – are discussed in Appendix C.

While this initial study is informative, the research conducted for this study has uncovered numerous areas in which further investigation and analysis could provide a better understanding of problems in prescription drug financing and possible solutions. In the future, the Department will be continuing the coordinated and intensive research effort that produced this report and will provide new insights and analyses as they become available. The conclusion of this report includes a discussion of ideas for future research.

In addition, the Department commissioned a literature review by Bruce Stuart and his colleagues at the Peter Lamy Center for Drug Therapy and Aging at the University of Maryland School of Pharmacy. The literature review is included as Appendix A of this report. This review assesses the current state of research on prescription drug costs and trends for Medicare beneficiaries with and without prescription coverage and examines the use of prescription drugs and drug pricing in other nations. The detailed literature search included a traditional index search of literature in the medical, social and behavioral sciences, health services research and public policy arenas; search for relevant statistical data in domestic and international documents; identification of relevant ongoing research efforts; and identification of relevant working papers and presentations at professional associations. The resulting review summarized the literature from the perspective of what is known and what needs to be known on the issues of prescription drug coverage, pricing, utilization, and spending.

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