Prescription Drug Benefits: Applying Private Sector Management Methods to Medicare Page: 2 of 15
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Prescription Drug Benefits: Applying Private
Sector Management Methods to Medicare
Mr. Chairman and Members of the Committee:
I am pleased to be here as you discuss issues related to a potential
Medicare outpatient prescription drug benefit. In previous hearings before
this and other committees, GAO has addressed considerations for adding a
prescription drug benefit to Medicare, in light of the fiscal imbalance of
the Medicare program and the need to implement major reforms to ensure
the sustainability of the program. Today, you asked us to provide
information on the methods used by private insurers, managed care plans,
and employers to control their prescription drug expenditures, and the
applicability of those approaches to Medicare. My remarks will focus first,
on the factors contributing to the rise in prescription drug spending and
the impact of the rise in spending on Medicare beneficiaries, particularly
those without coverage. Next, I will outline the methods private insurers,
including those offering Medicare+Choice managed care products to
Medicare beneficiaries, have developed to manage these rising costs.
Finally, I will discuss whether and how Medicare can adapt these methods
to control spending, should an outpatient prescription drug benefit be
added to Medicare.
In summary, private insurers, managed care plans, and employers have
tried to manage the high and rising costs of prescription drugs by adopting
cost and utilization control techniques. In many cases, insurers and
managed care plans contract with a pharmacy benefit management
company (PBM) to develop and implement these strategies. If a
prescription drug benefit were added to the Medicare program, the federal
government would face similar cost pressures and would need to employ
methods to control spending. The experience gained in the private sector
can provide useful insights into options for managing a possible Medicare
benefit. However, the unique responsibilities and characteristics of the
Medicare program raise a number of issues and introduce questions about
applying private sector tools to the traditional Medicare fee-for-service
program and the appropriate roles of the Health Care Financing
Administration (HCFA) and other entities, such as PBMs, in managing a
drug benefit. In adapting these cost and utilization management
techniques, it is important to keep in mind that: (1) strategies involving
coverage restrictions impose an obligation to provide beneficiaries with
adequate information about the benefit; (2) the size of the Medicare
program and the need for transparency in its actions may reduce the
effectiveness of some cost-control techniques; (3) using private sector
entities to implement a drug benefit introduces concerns related to
beneficiary equity and concentrating market power; and (4) private sector
management tools require a capacity to process and scrutinize a large
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United States. General Accounting Office. Prescription Drug Benefits: Applying Private Sector Management Methods to Medicare, text, March 22, 2000; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc289788/m1/2/: accessed July 17, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.