LEGISLATIVE ANALYST REPORT

TO: The Honorable Members of the Board of Supervisors

FROM: Adam Van de Water, Legislative Analyst

DATE: April 18, 2002

ISSUE: Discount Prescription Drugs for Low-Income Seniors (File No. 020175)

Summary of Request

The Board of Supervisors, through Supervisor Sandoval, requested that the Office of the Legislative Analyst conduct a survey of municipalities and states, with a particular emphasis on Florida, Maine, Massachusetts, and Oregon to examine programs that reduce prescription drug costs for seniors.

Executive Summary

This paper discusses the primary prescription drug benefits currently available to seniors under federal, state, and local law and finds that many eligible beneficiaries are not currently receiving the benefits to which they are entitled. As discussed in the following sections, the primary benefit for seniors is the state Discount Prescription Medication Program (SB393) which extends to all Medicare beneficiaries discounts previously only given to the indigent and disabled through the state"s Medicare program, Medi-Cal. Passed in late 1999, the bill has saved seniors an average of 20-25 percent off the retail prescription price.

However, many eligible recipients are not currently receiving the benefit of this new program. A March 14 article in the New England Journal of Medicine found that only 84 percent of pharmacies in the Bay Area provided the discounts offered by SB393 and only 63 percent did so prior to the customer explicitly requesting the Medicare discount.

As a first step, this paper therefore recommends that the Board facilitate an outreach program to increase utilization of this state benefit. This could take one of two forms: requiring area pharmacies to post signs about the availability of the program as proposed in SB1278 currently in the California Senate, or conducting a targeted education effort in homeless clinics, senior centers and other points of contact with the elderly and indigent populations.

As a second step, the Board may wish to consider urging the state legislature to adopt one of the many successful programs currently available in other states. This could include:

Creating a not-for-profit to negotiate with pharmacy benefit managers to receive discount prescription drug prices (such as in Iowa);

Teaming with other jurisdictions to form a collective purchasing pool to benefit from economies of scale and improve access to discounted drugs (such as in Arizona, Massachusetts, New Mexico, Texas, and West Virginia); or

Using general funds, tobacco settlement money, or lottery proceeds to further subsidize low-income seniors" pharmaceutical costs (such as in Florida, Maine, Maryland, Massachusetts, Michigan, Oregon and Pennsylvania).

See Appendix A for a description of related programs in ten other states.

Overview

The Problem - High Prescription Drug Costs

Health-care spending for seniors has risen steadily over the past decade due in part to annual average increases in prescription drug costs of ten to twelve percent or more¹. Not only are average costs increasing, but the incidence and prevalence of chronic conditions (asthma, diabetes, arthritis, etc) has increased, as have diagnoses of these conditions and drug manufacturers marketing of their drugs to these conditions. In other words, not only are patients paying more per prescription drug but they are now filling more prescriptions on average and feeling more pressure to take advantage of the newest and most expensive drugs.

As the average senior takes four prescriptions per day and spends about ten percent of their total health care costs or $1,205/year for prescriptions, some seniors are finding that they must make difficult economic choices². While the majority of seniors still find ways to pay their prescription drug costs, many have found that their fixed incomes cannot keep pace with the steadily rising costs of prescription drugs. As a result, these individuals have reduced their dosages, under-filled their prescriptions, sought less costly and typically less effective therapies, foregone other necessities and/or stopped taking their medications entirely.

This is particularly true for the 11,454 low-income seniors in San Francisco.³ Eleven percent of the 106,000 San Franciscans over the age of 65 now live below the federal poverty level (or FPL⁴, a total increase of 13% since 1990⁵) and nearly one in three retired Americans have absolutely no prescription drug coverage⁶. For those beneficiaries able to afford supplemental coverage, nearly one in three insurance plans capped drug-benefit payments at $500 per year in 2000, far less than the out-of-pocket costs for most beneficiaries.⁷

The Response - State, Federal and Local Programs

In response, the federal government, 31 states and a handful of counties now have discount prescription drug programs that serve the low-income and senior populations and Congress is currently considered adding additional programs⁸. The majority of these programs aim to provide coverage to the most vulnerable populations: low-income individuals without other health insurance and individuals with chronic, contagious or preventable diseases such as AIDS, black lung, or hemophilia. Currently existing programs are summarized below and presented in order by federal, state, and county jurisdiction.

