Medicare Part D Offers Template for Success

A Conversation With Mark Merritt

This spokesman for PBMs urges Congress to learn from his industry’s experience in driving down costs

Working for an industry built on cutting health care costs gives Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, a perspective valued by Washington D.C. policymakers these days. The association represents pharmacy benefit managers, which, Merritt says, have done a good job of figuring out how to save their clients money on drug benefits and are willing to share what they’ve learned. His mission now is to educate lawmakers and others about how efforts such as mail-order prescription services and e-prescribing can be effective, mainly to ensure that reform plans set the stage for those practices to continue to expand. Applying real-world best practices to new government programs will be a key to the success of health care reform, he says, citing Medicare Part D as an example: “Most government programs are in dire financial straits, but Medicare Part D has been a happy exception, largely because it is predicated on things we have already seen work in the marketplace.” Merritt joined the PCMA in 2003, after serving as a senior strategist with America’s Health Insurance Plans and the Pharmaceutical Research & Manufacturers of America. He worked on the presidential campaigns of Sen. Lamar Alexander and former Sen. Robert Dole and has taught at Harvard University’s John F. Kennedy School of Government. Merritt earned a bachelor’s degree and a master’s degree from Georgetown University. He spoke recently with senior contributing editor MargaretAnn Cross.

MANAGED CARE: What is your main focus when you talk to lawmakers?

MARK MERRITT: A lot of what health reform was predicated on, particularly how to finance it, has come into question as the debate has progressed. People look to us because we help our clients — health plans, employers, unions, and government agencies that offer prescription benefits — provide drugs more cheaply. If there’s an efficiency to be found in the health care system, our companies will find it so that they can offer a more affordable product than their competitors. So we are playing a vital role because lawmakers need to find savings to finance broader reform.

MC: Your goal is to share the cost-saving approaches you’ve developed with the government to help it cut health care costs?

MERRITT: Yes. A lot of the tools you can use to save money and expand access to drug benefits are counterintuitive, so we need to constantly tell policymakers what works and what doesn’t work for them to accomplish their objectives. A good example of that is formularies. Everybody knows that formularies are a clinically sound way to save money. But with Medicare Part D, we have seen a big push to mandate that all drugs in certain drug classes are given a spot on the formulary. That sounds great on the front end because everyone has access to the drugs they want, but what that really does is undermine our efforts to get the drug companies to offer the discounts that they usually offer to get on the formulary in the first place. That’s an example of a cost-saving tool we can offer policymakers, but it is also something you really have to guard. If you undermine formularies, it is going to end up costing billions and billions of dollars without helping anybody. People will have access to these products with or without the drug automatically being on the formulary. Another tool is home delivery. Policymakers have yet to understand the massive savings that are available simply by mailing patients refills of medications for their long-term chronic diseases. People take these drugs for 10 or 20 years, they have been stabilized on the product for a long, long time, and they don’t have an interest in going to the drugstore every month to pick that product up because they have already talked to their doctors and their pharmacists. It’s much easier for them to get the products at home. Patients love home delivery, and it saves billions and billions of dollars. There is a whole list of other tools, including electronic prescribing, that have many different ramifications that policymakers need to understand in order to get the savings they are looking for.

MC: What else are you trying to accomplish?

MERRITT: Job one is for policymakers to learn what has already worked in the real world. We don’t want policymakers to make this up as they go along. We want them to see what already works in Medicare Part D and in the private sector with unions and employers that have been delivering drug benefits for years. We want them to see what works and then build on it, not just cobble together a deal that makes sense politically but doesn’t build on the best practices that exist throughout health care. Secondly, we want to make sure that policymakers maximize the savings that are available in drug benefits, because the more money that’s saved, the more access to drugs people will have. The goal is to save as much as you can and then use that savings to finance a robust program that patients can benefit from. Third, we hope that policymakers generate as many real reforms as possible and squeeze as much savings out of the current system as possible before seeking outside revenue to do so. We as an industry don’t have an interest in whether Washington taxes people more or not, but we don’t want lawmakers to skim over the huge savings that are available through real reform.

