Prepared Witness Testimony

The House Committee on Energy and Commerce

Designing a Twenty-First Century Medicare Prescription Drug Benefit.

Subcommittee on Health
April 8, 2003
10:00 AM
2123 Rayburn House Office Building 

Mr. David Herman
Executive Director
The Seniors Coalition
330 Sassafras Road
Roswell, GA, 30076

Mr. Chairman and members of the Subcommittee, I am David Herman, Executive Director of The Seniors Coalition (TSC).  On behalf of our organization and its four million members and supporters, I want to thank you for convening this hearing and for your continued interest in studying the best means for adding a much needed prescription drug benefit to the Medicare program, while preserving Medicare for today's beneficiaries and tomorrow's retirees.  We are grateful to you for this opportunity to present our findings about the needs and desires of seniors in the Medicare program, and our views on how best to meet those needs. 

Seniors Have a Disproportionate Need for Prescription Medication 

We all know that 21st century Americans consider prescription medicine coverage to be a crucial component in addressing their health insurance needs, but it is a fact that seniors need that component more than other segment of American society.  Prescribed medication use increases with age and its associated chronic and acute health problems.  Yet, only two-thirds of seniors have been able to address that need, and they are doing so by meeting Medicaid requirements, by continuing in private insurance plans through former employers, by enrolling in Medicare+Choice, or by purchasing Medicare supplemental insurance policies at additional personal expense.  

The remaining one-third of the senior population that does not have any prescription medicine coverage has no means of ensuring adequate health coverage and treatment.  They cannot afford supplemental prescription coverage, nor can they afford to pay for their prescriptions.  To compound the problem, uninsured seniors do not receive a discounted price that insured seniors' insurance plans afford them.  Uninsured seniors either do without their medications, or they take reduced quantities, thereby reducing or nullifying the benefits.  Eventually, this tactic can lead to deteriorated health and more invasive and expensive health treatment.  This is a travesty on Medicare's original promise to provide seniors with the highest quality health care in the world. 

Acknowledging Medicare's Problems 

In a survey published in June 2002 from Medicare's 1996-1999 beneficiaries, the Centers for Medicare and Medicaid Services (CMS) reports that Medicare paid only 53 percent of the total cost of beneficiaries' medical care.  Who among us would purchase a health insurance plan that covered only 53 percent of our medical care costs?  When prescribed medicines were considered separately, Medicare pays only 8.1 percent of all beneficiaries' cost, and that is inpatient prescription costs.  CMS also reports that while those Medicare beneficiaries with drug coverage spend more on prescriptions than non-covered beneficiaries, the non-covered beneficiaries pay 75 percent more in out-of-pocket costs.  In other words, those able to afford prescription drug coverage are also able to afford more medications, while those unable to afford prescription medicine coverage are forced to pay very high out-of-pocket costs to attain those medicines they can afford.  This is upheld by CMS's data that shows that beneficiaries with prescription drug coverage fill more prescriptions than those without drug coverage, regardless of the number of chronic conditions they have.  For example, CMS reports that among beneficiaries with five or more chronic conditions, those with drug coverage filled 44.4 prescriptions, while those without drug coverage filled only 38.6 prescriptions.  It has become abundantly apparent that Medicare's problem, the lack of a prescription medicine benefit, has become our seniors' burden.  

We certainly applaud the efforts that pharmaceutical companies have made to make medicines more affordable to seniors through their discount card programs.   These programs have allowed millions of seniors to access needed medicines they might otherwise not have been able to afford.  However, the utilization by seniors of  these programs highlights how important it is to enact broader real coverage for prescription drugs under Medicare so that all seniors can benefit from the solution we are presently working towards.   Discount cards alone, whether from the private sector or the public sector, does not equal coverage and is not a solution. 

That is not, however, the only problem our seniors experience in their Medicare coverage.  In a survey prepared for TSC by The Luntz Research Companies, 42 percent of seniors listed the most important healthcare policy as keeping healthcare affordable, and the second most important healthcare policy as providing healthcare access for everyone.  When asked to choose the specific Medicare benefit most important to them, 50 percent chose free health wellness programs and illness protection, and 43 percent chose creating a prescription drug benefit through Medicare.  When asked to choose from several statements about Medicare two statements that they most agreed with, 55 percent agreed it was essential that we strengthen financially the current Medicare program for the baby boomers who will soon enter the program, and the second largest group agreed that Medicare is out of date and out of touch with the needs of today's senior citizens. 