Federal - Section 340B

Federal Discounts for the Most Vulnerable

The primary federal legislation regarding prescription drug costs is Section 340B of the Public Health Care Act of 1992, which only serves seniors who qualify as low income or otherwise `vulnerable". Section 340B requires pharmaceutical companies who wish to do business with Medicaid (the federal insurance safety net for the indigent and disabled) to offer deep discounts on certain outpatient drugs to "covered entities"⁹. Only patients of these covered entities - patients of homeless clinics and public housing primary care clinics, patients with AIDS, kidney failure, black lung, hemophilia, tuberculosis or patients of Native Hawaiian or Native American ancestry - are eligible to receive the discount. In San Francisco this law applies to San Francisco General Hospital, UCSF, the Haight-Ashbury Free Medical Clinic, health centers run by the Department of Public Health and other similar locations. Administered by the federal Office of Pharmacy Affairs (OPA) in the U.S. Department of Health and Human Services (HHS), the law affects over 8000 participating government sponsored entities and close to 600 pharmaceutical companies nationwide. As no records are maintained of all 340B recipients, the Office of the Legislative Analyst could not find estimates of the number of participants in the program.

Pharmaceutical prices available under Section 340B are significantly lower than both retail and wholesale prices. For most drugs, the discount is equivalent to the Medicaid rebate amount which, based on a recent analysis of 200 popular outpatient drugs, has averaged 54 percent below average wholesale prices.¹⁰

State

Four bills by State Senator Jackie Speier govern the distribution and pricing of discounted prescription drugs in California. Two (SB340 and SB696) have not yet been implemented, the third (SB393) extends Medi-Cal discounts to all Medicare beneficiaries, and the fourth is currently under consideration by the California Senate.

SB340 increases patient access to Section 340B discounts by allowing covered entities to contract out the distribution of their drugs to outside pharmacies. SB696, the Golden Bear State Pharmacy Assistance Program, seeks to leverage the state"s bulk purchasing power to negotiate additional voluntary rebates with individual pharmaceutical companies (see Appendix A for a description of these and other state discount programs).

Aiding the Elderly in California - SB393

The Discount Prescription Medication Program extends the benefits of Medi-Cal discounts - previously available only to eligible low-income children, their parents, and aged, blind, or disabled individuals - to all Medicare beneficiaries (those individuals age 65 or older or with certain designated disabilities). The bill - SB393, passed in October of 1999 and similar to programs in Maine, Maryland, and Vermont - limits the price that pharmacies can charge these beneficiaries for prescription drugs as a condition of a pharmacy"s participation in the $27.2 billion Medi-Cal program. Under the program, beneficiaries simply show their Medicare card and prescription to receive the discounted Medi-Cal reimbursement rate.¹¹ According to Sen. Speier"s office and the Department of Health Services, more than one million Californians have fulfilled approximately 800,000 prescriptions per month and saved an average of about 20-25% below the retail price as a result of SB393. This bill is scheduled to sunset January 1, 2003 (though SB1278, if passed as expected, would remove the sunset provision. See "Extending the Benefits" below).

However, a March 14 study by the New England Journal of Medicine shows that SB393 has not been fully implemented by pharmacies. The study found that while 84 percent of pharmacies in the Bay Area provided the discounts offered by SB393, only 63 percent did so prior to the customer explicitly requesting the Medicare discount and only 10 percent offered the discount when the drug"s price was first requested. According to the San Francisco Chronicle, "the compliance problem may reflect the fact that the discount, which is based on Medi-Cal prices, must be shouldered by the pharmacy."

