Doughnut holes and price controls

Health Affairs

Volumn 23, Issue SUPPL. 2, 2004, Pages

  Anderson, Gerard F ^a   Shea, Dennis G ^b   Hussey, Peter S ^c   Keyhani, Salomeh ^c   Zephyrin, Laurie ^c  

^a JOHNS HOPKINS BLOOMBERG SCHOOL OF PUBLIC HEALTH   (United States)

^b PENNSYLVANIA STATE UNIVERSITY   (United States)

^c Johns Hopkins   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ATORVASTATIN;

CANADA; DRUG CONTROL; DRUG COST; DRUG INDUSTRY; DRUG LEGISLATION; DRUG MARKETING; FRANCE; GOVERNMENT; MEDICARE; REVIEW; UNITED KINGDOM; ARTICLE; COMPARATIVE STUDY; HUMAN; LEGAL ASPECT; POLITICS; UNITED STATES;

CANADA; DRUG COSTS; FRANCE; GREAT BRITAIN; HUMANS; MEDICARE; POLITICS; UNITED STATES;

EID: 17144401199     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.W4.396     Document Type: Review

References (39)

1. Beneficiaries who are dual eligibles (eligible for both Medicare and Medicaid) and those meeting income and asset requirements receive a full subsidy for the premium. Additional beneficiaries meeting income and asset requirements will receive partial premium subsidies.
2. In addition the standard drug package has an annual deductible of $250 in 2006, rising in later years proportionally to Medicare spending.
3. The Congressional Budget Office has estimated that the prescription drug benefit will add $409.8 billion in spending during 2004-2013. However, the other provisions of the bill will lead to some savings, resulting in a total estimate of $394.8 billion in increased spending for the entire bill over this time period. Congressional Budget Office, "CBO Estimate of Effect on Direct Spending and Revenues of Conference Agreement on H.R. 1," Letter to the Honorable William Thomas, 20 November 2003, www.cbo.gov/showdoc.cfm? index=4808&sequence=0 (21 June 2004). The administration has projected much higher costs, however, due mainly to different assumptions about enrollment and spending growth. CBO, Letter to the Honorable Jim Nussle, 2 February 2004, www.cbo.gov/showdoc.cfm?index=4995&sequence=0 (21 June 2004).
4. The Congressional Budget Office has estimated that the prescription drug benefit will add $409.8 billion in spending during 2004-2013. However, the other provisions of the bill will lead to some savings, resulting in a total estimate of $394.8 billion in increased spending for the entire bill over this time period. Congressional Budget Office, "CBO Estimate of Effect on Direct Spending and Revenues of Conference Agreement on H.R. 1," Letter to the Honorable William Thomas, 20 November 2003, www.cbo.gov/showdoc.cfm? index=4808&sequence=0 (21 June 2004). The administration has projected much higher costs, however, due mainly to different assumptions about enrollment and spending growth. CBO, Letter to the Honorable Jim Nussle, 2 February 2004, www.cbo.gov/showdoc.cfm?index=4995&sequence=0 (21 June 2004).
5. J.P. Newhouse, "How Much Should Medicare Pay for Drugs?" Health Affairs 23, no. 1 (2004): 89-102.
6. We examined the top fifty U.S. products; twenty of these products were not sold in any of the other three countries in 2003.
7. Prices were adjusted from each country's currency units to U.S. dollars using 1 January 2003 exchange rates. Exchange rates were 0.6361 Canadian dollars per U.S. dollar, 1.0501 Euros per U.S. dollar, and 1.6114 pounds per U.S. dollar.
8. The units are generally tablets or some other form of pill, although sometimes doses of nasal spray.
9. Our analysis assumes that Canada, France, and the United Kingdom pay the full average wholesale price. Estimates of the potential U.S. discount vary widely. Danzon and Furukawa assumed an 8 percent discount from average manufacturers' price. P.M. Danzon and M.F. Furukawa, "Prices and Availability of Pharmaceuticals: Evidence from Nine Countries," Health Affairs, 29 October 2003, content.healthaffairs.org/cgi/content/abstract/ hlthaff.w3.521 (21 June 2004). The CMS estimates that Medicare beneficiaries will be able to achieve a 10-15 percent average discount from retail price using discount drug cards. CMS, "Overview: Medicare Prescription Drug Discount Card and Transitional Assistance Program," www.cms.hhs.gov/discountdrugs/ overview.asp (21 June 2004).
10. Our analysis assumes that Canada, France, and the United Kingdom pay the full average wholesale price. Estimates of the potential U.S. discount vary widely. Danzon and Furukawa assumed an 8 percent discount from average manufacturers' price. P.M. Danzon and M.F. Furukawa, "Prices and Availability of Pharmaceuticals: Evidence from Nine Countries," Health Affairs, 29 October 2003, content.healthaffairs.org/cgi/content/abstract/ hlthaff.w3.521 (21 June 2004). The CMS estimates that Medicare beneficiaries will be able to achieve a 10-15 percent average discount from retail price using discount drug cards. CMS, "Overview: Medicare Prescription Drug Discount Card and Transitional Assistance Program," www.cms.hhs.gov/discountdrugs/ overview.asp (21 June 2004).
11. Danzon and Furukawa, "Prices and Availability of Pharmaceuticals."
12. Danzon and Furukawa averaged the prices for each pharmaceutical compound over the various available dosage strengths and forms, whereas we matched each dosage strength and form. Since there are some differences in the availability of dosages and forms sold in the four countries, our methodology leads to fewer product matches, but our matched products are standardized more closely. The thirty products were sold in a total of 105 dosage forms in the United States. Of these 105, 75 products matched in Canada, 52 matched in France, and 59 matched in the United Kingdom.
