1. The Role of the Private Sector in Part D
November 1, 2005
Tom Scully

2. Medicare Rx has simmered since ’80s..
The 2003 MMA: Issues
Medicare Rx has simmered since ’80s..
2 BIG issues drove bill:
11 M seniors had no Rx coverage; another 10 M had weak coverage. Seniors paid highest prices in US—few in efficient group purchasing. Poor seniors hurt the most. (Core DEM issue)
2. GOP hates ‘price fixing’. Seniors have 2 choices: HMO (11%) or FFS (89%). GOP wanted third option—PPOs (which 70% of non-seniors choose). (Core GOP issue). RISK BASED PPOs WERE THE VEHICLE OF CHOICE FROM DAY 1.

3. The NEW Medicare Medicare Advantage PPO
Starting in 2006, seniors will have 3 choices for their Medicare benefit:
Traditional Medicare
Now 89%
No changes from current system
All beneficiaries can get a new optional Rx benefit through a “prescription drug plan” or PDP
$32/mo premium for higher income seniors.
Medicare Advantage PPO
Integrated health care benefit through a PPO-style plan
More comprehensive prescription drug coverage likely
Free preventive services (e.g. screening mammograms)
Protection from high out-of-pocket medical costs
More rational cost sharing, including a combined deductible for Part A & B services
Medicare Advantage HMO
Now 11%
Integrated benefit through a managed care plan
More comprehensive drug coverage Likely
Improved HMO funding supplemented my new Rx dollars

4. *Balanced Budget Act of ‘97
Medicare Risk/Medicare Advantage “It’s not the Money It’s the Money!”
Medicare+Choice
7000
*Balanced Budget Act of ‘97 Ð
6347
6261
6055
*BBA of ’97
De-linked payments to plans from FFS pmt growth
6000
5481
5211
4929
5000
Medicare risk contracts
w/private plans
4600
4115
Enrollment in Thousands
4000
3084
3000
2268
1815
2000
1566
1389
1134
1264
814
1003
1063
1000
441
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003**
Number of Contracts by Year
SOURCE: Mathematica Policy Research (MPR) analysis of HCFA’s Medicare Managed Care Contract Plans Monthly Summary Report
**SOURCE: Atlantic Information Services, Inc., Guide to Medicare Reform Law

5. Scene from “How to succeed in business without really trying”

6. Market Impact: Significant for Rx Companies—and Commercial Market
Medicare + Private Plan PBMs= 10,000 lb Gorilla
200 million+ now use PBMs, but Medicare is 50% of market consumption (only 18% of patients).
3-5 dominant PBMs today. There will be MANY more (36 total), WITH SIGNIFICANT market power. Only the uninsured won’t be buying through some type of PBM.
For truly innovative drugs—good result
No fun for multi-brand (Nexium?)

7. Big Market Changes—Largely Undiscussed
Likely lead (eventually) to consolidation of PBMs, and insurers, and push more docs into group practices
Reconstruct the market in health care around 26 PPO and 34 PDP regions
Restructure the drug industry marketing and distribution
Realign the incentives all through the commercial insurance systems

9. CHANGE STARTS WITH ENDING PRICE FIXING!
CONCLUSION
Medicare Reform– painful, confusing and chaotic. But it will help seniors—and it WILL change the health system for the better.
COMPETITION WILL WORK
CHANGE STARTS WITH ENDING PRICE FIXING!
Attached is the revised slide. I met with the budget people in OFM to make sure we used what was in the Budget Control Tables. While we provide all the benefit estimates, these people give us the administrative expenses to use. However, the values they give us are only place holders, and the Control Tables have the final numbers.
On the first line, the total CMS budget is $423 billion for FY 2003 and not $429 billion. Besides the Medicare and Medicaid expenditures (benefits + administrative expenses), this number includes SCHIP ($4.4 billion) and some small amounts for the Ticket-to-Work Program and user fees including CLIA. Due to this change, the $550 billion value was changed to $543 billion.
On the first bullet under Medicare, the budget is estimated to be $260.2 billion. The $254.8 billion on your original slide was just for benefit payments without PRO and administrative expenses. Also, on the second bullet, the value for 2012 should be $428.7 billion.
Carter Warfield, ASA
Deputy Director
Medicare and Medicaid Cost Estimates Group
Office of the Actuary
(410)
Medicare Benefits & Admin $260.2
Medicaid--Federal $158.7
SCHIP $
CMS Federal $423.3
Medicaid--State $120.0
CMS Total $543.3