To Regain Control of Drug Costs, Health Plans Must Understand the Road They've Traveled

Gregory S. Kaupp, JD, MPA, MLT, and Scott B. Lynch, JD

In This Article

Proposed Medicare Legislation

Today's pharmacy benefit practices raise some interesting challenges as the health care industry watches the progress of proposed legislation to bring prescription drug benefits to Medicare recipients. First, Medicare has never allowed one entity to be both provider and claims processor, a role most PBMs that also serve as providers play as part of their standard business practices. Second, proposed legislation has the potential of putting Medicare in the same box as the private sector health plans in terms of putting control in the hands of a pharmacy benefit provider.

It would appear that if the Breaux-Frist proposal were to pass, the Medicare system would need some markedly different regulations. This bill calls for Medicare recipients to be able to seek the prescription benefits from the provider of their choice, but with a fixed cap on expenditures. Under current Medicare regulations, an intermediary's functions are many, including both fiscal management and provider audits. To allow a PBM to serve as both a provider and a claims processor would run squarely counter to the letter and spirit of the Medicare regulations (see, for example, 42 CFR §421.100, et seq).

Another Senate bill, the Medicare Prescription Drug Coverage Act of 2001 (S.10), proposes that Medicare recipients be allowed to have any prescriptions they receive filled at the pharmacy of their choice without any financial cap.

Based on the proposed bills in the Senate, it seems that Medicare may well be on the same path as the private sector in its quest to provide prescription drug benefits and contain costs. Payment for claims processing services to a PBM that also acts as a provider may significantly blur the lines of distinction that the Medicare program has traditionally used to assure beneficiaries and the public of fairly negotiated, arms-length reimbursement contracts. Under these legislative proposals, it is conceivable that the PBMs would have control of both the payment and delivery process, marking a distinct departure from previous practices. Considering the degree of attention given to conflicts of interest and antikickback issues in recent years, focus should be given to the conflicts that exist in the pharmacy benefit business before moving forward on a Medicare drug benefit.


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