State Pharmaceutical Assistance Programs. Samantha C. Ventimiglia. Policy Analyst, National Governors Association,

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1 State Pharmaceutical Assistance Programs Samantha C. Ventimiglia Policy Analyst,, Center for Best Practices, Health Policy Studies Division For Hearing on Prescription Drug Assistance for Seniors Special Task Force Missouri July 19,

2 Thank you Mr. Chairman and Members of the Task Force for the opportunity to testify on state pharmaceutical assistance programs. I am Samantha Ventimiglia, a health policy analyst at the s Center for Best Practices. As you may know, the Center for Best Practices provides tailored technical assistance to Governors and their policy staff to develop and implement innovative solutions to governance and policy challenges facing them in their states. The Center shares best practice information and lessons learned from others grappling with the same problems and assists in designing and implementing new programs or in making current programs more effective. For the past year, I have been tracking state pharmaceutical assistance programs and providing technical assistance to states either implementing new programs or restructuring current ones. Nearly half of the states have pharmaceutical assistance programs in operation, and many other states are developing programs. The majority of state pharmaceutical assistance programs provide benefits through direct subsidy or discounts. There are other options, however, including tax credits or measures that reduce retail prices, such as bulk or cooperative purchasing programs and drug buying pools. More recently, states are experimenting with Medicaid 1115 waivers to provide the Medicaid prescription drug discount price to other residents, such as those eligible for Medicare. The majority of states with pharmaceutical assistance programs provide direct subsidies to participants. Direct subsidy programs pay the difference between a copayment paid by the beneficiary and the cost of the prescription. Some direct subsidy programs also include an annual 2

3 deductible or an annual or monthly fee. These programs use age, income level, and other criteria to target benefits to a specific population. Program Components Most of the direct subsidy programs have similar characteristics. In most cases, cost sharing by participants is required, although it varies in type and amount. States use a variety of cost sharing strategies, including annual enrollment fees, annual or monthly deductibles, copayments, and dispensing fees. The programs target people ages 65 years and older, although some programs also offer coverage to people under age 65 who have disabilities, or to other low-income populations. Most if not all prescription drugs are covered, and some programs cover nonprescription drugs. A few states limit coverage to treatments for specific illnesses such as heart disease and diabetes. The majority of states use only state revenue to fund their programs. The source of funding, however, varies from state general fund appropriations to other dedicated revenue, including tobacco settlement funds, local foundation support, excise taxes on tobacco products, sales tax on construction materials, the lottery, and casino revenues. Most state programs incorporate cost management tools typically used by pharmacy benefit managers or PBMs to contain pharmaceutical program expenditures. In fact, many of the states with direct subsidy programs actually contract with PBMs to administer program enrollment, eligibility determination, outreach, claim processing and reimbursement, and drug utilization review. 3

4 Some other cost management tools include: - drug formularies; - generic substitution; - prior authorization; - multi-tiered copayment structures; and - negotiated manufacturer rebates and drug discounts usually similar to those received under the Medicaid program. Program administration varies among state programs. Many states have implemented programs, separate from Medicaid, to avoid the perceived stigma sometimes associated with entitlement programs. Some separate state programs, however, administer and use the policies of the Medicaid program to simplify program functions such as enrollment. Medicaid Waivers Many states are also exploring the Medicaid waiver option to provide Medicaid drug discounts to other populations. The U.S. Department of Health and Human Services has approved waivers from Maine and Vermont. In June, however, the U.S. Court of Appeals for the District of Columbia suspended Vermont s waiver, the Pharmacy Discount Program, declaring that no actual Medicaid funds were expended for program beneficiaries. The Medicaid statute allows imposition of manufacturer rebates only when payments are made under a state Medicaid plan. As Vermont was not expending any Medicaid funds for the Pharmacy Discount Program, the Court ruled that the program produced no savings to Medicaid and therefore, the U.S. Department of Health and Human Services had no authority to approve their waiver. As Maine s waiver is nearly identical to Vermont s program, the pharmaceutical industry has again asked a federal court to declare the program unlawful. States exploring the Medicaid waiver option must ensure that either state or 4

