© Geriatric Times. All rights reserved.

Is There a Formula for Funding a Seniors' Prescription Drug Benefit?
by Richard A. Sherer

Geriatric Times November/December 2002 Vol. III Issue 6

"The lack of a prescription drug benefit in Medicare is its most glaring shortcoming and best evidence that Medicare is out of step with modern health care."

This statement comes not from consumer advocates or senior action groups but from the Pharmaceutical Research and Manufacturers of America (PhRMA) -- the companies that manufacture and sell prescription drugs.
Prescription drug use by seniors is rising, and the cost of drugs is rising even faster. A recent study by Families USA titled "Bitter Pill: The Rising Prices of Prescription Drugs for Older Americans" concluded:

The prices of the top-50 prescription drugs used by older Americans continue to rise faster than inflation, year after year. However, the older Americans who depend on these drugs do not have incomes that are rising nearly as rapidly and their coverage for prescription drugs is steadily eroding.
The result is predictable. Last summer, a Kaiser Family Foundation report titled "Seniors and Prescription Drugs: Findings From a 2001 Survey of Seniors in Eight States" found:

Those without drug coverage had trouble filling prescriptions because of cost or skipped doses to make their medications last longer. Overall, nearly one-quarter of seniors irrespective of coverage in the eight states surveyed either did not fill a prescription or skipped doses due to costs … The high cost of pharmaceuticals can lead even patients with such serious and chronic conditions as heart disease, diabetes, and hypertension to skip doses or fail to fill prescriptions for medications that can prevent these problems from flaring out of control and becoming acute medical crises.
When Medicare was enacted in 1965, the U.S. Congress focused on the two biggest cost drivers in the health care system of the day: hospitalization and professional services. Today's heavy reliance on medications -- most of which had not yet been developed in the 1960s -- was not even contemplated, so no provision was included to pay for outpatient prescription drugs. But with the shift in the 1990s to shorter hospital stays and increased use of medications, particularly for treatment of chronic and life-shortening conditions, patients have had to shoulder a greater portion of the cost of staying well.
According to the Families USA report, since 1995, "[N]ational spending on prescription drugs has grown by more than 10% every year, more than double the rate of growth for spending on hospital care or physician and clinical services." In 2001, "the cost of the prescription drugs [seniors] purchased most frequently rose 7.8%, nearly three times the rate of inflation."
Many drugs on the Families USA list are highly advertised, and some of these -- Prilosec (omeprazole), Prevacid (lansoprazole), Celebrex (celecoxib) and Plavix (clopidogrel) -- "rose [in price] by three to six times the rate of inflation in the past year."
Pharmaceutical companies traditionally argue that high drug prices reflect the high costs of research and development (R&D). But a second report by Families USA titled "Profiting from Pain: Where Prescription Drug Dollars Go" examined the Securities and Exchange Commission filings of the nine largest drug manufacturers and found "every company except Merck spent more than 20% of revenue on marketing, advertising, and administration." The average spending on R&D was 11% of revenue.
Medicare beneficiaries account for only 14% of the U.S. population but 43% of total drug expenditures. According to PhRMA, "Prescription medicines account for nine cents out of every health care dollar." The Kaiser study found, "Nearly one-quarter of all seniors (23%) reported spending $100 or more per month on prescription drugs."
The average annual out-of-pocket expenditure for each of the 50 prescribed drugs most commonly used by seniors was $1,070. But many seniors take more than one medication, either because a combination of drugs is more effective in treating some conditions or because they suffer from more than one chronic disease.
"In 1999, 26.1% of older persons assessed their health as fair or poor," according to the U.S. Administration on Aging (AoA), which noted that in the previous year, "among those 65-74 years old, 28.8% reported a limitation caused by a chronic condition." More than 50% of individuals 75 years and older reported they were limited by chronic conditions, and nearly three-quarters of those 80 years and older fell into that category.
With the combination of increased life expectancy -- now 76.9 years -- and the rising number of baby boomers approaching their 60s, Medicare costs are expected to double their share of the national economy in just 28 years. Congress' watchdog agency, the General Accounting Office, reports that Medicare expenditures totaled about $264 billion in 2002.
Seniors spend more -- both in real terms and as a percentage of their incomes -- on health care than other segments of the population. "In 1999, older consumers averaged $3,019 in out-of-pocket health care expenditures, an increase of more than a third since 1990," according to the AoA. "In contrast, the total population spent considerably less, averaging $1,959 in out-of-pocket costs. Older Americans spent 11% of their total expenditures on health care, more than twice the proportion spent by all consumers (5%)." Twenty-three percent of the health spending by older Americans went for prescription drugs in 1999.
The median income for older Americans in 2000 was $19,168 for men and $10,899 for women. Adjusted for inflation, real median income for men fell by 2.8% and for women by 3.6% between 1999 and 2000. Roughly 10% of older Americans -- 3.4 million people -- have incomes below the poverty level, with another 2.2 million classified by the AoA as "near poor."
Congress has been reluctant to tackle the problem of prescription drugs for Medicare recipients. Despite pressures for reform, finding a formula for funding a drug benefit for seniors has proved elusive at best. The government, faced with budget deficits, is cutting the amount it will pay for outpatient care for Medicare recipients, including administration of drugs in outpatient departments or clinics.
One obvious solution to the rising costs of prescription drugs is the greater use of generic versions of commonly prescribed medications. "Prices of generic drugs most frequently used by seniors rose by 1.8% from January 2001 to January 2002, a rate less than the rate of inflation," Families USA found. "During this period, prices for the 40 brand-name drugs most commonly used by seniors increased by an average of 8.1% -- three times the rate of inflation."
Of 10 generic drugs on the list of the 50 most prescribed, nine did not increase in price at all during 2001. The 10th, metoprolol (50 mg) rose by 20.3%, about 7.5 times the rate of inflation.
Only three of the 40 brand name drugs -- Zocor (simvastatin), Norvasc (amlodipine besylate) and Alphagan (brimonidine) -- did not increase in price during the year.
The average annual cost for the 50 drugs most frequently used by seniors was $1,070 -- ranging as high as $2,010 for Celebrex (200 mg). For the 10 generic drugs on the list, the average cost of a year's prescription was $375.
"Not surprisingly, the brand-name companies go to great lengths to prevent generic drugs from entering the market," the Families USA report noted. "A drug company can extend its monopoly in a number of ways, including marketing what is essentially a 'new and improved' version of an existing drug; claiming the generic company has infringed on a patent, halting the entry of the generic for up to 30 months; and by entering into deals with generic manufacturers to delay their marketing of the generic."
The U.S. Senate passed legislation in August that would have curtailed some of the methods used by brand name manufacturers to slow the entry of generics into the market. At press time, the U.S. House had not acted on the bill, and the Administration was opposing it.
Meanwhile, seniors faced with rising out-of-pocket expenditures have adopted a variety of strategies. Those who live close to Canada and Mexico cross the borders to buy medications at substantially reduced prices. In Canada, prices are controlled by the government, and, in Mexico, many drugs that require prescriptions in the United States are available over the counter. Other people buy their drugs from sources on the Internet, despite warnings by the U.S. Food and Drug Administration that there are no quality controls on those products.
Still others play a desperate game, skipping doses to make limited supplies last or postponing filling prescriptions. One man told the New York Times he tries "not to go longer than a week off medicine," adding that he sometimes gets free samples from his physician to help meet his needs.