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Beginning this fall, Medicare beneficiaries will be able to choose among Medicare-endorsed Rx discount cards, offered by competing private drug discount card programs. People with Medicare would use the cards when they buy prescriptions to get discounts of about 10-25 percent off retail prices. This proposal has minimal federal costs, can be implemented without Congressional action, and would primarily benefit Medicare beneficiaries with no coverage or limited drug coverage. The proposed cards are expected to give larger discounts than seniors can get today for three main reasons:

• More negotiating power with drug manufacturers: The Medicare Rx Discount Card enhances the ability of card sponsors to negotiate competitive rebates from drug manufacturers and to pass along these rebates to consumers. Combined with existing retail pharmacy discounts, these rebates will help make prescription drugs more affordable to seniors.

• More effective price competition: By giving Medicare beneficiaries and their advocates much easier access to information on the discounts they can get, people with Medicare can determine which discount card really is best for their prescription drug needs. Because seniors can switch to a card that offers better prices and services, the discount cards will have strong competitive incentives to get the best possible prices. It is expected that the formulary, network, and education attributes of the program, coupled with positive, exclusive enrollment, will provide card sponsors with the necessary market leverage to negotiate significant and competitive drug manufacturer rebates. We encourage card sponsors to share the rebates with retail pharmacies and/or beneficiaries.

• First Dollar Discourts: Most Medigap plans, and perhaps some employer-sponsored plans, that provide drug coverage, do not actively negotiate discounts.

Objectives of Medicare's Rx Discount Card Program

• Provide a mechanism for Medicare beneficiaries to gain access to the effective tools widely used by private health insurance plans to negotiate lower drug prices and higher-quality pharmaceutical care.

• Publicize information (including drug-specific discounted prices, pharmacy networks, and additional drug services) that allows Medicare beneficiaries to compare private prescription drug discount cards and choose the best card for them -- thereby promoting competition to lower prices and improve quality.

• Supplement existing drug coverage with discounts on "first dollar" purchases (when discounts are not already included in the price).

• Educate Medicare beneficiaries about private market methods for securing discounts on the purchase of prescription drugs, and provide experience with the competitive discount approaches that are a key element of all prescription drug benefit proposals.

• Enhance participation of seniors in discount systems, increasing the leverage and ability of these plans to negotiate discounts for seniors.

• Develop standards for Medicare-endorsed private sector prescription drug discount cards based on experience, customer service, discounts and access, and permit endorsed organizations to use the Medicare name to market their programs.

• Endorse discount card programs that charge no enrollment fees or modest enrollment fees (not greater than $25 per enrollment), so that Medicare beneficiaries, particularly those without drug coverage, will have a low or no-cost opportunity to obtain discounted prescription drug prices.

Details

Medicare-endorsed, private, prescription drug discount cards have the potential to assist millions of Americans with substantial prescription drug needs. Around 73 percent of Medicare beneficiaries have drug coverage at any given time, but not all of them have consistent coverage, and many do not have access to substantial discounts. Without access to the discounts that come with most kinds of prescription drug insurance, many Medicare beneficiaries pay full retail price for drugs. This initiative gives Medicare beneficiaries access to discounts for prescription drugs, and access to the tools used by the insured population to lower prescription drug costs. Under this initiative, all Medicare beneficiaries, particularly those with no or limited insurance coverage for prescription drugs, have the opportunity to learn more about their purchase options and to secure discounts when purchasing prescription drugs.

Discount prescription drug cards are currently available in the marketplace through a variety of sources, including pharmaceutical benefit managers (PBMs), some Medigap insurers, and retail drug stores. Many discount card programs charge an annual enrollment fee (generally $15-$125), though some charge no fee. Enrollees who present their card when they purchase a prescription receive a discount off the full retail price of the prescription. Many of these discount cards offer mail order programs, which often are associated with still deeper discounts.

The Medicare Rx Discount Cards will differ from existing discount cards in several positive respects:

• First, card sponsors will be encouraged not to charge an enrollment fee to Medicare beneficiaries; if there is an enrollment fee, it will be modest -- $25 maximum -- and it will be a one-time only fee to cover enrollment costs.

• Second, the discounts may be larger than in other discount programs. The membership in Medicare-endorsed discount card programs will be better defined, thereby allowing card sponsors to negotiate better discounts for beneficiaries.