5 federal Medicaid funds are expended under their proposal. Despite concerns with federal court injunctions, several states, including Maryland, are still submitting Medicaid waivers for drug coverage. State Profiles In operation since the 1970 s and 1980 s, New Jersey, New York and Pennsylvania s programs are three of the largest and oldest state-only pharmacy assistance programs. In 1999, the three programs enrolled the most individuals and accounted for 71 percent of all assistance program enrollees. All three states provide coverage to low to moderate-income beneficiaries age 65 or older through direct subsidy programs. Eligibility income levels range from $14,000 to $35,000 per year for singles and from $17,000 to $50,000 per year for married couples. Although seniors are generally pleased with each program, they cover large populations and carry an annual cost of almost $400 million. Furthermore, once a state begins a comprehensive program with a rich benefit package, such as those in New Jersey, New York and Pennsylvania, it is very difficult to suspend that program. Therefore, Missouri may want to model its program after one of the younger and smaller pharmacy assistance programs, such as Michigan s Elder Prescription Insurance Coverage Program, also known as EPIC. Michigan Michigan plans to implement its new subsidy program, EPIC, in October to replace the state s current Emergency Senior Program and pharmaceutical tax credit. The Michigan EPIC program will cover individuals 65 or older with income less than or equal to 200 percent of the federal poverty level. Individuals must not have any other drug coverage except from a Medicare supplemental plan or other federal program and must not be a resident of an institution. 5

6 The EPIC program, which will be implemented in October 2001, will first enroll current Michigan Emergency Pharmaceutical Program for Seniors and tax credit program beneficiaries. If the first year annual budget of $50 million is not consumed, the program will open to other qualified residents. There are 225,000 individuals potentially eligible for EPIC benefits. The Michigan Department of Community Health is conducting a competitive bid process to select a pharmacy benefit manager (PBM) contractor. The PBM will provide the actual benefit and administer enrollment. The EPIC program will have an annual administrative fee of $25, a dispensing fee equal to Medicaid, and a $15 copayment for a brand-name drug when the generic is available. Copayments cannot exceed 20 percent of the cost of an individual prescription drug, with the maximum monthly copayment calculated according to income. Beneficiaries with income below 100 percent are expected to pay a monthly copayment of no more than one-twelfth of 1 percent of their annual income. Beneficiaries with income between 175 and 200 percent are expected to pay a monthly copayment of no more than one-twelfth of 5 percent of annual income. Finally, EPIC covers most prescription drugs. Nevada It is also important to review younger programs, like Nevada, which have run into operation difficulty, to ensure Missouri avoids similar problems. In January 2001, Nevada implemented the Senior Rx Subsidy for Prescription Drugs Program, which provided coverage to low-income individuals age 62 and older through a drug-only private insurance policy. The program ran into problems for several reasons. The state invited insurers to bid on offering drug-only policies, however, the state only received a small number of responses. After re-bidding the program, the 6

7 state did select a provider. After several months of operation, however, the program experienced a significantly lower enrollment rate than originally anticipated. The state had predicted an annual enrollment rate of 10,000 but only received about 1,800 applications in the first five months and found only 204 individuals eligible. The state believes that the combination of the program s annual subsidy cap of $480, its slidingscale premium amounts, and the $100 annual deductible may have contributed to the low enrollment numbers. The program s cost sharing structure was too complicated for seniors and their caretakers. In response to the program s difficulties, in July 2001, the state updated the program by removing the low annual subsidy cap and the premium schedule. The revised program has only an annual deductible of $100 and the state now pays an annual premium of $1,280 per senior to the insurance company. Since July 1, 2001, Nevada s revised program has already enrolled well over 1,000 seniors. Conclusion States must consider the development of a federal Medicare prescription drug benefit before creating or altering state-only pharmacy programs. President Bush s Medicare-Endorsed Prescription Drug Discount Program would approve discount cards issued by pharmacy benefit managers (PBMs). The PBMs would use the purchasing power of Medicare beneficiaries to negotiate with pharmacies and drug makers to reach discounts of between 15 to 25 percent off of drugs' retail prices. Participating PBMs would also direct seniors to specific drugstores, create preferred drug lists, fill prescriptions by mail and operate telephone call centers to answer consumers' questions. All Medicare beneficiaries will be able to enroll in one of several Medicare-endorsed discount card organizations after November 1, 2001 and discounts would begin by January 1, These programs can charge a one-time enrollment fee of up to $25. 7

8 Medicare+Choice, Medigap and beneficiaries with employer-sponsored insurance may enroll in one of these discount programs, and therefore, those Medicare beneficiaries enrolled in state-only programs will also have access to these new discount cards. Missouri should consider this fact and build its program around the federal benefit. Although the new federal program may provide Medicare beneficiaries with greater drug discounts, a state-only program could be more comprehensive by providing a direct benefit to a targeted population. I thank you again for the opportunity to be a part of this hearing. I look forward to answering any questions you may have. 8