Addressing the Problems: Solutions Seniors Can Live With 

It becomes obvious then from our research that all seniors need access to an affordable prescription medicine plan; they need changes and choices that take their varying financial and health status into consideration; they want an insurance plan that allows them to seek wellness care first as opposed to illness treatment; and, in keeping with their selfless legacy, they want it strengthened for the next generation of beneficiaries, not just themselves.  

For many years The Seniors Coalition (TSC) has communicated to Congress our members' desire that prescription coverage be made a core element of Medicare coverage through realistic legislation modeled on a market-based plan like the Federal Employees Health Benefits Program (FEHBP).   This is the same model that was recommended by the 1999 National Bipartisan Medicare Commission.  To that end, our membership rallied to support H.R. 4954, The Medicare Modernization and Prescription Drug Act of 2002, as an important first step towards such a market-based plan.  We support many of the provisions of this bill: A voluntary and affordable prescription program that provides permanent drug coverage while discounting medicines by as much as 60 percent to 85 percent; a reasonable deductible of $250, with protection against catastrophic drug costs by capping them at $3,800 per year; choice in plans that provides standard drug coverage or an improved benefit package to meet individual seniors' needs; safeguarding the private healthcare coverage that seniors already have; and, stabilization of Medicare+Choice; 

In addition to those choices and changes, we believe there are certain safeguards that must be established in a prescription plan to ensure that seniors do not receive a substandard plan that will require changes within a few years.  Specifically, we know that mandatory schemes imposed by Medicaid such as "fail first requirements," prior authorization and preferred drug lists are unacceptable limitations that can negate seniors' benefits. 

 Our research indicates that prior authorization schemes can result in the systematic underutilization of prescribed medications, which in turn can pose a threat to quality of care and potentially increase costs to the system in terms of avoidable emergency room and hospital admissions, physician visits, and nursing home stays.  Medicines that seniors' doctors prescribe may not be available because of these mandatory schemes.  This "one-size-fits-all" mentality is counterproductive to the findings of pharmacogenetics, or personalized medicine, which tells us that small differences between your genes and those of your relative or neighbor can affect how you react -- or don't react -- to a medicine.  In an age when personalized medicine is becoming the promise of safer, more effective treatment, we would not want to see the government given a veto power that ignores the progress in genetic research in favor of their corporate gain.  The long-term consequences to seniors could be grave.   That's why we need to be able to choose among plans. 

Our research also indicates that seniors want a disease management component in their Medicare plan that will encourage and reward wellness and management of chronic diseases.  A successful disease management program has the potential to enhance a patient's health outcome, control their disease, and avoid more invasive care while reducing overall health care spending.  Yet, Medicare does not provide for sound coordination of care or disease management programs.  

Another important protection that seniors need is protection from long-term care costs.  A CMS study on 1999 cost and use by Medicare's beneficiaries showed that the majority of out-of-pocket spending was for Medicare cost-sharing and payment for non-covered services.  Long-term care accounted for 41 percent of those expenditures.  It is estimated that more than half of all seniors may need long-term care (LTC) during their lifetime, a statistical measure that points to the importance of making long-term care an affordable component of geriatric healthcare.  The federal government, through Medicare and Medicaid programs, is the largest purchaser of LTC, with expenditures through 2020 projected to be $77.2 billion.  Out-of-pocket expenditures for LTC are expected to be $35.6 billion by 2020, and it is estimated that "donated care" will climb to a value of at least $45 billion, and possibly as much as $94 billion.  

In a detailed study on the problems with, and solutions to LTC, the Center for Long-Term Care Financing states that "the current crisis is dire.  Somehow, the profession of long-term care must reduce its dependency on public financing, which drags like an anchor on profitability and quality of care.  By some means or another, long-term care must attract more of the consumer-driven, private financing that will lift all boats." 

