Pa. already spends $2.7 billion a year on its prescription drug budget, representing a staggering 30 percent of all retail spending in the Commonwealth. As drug costs continue to escalate, senior citizens’ access to affordable prescription medications diminishes. According to recent projections by the Centers for Medicare and Medicaid Services cited by the Associated Press, the nation’s prescription drug spending is projected to outpace the rest of health care for the next ten years.

To help sustain expanded drug coverage benefits under the Pharmaceutical Assistance Contract for the Elderly (PACE) and Needs Enhancement Tier (PACENET) programs, Pa. is beefing up its drug cost containment efforts in several ways, including obtaining higher rebates from drug companies, paying lower reimbursements to pharmacies for generic drugs, and increasing enrollees’ co-payments, as well as implementing a long-considered plan to combine all of the state’s drug purchasing efforts into one consortium.

Pa. officials and legislators also maintain that the PACE and PACENET programs are superior to the upcoming Medicare drug coverage, and some are adamant about preventing the state from using the federal drug coverage as a reason to reduce or end coverage under PACE and PACENET.

Drug Benefit Programs Expand

Pennsylvania will need to maintain its efficiency if it wants to sustain, much less continue to expand, such programs as its Pharmaceutical Assistance Contract for the Elderly (PACE) and its Needs Enhancement Tier (PACENET). The two programs, funded by the Pennsylvania Lottery and administered by the Pennsylvania Department of Aging, offer comprehensive prescription coverage to older Pennsylvanians and cover most medications that require prescriptions.

Beginning January 1, approximately 430,000 senior Pennsylvanians became eligible for PACE and PACENET, as Gov. Rendell signed off on legislation that expanded the income thresholds for the two prescription drug programs. In addition to the existing 230,000 PACE and PACENET members, state officials expect 115,00 new low- to moderate-income older adults to enroll in the program.

The large bump upward in the PACE/PACENET program ensued an enthusiastic response from Pennsylvania’s senior population. "We’ve heard so far that people are absolutely elated. We have been inundated with phone calls and applications," said Tom Snedden, director of the state’s PACE program. He said about 12,000 new seniors have enrolled in the program since the increases became effective.

But the PACE/PACENET program modifications have not only left state legislators busy developing policies that will stifle the swelling costs of prescription medicines, it has left older Pennsylvanians questioning whether they will fare better as a member of the state’s program or of the expected $400 billion Medicare Modernization Act and its prescription drug program, to take effect in 2006.

For those 65 and older, the new eligibility guidelines for PACE increased the maximum annual income by $500, making it $14,500 for a single person and $17,700 for couples. This change makes 30,000 more seniors eligible for the program.

The bulk of the expansion, however, involved PACENET, the secondary program that provides benefits to seniors with higher incomes than those who participate in PACE. The PACENET annual income grew by $6,500 for individuals, to cap out at $23,500, and by $11,300 for couples, raising the limit to $31,500. This considerable increase opened the door to 400,000 new qualified people. With this coverage, participants must meet a $40 monthly deductible and pay an $8 co-payment for generic drugs and $15 for brand name; PACE members pay a $6 co-payment for generic prescriptions and $9 for brand name. PACE and PACENET both cover 100 percent of the remaining cost of each prescription.

Most have the impression that the Medicare expansion will not compare in value to the state’s prescription drug program. State Rep. Pat Vance (R-Cumberland), who worked for six years on the bill that allowed the PACE/PACENET expansion, said the majority of senior Pennsylvanians would obtain the most benefits from the state program.

"We have a premiere plan (in our state)," Vance said. "The federal drug program may be much better for people in other states, but in Pennsylvania, only if you had no program at all would the federal program benefit you."

For instance, when the Medicare prescription plan becomes effective, plans may vary from state to state, but will generally entail participants choosing a drug plan and paying a monthly premium of $35, as well as a $250 deductible. Medicare will then pay only 75 percent of costs between $250 and $2,250 in drug spending, leaving the enrollee with the remaining 25 percent of responsibility. Those who spend more than $2,250 a year on drug costs will have to pay 100 percent of the price until he or she reaches $3,600 in out-of-pocket spending. After that point, Medicare will then kick in again and pay about 95 percent of the costs.

The PACE and PACENET programs don’t have doughnut holes of no coverage like the Medicare prescription program will. Also, the new Medicare policies will not allow participants to buy private insurance to cover the gap between the cost of their prescriptions and the portion paid for by Medicare.

However, where the Medicare program would best suit seniors is when they have incomes below approximately $13,000 for a single and $17,600 for a couple. These enrollees would pay nothing except $2 for generic prescriptions and $5 for brand-name drugs.

"The new Medicare expansion is meant for those with very low incomes or for the catastrophic use of prescription drugs," said Pa. Sen. Jane Orie (R-Allegheny, Butler). "Wherever the federal program doesn’t provide, we step in."

But many are concerned about the impact the Medicare Act will have on the PACE/PACENET program when it becomes effective in 2006 and how it will mesh with the state program. Martin Berger, president of the Pennsylvania Alliance for Retired Americans, said Pennsylvania’s program is one of the best in the country, given its services, record keeping and availability. He believes the Medicare expansion will be detrimental to PACE/PACENET, as he suspects it will supercede the state plan and require seniors to get on board, whether or not they choose to do so.

Orie said that participation in the Medicare prescription plan would be completely voluntary. And while federal officials and legislators from various states are still discussing possible regulations and policies for the new Medicare program, Pennsylvania is pushing to guarantee that the PACE/PACENET program will coordinate with or "wrap around" the federal program, she said.

