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[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

 
                      MEDICARE DRUG DISCOUNT CARD

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 1, 2004

                               __________

                           Serial No. 108-48

                               __________

         Printed for the use of the Committee on Ways and Means

                                 _____

                 U.S. GOVERNMENT PRINTING OFFICE

26-413                 WASHINGTON : 2006
_________________________________________________________________
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana               FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois            GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               LLOYD DOGGETT, Texas
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory and revised advisory announcing the hearing.............     2

                               WITNESSES

Centers for Medicare and Medicaid Services, Center for 
  Beneficiary Choices, Michael McMullan, Deputy Director.........     7

                                 ______

Aetna, Inc., Susan E. Rawlings...................................    24
Health Net, Inc., Steven H. Nelson...............................    29
Consumers Union, Gail Shearer....................................    34

                       SUBMISSION FOR THE RECORD

AARP, statement..................................................    49

                      MEDICARE DRUG DISCOUNT CARD

                              ----------                              

                        THURSDAY, APRIL 1, 2004

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:50 p.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory and revised advisory announcing the hearing 
follow:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 25, 2004
No. HL-7

                      Johnson Announces Hearing on

                      Medicare Drug Discount Card

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the discount drug card. The hearing 
will take place on Thursday, April 1, 2004, in the main Committee 
hearing room, 1100 Longworth House Office Building, beginning at 10:00 
a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    As part of the Medicare Prescription Drug, Improvement and 
Modernization Act (MMA) (P.L. 108-173) that was signed on December 8, 
2003, Congress provided for an interim prescription drug discount card 
program for 2004 and 2005. Approved cards will be endorsed by Medicare 
and available to all seniors on a voluntary basis. For up to a $30 
annual fee, the U.S. Department of Health and Human Services estimates 
seniors will save 10 to 25 percent on the costs of their prescriptions 
due to the negotiated savings available through the discount cards. In 
addition, certain low-income seniors who are not eligible for Medicaid 
will receive up to $600 annually through the discount card in which 
they enroll to assist with purchases of prescription medicines. 
Considering that the typical senior will spend approximately $1,500 
this year on prescriptions, the low-income transitional assistance will 
provide substantial support.
      
    The drug cards will be available to Medicare beneficiaries until 
the full prescription drug benefit is implemented in 2006. Medicare 
beneficiaries will be able to enroll in approved cards in May, and 
discounts and transitional assistance will be available beginning in 
June.
      
    In announcing the hearing, Chairman Johnson stated, ``The drug 
discount card is the first, immediate step towards providing a full 
prescription drug benefit for our nation's seniors. The drug discount 
card will help 40 million Medicare beneficiaries save money on their 
medicines and will provide critical financial assistance to vulnerable, 
low-income seniors.''
      

FOCUS OF THE HEARING:

      
    Today, the Centers for Medicare and Medicaid Services announced the 
final list of approved drug card sponsors. Panel members at the hearing 
will include approved card sponsors, and testimony will focus in part 
on how sponsoring organizations will develop and market their discount 
cards to Medicare beneficiaries. The hearing continues the series of 
hearings held by the Subcommittee on the implementation of the Medicare 
Modernization Act.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

    Please Note: Any person or organization wishing to submit written 
comments for the record must send it electronically to 
hearingclerks.waysandmeans@ mail.house.gov, along with a fax copy to 
(202) 225-2610, by close of business Thursday, April 15, 2004. In the 
immediate future, the Committee website will allow for electronic 
submissions to be included in the printed record. Before submitting 
your comments, check to see if this function is available. Finally, due 
to the change in House mail policy, the U.S. Capitol Police will refuse 
sealed-packaged deliveries to all House Office Buildings.

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.

    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
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Committee will rely on electronic submissions for printing the official 
hearing record.

    2. Copies of whole documents submitted as exhibit material will not 
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    3. Any statements must include a list of all clients, persons, or 
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    Note: All Committee advisories and news releases are available on 
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noted above.

                                 

                       * * * Change in Time * * *

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 26, 2004
HL-7-Revised

                     Change in Time for Hearing on

                      Medicare Drug Discount Card

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on the Medicare Drug Discount Card, previously 
scheduled for 10:00 a.m. on Thursday, April 1, 2004, in room 1100 
Longworth House Office Building, will now begin at 2:00 p.m.

    All other details for the hearing remain the same. (See Health 
Advisory No. HL-7, March 25, 2004).

