Discount Drug Plans May Not Be Saving Medicare Money

Preferred-pharmacy plans that promise lower prices for people who agree to buy their prescription drugs from certain stores may be costing the U.S. Medicare program more money to support, pharmacists said.

While Medicare patients get reduced co-payments in the plans, offered by companies including UnitedHealth Group Inc. (UNH) and Humana Inc. (HUM), the insurers are shifting the burden of those discounts onto the federal government, according to an analysis today by the National Community Pharmacists Association. The agency that runs Medicare told insurers in a Feb. 15 letter that it has begun to scrutinize the costs of preferred pharmacies.

Medicare, which provides health coverage for the elderly and disabled, has been trying to reduce excess costs, with government audits this year uncovering $5.1 billion in overpayments to insurers and a similar amount spent on inadequate nursing home services. Preferred pharmacies in one UnitedHealth plan may cost as much as 10 percent more than other stores, the community pharmacists group said.

“These patients are giving up their choice of pharmacy and yet the overall costs are not any lower,” B. Douglas Hoey, the Alexandria, Virginia-based association’s chief executive officer, said by telephone. The question of whether the plans shift costs to taxpayers “needs to be investigated,” he said.

Photographer: Joe Raedle/Getty Images

Seniors pick up their prescription medication at a medical center pharmacy in Miami, Florida. Close

Seniors pick up their prescription medication at a medical center pharmacy in Miami, Florida.

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Photographer: Joe Raedle/Getty Images

Seniors pick up their prescription medication at a medical center pharmacy in Miami, Florida.

Four drugs commonly used by seniors, including generic versions of the cholesterol medicine Lipitor, cost Medicare about 9 percent to 10 percent more when customers used pharmacies in UnitedHealth’s AARP Medicare Rx Preferred plan than at non-preferred stores, according to Hoey’s analysis. His group said it’s raising the issue because independent pharmacies are typically shut out of preferred-store contracts as insurers rely on larger chains such as Walgreen Co. (WAG) and Target Corp. (TGT)

UnitedHealth Response

Medicare spent $67 billion in 2011 on its prescription drug benefit, known as Part D, according to the most recent report from the program’s trustees. About 38 million people are expected to enroll in the drug plans this year.

UnitedHealth, the biggest U.S. medical insurer, said it meets regularly with the Centers for Medicare and Medicaid Services and the issue of pharmacy costs hasn’t been raised. The community pharmacists’ analysis “is not a complete, fair or accurate representation of the value that our preferred pharmacy network offers,” the Minnetonka, Minnesota-based company said in a statement e-mailed by Sarah Bearce, a spokeswoman.

“Our preferred pharmacy network complies with regulatory requirements for preferred networks, including offering lower cost-sharing to our members and lower aggregate drug costs to the federal government,” the company said.

Humana, the second-biggest private Medicare insurer, uses Wal-Mart Stores Inc. (WMT) as a preferred pharmacy. Alex Kepnes, a spokesman for Louisville, Kentucky-based Humana, said the company wouldn’t comment on the report.

Price Discrepancies

In last month’s letter to Medicare drug plan providers, the agency, known as CMS, said “we are concerned because our initial results suggest that aggregate unit costs weighted by utilization (for the top 25 brand and top 25 generic drugs) may be higher in preferred networks than in non-preferred networks in some plans.” It didn’t name any companies.

Such price discrepancies, if found to be accurate, may violate a CMS requirement that discount programs not increase total payments from Medicare to the insurers.

Ideally, preferred-pharmacy networks should reduce drug costs for Medicare beneficiaries and taxpayers, said Dan Mendelson, the CEO of Avalere Health, a Washington-based consulting company. Tiered cost-sharing should steer patients to the lowest-cost options, he said by phone.

If the preferred pharmacies don’t save Medicare any money, “that’s counter to the theory,” he said.

Lawmaker’s Inquiry

U.S. Senator Jerry Moran, a Kansas Republican, wrote Medicare’s acting administrator, Marilyn Tavenner, on Feb. 25 asking her to make sure the plans are “accurately marketed” to Medicare beneficiaries and that preferred pharmacies aren’t more costly.

“I have heard concerns that not all preferred pharmacy prices are better than non-preferred pharmacy prices,” Moran wrote.

In Montana, for example, Hoey’s pharmacists group found that generic Lipitor, generic Plavix, diovan and Nexium together cost $359.38 per month through UnitedHealth’s AARP Medicare Rx Preferred plan at a Walgreen preferred pharmacy in Helena. The same drugs cost $327.73 at the independent Anderson Family Pharmacy in Great Falls. Hoey said his group relied on data from Medicare’s website.

AARP Members

AARP, the largest advocacy group in the country for people ages 50 and older, earned about $458 million in 2011 from UnitedHealth in exchange for using its brand on Medicare plans. AARP’s policy and advocacy arm, which operates independently of the for-profit division that contracts with UnitedHealth, hasn’t taken a position on whether drug plans with preferred pharmacies are better for Medicare beneficiaries or taxpayers, said Leigh Purvis, a policy analyst for the Washington-based organization.

“There’s so little information at this point we’re not really sure whether access or costs are going to become issues,” she said in a phone interview. “If it’s done properly and there are no additional costs to the Medicare program, and it does result in savings for grandma and grandpa, that is something we could get behind. If it’s not resulting in savings for the program itself, that’s where it starts raising some questions.”

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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