Despite such warnings, few Americans are prepared for the financial apocalypse that long-term care ushers in.  TSC supports legislation that encourages the purchase of private insurance through tax deductible long-term care insurance premiums and a tax credit for those with out-of-pocket long-term care expenses.  We support legislation that is designed to protect seniors from the high and often financially devastating costs of long-term care by allowing a deduction for qualified LTC insurance premiums, use of such insurance under cafeteria plans and flexible spending arrangements, and a credit for individuals with long-term care needs.

The Price Conundrum 

At its core, the most critical problem in consumer acquisition of needed medicines centers on price.  The affordability of prescription drugs is a political hot-potato that seems to keep coming back year after year.  You are all familiar with the heart-wrenching stories of seniors and economically fragile families, particularly those with young children, who cannot afford to purchase drugs that are prescribed by their doctors.  We all know of seniors who are forced to make the choices I referenced earlier between buying food or their prescription drugs, or between the drugs and paying their rent or mortgage.  It is the kind of dilemma that no senior should be caught in.  The obvious culprits in the struggle to contain costs of needed health care, and the one who many well-meaning but plainly wrong senior advocates passionately attack, are the brand name drug companies.

Blaming brand name drug companies makes all of us feel better.  Blaming brand name drug companies is the intoxicating elixir of choice for self-styled consumer advocates, and let's be honest -- for many Members of Congress -- for relieving the political headache brought on by high drug prices.  However attractive the target, however pleasing the rhetoric may sound as it fills the airways, and however simple a solution it may seem, it is wrong.

Those who are hooked on the political elixir of blaming brand drug companies will immediately brand me as a biased advocate for the drug industry.  That would be incorrect.  The Seniors Coalition has been a strong critic of exploitation by brand drug companies of patent litigation for popular medications that effectively delays generic competition.  We believe strongly that when a patent term runs its course, consumers have the absolute right to the benefits of a hotly competitive pharmaceutical marketplace.  We therefore support the President's regulation that, once finalized, will prohibit patent holders to unfairly extend patents and thereby disadvantage consumers.

But we also are vigorous advocates for preserving the incentives for development of innovative therapies to address age-related chronic disease and physical disabilities attendant to age.  It is our fundamental philosophy that seniors benefit from new drug breakthroughs that help seniors avoid costly and often debilitating surgery; new drugs that allow seniors to be mobile rather than trapped in wheelchairs or in convalescent beds; new drugs that allow seniors to live independently rather than in assisted living facilities; new drugs that allow seniors to enjoy the quality of life rather than suffering from one painful minute to another in a body incapable of normal functions; and new drugs that literally extend the lives of seniors who would otherwise be condemned to an early death. 

The innovation that drives the development of such new drug therapies cannot, and does not, exist in a price controlled marketplace.  Unfortunately, that is the remedy of choice now being seized by elected officials and regulators on both the state and federal level for high drug prices and the tool that is consistently applied by Medicare and Medicaid regulators.  It is a solution that is so easy that it frankly seems too good to be true.  It seems that way because it IS too good to be true. 

I would ask you to look at the benefits of new drug research that have made real, quantifiable differences in the quality of life, and indeed the length of lives of seniors.

Over the past decade, pharmaceutical research companies have made dramatic advances in providing physicians more and more effective tools to treat disease.  Between 1993 and 2002, 363 new drugs, biologics and vaccines that prevent and treat over 150 diseases and conditions were approved for marketing by the Food and Drug Administration.[i]

Let me describe a few of these advances that have impacted the quality and length of life of America's seniors:

Beginning in 1995, a string of major advances in the treatment of type 2 diabetes has allowed diabetic patients to more effectively manage their condition.  Prior to 1995, there was only one category of medicines, aside from insulin, that were available to patients with type-2 (also known as non-insulin dependent) diabetes.  Since that time, there have been five new classes of medicines developed, allowing doctors to better customize treatment regimens to fit their patients' needs.  Because these medications have different mechanisms of action, and different side effects, combination therapy (using more than one type of medicine to treat the condition) can prevent patients from becoming hypoglycemic (having blood sugar levels that are too low), as well as prevent costlier complications, such as kidney problems.