                                 
    Chairman JOHNSON. Good afternoon, everyone. Mr. Stark is on 
his way, and I am going to start with my opening statement, 
given the delay in this hearing and the courtesy of the various 
people who are going to testify in waiting around. Today, I am 
very pleased to Chair this hearing on the progress made in 
implementing the Medicare prescription drug discount card. The 
discount card will help millions of Medicare beneficiaries save 
money on their medicines and will provide critical financial 
assistance to vulnerable low-income seniors. These important 
provisions in the Medicare Prescription Drug Improvement, and 
Modernization Act of 2003 (P.L. 108-173), those associated with 
the discount card, were negotiated over several months with 
staff, and Members of both parties, both the majority and the 
minority from the Committee on Ways and Means and the other 
committees of jurisdiction.
    The discount card proposal, as it is currently being 
implemented by the Centers for Medicare and Medical Services 
(CMS), was agreed to in a bipartisan meeting of Medicare 
conferees by voice vote on September 9, 2003. That is why I am 
glad this achievement is moving forward rapidly, with the hope 
that significant discounts on prescription drugs will be 
delivered within just a few weeks. This bill, the Medicare 
Modernization and prescription drug bill, was the first and 
only legislative initiative to provide this kind of near-term 
relief for our seniors. It was bipartisan. A total of 71 
organizations have been selected by the U.S. Department of 
Health and Human Services to provide discount cards to our 
seniors. Twenty-seven cards will be available to all seniors 
across the Nation, while other cards will be available on a 
regional basis or through Medicare Advantage plans. Seniors 
will therefore have a wide range of choices in selecting the 
card that best meets their needs. The competition among cards 
will help ensure significant discounts on prescriptions.
    For those seniors not eligible for Medicaid or other third-
party arrangements, the Transitional Assistance Program offers 
up to $600 annually to Medicare beneficiaries with incomes up 
to 135 percent of poverty. In 2004, the typical senior will 
spend approximately $1,500 on prescriptions. The $600 in 
assistance provided to low-income beneficiaries will cover a 
substantial share of this amount. In addition, the annual 
enrollment fee charged to these individuals will be paid by the 
Secretary. Our witnesses today will provide us with an overview 
of how the discount card will operate. I am pleased to welcome 
Michael McMullan, Deputy Director of the Center for Beneficiary 
Choices within the CMS. I look forward to hearing her testimony 
regarding the operation of the program, the characteristics of 
the card sponsors that CMS has endorsed, the systems CMS has 
for assisting beneficiaries in selecting a card, and the plans 
CMS has in place for monitoring the activities of card sponsors 
and preventing bait-and-switch abrogations of contract 
obligations.
    I know that we all share an interest in ensuring that our 
seniors have access to all of the information they need to make 
informed choices, and that plans deliver the benefits promised. 
I look for-