Medicare beneficiaries are not accustomed to showing their card to the pharmacist (Medicare does not pay for prescription drugs) and the law does not require pharmacists to offer the discount prior to being presented with a Medicare card. As a result, many eligible recipients do not know to ask for the discount and are not, therefore, currently receiving the benefits of this program. The study found that this is especially true for those who use independent pharmacies or who live in low-income neighborhoods. According to the study,

...independent pharmacies, which do not benefit from economies of scale or from the sale of non-pharmaceutical merchandise, may find it more difficult to comply with Senate Bill 393. Because independent pharmacies are disproportionately located in low-income neighborhoods, the potential savings from discounts under Senate Bill 393 may be least likely to reach the people who need them the most.¹²

Extending the Benefits and Requiring Posting - SB1278

A bill currently under consideration in the state Senate would indefinitely extend the provisions of SB393 beyond its January sunset date and would address the above implementation hurdle by requiring the Department of Health Services (DHS) to conduct an outreach program to inform Medicare beneficiaries of this program. The bill, as amended March 7, requires DHS to post current Medi-Cal reimbursement rates for 200 of the most commonly prescribed medications on its Web site as well as provide signs to be prominently displayed in participating pharmacies advertising the availability of the SB393 program. Should the bill pass as expected, state jurisdiction would pre-empt any program established by the Board of Supervisors.

County

The majority of discount prescription drug programs occur at the state and federal level where Medicare and Medicaid are administered. However, San Francisco does have a county-supported benefit program for low-income residents. A limited survey of other counties in the state suggests that counties do not commonly offer their own prescription drug discount programs other than targeted emergency and public health services. One exception may be Alameda County, which coordinates individual benefits offered by the manufacturers themselves. However, the Office of the Legislative Analyst was not able to find another county that uses general fund money to subsidize the cost of providing prescription drugs.

Help for San Francisco"s Poor - the Community Health Network

In addition to the programs outlined above, the City and County of San Francisco"s Community Health Network (CHN) has a discount prescription drug program for indigent patients of CHN clinics. CHN patients who (1) are ineligible for Medi-Cal coverage, (2) have no prescription drug insurance, (3) meet the basic eligibility requirements of Medicare, and (4) make less than 500% of the FPL, are eligible to receive financial assistance with their prescription drug costs. CHN patients who earn less than 200% of the FPL receive prescriptions free of charge and recipients who earn between 200% and 500% of FPL are requested to pay the pharmacy a co-payment of $2 per prescription for a maximum of $10 per visit. This co-payment is waived for individuals unable to afford the payment. Paid from the city and county"s general fund, the program benefits approximately 7,300 low-income patients per month.

Other States

According to a February 2002 report by the National Conference of State Legislatures, the majority of state legislatures are working on the broad issue of rising pharmaceutical costs and prices. Partly as a result of major attention to prescription drug legislation in 2000-2001, a total of 31 states have enacted or authorized some type of program. This number includes 26 states¹³ with discount or price-related laws as well as five states¹⁴ with other discount approaches. Three states in addition to California - Maine, Maryland and Vermont - have passed laws similar to SB393 to provide Medicare beneficiaries with discounted prescription drug prices based on prices in the Medicaid program.

The majority of state programs extend federal Medicaid, Medicare and 340B coverage to cover the most vulnerable and underinsured population: low-income seniors. Florida, Iowa, Maine, Massachusetts, Michigan, New York, and Pennsylvania, for example, all have existing programs that augment federally available discounts on prescription drug costs. However, as outlined in Appendix A, none of these programs appear to extend benefits further than California"s SB393 program.

Recommendation

A first step to address San Francisco"s under-enrollment in state, federal and county discount prescription drug programs is to address the general public"s lack of awareness of the specific benefits available to them. A targeted outreach effort to address this problem could take one of two forms:

(1) The Board could urge the state legislature to pass SB1278 requiring pharmacies to either publicly post or verbally communicate the availability of these existing programs. Much like a Board-approved liquor license in a restaurant or bar, pharmacies would be required to post visible signs provided by DHS at their drug counters advertising the availability of the programs. These signs would instruct them to ask their pharmacist whether they are eligible for Medicare discounts under SB393.

(2) The Board could also utilize existing channels of communication to low-income and elderly populations to advertise their eligibility to receive prescription drug discounts. For example, the Board could reach the city"s senior population through postings at senior centers and advertisements on the city"s cable access television station City Watch before or after public meetings. Similarly, the Board could reach low-income populations through postings at homeless shelters, community clinics and points of contact for social services. These latter postings could highlight not only SB393 benefits for Medicare beneficiaries but also CHN benefits available through the county and Section 340B benefits available through certain clinics and hospitals.

