3077 — Getting VA Drug Prices for More Medicare-Enrolled Veterans

Frakt AB (Health Care Financing & Economics, VA Boston), Pizer SD (Boston University and Health Care Financing & Economics, VA Boston), Hendricks AM (Boston University and Health Care Financing & Economics, VA Boston)

Objectives:
This study considered a hypothetical VA-Medicare prescription drug plan (PDP) to provide the VA drug benefit to Medicare-enrolled veterans. We assessed the feasibility of such a plan from political, budgetary, and capacity perspectives.

Methods:
Study methods were qualitative and quantitative. Qualitative analysis included review of academic literature and government documents and interviews with pertinent VA administrators. Quantitative methods included micro-simulation based estimates of eligibility and take-up.

Results:
We argue that the most politically feasible way to decrease drug costs for more Medicare-enrolled veterans is through a VA-Medicare PDP made available to those not eligible for VA benefits. Such a partnership would have the capacity to accept a large number of enrollees and the leverage to negotiate prescription drug prices. Moreover, it could be budget neutral to the VA while achieving savings for Medicare and beneficiaries. We estimate take-up to be 1.2 million individuals, saving Medicare over $500 million annually. We find that the VA could meet the implied increase in prescription fill demand.

Implications:
Key elements of the Medicare drug benefit would be politically difficult to change: formulary inclusion requirements, prohibition on direct Medicare-manufacturer negotiation, and retail pharmacy access requirements. A VA-Medicare PDP would be a more feasible way to reduce drug prices for more beneficiaries. It could be partly funded by Medicare, but, because the VA purchases drugs more cheaply, Medicare’s subsidy could be set lower than its current level for Medicare drug plans. The plan could also be budget neutral with respect to the VA and cheaper for beneficiaries than comparable Medicare plans.

Impacts:
A VA-Medicare PDP would have the potential to dramatically lower drug costs for a large number of veterans who would otherwise be enrolled in a Medicare drug plan. Most Medicare plans have a coverage gap (between $2,250 and $5,100 of drug spending in 2006) and pay higher drug prices (40% above those paid by the VA). One recent study concluded that the differences in cost sharing between the VA and Medicare result in higher drug adherence rates for VA patients. Thus, a VA-Medicare PDP has the potential to improve outcomes for a substantial number of Medicare-enrolled veterans.