ward to hearing from both Aetna, Inc. and Health Net, Inc. 
regarding their specific drug card programs, and Aetna will be 
offering a national card, while Health Net will be providing a 
card exclusively to its Medicare Advantage enrollees in 
Connecticut, California, and several other States. I am eager 
to hear about the specific programs the two organizations will 
have in place to meet the need of those seniors who select 
their cards. Finally, we will hear from Consumers Union about 
their views of the program. The discount card program is the 
first concrete step toward making the promise of prescription 
drugs a reality for our seniors. I look forward to hearing more 
about the program today. Mr. Stark, welcome. We are ready for 
your comments.
    Mr. STARK. Thank you, Madam Chair, for holding this 
hearing. You certainly picked the right day because this 
program--I don't think could be more of a cruel April Fools 
joke on the seniors than anything we could dream of. The 
Administration parades these Medicare-approved, as they are 
referred to, discount cards as a great tool for seniors to save 
money. However, there is nothing in the legislation that 
requires them to save money or states how much money they will 
save, if any. It is conceivable that those cards will end up 
costing them money.
    We have never before, at least in my knowledge, used either 
Medicare's brand, if you will, or any government agency's brand 
to endorse private sector products. Given that we have asked 
these companies not to do very much in exchange for using 
Medicare's good name, I am worried that any bad behavior or 
disappointment in the program will reflect poorly on Medicare 
and that would set, I think, a bad precedent. The most 
efficient discount program we could have created would have 
been to use the purchasing power of the Medicare Program to 
negotiate discounts. However, your majority decided to outlaw 
that, and not let us do what any other private enterprise 
purchaser would do, and that is, get the best deal for our 
market power.
    There is a modest help to some low-income people, although 
I am sure they will be confused and avoided by the discount 
programs, and unless we can do something to simplify the forms, 
I am afraid that many of the people who are entitled to that 
$600 won't get it. Now, why am I skeptical about these cards? 
First of all, the legislation and the regulations do not 
require discount card sponsors to pass through to consumers all 
discounts, rates, rebates, and other savings. There is evidence 
that the prices of many of the drugs used have all been pushed 
up by the pharmaceutical manufactures in anticipation of this 
new program.
    So, if they increased the price 20 percent over the last 
year, and then give a 10-percent discount, they are still 
making unconscionable profits on the backs of our seniors. The 
current design of the program is a poster for fraudulent and 
manipulative practices. Medco, Inc., which I understand has 
been approved, is currently the defendant in a false claims act 
filed by the U.S. Department of Justice alleging that Medco has 
stolen money from our own plan under the Federal Employees 
Benefit Plan, that they have been canceling prescriptions and 
changing them without physician's orders.
    I gather short-counting, and there is nothing that I know 
of that vets out these proposed providers to see whether they 
are honest, much less able to save beneficiaries any money. So, 
our beneficiaries also are going to have trouble choosing a 
discount card that is financially beneficial to them, because 
information is not being provided in a responsible manner. So, 
the needs of our seniors are being ignored, and this discount 
program appears just to be a fig leaf to try and cover for the 
inadequacy of the drug benefit, which is supposed to show up in 
2006. So, I look forward to the panelists trying to explain to 
us what possible good this will do for our seniors.
    Chairman JOHNSON. I would like to just comment, Mr. Stark, 
that I apologize for starting before you got here. I did it 
with the agreement of your staff. I regret having done it, 
because your opening statement is hard for people watching this 
hearing to integrate with the fact that the Democratic staff of 
this Committee, your staff, Ranking Member Rangel's staff, my 
staff, Chairman Thomas's staff, the staff of the Committee on 
Commerce from both sides of the aisle, the staff of the Senate, 
both sides of the aisle, all negotiated this discount card, 
many, many months, and consequently it does reflect the best 
thinking of the Members of both parties on how to deliver an 
advanced early benefit to seniors.
    Certainly the questions you raise are legitimate questions, 
and I respect them. I think it is very important for the record 
to note that not only was this negotiated over a number of 
months because there are a lot of details, by both parties, but 
that we approved it by voice vote without dissent. The whole 
Conference Committee. It is one of the few portions of the bill 
that was totally bipartisan.
    Mr. STARK. Our staff was invited for the first month. None 
of their recommendations were even listened to. Our staff was 
ignored and finally kicked out of the meeting as our Members 
were kicked out of the Conference. So, to suggest that our 
staff participated in this turkey is a falsehood.
    Chairman JOHNSON. Mr. Stark, the record is clear that on 
this provision of the bill--and the record is clear because 
there was a Conference vote that was recorded, and there were 
no dissenters on just this passage of the bill.
    Mr. STARK. There weren't any House Democrats there.
    Chairman JOHNSON. That did not work on the whole bill. You 
did not participate in parts of it.
    Mr. STARK. How could we object when we weren't allowed in?
    Chairman JOHNSON. You are talking about later on in the 
Conference. On this provision you were there and the Democrats 
did vote and they agreed. The Members that were in attendance 
were Senators Rockefeller, Baucus, Breaux, Kyl, Nickles, and 
Grassley, and Representatives Thomas, Tauzin, Johnson, 
Bilirakis, Dingell, and Berry.
    So, you were not there. Absent was DeLay, Rangel, Frist, 
and Hatch. So, absent were three Republicans and one Democrat. 
Present were the majority of the Democrats of the Committee. 
So, it is just simply a fact that this portion of the bill was 
negotiated by both parties. There was not agreement on the 
other parts of the bill. I respect that. I am not claiming it.
    The public needs to understand that this portion was 
extensively negotiated with staff from both sides of the aisle, 
in both Chambers. Now, our job is to make it workable and 
work--have it work. The problems you point to are problems many 
of us are concerned about. Ms. McMullan, we look forward to 
your explanation of what CMS has done and plans to do. I am 
sure there will be plenty of questions. You are recognized.

