by Del Meyer
The varying estimates on the Medicare Pharmacy Benefit Program only reveal the hazards of projecting any entitlement program. Once implemented, all government programs increase and the costs are nearly impossible to control. The additional costs to the Medicare Program are not sustainable-even in the short term. Therefore, it is urgent that the program be modified before enrollment starts in a few months.
When Medicare was implemented in 1965, there was a nominal deductible on hospital and outpatient benefits, with an additional co-payment of 20 percent for all physician and outpatient services. Had the deductibles and the co-payment remained a responsibility of the patient, Medicare would not have experienced a spiral increase, as is the case today. For instance, if every $80 doctor’s office visit required a 20 percent or $16 co-payment, only necessary office visits would be made. The co-payment, a market restraint, would control utilization and thus costs. Oversight programs to watch and control every Medicare expense would not be necessary. External controls are never patient sensitive; while they reduce one patient’s excessive costs, they also eliminate another patient’s critical test for diagnosis or treatment.
Unfortunately, the insurance industry came to the “rescue” and provided coverage for the deductibles and co-payment. This totally removed Medicare from the Medical MarketPlace environment. When patients pay for expensive health care with taxpayers’ dollars, there is no longer a disincentive to overuse. The lack of market-based discipline increases utilization dramatically and costs continue to spiral upwards.
The increase in cost includes the additional amount needed to pay the Medicare or Medicare-HMO nurse to review the records and report her findings to her supervisor. It also includes the supervisor’s salary, as well as the government bureaucrat’s who receive the data. If the doctor is paid $100 an hour for delivering the medical care, and the “policing” nurse is paid $30 an hour to evaluate and report that care (with every level of oversight at a probable higher cost), the increase is at least 30 percent if the RN and the team spend as much time reviewing the clinical record as the doctor spends in developing the clinical record. The market environment eliminates this increased cost.
But demands for expensive x-ray and laboratory testing, which were relatively free, exceeded a physician’s ability to modify patients’ avaricious appetite. Controls were placed on spending with some services being denied while others were curtailed. Patients threatened to report physicians to Medicare, and actually were encouraged to do so, if they felt they were not receiving the testing they desired. In Congress, a constituent’s desire is presumed to be a dire medical need. Thus, even the imposed controls were difficult to enforce.
If patients were required to pay the 20 percent co-payment of all outpatient health care, the initial design of the Medicare law, they would evaluate every physician office visit, laboratory test, x-ray, CT, Mr.I, emergency room visit, urgent care visit and consultation on a cost-benefit basis. They would decide whether it was worth the 20 percent of an $80 office call to obtain their doctor’s opinion on a sneeze. They would also openly discuss with their physician whether it was worth 20 percent of a $170 chemistry panel, 20 percent of a $120 x-ray, 20 percent of a $300 CT scan, 20 percent of a $900 Mr.I, 20 percent of every $600 emergency room visit, or 20 percent of every $200 consultation for the additional information they could reasonably expect to obtain. (These estimates are based on data provided by patients or their HMOs.) This is the essence of consumer- or patient-driven health care in which the patient seeks the best cost-effective health care in consultation with his or her doctor.
So, how do we move forward to a point where we’ve previously been – at the inception of Medicare in 1965? By utilizing the Pharmacy Benefit fiasco as the carrot. All Medicare recipients that give up their MediGap insurance and thus pay for their own deductibles and co-payments, would receive an unlimited pharmacy benefit at a 30 percent co-payment. This would be self-policing by the Medical MarketPlace. Suppose a patient has a high cholesterol level. The physician then discusses the ways of reducing it. Many patients have not seriously considered low cholesterol and low fat diets or inexpensive Niacin, as long as the Statin drugs (Lipitor, Zocor, and others) are free. (Fixed co-payments of $5 to $50 are irrelevant in restoring market restraint.) As pharmacy restrictions were imposed, patients demanded that their physicians write letters on their behalf illustrating how their circumstances were unique and that generic drugs never work for them. It takes additional physician and office personnel time to work out the variances in MediGap or Medicare-HMO coverage, as well as patient desires.