MC: When you talk about real reform, you are talking about saving money by creating greater efficiencies in the system?

MERRITT: Most of the rhetoric has been, “We are going to pay for this by finding inefficiencies in the current health care system, getting rid of those inefficiencies, and using the savings that result to finance reform so that health reform finances itself.” That is a great goal because it forces policymakers to look beyond special interests and reward efforts that actually work in Medicare and the private sector and provide disincentives for practices that don’t work very well. An example of real reform in Medicare Part D would be to have more home delivery. You could save billions of dollars, and seniors who have mobility problems would love it. It would be a win-win. Twenty to fifty percent of prescriptions never even get picked up at the pharmacy. Real reform also means that Washington should not just shift costs. They should not create artificial price controls in the drug space that may save the federal government money in the short term but will inevitably lead pharmaceutical companies to raise prices in the private sector to make up what they are losing in Medicare.

MC: Congress missed Obama’s original deadline for health reform, but do you worry that reform will happen too quickly?

MERRITT: The most important thing is to do it right. If it can be done right in a short time, that’s great. But these changes are going to last for generations. You don’t want to undermine a program out of the gate that is going to be around for the next 100 years. We’re not advocates of delay, either. This is a huge opportunity for real health reform, for looking at what works and what doesn’t work in the system and really fine-tuning it. We just hope that policymakers take the time to do that and don’t do the usual Washington thing of adding inefficient new programs on top of the current inefficient edifice.

MC: What areas are they getting right so far, and what are they getting wrong?

MERRITT: It’s really hard to say because there are so many moving parts. In retrospect, I have increasing respect for the Clintons and how they laid out an exact game plan that people could respond to. Right now, there’s nothing to respond to. What’s out there is more aspirational than informational. It’s all, “Let’s get everyone covered and lower costs.” Well, we all agree with that goal, but how do we do it? This is complicated stuff. Everyone’s heart is in the right place, and policymakers want to get this right. But because there is so much disagreement, it’s tough to know what we are responding to.

MC: What issues are you keeping an eye on?

MERRITT: This goes back to your last question about what is being done right and what is being done wrong. So far, one of the things that is being done wrong is biogenerics. The drug industry has been trying to slow down the process of getting generic biologics to market, and it’s something that is really going to hurt patients and cost taxpayers and the government billions of dollars if it’s not done right. Biogenerics ought to have the same time schedule as the Hatch-Waxman Act has for regular generic drugs, which is five years of market exclusivity, another three years if you make a substantive change to your products. With biologics, they are looking at 12 years of exclusivity right out of the gate, which is way too much. The Federal Trade Commission and many others have looked at this and said you don’t need that much time. That’s just a way to continue monopoly pricing on the most expensive products in the prescription medicine space.

MC: Are you working with health insurance industry groups in Washington?

MERRITT: The policy issues have been like musical chairs, so it’s been tough for anyone to mobilize for or against anything specific. On issues such as biogenerics, we are working closely with a whole range of employer groups, health plan groups, unions, and so forth. We work with consumer groups a lot, such as Consumers Union and the AARP, because they are guarding the interests of the people we provide the benefits to. They understand how we add value, so we work very closely with them on consumer-oriented initiatives. We like to partner with groups that are trying to do what we are trying to do, which is inform lawmakers about what helps consumers and what hurts consumers, because that’s not always obvious on the face of it.

MC: You predicted that the stimulus bill would increase the use of e-prescribing. Have you seen that happening?

