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President Clinton Releases New Prescription Drug Coverage & Study, April 10, 2000

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The Briefing Room


THE WHITE HOUSE
Office of the Press Secretary


For Immediate Release April 10, 2000



PRESIDENT CLINTON RELEASES NEW PRESCRIPTION DRUG
COVERAGE AND PRICING STUDY
April 10, 2000

Today, the President will release a new study by the Department of Health and Human Services (HHS) that shows, among numerous other findings, that seniors without drug coverage not only lack insurance against high costs, but do not have access to the discounts and rebates that insured people receive. He will underscore how this comprehensive report clearly validates the need for a voluntary, affordable prescription drug benefit that is available to all beneficiaries. Key findings include: (1) not even counting manufacturers' rebates, prescription drug prices for those without coverage are typically 15 percent higher than prices paid on behalf of people with coverage; (2) this price gap almost doubled between 1996 and 1999; (3) Medicare seniors and people with disabilities without drug coverage are five times more likely to report being unable to purchase prescriptions as those with coverage; and (4) in addition to the millions of completely uninsured, nearly half of seniors with Medigap did not have that coverage for the entire year. The study contains other findings confirming that Medicare beneficiaries without drug coverage fill fewer prescriptions and have higher out-of-pocket spending across all groups, even among the most ill. However, because of the limited information about price discounts, the President will announce that HHS will hold a conference on prescription drug pricing practices this summer.

KEY FINDINGS FROM "PRESCRIPTION DRUG COVERAGE, SPENDING, UTILIZATION, AND PRICES" REPORT. The HHS study, available in its entirety at http://aspe.hhs.gov/health/reports/drugstudy, demonstrates that:

  • Seniors without drug coverage not only lack insurance against high costs, but do not have access to the discounts and rebates that insured people receive. In contrast, Medicare beneficiaries with drug coverage not only pay out-of-pocket a fraction of the prescription drug price, but that price is significantly lower than what is charged to beneficiaries without coverage.
  • Older Americans and people with disabilities without drug coverage typically pay 15 percent more than insurers who negotiate price discounts for the same prescription drug. At the pharmacy level, people without coverage pay higher prices for drugs than the amount paid on behalf of those with coverage through third-party payers, when controlling for the dose and strength of the drug.
  • The gap between drug prices for people with and without insurance discounts nearly doubled, from 8 to 15 percent, between 1996 and 1999.
  • These differences do not take into account manufacturers' rebates, which could widen this gap by an additional 2 to 35 percent according to industry sources. Pharmaceutical benefit managers, which pay for most prescription drugs in the U.S., typically get rebates and other forms of compensation from pharmaceutical manufacturers after the drug is purchased, to reward high volume or increased market share. However, due to data limitations, these additional reductions in price are not reflected in this study, so its results understate the gap between prices for cash and third-party payers.
  • Prescription drug spending and utilization is growing rapidly more than twice the growth in other health spending. Between 1993 and 1998, spending nationwide for prescription drugs increased at an annual rate of 12 percent compared to about 5 percent for all other types of health spending. Prescription drugs now account for about one-sixth of all out-of-pocket health spending by the elderly. This reflects the growing importance of prescription drugs in modern medicine.
  • The percent of Medicare beneficiaries without drug coverage who report not being able to afford a needed drug is about 5 times higher than those with coverage. About one in ten beneficiaries without supplemental coverage reported that they needed prescription medicine in the last 12 months but did not get it because they could not afford it, compared to 2 percent of those with non-Medicaid coverage.
  • Uncovered Medicare beneficiaries purchase one-third fewer drugs but pay nearly twice as much out-of-pocket. Overall, these beneficiaries have annual out-of-pocket costs that are twice as high even though they use fewer medications. These utilization and spending differences hold up across income, age, health status and other categories. There is no significant decrease in the gap in drug spending as income rises, suggesting that drug coverage makes a difference across all incomes.
  • Chronically ill, uninsured Medicare beneficiaries spent over $500 more out-of-pocket than those with coverage. This is despite the fact that these ill beneficiaries purchase fewer prescriptions than those with coverage.
  • Nearly half of Medicare beneficiaries do not have coverage for prescription drugs for the entire year. While 31 percent of beneficiaries had no coverage for the entire year, 47 percent were uninsured for at least one month during the year, making them vulnerable to catastrophic drug costs. This is similar to the proportion of seniors who had no health insurance before Medicare was created in 1965.
  • One out of four Medicare beneficiaries with higher income (greater than 400 percent of poverty or about $45,000 for a couple) has no coverage for prescription drugs throughout the year. This contradicts the belief that lack of coverage is a problem only for those with low-incomes. Similarly, the uninsured are not just healthy people who do not need coverage -- almost 30 percent of Medicare beneficiaries in poor health do not have drug coverage.
  • Rural and older beneficiaries are particularly vulnerable. Rural Medicare beneficiaries are over 50 percent more likely to lack prescription drug coverage for the entire year than urban beneficiaries (43 to 27 percent). People age 85 and older are one-third more likely to lack coverage than those ages 65 to 69 (37 to 28 percent).
  • Medigap private insurance and Medicare managed care are particularly unstable. Almost 48 percent of beneficiaries with drug coverage through Medigap policies and 29 percent who were enrolled in Medicare HMOs had drug coverage for only part of the year. Beneficiaries with part-year coverage have spending and utilization that more closely resembles that of the uncovered people -- using fewer medications and having higher out-of-pocket spending.

President WILL ANNOUNCE THAT ADMINISTRATION WILL hold a conference on drug costs and pricing practices. As the HHS study makes clear, not enough is known about costs and prevalent pricing practices by the pharmaceutical industry. To further the policy debate, HHS in collaboration with the private sector will convene a conference this summer including representatives of beneficiaries, purchasers, pharmacists, pharmaceutical manufacturers and researchers to clarify actual pricing and discounting practices and their impact on Medicare beneficiaries. Topics covered may include:

  • Pricing practices: What are and what determines the pattern of cash discounts and rebates offered by manufacturers to different customers; to what extent are drug formularies influenced by price and other incentives; how has the growth of third-party pharmacy benefit managers affected the pricing structure of the industry; what explains geographical variations in prescription drug prices.
  • Models: What are the best purchasing, delivery and quality improvement practices for prescription drugs; what is the best way to ensure continued innovation within the pharmaceutical industry under a Medicare prescription drug benefit.

STUDY RESULTS CALL FOR ENACTMENT OF PRESIDENT'S PLAN TO STRENGTHEN AND MODERNIZE MEDICARE

The study's findings underscore the need for a voluntary Medicare prescription drug benefit that is accessible and affordable to all beneficiaries. The President's plan would give these elderly and disabled beneficiaries the option to purchase a prescription drug benefit that covers half of all drug costs up to $5,000 when fully phased in and includes a stop-loss provision to protect seniors against catastrophic drug costs. Its premiums would be affordable to both beneficiaries and the program; it would be competitively administered; and it would assure access to needed medications. The President's prescription drug benefit is part of a larger plan to strengthen and modernize Medicare. This plan also includes reforms to make Medicare more competitive and efficient and dedicates $432 billion to Medicare to help pay for the prescription drug benefit and to improve the program's financing, helping to extend the life of its trust fund to at least 2030.

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