GOVERNMENT and LAW

Many or few? CMS weighs regions for Medicare

The notice-and-comment period for setting up service areas for two programs, Medicare Advantage and Medicare Part D, closed on Aug. 4, as this issue went to press. The Centers for Medicare & Medicaid Services is to consider the options and public feedback until late fall and produce a final rule in early 2005.

At a July 21 meeting in Chicago, CMS said it would decide on a regional structure for Medicare Advantage (MA)—the new name for Medicare Plus Choice, the Part C preferred provider organization (PPO) program—and the new Prescription Drug Plan (PDP) offering under Medicare Part D. Service areas for the two plans need not be identical.

The issue has proven divisive. Smaller provider organizations are concerned that a decision in favor of geographically larger, multistate service areas will price them out of the business, since providers will be obligated to offer uniform premiums across the entire region. Others are concerned that pharmacy benefit managers, the entities some expect to partner with insurers in offering the benefit, are likely to be turned off by the prospect of assuming so much risk.

"As Tom Scully [former CMS administrator] noted, a risk-based, voluntary pharmaceutical-only benefit is an animal that doesn't exist," said Paul Baldwin, executive director of the Long Term Care Pharmacy Alliance, which represents the four largest providers of pharmacy services to nursing home residents in the United States. "Currently, PBMs run on a discounted fee-for-service basis, but this is not that same animal. This program has all the elements to attract a high-risk population," he said.

Some anticipate that managed care organizations will prefer a 50-state model, which would jibe with the existing state regulatory framework in health care and allow for smaller service areas. In the entire country, for example, only plans in Hawaii and Rhode Island (due to small size) and New Jersey (because of the presence of Horizon Blue Cross/Blue Shield) cover an entire state.

According to Nick Generalovich, R.Ph., treasurer of the Senior Care Pharmacy Alliance, which represents smaller independently owned pharmacy providers, and owner of four pharmacies in Florida, under the Medicare law, "the federal government can't negotiate with manufacturers, while the legislators didn't feel the compulsion to have the same regard for provider pharmacies, who are left to negotiate on a take-it-or-leave-it basis. They cannot refuse this plan; it represents too much of their business."

Generalovich said, "Under Medicaid, at least we had some input into a fair reimbursement rate, because it was done at a state level, and it was more accessible for owners. Now, under Medicare, negotiating with a national PBM will make it more difficult to have a fair discussion." A list of approved PBMs will not be released until January 2006, he noted.

At the July meeting, CMS hypothesized at least two PDP plans in each service area, requiring that each region feature at least 400,000 Medicare eligibles. At least 100,000 retail pharmacies per service area were thought to be necessary. Also, CMS was reluctant to divide areas into sub-state districts and was keen to draw the public's attention to the problem of multistate service areas. With those criteria in mind, CMS presented six proposals ranging from 50 state-based regions to 11 multistate regions based on equal Medicare-eligible populations.

John Coster, R.Ph., VP for policy and programs, National Association of Chain Drug Stores, noted that larger regions could result in entire drug categories being unavailable in large areas of the country. "Let's say California is one large region and contains only two PDPs; one offers Zocor, the other Lipitor. Other drugs are available but on higher tiers. The other drugmakers lose out until the plan changes its formulary. In a sense, this would be highly competitive, because it forces manufacturers to compete on price and could have a large impact on Medicare sales," he said. He added that under the regulations, chain drugstores could theoretically serve as PDPs, especially if they partnered with insurance companies.

Coster noted potential drawbacks of the plan as well. "Pharmacies may find Medicare beneficiaries they've served for years being forced to go to other pharmacies, either not in the network or at a higher cost. Or, if you are a beneficiary in an urban area where they've decided not to include pharmacies because there's an abundance elsewhere in the district, you may have a hard time finding a pharmacy in the preferred network," he warned.

John Otrompke

The author is a writer based in Chicago.

John Otrompke. Many or few?

Drug Topics

Aug. 23, 2004;148:60.