Prescription Drug Benefits:

Applying Private Sector Management Methods to Medicare

T-HEHS-00-84: Published: Mar 22, 2000. Publicly Released: Mar 22, 2000.

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Pursuant to a congressional request, GAO discussed issues related to a potential Medicare outpatient prescription drug benefit, focusing on: (1) the factors contributing to the rise in prescription drug spending and the impact of the rise in spending on Medicare beneficiaries; (2) the methods private insurers have developed to manage these rising costs; and (3) whether and how Medicare can adapt these methods to control spending, should an outpatient prescription drug benefit be added to Medicare.

GAO noted that: (1) private insurers, managed care plans, and employers have tried to manage the high and rising costs of prescription drugs by adopting cost and utilization control techniques; (2) in many cases, insurers and managed care plans contract with a pharmacy benefit management company (PBM) to develop and implement these strategies; (3) if a prescription drug benefit were added to the Medicare program, the federal government would face similar cost pressures and would need to employ methods to control spending; (4) the experience gained in the private sector can provide useful insights into options for managing a possible Medicare benefit; (5) however, the unique responsibilities and characteristics of the Medicare program raise a number of issues and introduce questions about applying private sector tools to the traditional Medicare fee-for-service program and the appropriate roles of the Health Care Financing Administration and other entities, such as PBMs, in managing a drug benefit; and (6) in adapting these cost and utilization management techniques, it is important to keep in mind that: (a) strategies involving coverage restrictions impose an obligation to provide beneficiaries with adequate information about the benefit; (b) the size of the Medicare program and the need for transparency in its actions may reduce the effectiveness of some cost-control techniques; (c) using private sector entities to implement a drug benefit introduces concerns related to beneficiary equity and concentrating market power; and (d) private sector management tools require a capacity to process and scrutinize a large number of claims more quickly than is typical of the traditional Medicare program.

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