  STATEMENT OF MICHAEL MCMULLAN, DEPUTY DIRECTOR, CENTER FOR 
BENEFICIARY CHOICES, CENTERS FOR MEDICARE AND MEDICAID SERVICES

    Ms. MCMULLAN. Chairman Johnson, Representative Stark, 
distinguished Committee Members, thank you for inviting me here 
today to discuss the Medicare-approved prescription drug 
discount card and Transitional Assistance Program. This 
voluntary drug card program will give immediate relief to many 
seniors and disabled people covered under Medicare by reducing 
their cost of outpatient prescription drugs. In addition to 
expected savings from the drug discount card, certain low-
income beneficiaries will qualify for an additional assistance 
of a $600 credit.
    The CMS staff are working diligently so that these 
beneficiaries in need can begin using the cards and the credit 
this June. Just last week, we announced the approval of 28 
general card-sponsoring organizations. Additionally, CMS 
approved 43 Medicare managed care applications to provide the 
drug card as an integrated part of the Medicare Advantage and 
the Medicare cost plan benefit package. These organizations 
will make it possible for Medicare beneficiaries nationwide to 
take advantage of the benefits you provided in the Medicare 
Prescription Drug Improvement and Modernization Act.
    The CMS solicited applications from potential drug card 
sponsoring organizations on December 15, 2003, and these 
applications were due back on January 30. We evaluated each 
application against the requirements to operate a drug card 
program, and the sufficiently complete and correct applications 
were approved. A number of the applications were disapproved 
since they did not fully meet all of the key requirements. Do 
to the short timeframe to implementation, we are providing such 
applicants a 2-week window to correct such deficiencies, and we 
will review this information on a rolling basis to determine if 
these applications can also be approved.
    Approved drug discount card sponsors will negotiate 
discounts with manufacturers and pharmacies and pass these 
savings on to beneficiaries who select their cards. We estimate 
that beneficiaries will save 10 to 15 percent on their overall 
prescription costs and up to 25 percent on some drugs. Just 
today, CMS posted on the www.medicare.gov website the names, 
telephone numbers, website, customer service hours, and 
enrollment fees on all of the approved sponsors. Enrollment 
fees vary within the $0 to $30 allowed range, with most managed 
care organizations choosing to waive the enrollment fee for 
their members.
    The CMS anticipates posting data from the drug card sponsor 
with the specific price and participating pharmacies on April 
29. The Medicare approved drug discount card sponsors will 
negotiate with manufacturers and pharmacies for rebates and 
discounts off the average wholesale price for drugs covered 
under the drug program. The poster that I have on display 
outlines the process as it will work. In order to get the most 
competitive savings for beneficiaries, some cards will use 
formularies which will improve their negotiating leverage with 
the pharmaceutical manufacturers.
    [The information was not received at the time of printing.]
    For sponsors who do use formularies, they must assure that 
those drugs commonly needed by Medicare beneficiaries are 
included in their formularies. Beneficiaries will be guaranteed 
a percentage savings on each purchase they make with their 
card. While individual prices may change as the average 
wholesale price moves up and down, this is not different from 
the way the drug pricing works in the market today. In typical 
industry practice, a pharmacy benefit manager guarantees by 
contract a certain discount off of the average wholesale price 
to its payers. Within the universe of thousands of prescription 
drugs on the market, there are changes in average wholesale 
price (AWP) in response to price shift in labor, raw 
ingredients, as well as supply and demand. However, taken 
individually, when the AWP changes for the vast majority of 
drugs, these changes are by a modest amount.
    Once a card is selected, beneficiaries are committed to 
their card for the calendar year. This is a key design feature 
and it allows the drug--or the prescription benefit managers to 
negotiate. Historically, drug discount cards have not included 
discounts from manufacturers because sponsors could not 
guarantee market share. By having committed beneficiaries, 
Medicare approved sponsors are able to guarantee a certain 
patient population. The guarantee increases their negotiating 
leverage with manufacturers and improves their ability to 
secure discounts and rebates which are passed on to the 
Medicare beneficiaries.
    The CMS plans an extensive education effort with a special 
emphasis on low-income individuals to inform beneficiaries of 
the drug discount program, including an Internet-based 
comparison tool which will allow them to see precisely what 
price sponsoring organizations are charging for each drug they 
cover. This comparison tool will allow beneficiaries to 
identify the specific drugs they take and the cards that will 
result in the most savings to them. The comparison tool will 
