Rethinking a Drug Discount Program

Published January 1, 2002

On July 11, 2001, President George W. Bush announced his Medicare Prescription Drug Discount Program. Like many other Americans, I thought this sounded like a good start toward providing seniors with much-needed support for the cost of prescription medications.

A few days later, I began thinking about all the prescription discount card programs currently available through Mature Rx, AARP, Reader’s Digest, and other organizations, and began wondering why this new program would be any better than what was already available.

Then came the complaints that only PBM [Prescription Benefit Managers] representatives were involved in the development of the concept. And, finally, there were the retail pharmacy lawsuits claiming the administration overstepped its authority in establishing the program. (See “Rx Discount Card Plan Stalled by Judge,” Health Care News, October 2001.)

Negative Consequences

Now that the dust has settled a bit and I have had time to think about this program from all angles, I can’t figure out how this program, if implemented, is going to do anything other than raise prescription costs, not just for seniors but for all Americans. In addition, nothing in the program speaks to pharmaceutical care management for a population that is at especially high risk.

Under this program, PBMs would use the pharmacy networks already established for their health plans and/or employer business segments. Since third-party prescriptions, which are heavily discounted, currently comprise 72 percent of all retail prescriptions, increasing this percentage by adding seniors’ prescriptions to the network discount rates will cut retailers’ already nonexistent margins even further.

Certainly I’m not advocating that senior citizens should pay higher rates and maintain the profit margins of pharmacy retailers so health plans can have lower rates. But, as the percentage of non-discounted business falls, the likelihood is that retailers will renegotiate higher rates for all of their contracted business, affecting the cost of prescription drugs for all parties. Even a $1 per prescription increase will cost the American public more than $2 billion a year in additional prescription costs.

In order to make the discount programs of more value and to entice members to join, PBMs will also have to factor in manufacturer rebates for preferential product use to help reduce costs to seniors. Similar to the story for retailers, manufacturers, while happy to provide discounts on some of their business, will not want to discount all of it.

In order to pass along rebates under the Prescription Drug Discount Program, overall prices will probably have to increase in order to maintain revenues for drug manufacturers. Again, those price increases will affect all prescription drug programs and all Americans.

The senior citizen enrolling in the program may get a discount, but the discount will likely be on a product that now costs more than it cost before implementation of the discount program. If the cost of a pharmaceutical was too great before, how will a discount on a higher-priced pharmaceutical be more affordable?

Many Questions

Finally, there is the issue of pharmaceutical care management.

Providing a discount is only part of the equation. How will this program make sure the enrollee is getting the right dose of the right drug at the right time?

What will be the PBM’s responsibility to facilitate the use of B-blockers for persons after a myocardial infarction, angiotensin-converting enzyme inhibitors for persons with congestive heart failure and diabetes, steroid inhalers for persons with asthma, and so on?

Will all programs use the same point-of-care edits and services to assess age-appropriate dosing and drug-drug interactions?

Will PBMs make sure appropriate laboratory work is done, and that dosing is modified as a result of renal or liver impairment?

While drug pricing for each card program will be available for review by the potential enrollee, where will the enrollee find information and assess the quality of pharmaceutical care offered through each of the programs?

Dr. Reissman is president of Rxperts, Inc., a managed care consulting firm in Irvine, California. This article is derived from one that first appeared in Drug Benefit Trends 13(10):23, 2001. © 2001 Cliggott Publishing Co., a division of SCP/Cliggott Communications, Inc.

For more information . . .

visit the Rxperts Web site at