New prescription plan may reduce ophthalmic drug costs

Allergan’s president for North America says Medicare Part D may have a profound impact on how seniors get their medications.

A note from the editors:

As part of our Section Editor Summit, Ocular Surgery News invited key members of industry to share ideas about an area in ophthalmic business or regulatory issues that affect them. These presentations complemented the subspecialty updates given by our Section Editors. In his presentation, Julian Gangolli, Allergan’s president for North America, discussed the Medicare Modernization Act and the new Part D drug benefit as it relates to ophthalmic pharmaceuticals.

As prescription drug benefit mandated for Medicare comes into effect, we are going to see a profound change in the way pharmaceuticals will be made available to seniors. This may be the most significant change in pharmaceutical or health care delivery to happen in 20 years.

In a poll conducted recently by the Kaiser Family Foundation, 78% of adults said that prescription drugs make a big difference in their lives, and 91% said they believe drug companies contribute significantly to society by developing those drugs. As a member of the pharmaceutical industry, I am glad to know people think “big pharma” is doing something good out there and that folks recognize that pharmaceuticals play an important role in their lives.

However, where we fall short in terms of our image is on price. In the same poll, 65% of respondents called for government intervention on price. Seventy-three percent said they want to be able to purchase drugs from Canada. This to me seems to be a simplistic and one-dimensional solution to a complex issue.

We need to improve our image regarding the affordability of medications. We cannot be complacent on this issue. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the MMA) will hopefully help us address this need.

The jury is still out as to whether the MMA will benefit people who are 150% over the federal poverty level (FPL). If you do the math, for a $2,250 benefit they are going to have to pay $1,200. That does not represent massive savings. But for people of lower incomes, the MMA could be beneficial.

New Part D of Medicare

The Medicare program is divided into several parts. Part A is hospitalization insurance. Part B is supplemental insurance that covers outpatient hospital treatments and in-office procedures. Part C is what used to be called Medicare Plus Choice and is now called Medicare Advantage as we move forward with the Medicare Modernization Act. Currently, there are about 4.6 million people enrolled in Part C.

The new Part D is the outpatient prescription drug benefits plan, which will take effect January 1, 2006. It will entail a premium of about $35 per month plus a copayment that will be dependant on income.

Of the 41 million people in this country who are eligible for Medicare, 11 to 13 million have no prescription drug coverage. Twenty-four million people have some sort of coverage, either through Medigap or a similar program designed to fill in the gaps of the Medicare program. But those 11 to 13 million people with no drug coverage are the ones the MMA is really targeting.

Last year, the MMA introduced prescription benefits cards, and the Bush administration expected that at least 7 to 8 million people – out of that 16.8 million group – would sign up for the card. Allergan estimates, using industry sources, suggest only 3 to 4 million people signed up. You wonder why so few people signed up, and the answer is distribution; people did not know about it. That is going to be one of the issues with Part D. The majority of eligibles are not automatically enrolled because it is voluntary.

Beneficial for some

The MMA is going to push people into private health insurance. Currently, about 48% of senior citizens have private health insurance, around 30% pay out of pocket, and 22% are enrolled in some sort of Medicare or Medicaid program.

Because the MMA is going to be administered by private drug plans or Medicare Advantage programs – all of which are private – the majority of senior citizens will be covered by private health care plans if they enroll in these programs.

Medicare beneficiaries will now have three options. They can keep their traditional fee-for-service plan, they can join a private drug plan or they can join the Medicare Advantage program.

It will come down to cost. Anyone 150% above the FPL will have to pay a $250 deductible, and then 25% of the cost of medications for expenses between $250 and $2,250.

This group of people will also have to pay a $35 premium each month just to stay enrolled.

For costs between $2,800 and $5,100, this is what has been termed the giant “donut hole.” This is a large gap where seniors above 150% of the FPL will have to cover the full costs of their medicines.

Anything above $5,100 is classified as catastrophic insurance, and about 80% is covered.

For people above 150% of the FPL, enrolling in the Medicare Advantage program could mean you have to spend a considerable amount, so it may not be an enormous advantage for these people.

People who earn 100% of the FPL or less would have no premium, and they would have a $1 copay for generic and a $3 copay for brand name drugs. If they are between 100% and 135% of FPL, they would have a $2 to $5 copay.

If they are 135% to 150% above the FPL, they would have a $50 deductible and 50% co-insurance. That drops to 25% co-insurance for those above 150% of FPL.

Under the current Medicare system, people earning $25,000 or less comprise 80% of Medicare consumption. This system is disproportionately skewed to people of low income.

At the end of the day, the new system will hopefully make pharmaceuticals remarkably affordable for a larger number of American seniors.

Getting ophthalmic drugs covered

With regard to ophthalmology, the American Academy of Ophthalmology, working with industry, did an amazing job of ensuring that ophthalmology is well represented in the new plan.

At one point there was a possibility of our only having three categories of drugs available: glaucoma, diagnostics and “others.” But we fought it, and as a result ophthalmology has seven drug classifications, covering glaucoma medications and all other drugs that are available in our industry.

The AAO, physician groups and industry are deserving of praise for getting together and lobbying Congress to make sure that ophthalmology was not marginalized in the process of implementing the MMA.

Moving forward, senior citizens are going to get a wider range of medications covered than they would have a few months ago, including more glaucoma drugs.

In sum, Part D of the MMA is going to revolutionize health care prescriptions for senior citizens in the United States. At this point, the government estimates that 70% to 80% of those eligible will participate in Part D. Of course, this remains to be seen, especially when you consider that only around 20% to 25% of eligible seniors enrolled in the prescription drug card program last year.

Re-importation issues

The cost of drugs is always a contentious and unsatisfying discussion, because everyone would like to see costs go down.

On behalf of industry, and not just Allergan, I would argue that chronic ophthalmic preparations are the most cost-efficient medications available in the United States today. On average, branded lipid glaucoma medications cost around $70 to $80 a month. Systemic medications such as the statins or Proton Pump inhibitors can cost at least $170 to $190 a month.

So while everyone would like to see lower prices, relative to other fields, ophthalmic pharmaceuticals are well-priced for senior citizens. Where health care gets expensive is when drugs are passed from the wholesaler to the middleman – the pharmacist – and are marked up between 25% and 30%. The middleman is probably not incurring much cost. But that is the way pharmaceuticals are delivered to patients currently.

Some might argue that allowing re-importation of prescription drugs from Canada is a viable way to keep costs down.

The fact is that if you look at most of the Internet pharmacies, the only thing that is Canadian about them is that they use the Canadian flag. If you really look at these online pharmacies, they are selling products that have been taken off the market, products that are coming in from other countries, generic products or even counterfeit drugs.

In fact, when the Canadian government did an analysis of Internet pharmacies, the conclusion was that the majority of products being sold or exported out of Canada were either recalled or were from other countries entirely.

So while the argument surrounding re-importation of drugs is exciting, it is somewhat naive to think that this could be a solution for the United States. Currently, the drug supply in this country is remarkably clean, but this could change dramatically if we allow re-importation.

To keep our drug supply safe and prices down, the job falls to all of us as ophthalmic stakeholders to make sure that senior citizens have ample choice when it comes to their ophthalmic medications.

For Your Information:

• Julian Gangolli is president for North America at Allergan Inc. He can be reached at Allergan, P.O. Box 19534, Irvine, CA 92623; 714-246-4500; fax: 714-246-4971; e-mail: Gangolli_Julian@allergan.com.