show actual prices as opposed to the percent discount off of 
the average wholesale price, as these are more understandable 
to the individual. This same tool will be used by the customer 
service representatives at 1-800-MEDICARE, where beneficiaries 
can call and be walked through the decision process and be able 
to compare cards and we will then mail them the results of the 
analysis.
    Beneficiaries can also obtain help from community-based 
organizations, such as our State health insurance assistance 
programs, as well as other community-based organizations that 
we are working with to particularly identify those individuals 
who have access barriers to information, such as language, 
literacy, or culture. It was mentioned that there was a concern 
about fraud. Although the drug discount program has not yet 
been implemented, some Medicare beneficiaries have already 
received calls, as well as in-person solicitations from 
individuals and companies posing as Medicare officials 
attempting to gain personal information from beneficiaries for 
identity theft.
    In response to these complaints, CMS is coordinating 
information through our 1-800 number, as well as other 
information resources, such as our State health insurance 
assistance program. We have recently produced a press release 
to make sure that people with Medicare understand that they 
should never share their personal information, such as bank 
account numbers, Social Security number, or health insurance 
claim number with any individual who calls them or who solicits 
door-to-door. The CMS is continuing to explore methods to limit 
the scope of the risk to beneficiaries and to develop a process 
to work with appropriate law enforcement agencies to avoid 
further spread of this type of activity. The CMS's office of 
program integrity is hosting a law enforcement fraud and abuse 
meeting this month particularly on this issue, and we are 
working with the Department of Justice, the Federal Bureau of 
Investigation (FBI), and our own Inspector General. The CMS 
looks forward to continuing work on the implementation of this 
important program, and I thank the Committee for its time and 
will answer any questions that you have of me.
    [The prepared statement of Ms. McMullan follows:]
Statement of Michael McMullan, Deputy Director, Center for Beneficiary 
          Choices, Centers for Medicare and Medicaid Services
    Chairwoman Johnson, Representative Stark, distinguished Committee 
Members, thank you for inviting me here to discuss the Medicare 
Prescription Drug Discount Card and the Transitional Assistance 
Program, which were enacted into law on December 8, 2003, as part of 
the Medicare Prescription Drug, Improvement and Modernization Act of 
2003 (MMA). In May of 2004, as an important first step towards 
comprehensive Medicare prescription drug coverage, Medicare 
beneficiaries will be able to enroll in a Medicare-approved drug card 
program that will offer discounts on their prescription drugs. This 
voluntary drug card program will give immediate relief to seniors and 
persons with disabilities covered under Medicare to reduce their costs 
for prescription drugs. In addition to the expected savings from the 
drug discount card, certain low-income beneficiaries will qualify for 
additional assistance in the form of a $600 annual credit. CMS is very 
proud to have a significant role in this important first step towards a 
comprehensive Medicare prescription drug benefit, which is slated to 
begin on January 1, 2006. CMS is working diligently to meet the 
aggressive deadline to implement the drug card and transitional 
assistance program. To this end, the Secretary last week announced the 
approval of 28 general and special cards, and 43 exclusive cards. We 
are confident drug card sponsors will begin marketing and enrollment 
efforts on May 3, 2004, with beneficiaries beginning to see discounts 
beginning June 1, as scheduled. We are also launching aggressive 
education campaigns to help beneficiaries choose the best card to fit 
their needs, and are planning strict monitoring efforts to ensure that 
card sponsors are not changing prices for unwarranted reasons.
BACKGROUND
    Currently, Medicare beneficiaries who lack outpatient drug coverage 
pay among the highest prices for prescription drugs, as much as 20 
percent higher than people with drug coverage according to a study of 
drug pricing prepared by the Department of Health and Human Services' 
Office of the Assistant Secretary for Planning and Evaluation. Under 
the Medicare Prescription Drug Discount Card Program, we expect 
beneficiaries to save an estimated 10 to 15 percent off the retail 
price on their overall prescription drug costs, and up to 25 percent on 
some drugs. The drug card will pass savings on to beneficiaries in the 
form of price concessions. While not a drug benefit, the voluntary drug 
card program is an important first step in providing Medicare 
beneficiaries with the tools they need to better afford the cost of 
prescription drugs.
SPONSOR SOLICITATION
    CMS has already begun implementation of the drug card program. We 
received 106 applications by the January 30, 2004, deadline. Five 