13. The 20 percent discount off U.S. prices only translates into an approximately 5 percent reduction in the ratio between the United States and other countries. For example, if a U.S. drug cost $1.00 and a Canadian drug cost $0.50 (that is, Canadian prices were 50 percent lower than U.S. prices), a 20 percent discount in the U.S. price would still lead to Canadian prices that are 37.5 percent lower than U.S. prices.
14. There were also new drugs introduced, changes in patent protection, and exchange rate fluctuations between 1999 and 2003.
15. Our sample represented 30 percent of total U.S. pharmaceutical sales in 2003.
16. For details, see D. Shea, B. Stuart, and B. Briesacher, "Participation and Crowd-Out in a Medicare Drug Benefit: Simulation Estimates," Health Care Financing Review 25, no. 2 (2003/2004): 47-61.
17. The simulations are run using the community-residing population in the MCBS, excluding approximately 5 percent of the sample residing in institutions. In addition, the results focus on changes in out-of-pocket drug spending, ignoring changes in premium costs.
18. The MCBS does not have information about the premium cost of existing prescription drug plans held by individuals. To assess the net value of a person's drug plan, we estimated the existing premiums paid using information on whether the person paid some, none, or all of their current premium; the type of plan; and what the person's drug costs are. The premium cost of the new Medicare benefit, however, is estimated by the simulation model. This is done recursively, by identifying who enrolls and what the premiums would have to be to break even. The recursion continues until the costs stabilize, and that provides an estimate of the Medicare premium cost. In addition, the changes in insurance coverage that a Medicare beneficiary might make in response to the new plan could have effects on premiums paid through employer plans, Medicare health maintenance organizations (HMOs), Medigap plans, and others. These changes, while important in assessing benefits, are difficult to forecast at this time. The elasticity estimate is based on M.V. Pauly, "Medicare Drug Coverage and Moral Hazard," Health Affairs 23, no. 1 (2004): 113-122.
19. Henry J. Kaiser Family Foundation, "Prescription Drug Coverage for Medicare Beneficiaries: A Summary of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003," 10 December 2003, www.kff.org/medicare/upload/28710_1.pdf (30 June 2004).
20. The simulation does not try to estimate the effect of nominal dollar copays on spending, for example.
21. R. Pear, "Bush Aides Put Higher Price Tag on Medicare Law," New York Times, 30 January 2004.
22. Partnership for Solutions, Chronic Conditions: Making the Case for Ongoing Care (Baltimore: Johns Hopkins University, 2002).
23. W. Hwang et al, "Out-of-Pocket Medical Spending for Care of Chronic Conditions," Health Affairs 20, no. 6 (2001): 267-278; and S.B. Soumerai et al., "Effects of Medicaid Drug-Payment Limits on Admission to Hospitals and Nursing Homes," New England Journal of Medicine 325, no. 15 (1991): 1072-1077.
24. W. Hwang et al, "Out-of-Pocket Medical Spending for Care of Chronic Conditions," Health Affairs 20, no. 6 (2001): 267-278; and S.B. Soumerai et al., "Effects of Medicaid Drug-Payment Limits on Admission to Hospitals and Nursing Homes," New England Journal of Medicine 325, no. 15 (1991): 1072-1077.
25. As noted above, these estimates do not include the premium costs. The MCBS does not have an accurate estimate of these costs, so the benefit here is based solely on the out-of-pocket drug costs.
26. Hilty Moore and Associates, "Pharmaceutical Industry - Segment Profile," 3 October 2002, www.hiltymoore.com/pdf_elements/Pharma.pdf (21 June 2004).
27. P. Feldstein, Health Policy Issues, An Economic Perspective, 3d ed. (Washington: Association of University Programs in Health Administration, 2003).
28. M. Gluck, Federal Policies Affecting the Cost and Availability of New Pharmaceuticals (Washington: Kaiser Family Foundation, July 2002).
29. Pharmaceutical Research and Manufacturers of America, "A Decade of Innovation," 2003, www.phrma.org/publications/publications/2003-10-16.855. pdf (21 June 2004).
30. Public Citizen, Rx R&D Myths: The Case Against the Drug Industry's R&D "Scare Card" July 2001, www.citizen.org/documents/rdmyths.pdf (24 June 2004).
31. J. DiMasi, "The Price Of Innovation: New Estimates of Drug Development Costs," Journal of Health Economics 22, no. 2 (2003): 151-185.
32. PhRMA, "Why Do Prescription Drugs Cost So Much?" www.phrma.org/publications/publications/brochure/questions (24 June 2004).
33. I b i d.
34. National Institute for Health Care Management, "Changing Pattern of Pharmaceutical Innovation," May 2002, www.nihcm.org/innovations.pdf (24 June 2004).
35. W.H. von Oehson III, Pharmaceutical Discounts under Federal Law. State Program Opportunities, May 2001, www.ppsv.com/issues/pharm_discounts.pdf (24 June 2004).
36. Newhouse, "How Much Should Medicare Pay for Drugs?"
37. I b i d.
38. U.E. Reinhardt, "Perspectives on the Pharmaceutical Industry," Health Affairs 20, no. 5 (2001): 136-149.
39. I b i d.