HISTORY

For more than a decade, public officials struggled with how to improve the Medicare program for current beneficiaries and for the impending dramatic demographic changes, but until 2003, little progress was made. 

However, an opportunity to reform Medicare and add a prescription drug benefit arose in 2003.  In June, the House and Senate passed Medicare improvement and prescription drug bills and the “Medicare Prescription Drug, Improvement, and Modernization Act of 2003” (MMA) was subsequently passed by both houses of Congress and signed into law on December 8, 2003.

For the first time in Medicare's history, a prescription drug benefit is now available to the more than 40 million seniors and disabled Americans covered by Medicare.  This new benefit helps seniors afford the cost of their medicines and allows seniors to replace more expensive surgeries and hospitalizations with less expensive prescription medicine. In 2008, the average monthly premium for the Medicare Part D prescription drug benefit increased by $3 to $25 for basic coverage, well below the original estimate of $41 for that year. A study in the Annals of Internal Medicine found that Part D enrollees experienced a 13.1 percent decrease in out-of-pocket expenses. 

  The new law gives seniors more health care choices so they can find the health coverage that best meets their needs. Seniors voluntarily signed up for the new prescription drug benefit. Older Americans who wanted to gain improved benefits such as dental or eyeglass coverage or managed care plans that reduce out-of-pocket costs made those choices, as well.

Coverage under the new Medicare Prescription Drug Plans (PDPs) began on January 1, 2006. PDPs provide coverage for prescription drugs.  Like other insurance coverage, participating beneficiaries pay monthly premiums; an annual deductible; and co-pays for each prescription purchase.  In turn, seniors have access to prescription drugs for a dramatically reduced price.  As a part of the plan's design, plans pay an average of 75 percent of yearly drug costs up to $2,250.  For the next $2,850 in drug costs (the so-called "doughnut hole"), each beneficiary is responsible for his or her own costs.  Once beneficiary spending reaches $3,600, plans pay 95 percent of drug costs. However, some plans in every state will continue to pay 75 percent of drug costs until the upper spending limit of $3,600.

According to a survey of beneficiaries released November 6, 2007, by the Medicare Rx Education Network, 86 percent of seniors reported positive experiences with the Part D program. The survey was conducted by the polling group Voter/Consumer Research.   According to the survey data, more than 90 percent of seniors were satisfied with their ability to get prescription drugs they needed. Nearly 90 percent were satisfied with the number of drugs covered by their plans.  A majority of respondents also said monthly premiums and drug copayment amounts were affordable.
Numerous organizations, including the Healthcare Leadership Council, and the HLC–led Medicare Today initiative, undertook substantial education and outreach efforts to help seniors understand and enroll in the prescription drug program, making sure people with Medicare knew their options.

The CMS Medicare Rx mobile office traveled more than 600,000 miles to bring the Part D message directly to seniors. CMS also worked with patient advocacy groups to ensure that individuals who were reassigned to new plans evaluated those plans and switched if there were a plan that better met their needs. CMS also acknowledged ongoing issues with automatic deductions from Social Security payments and encouraged individuals to opt for automatic deduction by the health plan instead. 

These efforts continue, particularly to reach out to low-income seniors and others who may not be enrolled (and to educate beneficiaries on plan choices and what best accommodates their changing prescription needs).

The congressional and administration dialogue about Medicare implementation and improvement is by no means over. The Medicare Payment Advisory Commission (MedPAC) issued a report in March 2007 making recommendations on Medicare payment policy, as required under the Deficit Reduction Act of 2005. It confirmed that physicians would face a 10 percent reimbursement rate cut without congressional action. The Medicare trustees’ report, released April 23, 2007, estimated that the Medicare program will become insolvent in 2019. The report also issued its second “45 percent trigger.” As required under MMA, if the difference between total expenses and its dedicated sources of revenue, namely premiums and payroll taxes, is estimated to reach 45 percent of total Medicare expenditures, then the board of trustees must issue a warning.  If the trustees’ report contains a “45 percent trigger” two years in a row, the president must propose legislation to reduce the percentage and thus attempt to limit general revenue expenditures Medicare. Many Democrats oppose this provision and repeatedly introduced legislation to eliminate it, none of which passed in 2007.  Since the “45 percent trigger” was reached two years in a row, HHS Secretary Leavitt sent legislation to Congress in February 2008 designed to lower Medicare spending by charging higher income beneficiaries more for their prescription drug coverage, introducing more efficiencies in the program and capping medical malpractice awards.
 
Once again, despite discussions and plans earlier in the year to have Congress address various aspects of the Medicare program, efforts at the end of the year were primarily focused on ways to address temporarily the Medicare physician payment reduction.  The 10 percent cut in physician payments would have taken effect January 1, 2008, had Congress not taken action.

What was believed at the time to be the first step at revamping the Medicare prescription drug benefit occurred as part of the Democratic “first 100 hours” agenda.  The House leadership introduced legislation (H.R. 4) to eliminate an MMA provision forbidding the federal government from directly negotiating prescription drug prices. The “price negotiation” provision served as a rallying cry for critics of the prescription drug program. The legislation, which also required that there be proven cost savings as a result of the provision's elimination, passed 255-170, with 24 Republicans supporting the measure.  Despite the victory, the margin was not wide enough to override the president’s veto.  Senate legislation eliminated the prohibition on negotiation but did not require demonstrated cost savings and precluded the use of formularies or changes that would hurt community pharmacists. The Senate bill failed 55-42 on a procedural vote, with six Republicans voting to consider the legislation.