applications were withdrawn or merged by the applicants, leaving a 
total of 101. To be considered for the program, organizations were 
required to complete a detailed application concerning their 
qualifications and the design of their proposed drug discount card 
program. Applicants that did not receive our approval have a right to 
request a reconsideration within 15 days from the notice of initial 
determination. Any reconsideration determination will be final and 
binding on the parties and not subject to judicial review.
    CMS solicited applications by potential drug discount card 
sponsoring organizations on December 15, 2003, and applicants were due 
back on January 30. We evaluated each application against the 
requirements to operate a drug card program, and the sufficiently 
complete and correct applications were approved. A number of the 
applications were disapproved if, for example, they did not fulfill 
entirely a key requirement, such as providing a contract or letter of 
agreement (signed by both parties) when the sponsor indicated a plan to 
contract out a key function such as administering the $600 credit. 
Because of the short timeframe to implementation, we are providing such 
applicants with a two-week window to correct such deficiencies, and we 
will review this information on a rolling basis to determine if these 
applications can be approved.
    We have approved 28 general card applications (of the 55 general 
applications considered). As approved sponsors can offer more than one 
card program, this results in 28 national approved programs and 19 
regional approved programs. Twenty-seven potential sponsors were 
rejected based on failing to completely satisfy fundamental 
requirements of the solicitations, including liabilities exceeding 
assets and the failure to demonstrate the capacity to manage 
transitional assistance. CMS also approved 43 (of 44) exclusive card 
applications, associated with 84 Medicare managed care organizations, 
to provide the drug card as an integrated part of the Medicare 
Advantage benefit package available to beneficiaries enrolled in those 
plans. The recommended approvals allow for a manageable number of cards 
from which people with Medicare will select, and reflects the high 
standards attributed to the use of the Medicare name. The 28 general 
card applicants represent card programs that would be administered by 
insurers, pharmacy chains, and pharmacy benefit managers. We expect 
that beneficiaries can begin to enroll in these card plans in May and 
begin using their drug cards in June 2004.
    We also awarded a ``special approval'' to: three applicants to 
provide access to the $600 credit through long-term care pharmacies; 
two applicants to provide discounts to residents of the territories; 
and one applicant to service Federally recognized Indian tribe and 
tribal organization pharmacies. The MMA requires CMS to have one 
additional contractor for the tribal pharmacies. We have re-issued a 
solicitation to receive additional applications to meet this 
requirement, and several organizations have responded with a notice of 
intent to submit a proposal.
    All applications of contractors that currently administer State 
pharmacy assistance programs will receive a Medicare approval, 
covering: IA, IL, KS, MA, MD, MI, NH, NY, OH, OR, PA, RI, SC, VT, and 
WV. States have the ability to exclusively contract with a Medicare 
approved card program. If a state's current contractor did not apply 
for an approval, the state may work with another (approved) card 
sponsor.
    To ensure that beneficiaries have convenient access to their 
neighborhood pharmacies, card sponsors will not be permitted to limit 
their services to mail-order programs. Instead, all approved cards must 
include an extensive national or regional network of retail pharmacies, 
which must meet minimum requirements. For example, in urban areas, at 
least 90 percent of Medicare beneficiaries must live within two miles 
of a participating pharmacy. In suburban areas, 90 percent of Medicare 
beneficiaries must live within five miles, and in rural areas, 70 
percent of beneficiaries must live within 15 miles of a participating 
pharmacy.
    Drug card sponsors will be required to provide information to 
beneficiaries on the program's enrollment fee, which cannot exceed $30 
per year, and to publish discounted prices available through their 
cards. In addition, Medicare will ensure that beneficiaries have at 
least two choices of approved general cards in each state, with the 
state being the smallest service area permitted under this program. If 
a card sponsor's service area includes additional states, the entire 
additional state must be included. Medicare will also provide reliable, 
easy-to-compare information that will show beneficiaries which programs 
are in their area, and allow beneficiaries to choose the discount card 
program that best meets their needs. Medicare will also inform 
enrollees that prescription drug card sponsors must protect personal 
and medical information consistent with the privacy requirements of the 
Health Insurance Portability and Accountability Act.
BENEFICIARY ELIGIBILITY
    To qualify for the drug discount card, Medicare beneficiaries must 