Alzheimer's disease is a progressive disease that causes those who suffer from it to gradually lose their ability to remember things and to think clearly.[ii]  All four of the prescription medicines, belonging in two therapeutic classes, approved by the FDA to treat Alzheimer's disease have been developed in the past decade.  Approximately three quarters of patients diagnosed with Alzheimer's disease are admitted to a nursing home within 5 years of diagnosis.  As study of one cholinesterase inhibitor, rivastigmine, for treatment of mild to moderate Alzheimer's demonstrated improved cognitive function and a slowed rate of decline that delayed the move of patients to institutionalized care. Savings are realized in both the direct costs by delay of institutionalization and reduced caregiver burden.  [H. Lamb and K. Goa, "Rivastigmine:  A Pharmacoeconomic Review of its Use in Alzheimer's Disease, Pharmacoeconomics, 19 (2001): 3.]

These are just a few examples of the types of new, innovative medicines whose discovery and development would well have been delayed or eliminated completely in a price-controlled pharmaceutical market.  Please allow me to stress our strong belief that the solution is not to attack this problem by limiting the ability of researchers to fund this continuing valuable new drug research, but a clearly more rational approach would be to develop appropriate public policies that will permit patients who need financial assistance to access these medicines.

The Seniors Coalition strongly repudiates price control schemes that have been and those that are being considered at both the state and federal level.  Virtually all of these programs deny needed medicines to seniors; place patients at substantial health risk, including death; and deny seniors a quality of life that would otherwise be available if they had the financial means to pay for these needed medicines from their own pockets.  That places seniors in a cruel public policy vise where they are denied access to medicines they desperately need today, and substantially limits the research for breakthrough drugs that would otherwise be available to them in the future.

America's seniors have been called the "greatest generation."  The fruits of the sacrifice we have made are clearly evident.  To call upon this greatest generation to now make the additional sacrifice of our health and well-being, to ask that we forfeit longer and more productive lives, to require that we not have access to medicines that would allow us to live independently and enjoy a quality of life would not just be a sacrifice, it would be a penalty on America's seniors.

We look forward to working with this Subcommittee to develop more responsible and effective public policies to preserve and protect the secure and healthy retirement years of America's seniors.

The Reimportation Fix

There is another seemingly easy fix for the high cost of prescription drugs.  It is called reimportation.  We simply establish a public policy that permits the importation of prescription drugs from one of our neighbors - the country of choice for many is Canada.  We state that a consumer cannot be charged any more for those drugs that what a Canadian citizen pays.  Drug costs in Canada are, for the most part, much lower than they are in the United States.

That is such a simple solution that it too seems almost too good to be true.  Again, that is precisely because it IS too good to be true.

The primary reason Canadians can buy prescription drugs cheaper than we can in America is because Canada has a socialized medicine system that imposed strict price controls.  So we are not really reimporting drugs into America from Canada, we are importing an economic policy that is antithetical to the free enterprise system we adhere to, and such policies undermine the American patent system that fundamentally recognizes the need for incentives for new drug development to assure a robust pipeline of new drugs in the future.

Then, of course, there is the serious problem of patient safety.  The U.S Food and Drug Administration has definitely declared they cannot validate the safety and efficacy of drugs imported from Canada.  The lack of regulatory controls in Canada, a country that is among the better of many of our neighbors, is well documented with pervasive contamination and counterfeit drugs.

Conclusion

The needs and desires of seniors might seem overwhelming if looked at as only a request for more spending on a growing senior population.  But many, including the 1999 Bipartisan Medicare Commission, believe that increased competition through a variety of plans will make Medicare more efficient and save on its cost, while at the same time making Medicare more flexible and more responsive to beneficiaries' differing needs.  Think of the changes that have taken place in the health insurance business in the four decades since Medicare's inception.  Insured workers have gone from a one-size-fits-all plan to plans customized for specific family structures by particular industries.  We have seen the addition and refinement of HMOs and PPOs, and we have seen the addition of tax benefits like MSAs and FSAs.  The health insurance industry and the Congress have responded to the needs and desires of those they serve and made new products and new tax benefits available.  But look at Medicare and what do you see? It is pretty much the same defined benefit, one-size-fits-all plan that President Johnson initiated in 1965. 

Finally, think of the changes that have occurred in the senior population since the 1960s.  We enjoy better health, we have 20 percent less disabilities than we did 20 years ago, we have a better overall quality of life, and we live a lot longer.  We'd like to see Medicare, the only insurance plan available to many of its 35 million senior participants, keep up with us.

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