Despite various attempts in the House, no Medicare prescription drug benefit legislation has become law.  Most notably, the “Children’s Health and Medicare Program Act” (H.R. 3162) served as a vehicle for a number of other Medicare-related policy changes, although they were removed during conference with the Senate in favor of an SCHIP-only bill.

However, two pieces of general Medicare legislation moved as stand-alone bills, passed, and became law.  On September 29, President Bush signed into law the “TMA, Abstinence Education, and QI Programs Act” (P.L. 110-90), which extends abstinence education programs, eligibility for transitional medical assistance (TMA) under Medicaid, and allows Medicaid to pay Medicare Part B premiums for certain qualifying individuals through December 31, 2007. It also provides additional funding for the Medicare physician assistance and quality initiative fund in fiscal years 2009 and 2013, and reduces cuts to hospitals by 50 percent for two years that were to take effect in FY 2007 as part of the Medicare inpatient hospital prospective payment system (IPPS) rule. 

The second bill, the “Medicare, Medicaid, and SCHIP Extension Act of 2007” (P.L. 110-173), contains a number of Medicare provisions, including one that prevented the 10.1 percent cut to Medicare physician payments scheduled to begin January 1, 2008. It instead gives physicians a one-half percent Medicare payment increase through June 30, 2008. The legislation also extends the incentive payment for physician scarcity areas, continues current Medicare Advantage special needs programs through 2009, continues current Medicare payment policy for various services, and further defines long-term care hospitals. Under the act, the physician payment changes would be offset, in part, by an adjustment to the Medicare Advantage stabilization fund; a freeze in the payment update for long-term care hospitals for the last quarter of 2008; a freeze in Medicare inpatient rehabilitation facility payments from April 1, 2008, through FY 2009; and payment changes for Part B drugs.

Similarly, in December 2006, Congress acted concerning payments for physician services by passing the “Tax Relief and Health Care Act of 2006.”  The legislation froze physician payment rates so that a scheduled reduction of 5.1 percent in 2007 would not go into effect. The legislation also included a 1.5 percent bonus-incentive payment to physicians who report on quality measures in 2007.  To fund these changes, the bill reduced the Medicare Advantage (MA) Stabilization Fund. This fund is a $10 billion regional plan stabilization fund that was to have been used between 2007 and 2013 to help encourage plan entry and retention in areas lacking plans by increasing payments to the plans. Because plan participation has been stronger than predicted, many had argued that the stabilization fund is no longer necessary. Congress reduced the fund accordingly.

The Medicare Payment Advisory Commission (MedPAC) has actively contributed to the Medicare dialogue. Early in 2007, MedPAC issued a report on the sustainable growth rate (SGR) payment, but did not include specific recommendations to modify it because of a lack of consensus amongst the commissioners. Instead, the report proposed alternatives that could be pursued.  Congress could repeal the SGR and instead encourage physicians to offer lower-cost and higher-quality health care.  The alternative proposal recommends replacing the SGR formula with a system of expenditure targets based on geographic area or type of service. 

MedPAC focused recommendations on improving program efficiency in its June 2007 report, “Promoting Greater Efficiency in Medicare.”  MedPAC called for the formation of an independent entity to sponsor and disseminate information on comparative effectiveness in order to promote Medicare program efficiency. Other recommendations included improved payment accuracy and clarification between the Medicare Part D prescription drug benefit and Part B drug coverage.

Much of the Medicare activity in 2007 occurred at the regulatory level.  CMS issued multiple rules in 2007. Notably, the Hospital Inpatient Prospective Payment System (IPPS) Final Rule, issued August 1, establishes payment rates and modifications for FY 2008.  The final rule implemented a three-year transition to a reimbursement system based on hospital costs rather than charges; creates a new severity-adjusted Diagnosis-related group (DRG) classification system based on 745 DRGs, instead of the current 538, which will be phased in over two years; increases the capital standard federal rate for all hospitals, but eliminates the additional reimbursement rate for large urban hospitals and the adjustments to teaching hospitals over a three-year period. The rule also prohibits reimbursement to hospitals for treating “reasonably preventable” conditions beginning in October 1, 2008, as mandated by the Deficit Reduction Act (DRA). Both the House and Senate have expressed concern about this last provision.


In August, CMS announced that the average premium paid by beneficiaries for standard Medicare Part D prescription drug coverage is about $25, which is less than the estimate of $27 from the administration’s mid-session review, and substantially less than the $41 that was originally estimated for 2008 when the legislation passed. CMS asserts that 87 percent of beneficiaries in stand-alone prescription drug plans will have access to plans that cost them the same or less than the cost of their coverage in 2007.  Approximately 1.5 million beneficiaries receiving the low-income subsidy will be required to switch plans or will be assigned a new plan in order to avoid a premium charge or gap in coverage.

THE FUTURE

With the change in congressional leadership, legislative changes and oversight of the Part D program are top priorities for Congress. However, though congressional Democrats oppose many of the features of the MMA prescription drug program, they have been stymied in making large-scale changes due in part to the program's popularity and success. And, counting MMA as a huge domestic policy achievement, the Bush administration has resisted congressional efforts that it believes will compromise the integrity of the Part D program.  These factors have set the stage for repeated conflicts over the future of the Medicare program and legislative gridlock.

Congress has set the stage for action on the payment front with the Medicare physician payment increase expiring on June 30, 2008.  This insures that there will again be Medicare action shortly before the presidential contest comes to a head.  And, as the presidential candidates continue to develop their platforms, more attention may be devoted to the future of the Medicare program, the adequacy of Medicare payments, and the division of scarce resources within the program.