• Third, the Medicare Rx Discount Card initiative provides Medicare beneficiaries one-stop-shopping to compare the key features of Medicare-endorsed card programs. Beneficiaries can compare information (including drug-specific discounted prices, pharmacy networks, enrollment fees if any, and additional drug services) that allows them to choose the card that best meets their needs.

• Finally, the discount card is only for Medicare beneficiaries. Therefore, features of the discount programs such as customer service, marketing material, and drugs included will be geared toward seniors and other people with Medic are.

Discount cards meeting qualifications (outlined below) will be endorsed by Medicare, and may use the Medicare name to market their programs. Beneficiaries enrolling in a discount card program will receive discounts on the prescription drugs included in the particular program. Beneficiaries will be able to easily compare the discounts, drugs included, networks, enrollment fees (if any), and other information on each program with information provided by a consortium of Medicare-endorsed discount card programs.

Providing the Medicare endorsement will increase the visibility of strong discount card programs and result in increased beneficiary participation in them. Market leverage will increase and seniors' discounts will improve. Discount drug card programs are encouraged to not charge an enrollment fee to Medicare beneficiaries. However, a small one time fee will be allowed ($25 maximum) to cover initial enrollment activities. The modest enrollment fee, if any, is only charged once at the time of initial enrollment. If a beneficiary disenrolls from one discount card program and enrolls in another, an enrollment fee may be assessed. The combination of Medicare endorsement and the increased number of beneficiaries taking advantage of these discount cards will spur innovation in the discount card market in the long-run as beneficiaries choose the most effective programs. Growing enrollment in these cards will be a positive step for both Medicare beneficiaries and Rx programs as they gain market clout.

All Medicare beneficiaries would be permitted to enroll in only one Medicare-endorsed drug discount program beginning on or after November 1, 2001, with discounts beginning January 1, 2002. Medicare-endorsed discount card programs will conduct marketing and enrollment activities, aided by marketing support from the Centers for Medicare & Medicaid Services (CMS). Callers to the 1-800-Medicare line will be referred to discount cards' enrollment centers. Medicare-endorsed discount cards may enroll individuals or groups of individuals (including Medicare+Choice plan members, Medigap enrollees, and beneficiaries with employer-sponsored retiree health insurance). Enrollment in Medicare-endorsed drug discount card programs is limited to Medicare beneficiaries.

Beneficiaries will be permitted to enroll in only one Medicare-endorsed drug discount program at a time. Allowing enrollment in only one program better pools beneficiary market power to secure deeper discounts for beneficiaries. However, every 6 months beneficiaries may disenroll from one discount card program and enroll in another discount card program.

CMS will endorse private sector entities that meet qualifications based on current best practices in the prescription management and discount industry. The endorsed discount card programs will be expected to fund the cost of administering their cards through manufacturer rebates, administrative fees, or the small enrollment fees (if any). The endorsed card programs will not receive payments from the federal government.

No new federal bureaucracy will be created. Federal resources will be used as part of CMS' enhanced beneficiary educational efforts to inform beneficiaries, review applications, and review marketing materials in the first year of the program (see discussion of consortium, below). Federal costs for these activities would be funded through the CMS budget.

CMS will identify qualified discount card programs from those that apply based on qualifications commonly used in the private market place (see Summary of Qualifications for Medicare Endorsement, below). The Medicare endorsement will be for one year.

Medicare-endorsed discount card programs may use formularies, patient education, pharmacy networks, and other commonly used tools to secure deeper discounts for beneficiaries. There will be no government management of pricing; discounts will be determined on a competitive basis. Because multiple discount cards will be offered, beneficiaries will have the opportunity to choose the program that best suits their needs. The intent is that Medicare-endorsed drug discount card programs will negotiate discounts with manufacturers. Medicare-endorsed organizations are expected to share rebates with beneficiaries and/or retail pharmacies. To the extent that this initiative makes it easier for card sponsors to negotiate manufacturer rebates, retail pharmacies may see a reduction in the pressure to offer deeper and deeper discounts.

Medicare-endorsed discount card programs must agree to participate in and fund a private consortium. The consortium will comply with all federal and state privacy and consumer laws and regulations, including HIPAA, and will conduct several administrative functions including:

• Provide a system to ensure that Medicare beneficiaries are enrolled in only one Medicare-endorsed discount card program at a time (actual enrollment will be conducted by individual discount card programs, although Medicare's 1-800 number and website may refer clients directly to individual programs). The system necessary for this type of exclusivity must be in place by November 1, 2001, but the system could be enhanced after that date to ensure efficiency in performance of this function.