MERRITT: Yes. There has been a lot of growth. We led the effort a year ago to get the government to offer more incentives for doctors who use e-prescribing and more penalties for doctors who don’t. The biggest single challenge in getting e-prescribing up and running is physician apathy toward starting to use the product. Just five years ago, only 5 percent of doctors were using electronic prescribing, even though the Institute of Medicine and others had said it was one of the keys to preventing medication errors. Well, no one was paying attention, so we led the effort to get a provision in the Medicare bill last year giving doctors incentives to use e-prescribing and penalties if they don’t. The effort received a huge boost from the stimulus bill, which directs $19 billion toward paying doctors to use health information technology. So it’s going to give e-prescribing a huge boost, and we think that all the physicians who can and should be using it probably will be in the next decade or so.

MC: Are insurance companies doing enough to encourage the transition to e-prescribing?

MERRITT: They’ve been doing quite a bit, but it’s been tough because you can lead a horse to water but you can’t make it drink. Regardless of the carrots and sticks they’ve used, they have never been able to get physicians to significantly increase their use of e-prescribing. So the kind of progress we’ve seen over the last year, when you’ve had these two pieces of legislation throwing billions of dollars in incentives at physicians to use e-prescribing, is hugely helpful. It’s really a watershed in moving this issue forward.

MC: Have PBM relationships with health plans changed over the years?

MERRITT: On our board of directors, we have the heads of stand-alone PBMs as well as the presidents of PBMs that are owned by health plans. We work hand-in-hand with health plans. They are our clients. They want the same things we do, which is better care at lower costs. Health insurers are getting much better at understanding how drug benefits work. There has been a focus for generations on the major medical side of benefits, and drug benefits have been increasingly outsourced to PBMs for their own expertise. Overall, we see drug benefit management as an extension of some of the sophisticated practices that plans have used for years in other areas.

MC: What percentage of Medicare Part D participants are in plans that belong to your organization?

MERRITT: Almost all of them. We are not always the plan that a patient chooses, but we are usually the Intel Inside, so whoever is delivering the drug benefits is part of our organization. Medicare Part D is largely run by pharmacy benefit managers with a lot of oversight by the government. It has obviously been a huge success. It is the only government program I can think of that has come in not just under budget, but 30 percent under budget right out of the gate with huge patient satisfaction. You just don’t hear that with government programs. There are a lot of things that can be done to make Medicare Part D better. Biogenerics would make it more affordable, increased use of e-prescribing would improve it, and increasing the use of home delivery would bring down costs even further. We also have to allow for more flexible formularies as opposed to giving every drug company an automatic parking spot in every drug plan whether they offer a discount or not. So Part D is already head and shoulders above most other government programs, but it can be better.

MC: What has Medicare Part D’s main effect on PBMs been?

MERRITT: Medicare Part D is not a huge part of what our industry does. Here in Washington you’d think our world revolves around it, but PBMs have more than 200 million clients in America, and Medicare Part D has around 30 million people in it. So, it’s important, but it’s not everything we do. The best thing about Medicare Part D is that it has been a successful real-world experiment demonstrating to policymakers that drug benefits based on best practices in the private sector can really work. We can save money and do great things for patients. So, it’s not so much a financial benefit for our industry, although that’s part of it, but it is a great educational opportunity for policymakers. Even those who voted against Part D typically concede that it works and that they should figure out why it works and then replicate those tools when making policy going forward. It’s been very helpful as a precedent for us.

MC: Has the slowdown in the economy affected your industry or the way people use prescription drugs?

MERRITT: Economic challenges are actually good for our industry because we can invariably save more for our clients than they will let us save. In other words, there are always more tools that we can use to save money for our clients than they are willing to use, either because they don’t understand them or because the approaches would require them to do things differently from the way they are doing things now and they are not sure how their employees or members would respond. As the economy faces challenges, formularies are becoming more flexible. We are seeing a greater use of generics and of mail-service pharmacies, and people are starting to pay more attention to alternatives. Everyone is looking for similar products or me-too drugs that have cheaper copays. So, overall, more people are beginning to understand drug benefits and understand their own ability to save money by using the most effective and most affordable drugs, so that is a plus.

MC: Thank you.

Part D is the only government program i can think of that has come in not just under budget, but 30 percent under budget.

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