be entitled to or enrolled under Part A and/or enrolled under Part B, 
but may not be receiving outpatient drug benefits through Medicaid, 
including 1115 waivers. The Federal Government will also pay the full 
annual enrollment fee, which is not to exceed $30, for these 
cardholders.
    To enroll, beneficiaries will submit basic information to the 
selected approved discount card sponsor of their choosing about their 
Medicare and Medicaid status. Those beneficiaries requesting the $600 
credit also must submit income and other information about retirement 
and other health benefits to the card sponsor, and attest to 
truthfulness of the information. CMS will verify this information and 
notify the approved discount card program of the beneficiary's 
eligibility and enrollment outcome. If a beneficiary is found to be 
ineligible for a drug card, the card sponsor will send written notice 
to the beneficiary explaining why he or she was found to be ineligible. 
For beneficiaries who are eligible, sponsors will send a welcome 
package, including their new drug card, so that they can begin 
obtaining discounts and, if receiving the $600 credit, using these 
funds to purchase prescription drugs, upon receiving their cards. 
Individuals found to be ineligible for either the discount card or the 
$600 credit may request reconsideration if they still believe they 
qualify.
    An eligible beneficiary can enroll in an approved discount card 
program at any time. After the initial election in 2004, beneficiaries 
will have the option, for 2005, of choosing a different card program 
during the second election period between November 15 and December 31, 
2004. In addition, a beneficiary may change cards under certain 
circumstances if, for example, the beneficiary enters a long-term care 
facility, moves outside of the area served by the beneficiary's 
approved program, or enrolls in or drops a Medicare managed care plan 
that is also providing an exclusive drug discount card program in which 
the beneficiary was enrolled.
TRANSITIONAL ASSISTANCE PROGRAM
    In addition to providing a discount off the price of prescription 
drugs, MMA creates the Transitional Assistance program, which provides 
up to $600 in an annual credit for Medicare beneficiaries whose incomes 
do not exceed 135 percent of the federal poverty level ($12,569 for 
individuals, $16,862 for couples for 2004). When applying the $600 
toward prescription drug purchases, beneficiaries at or below 100 
percent of poverty will pay 5 percent coinsurance, and beneficiaries 
between 100 and 135 percent of poverty will pay a 10 percent 
coinsurance. The credit, in conjunction with the discount card, will 
give these most vulnerable beneficiaries immediate assistance in 
purchasing prescription drugs they otherwise may not be able to afford. 
For example, Medicare beneficiaries without prescription drug insurance 
on average would pay about $1,300 for prescription drugs in 2004. The 
expected savings of approximately 10 to 15 percent translates to $140 
to $210. This savings added to the $600 credit will be of substantial 
help to those who need it most.
EDUCATION
    To help explain the drug discount card to beneficiaries and help 
them navigate among cards to choose the card that best fits their 
needs, CMS has a number of education and outreach efforts underway. 
Print, radio, and television advertisements will highlight the upcoming 
changes to the Medicare program, including the addition of the drug 
discount card. The advertising campaign--presented in both English and 
Spanish--also includes Internet-banner ads and a 10-minute pre-recorded 
informational radio interview to educate beneficiaries about the 
upcoming drug discount cards.
    These advertisements will direct beneficiaries to 1-800-MEDICARE 
and Medicare's website, www.medicare.gov, for more information. CMS is 
working to ensure that customer service representatives at 1-800-
MEDICARE have up-to-date information on the drug card, as well as other 
CMS programs. Based on our analysis, we estimate 1-800-MEDICARE will 
receive 12.8 million calls in FY2004. This compares to an FY2003 call 
volume of approximately 5.6 million calls. The 12.8 million calls 
include an estimated increase of 5.5 million calls as a result of the 
new Medicare law and 7.3 million calls for routine 1-800-MEDICARE call 
topics. We plan to increase our CSR level at 1-800-MEDICARE in May 2004 
to handle the expected increase in call volume.
    An additional feature of the website will be a new price comparison 
tool, Medicare Price Comparison. Under the drug card program, card 
sponsors will negotiate drug discounts with both pharmacies and drug 
manufacturers. The new comparison tool will give beneficiaries, or 
their representatives, the capacity to find the sponsor-negotiated 
price for each drug or all their drugs at pharmacies in their area. 
Pricing information will be available for brand name, generic, and 
mail-order prescriptions offered through each card sponsor's program. 
Drug card sponsors will be able to update the drug pricing information 
on a weekly basis. Starting in late April, beneficiaries will be able 