Outreach expenditures to increase enrollment may be eligible for federal or state reimbursement. For example, California Welfare and Institutions Code Section 14132.44 and Section 14132.47 authorize the state Department of Health Services top reimburse municipalities for their outreach efforts given certain conditions. Implementing these or other outreach measures, therefore, may be revenue neutral to the city.

As a second step, the Board may wish to consider urging the State Legislature to adopt one of the many successful programs currently active in other states. Whether to adopt this recommendation is a policy issue for the Board of Supervisors. This could include:

Creating a not-for-profit to negotiate with pharmacy benefit managers to receive discount prescription drug prices (such as in Iowa);

Teaming with other jurisdictions to form a collective purchasing pool to benefit from economies of scale and improve access to discounted drugs (such as in Arizona, Massachusetts, New Mexico, Texas, and West Virginia); or

Using general funds, tobacco settlement money, or lottery proceeds to subsidize low-income seniors" pharmaceutical costs (such as in Florida, Maine, Maryland, Massachusetts, Michigan, Oregon and Pennsylvania).

See Appendix A for a description of related programs in ten other states.

Conclusion

Several programs exist at the state, federal and county level to provide discount prescription drug costs to low-income and elderly Californians. Section 340B of the Public Health Care Act of 1992, California SB393 and the San Francisco Community Health Network all provide prescription drug benefits for eligible low-income and elderly patients as discussed above. One problem preventing full implementation of these programs, however, is the fact that the state does not currently conduct advertising or outreach to encourage eligible recipients to enroll in these programs.

Without widespread public knowledge of the new and complex programs that exist to help low-income and senior populations, many San Franciscans will continue to overpay for prescription drugs and may under-fill their prescriptions as a result.

Appendix A: Selected State Prescription Drug Discount Programs

¹ See the National Institute for Health Care Management Research and Educational Foundation.

² Recent research supports this finding. The U.S. Department of Health and Human Services (HHS) recently found that Medicare beneficiaries with prescription drug coverage fill nearly one-third more prescriptions and have lower out-of-pocket expenses than seniors without coverage.

³ Source: U.S. Census Bureau 2000 figures for the population over the age of 65 and under the federal poverty level.

⁴ The federal poverty level for an individual, as of the latest federal announcement 2/14/02, is $8,860 per year.

⁵ This is particularly noteworthy as the percentage of the San Francisco population with poverty status declined for every other category examined.

⁶ U.S. Department of Health and Human Services and the National Committee to Preserve Social Security and Medicare. The remaining two-thirds receive employer-sponsored, Medigap, or Medicaid insurance coverage.

⁷ U.S. Department of Health and Human Services. The California Health and Human Services Committee further found that last year, half of Medicare members nationwide spent at least $1,000 out-of-pocket on prescription drugs and one in ten spent at least $4,000.

⁸ There is currently an effort to add a prescription drug benefit to the Medicare program but an intense debate about the cost, scope and structure of such a benefit has stalled action.

⁹ A "covered entity" as defined by Section 340B includes federally-qualified health centers; entities receiving 340A grants or providing outpatient early intervention services for HIV disease, sexually transmitted diseases, or tuberculosis; family planning projects; state-operated AIDS drug purchasing assistance programs; black lung clinics; hemophilia diagnostic treatment centers; Native Hawaiian Health Centers; urban Indian organizations; and hospitals defined in section 1886(d)(1)(B) of the Social Security Act.

¹⁰ For more information on Section 340B, contact the Public Hospital Pharmacy Coalition.

¹¹ This discount would presumably also lead to savings of 54% off the wholesale price, minus an amount (currently 15 cents) to cover electronic transmission costs.

¹² New England Journal of Medicine, Vol. 346, No. 11. March 14, 2002.

¹³ The 31 states are Alaska, Arkansas, California, Connecticut, the District of Columbia, Florida, Idaho, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Wyoming

¹⁴ The five states are Georgia, Iowa, New Hampshire, Washington (ended 6/2001 due to a court ruling) and West Virginia.

¹⁵ Individuals earning less than 116% of FPL with assets up to $3,750 and married couples earning less than 126% of FPL with assets up to $4,500.

¹⁶ Also known as the Short-Term Prescription Drug Subsidy Plan.