However, with a 30 percent insurance co-payment plan, the cost savings would be large. It would streamline not only physician office time but also pharmacy time, and it would improve patient satisfaction. The physician would simply write the prescription. The patient would deal directly with the pharmacist concerning the desirability of the proprietary or the generic brand. The patient makes his decision immediately and does not have to wait or return to the pharmacy after the pharmacist and doctor discuss the various Medicare-HMO coverage options for that particular plan, which cannot be ascertained until the patient’s coverage card is entered into the HMO network. These market-based decisions also eliminate any Medicare oversight for pharmacy benefits.
So how does this market-based, cost-containment oversight occur? Why wouldn’t everyone obtain the expensive proprietary drugs? With a 30 percent co-payment of pharmacy benefit, patients would automatically request the most cost-effective drugs without any oversight because they are working in a market environment. With a higher priced drug, the percentage co-payment increases proportionately. For instance, when the physician discusses the hypercholesterolemia, the patient will frequently make a serious effort to follow a low-cholesterol and low-fat diet. After six months, a repeat cholesterol and triglyceride level may be normal. If still elevated, the patient may prefer inexpensive Niaspan or SloNiacin and perhaps adding flax grain cereal to the diet, which also lowers lipids. After six months, the cholesterol test is repeated. If at this point the levels are normal, dietary and inexpensive treatments have been effective. If still elevated, a Statin may be necessary. The patient can then decide if he wants to pay for a proprietary Statin at say $180 per month (at 30 percent or $54 copay with Medicare paying $126) or be happy with the generic $80 version (at 30 percent or $24 copay with Medicare paying $56). In my anecdotal experience, about 90 percent of my patients would choose the generic version, even though 90 percent demand the proprietary version if both are covered by their Medicare-HMO or MediGap insurance. Thus, the increased cost generated by those few that would pay the $54 rather than the $24 copay, costing Medicare an extra $70 ($126 minus $56) in coverage, is small and certainly much less than the Medicare and Medicare-HMO oversight costs. The other surprising finding is that my wealthy patients would generally pay the generic co-payment rather than the proprietary co-payment.
Why do we recommend the 30 percent pharmaceutical co-payment rather than the 20 percent that the rest of outpatient Medicare requires? In our experience of asking patients what choices they would make with varying degrees of co-payment, we have found that significant cost control was reached at a 30 percent co-payment rather than the 20 percent co-payment of the other Medicare outpatient benefits. Whereas 90 percent would utilize generic drugs at a 30 percent co-payment, anecdotally only 60 percent would utilize generic drugs at a 20 percent co-payment. Thus, at 20 percent co-payment, there would be 40 percent rather than 10 percent utilizing proprietary drugs. This is a four-fold or a 400 percent increase in Medicare costs with a 20 percent co-payment rather than a 30 percent co-payment. [Although these are clinical projections, they are probably as accurate as any Medicare actuarial projections.]
I had an actuary look at the above data. He spoke under the condition of anonymity because he works for a large health insurance firm. He felt that eliminating the MediGap coverage for outpatient medicine would save at least 30 percent if not 40 percent of current Medicare or Medicare-HMO outpatient costs. Adding the drug coverage at 30 percent co-payment would be more difficult to project. However, he felt it would save a similar amount over current Medicare-HMO or MediGap pharmaceutical costs. It would certainly control the currently proposed Medicare Pharmaceutical Benefits by a much larger factor and they probably would not escalate since market-based controls monitor costs at any level without escape. Most private health insurance programs today cap the market aspects of their deductible at some level, e.g., $10,000, when Nirvana kicks in and the entire cost is covered with fake dollars, which produces no utilization restraints.
In Summary: Reinstate the annual deductibles and the 20 percent co-payment for all outpatient Medicare benefits. Eliminate Medicare-HMO or MediGap insurance for those beneficiaries that desire a pharmaceutical benefit at 30 percent co-payment. (Since many Medicare-HMOs are leaving certain geographic areas, this should be politically possible to implement.) Cancel the current Medicare Drug Benefit Program before it’s implemented in 2006 and over the next decade save the $720 billion (or $1.2 trillion by other projections). This will save Medicare for our grandchildren also.