Beyond the doughnut hole
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few months ago, when the Centers for Medicare & Medicaid Services
announced its standard minimum Part D drug benefit, it seemed that
everyone's attention focused on the "doughnut hole." This is the infamous coverage gap that requires a Medicare beneficiary to pay 100% of all drug costs when total annual prescription expenses exceed $2,250. The gap runs all the way to $5,100, when so-called catastrophic coverage kicks in to pay for 95% of drug costs. Given the standard plan's additional cost-sharing requirements of a $37-a-month premium and a $250 deductible -- plus coinsurance and copayments on individual prescription purchases -- the new Part D benefit did not appear to be a good deal for America's seniors. (Keep in mind that our elder citizens had been pleading for relief from prescription drug prices for years. Until the Medicare Modernization Act of 2003, Medicare provided no outpatient prescription drug benefit.) When the CMS allowed prospective private Part D plan sponsors to develop their own benefit designs to compete for the Medicare business, it was expected that most plan designs would mimic the CMS model and that the doughnut hole would remain in place. But that is not what happened. In reality, it appears that Part D coverage will cost seniors less than originally expected. Many private-plan design models vary significantly from the CMS standard design. And, for many seniors, the doughnut hole is a lot smaller than originally anticipated. Let's take a look at the Medicare drug benefit situation now that plan sponsors have announced their Part D plan offerings. Plan sponsors: PDPs and MA-PDPs First, it's important to understand that the CMS allows two types of risk-bearing organizations to deliver the Part D benefit: * Prescription drug plans (or PDPs). * Medicare Advantage prescription drug plans (or MA-PDPs). PDPs. Medicare PDPs are private, stand-alone plans organized exclusively to deliver drug benefits to individuals enrolled in Medicare for a separate Part D premium. There are no integrated benefits (such as hospital or physician services) with PDPs. Prescription drug plans compete for business in the Medicare sector much like traditional pharmacy benefit managers compete in the commercial sector, the only difference being that PDP business is targeted exclusively to meet the needs of Medicare beneficiaries under the new Medicare law. Prescription drug plans use many familiar cost-containment tools to manage drug costs, including formularies, tiered copayments, mail-order service, prior authorization, step therapy and so on. Most PDPs operate on a regional basis. Specifically, the CMS divided PDP service areas into 34 regions across the country, and many PDPs compete in each region. The CMS also approved ten stand-alone PDPs that will operate nationally. MA-PDPs. Medicare Advantage is the new name for the former Medicare + Choice program. Most Medicare Advantage programs provide integrated healthcare coverage to beneficiaries for a single premium. Under the Medicare Modernization Act, beneficiaries can now choose a Medicare Advantage program, such as a health maintenance organization or preferred provider organization, that includes an integrated prescription drug benefit. (Note: Healthcare savings accounts are also considered options under Medicare Advantage). The Centers for Medicare and Medicaid Services created 26 regions for Medicare Advantage to maximize access for seniors to available regional health plans. As with PDPs, some MA-PDPs operate nationally, while others operate on a regional basis. All MA-PDPs have formularies and utilize the same cost-containment tools as PDPs. Part D benefit design The CMS allowed all PDPs and MA-PDPs to submit their own Part D benefit designs for approval, mandating that all plans be "actuarially equivalent" (in Medicare Part D, actuarial equivalence is the parameter that helps ensure that the aggregate dollar value of Part D drug coverage under one PDP or MA-PDP can be shown to equal the dollar value of coverage under any other plan, including the Medicare standard benefit) to the standard benefit design, which is as follows: Premium. All participants in Part D must pay a monthly premium -- targeted at $37 in 2006. Deductible. There's also an annual deductible for prescription purchases, which is $250 in 2006. Thus, under the standard plan, an individual must pay for the first $250 of prescription drug costs out of pocket -- there is no coverage. Coinsurance. Under the standard plan, an enrollee must pay 25% coinsurance for all prescription costs from $251 to $2,250. Again, these numbers are for 2006 only. Coverage gap (the "doughnut hole"). This is the gap in coverage that occurs after an individual exceeds the initial limit of $2,250. Under the standard benefit, the doughnut hole requires patients to pay 100% of their prescription costs from $2,251 to $5,100. Catastrophic coverage. Beyond the doughnut hole, Medicare Part D provides catastrophic coverage, paying for 95% of annual prescription costs; the patient must provide the remaining 5% out of pocket. Choices -- and bargains As noted earlier, the newly created PDPs and MA-PDPs are promoting benefit designs that vary significantly from the Medicare standard design. Consider the following: * Millions of beneficiaries will have the option of choosing a plan with a monthly premium of $20 or less -- about half the cost of the $37-a-month premium targeted by the CMS. In fact, at least one PDP in every region except Alaska offers premiums below $20 per month, and several plans have no premiums at all for low-income beneficiaries. * In every region, at least one PDP has a zero deductible, while other plans have set deductibles at levels significantly lower than the mandated threshold of $250 per year. This means that in some cases, coverage kicks in for the very first prescription obtained by the beneficiary. * The doughnut hole has not disappeared altogether, but for many beneficiaries, it's a lot smaller than anticipated. Many plans have reduced the impact of the doughnut hole by providing partial coverage through the gap using a variety of cost-sharing mechanisms. You can get a better handle on what is happening by looking at the table below, which outlines the Part D plans offered by a hypothetical prescription drug plan called "MagicScript." Although the plan is fictional, the numbers in the table are representative of actual numbers you may encounter among real Medicare drug benefit designs ? note the differences from the figures in the standard Medicare benefit. First, it's important to note that MagicScript, like many plan sponsors, has opted to provide a choice of three plans for consumers. This allows Medicare beneficiaries to select a prescription drug plan that matches up with their actual drug utilization patterns and out-of-pocket spending goals. Typically, sponsors offer a low-cost value plan for healthy seniors who require few drugs, a moderately priced basic plan for individuals with average medication needs for their age group, and a higher-priced deluxe plan for beneficiaries with chronic illness who are on multiple medications. Let's take a closer look at the MagicScript plans: Premiums. Note the variance in premiums among the three plan designs. The Bronze Plan has a premium of $18.57, considerably lower than the CMS target premium of $37, while the Gold Plan premium is over $45. Keep in mind that the $45 premium pays for extra coverage. Deductibles. The Bronze Plan has the standard $250 deductible, but the two higher-priced plans have no deductible at all. Coverage thus starts immediately for the Silver and Gold plans, following the copayment schedule shown on the next line. Copayments. Note that copayments are generally higher for the Silver and Bronze plans -- a trade-off for the advantage of a zero deductible. Also note the copay differentials for generics and brands. Also, the plans all have separate copayment schedules, not shown here, for 90-day mail-order prescriptions. Coverage gap. Under the low-cost Bronze Plan, the coverage gap designed by the CMS remains in place -- the beneficiary who selects the Bronze Plan must pay for 100% of all drug costs through the gap. But now look at the Silver and Gold plans. Because enrollees in these plans pay an extra premium, they get coverage through the gap. Note that the Silver Plan provides coverage only for generics in the gap, while the Gold Plan adds coverage for preferred brands as well. Catastrophic coverage. Beyond the coverage gap, coverage is identical across all three plans and stays close to the standard benefit design proposed by the CMS. Remember: Plan designs for PDPs and MA-PDPs in your territory may vary dramatically from what you see here. For example, some plans offer value plans with premiums as low as $12, while the monthly charges for deluxe-type plans can be as high as $50 to $60. To find out exactly how individual plans in your territory have structured their plan designs, you will have to do some research. Get the information you need Because Medicare is likely to drive a substantial percentage of your company's core business, you must be familiar with the specific programs and policies of PDPs and MA-PDPs operating in your territory. The best sales presentations in the world will have little value if Medicare Part D formulary restrictions prevent physicians from freely prescribing your company's products. If you want to quickly learn about Medicare Part D benefit designs and formulary coverage in your territory, there are two basic rules to follow: * If you are not sure which PDPs and MA-PDPs are operating in your territory and you want general information, go to the Medicare Web site (www.medicare.gov) and access the tools that are available. * If you already know that a specific PDP or MA-PDP is operating in your territory and you want specific information about that plan's Part D benefit designs or formulary, then go to the plan's Web site. The Medicare Web site provides two useful tools that can help you out: the "Landscape of Local Plans" and the "Formulary Finder." Use the Landscape of Local Plans tool to identify PDPs and MA-PDPs operating in any state. When you select this option, you will see a map of the United States. Select a state to access descriptions of all the PDPs and MA-PDPs available for beneficiaries in that state. You will also find information about each plan's monthly premiums, member cost-sharing mechanisms and the size of the formulary. Use the Formulary Finder to identify the formulary status and copayment requirements of any product -- yours or the competition. This feature is designed to help seniors match their personal drug regimens with available PDP and MA-PDP coverage in their regions, but it is a very useful tool for representatives who want to perform some basic territory intelligence gathering. As suggested above, if you are already familiar with a PDP or MA-PDP operating in your territory and you want information about that plan's Part D benefit design or formulary, then go directly to the plan's Web site. Each plan sponsor usually hosts a separate home page for its Medicare Part D product, and once you get there you can find out exactly how the drug benefit is structured and marketed by the plan. Click on "Formulary" or "Drug List" to learn about coverage for your product and the competition. Put your knowledge to work The more you know about the Medicare prescription drug benefit and how it functions in your territory, the easier it will be for you to capture share in this important market sector. Here's just one suggestion: Take the time to research the dominant prescription drug plans and Medicare Advantage prescription drug plans operating in your territory using the Web resources discussed previously. Identify the formulary status of your product and the top competitive products in each Part D plan that influences a physician's practice. Create a list or a matrix and see if a pattern emerges regarding formulary positioning. On your next call, perhaps you can say something like, "Doctor, in addition to its clinical benefits, my product is in a preferred position on all five of the Part D formularies in our area, while Product X is preferred on only three of these formularies." If this is the case, then you may have an advantage over the competition. If a doctor is confident of your product's clinical benefits and notes that the committees of most or all of the local Part D plans prefer your product, then he may be more inclined to write the product for his Medicare patients ... and the trend may spill over into the physician's commercial business as well.
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