However, Pennsylvania’s priorities will get balanced by the priorities of other states. "We’re telling the Medicare officials what we need done, but all the other states’ input will affect the end result as well," Orie said.

But no matter what rules and regulations are put into place for the Medicare expansion, Pennsylvania will not use the federal program as a reason to reduce or end its prescription drug coverage for seniors, state officials say.

"The PACE program is not going away. The governor, legislators and leadership will not let PACE be adversely affected," said Snedden, who has been the PACE program director since its inception in 1983. "The political reality of this is that no member of the legislature is going to want to force their constituents into a benefit that is not at least as comprehensive and generous as the one they are in with PACE."

Orie agrees, saying that Pennsylvania seniors have been well taken care of through the PACE/PACENET program. "There would be an outcry if we would abandon the program. It is the Cadillac of programs."

Cost Containment Efforts

One might wonder, however, how the PACE/PACENET expansion will be sustainable given the rate of prescription drug spending inflation. The Commonwealth’s state lottery profits are devoted solely to senior citizens’ benefits, including paying for the PACE/PACENET program. However, Snedden said, it is also necessary to evaluate and implement cost-containment efforts to ensure the program’s viability and optimal benefits for participants.

As part of the PACE/PACENET expansion, new price-containment methods were employed, including receiving higher rebates from pharmaceutical manufacturers, paying lower reimbursements to pharmacies for generic drugs and increasing enrollees’ co-payments. Also, a provision in the PACE law states that if any manufacturer raises the price of a drug above the Consumer Price Index (CPI) in any given year, the company must pay PACE the difference between the CPI and the increase.

In addition, Orie has introduced Senate Bill 855 that requires manufacturers to report to the Health Care Cost Containment Council how much they have spent on advertising and promotions. This is an effort to identify if pharmaceutical companies’ marketing costs are a benefit or detriment to Pennsylvania consumers and the state’s health care budget.

State officials as a whole have come to recognize the need for cost-containment pursuits so it can both save money and maintain its commitment to expanding the public’s access to prescription drugs and other health care services. Shortly after Gov. Rendell established the OHCR in January 2003, the group sent a survey to the various state departments, attempting to identify redundancies and inefficiencies with processes and procedures in many areas of business. The completed surveys indicated that one of the areas with the most overlap and discrepancies were pharmaceuticals – an area that each department within the state government currently handles on its own, according to Susan Anderson, deputy director of Pa.’s Office of Health Care Reform (OHCR).

This led the OHCR to assemble its cabinet – including the secretaries of Health, Public Welfare, Aging, Insurance, the Adjutant General, and the Governor’s Director of Policy – and discuss how various departments within the state government were handling drug prescription reimbursing and purchasing. From Medicaid to Military and Veterans Affairs, the various departments and agencies ran the gamut of how they operated their prescription drug programs, Anderson said. For instance, one agency is paying the Average Wholesale Price (AWP) plus 10 percent for prescription drugs and another is paying the AWP minus 17 percent.

Anderson said such instances illustrated that Pennsylvania had to create a more streamlined system to boost the purchasing power of the Commonwealth. So, the group continued with brainstorming sessions and investigating best practices utilized both internally and in other states and prepared a report of cost-containment measures for the governor.

Rendell approved the plan, Anderson said, and the state is working to implement the proposals outlined in the report by the end of March. One major result to come from the group was the creation of a "drug czar," Anderson said, or a pharmaceutical benefits manager who will oversee the state’s entire drug purchasing and reimbursing program. The particulars of that position – or the possible creation of a drug czar staff – are not yet known, she said, but the concept of it and the centralization of the state’s prescription drug policy has been approved and will soon be employed.

Although Anderson would not reveal what other specific price-containment recommendations were detailed in the report, she did say that the methods were similar to those being instituted in other states, such as the use of a Preferred Drug List, which outlines drugs that will be covered by insurance for specified diagnoses.

Other states are instituting such measures as requiring drug formularies, or a list of medications that identifies specific drugs a state will cover; establishing a three-tier formulary where the patient has a lower co-payment for generic drugs, a higher co-payment for preferred drugs (brand-name drugs with no generic equivalent) and the highest co-payment for non-preferred drugs (brand-name drugs with a generic equivalent); or a therapeutic-tier formulary where physicians would prescribe less-expensive drugs and evaluate its effect on the patient before prescribing more expensive alternatives.

One approach that the state will not take, Anderson said, is the importation of prescription drugs from Canada, where medication prices are less expensive. "As far as we are concerned, unless it becomes legal, it’s off the table," she said. In addition, if it were legal to import from Canada, Anderson said, the state would need to first put into place the necessary safeguards that would ensure the safety and efficacy of the drugs.

Ad-hoc groups, such as the national AARP, are also evaluating cost-containment measures that could be implemented at a state level, said Barbara Dickman, member of the state’s AARP prescription drug task force. Such issues as direct-to-consumer advertising by drug companies are harmful to consumers, she said, as they are not being educated well enough about the names they are hearing on television and reading in newspapers. Dickman suggested that the money drug companies spend on marketing and advertising instead be redirected toward educating physicians about new medications.

Anderson said it is unclear how the state’s cost-containment efforts will affect the drug companies and pharmacies they deal with, but she did say that the state’s yearly budget of $2.7 billion for the purchase and reimbursement of prescription drugs represents 30 percent of all retail spending in Pennsylvania.