In 1996, almost one third of beneficiaries had employer- sponsored health coverage, as retirees, that included drug benefits. More than 10 percent of beneficiaries received coverage through Medicaid or other public programs. To protect against drug costs, the remainder of Medicare beneficiaries can choose to enroll in a Medicare+Choice plan with drug coverage if one is available in their area or purchase a Medigap policy. 3 The availability, breadth, and price of such coverage is changing as the costs of expanded prescription drug use drives employers, insurers, and managed care plans to adopt new approaches to control the expenditures for this benefit. Rise in Prescription Drug Spending

Over the past 5 years, prescription drug expenditures have grown substantially, both in total and as a share of all health care outlays. Prescription drug spending grew an average of 12.4 percent per year from 1993 to 1998, compared with a 5 percent average annual growth rate for health care expenditures overall. Prescription Drugs: Increasing Medicare Beneficiary Access and Related Implications Prescription drug expenditures (in billions)
Annual growth in prescription drug expenditures (percent)
Annual growth in all health care expenditures (percent)
Total drug expenditures have been driven up by both greater utilization of drugs and the substitution of higher-priced new drugs for lower-priced existing drugs. 1.) Similarly, biotechnology advances and a growing knowledge of the human immune system are significantly shaping the discovery, design, and production of drugs. All of these factors suggest the need for effective cost control mechanisms to be in place under any option to increase access to prescription drugs. 2.) A common technique to manage pharmacy care and control costs is to use a formulary. The inclusion of a drug in a formulary and its cost can affect how frequently it is prescribed and purchased and, therefore, can affect its market share. Another way in which the market has been transformed is through the use of pharmacy benefit managers (PBM) by health plans and insurers to administer and manage prescription drug benefits. Expanding Access to Prescription Drugs Involves Difficult Design Decisions

Expanding access to more affordable prescription drugs could involve either subsidizing prescription drug coverage or allowing beneficiaries access to discounted pharmaceutical prices. The design of a drug coverage option, that is, the scope of the benefit, the covered population, and the mechanisms used to contain costs, as well as its implementation will determine the effect of the option on beneficiaries, Medicare or federal spending, and the pharmaceutical market. A new benefit would need to be crafted to balance competing concerns about the sustainability of Medicare, federal obligations, and the hardship faced by some beneficiaries. Similarly, the effect of granting some beneficiaries access to discounted prices will hinge on details such as the price of the drugs after the discount, how discounts are determined and secured, and which beneficiaries are eligible. 5.)
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed options for increasing Medicare beneficiaries' access to prescription drugs, focusing on the: (1) factors contributing to the growth in prescription drug spending and efforts to control that growth; and (2) design and implementation issues to be considered regarding proposals to improve seniors' access to affordable prescription drugs.

What GAO Found

GAO noted that: (1) the Medicare benefit package provides virtually no coverage; (2) in 1996, almost one third of beneficiaries had employer-sponsored health coverage, as retirees, that included drug benefits; (3) more than 10 percent of beneficiaries received coverage through Medicaid or other public programs; (4) to protect themselves against drug costs, the remainder of Medicare beneficiaries can choose to enroll in a Medicare Choice plan with drug coverage or purchase a Medigap policy; (5) however, the availability, breadth, and price of such coverage is changing as the costs of expanded prescription drug use drives employers, insurers, and managed care plans to adopt new approaches to control the expenditures for this benefit; (6) over the past 5 years, prescription drug expenditures have grown substantially, both in total and as a share of all health care outlays; (7) prescription drug spending grew an average of 12.4 percent per year from 1993 to 1998, compared with a 5 percent annual growth rate for health care expenditures overall; (8) total drug expenditures have been driven up by the following factors: (a) both greater utilization of drugs and the substitution of higher-priced new drugs for lower-priced existing drugs; (b) private insurance coverage for drugs; (c) biotechnology advances and a growing knowledge of the human immune system; and (d) advertising of drugs; (9) all of these factors suggest the need for effective cost control mechanisms; (10) a common technique to manage pharmacy care and control costs is to use a formulary, which can affect how frequently a drug is prescribed and purchased and, therefore, can affect its market share; (11) another way in which the market has been transformed is through the use of pharmacy benefit managers by health plans and insurers to administer and manage prescription drug benefits; (12) expanding access to more affordable prescription drugs could involve either subsidizing prescription drug coverage or allowing beneficiaries access to discounted pharmaceutical prices; (13) the design of a drug coverage option, as well as its implementation, will determine the effect of the option on beneficiaries, Medicare or federal spending, and the pharmaceutical market; (14) a new benefit would need to be crafted to balance competing concerns about the sustainability of Medicare, federal obligations, and the hardship faced by some beneficiaries; and (15) the effect of granting some beneficiaries access to discounted prices will hinge on details such as the price of the drugs after the discount, how discounts are determined and secured, and which beneficiaries are eligible.