• Make available comparative information on discounts and other features of the Medicare-endorsed drug discount cards. Initially, this information would include the average discounts provided by the cards (expressed as a percentage off average wholesale price, or AWP) for the most commonly used drugs. By November 1, 2002, more complete comparative information on the specific discount prices that beneficiaries could get using the cards would be made available on the consortium's website and in hard copy. The ability to compare drug/dosage-specific prices is a valuable tool for beneficiaries, allowing them and consumer groups working on their behalf to identify the discount card program that offers the best discount on the drugs they use most often, in the pharmacies that they prefer to use. The comparative information will include drug/dose specific prices (inclusive of discount and dispensing fee), formularies and networks.

• Review marketing material used by Medicare-endorsed discount card programs. Marketing materials will be reviewed to ensure that they convey accurate information, and that Medicare-endorsed drug discount card programs are delivering the services promised. The consortium arrangement will assume review of all marketing materials from CMS beginning September 1, 2002.

The consortium arrangement allows these functions to be carried out by a private sector organization with private sector funding. Consortium member organizations will decide how to assess fees on member organizations for start-up and ongoing operations of the consortium. CMS will be active in the consortium, but its only direct role will be to confer endorsement on qualified programs.

Discount card programs must have in place a mechanism to ensure that beneficiaries may decline to receive non-prescription drug related marketing material from Medicare-endorsed programs (e.g., material related to other services provided by the same organization). Any use of beneficiary information must be consistent with all federal and state laws and regulations concerning privacy, including HIPAA.

Organizations may continue to offer discounts on items, or services other than prescription drugs; however, Medicare's endorsement will not be used related to items and services other than prescription drugs. Organizations must disclose these features to beneficiaries, and provide them an opportunity to decline participation related to these other items and/or services.

CMS will be active in educating the public about the new discount cards. CMS will:

• Include descriptive information on the Medicare-endorsed discount cards on the Medicare.gov website (comparative discount, formulary and other information will be available on the consortium's website);
• Incorporate information about the new cards in the expanded education campaign planned for this Fall;
• Provide general information on the new cards via the 1-800-MEDICARE toll-free line (upon request, callers will be referred to the enrollment centers of individual programs for more detailed information); and
• Promote the cards to beneficiary and consumer groups, health care providers, states and other interested groups.

For this first year of operation, due to the rapid implementation, CMS will be ready with an information campaign, but endorsed discount card programs may need additional time for implementation. Therefore, they can choose when to begin enrollment on or after November 1.

Qualifications for Medicare Endorsement

To receive Medicare's endorsement, discount cards would have to charge either no fee or no more than a $25 (maximum) enrollment fee to cover initial enrollment activities, offer a discount, and meet minimum standards related to experience, customer service, and access. At a minimum, the Medicare-endorsed Rx discount card programs will:

• Enroll all Medicare beneficiaries wishing to participate, recognizing that the discount cards do not supplant drug coverage under an insured product. CMS' educational materials will address the differences between these discount cards and insured products;

• Provide a discount on at least one brand and/or generic prescription drug in each therapeutic class. An organization could choose to offer deeper discounts to beneficiaries in pharmacy networks or under formularies (provided that the formulary includes all therapeutic classes);

• Offer a comprehensive national or regional network of retail pharmacies, with additional mail order or Internet service at the endorsed card programs' option;

• Provide customer service to participating beneficiaries, including enrollment and toll-free telephone customer service help; and

• Charge no enrollment fees, or only a modest ($25 maximum per enrollment) enrollment fee to Medicare beneficiaries. Discount card programs will not be expected to share rebates or other revenues with Medicare, nor disclose this revenue information (although information to demonstrate the organization's financial soundness is a qualification for endorsement). Discount card programs are expected to share rebates with beneficiaries and/or retail pharmacies.

In addition, discount card programs will be encouraged to implement features that could add value through improved discounts to Medicare beneficiaries, mail order systems, customer service, reporting/analysis, beneficiary education programs or other features.

All discount card applicants that meet the qualifying criteria will be endorsed by Medicare.

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