to use the comparison tool by going to www.medicare.gov or by calling 
1-800-MEDICARE. Customer service representatives at 1-800-MEDICARE also 
will be able to answer questions about the program, help them compare 
drug cards on price and network pharmacies, and refer callers to other 
appropriate resources. They will also mail the results of the 
comparison to seniors.
    CMS also has a number of beneficiary publications planned for 2004 
to explain changes in the Medicare program. For example, HHS has 
prepared a detailed ``Guide to Choosing a Medicare-Approved Drug 
Discount Card'' for beneficiaries that explains the program, including 
eligibility and enrollment information, and provides step-by-step 
guidance for comparing discount cards and choosing one. The booklet 
currently is posted at www.medicare.gov, and printed copies will be 
available for free through 1-800-MEDICARE. CMS also will publish a 
small pamphlet with an overview of the drug card program and an 
introduction to the discount cards and the $600 low-income credit. In 
addition, a brief document that introduces beneficiaries to the 
discount cards and the Medicare-approved seal will be mailed directly 
to beneficiary households. This mailing, which will correspond with the 
television information campaign, is scheduled for late April 2004. 
Also, as required by MMA, CMS will work with its partners at the Social 
Security Administration to facilitate a mailing targeted toward low-
income Medicare beneficiaries detailing the drug card and transitional 
assistance program.
    To assist in beneficiary education and outreach, CMS increased 
funding to State Health Insurance Assistance Programs' (SHIPs) grants 
and REACH from $12.5 million last year to about $21.1 million for 
fiscal year 2004--a 69 percent increase above the fiscal year 2003 
total. In addition, HHS' budget plan for fiscal year 2005 allocates 
$31.7 million to SHIPs--more than double the amount awarded in fiscal 
year 2003. With the new funding, SHIPs will be able to expand their 
efforts to work with and reach even more Medicare beneficiaries and 
increase and enhance their volunteer staff through additional training 
and resources.
    To educate providers and pharmacists, as well as the States and 
other stakeholders, CMS will sponsor conferences and conduct a number 
of teleconferences to make the information available nationwide. For 
example, in-person training will take place at the CMS-sponsored drug 
card conference, which is scheduled for April 7-8. CMS staff will be 
available to provide technical assistance and support as the program 
begins.
COVERAGE
    The discount card and $600 in transitional assistance can be used 
to purchase nearly all prescription drugs available at retail 
pharmacies. Syringes and medical supplies associated with the injection 
of insulin, such as needles, alcohol, and gauze, are also included. It 
is anticipated that many approved programs will use formularies to 
obtain deeper discounts on prescription drugs. If an approved discount 
card program uses a formulary then the drugs most commonly needed by 
Medicare beneficiaries must be included. At a minimum, each program 
must offer a discount on at least one drug in each of the 209 
therapeutic categories of prescription drugs. However, even if a 
prescription drug is not on the sponsor's formulary, the $600 must 
still be applied to all the covered prescription drugs available at the 
pharmacy if the beneficiary uses the discount card toward the purchase. 
Drug card sponsors also may choose to offer discounts on over-the-
counter (OTC) drugs, but the $600 cannot be used toward the purchase of 
OTC drugs. CMS made public on April 1, 2004 the enrollment fee for each 
drug card on the PDAP website, and the discounted prices will be posted 
at the end of April.
    Medicare approved drug discount card sponsors will negotiate with 
manufacturers and pharmacies for rebates and discounts off the average 
wholesale price (AWP) for drugs covered under the drug card program. In 
order to get the most competitive savings to beneficiaries, some cards 
will use formularies, which can improve the negotiating leverage 
sponsors have with pharmaceutical manufacturers.
    Beneficiaries will be guaranteed a percentage savings (or discount) 
on each purchase they make with their card. Individual prices may 
change, as AWP moves up and down, but the discount rate to which the 
card entitles them will not move, unless the sponsoring organization 
can satisfactorily report to CMS a good cause for such a move. The 
attached chart outlines how this process works. CMS expects to receive 
detailed information from program sponsors concerning specific 
discounts in the near future.
    It is true that drug prices under the drug card may change. But 
this is not different from the way drug pricing works in the 
marketplace today. In typical industry practice, a pharmacy benefits 
manager guarantees, by contract, a certain discount off of the average 
wholesale price (AWP) to its payers. Within the universe of the 
thousands of prescription drugs on the market, there are changes in AWP 
in response to price shifts in labor and raw ingredients, as well as to 
supply and demand. However, taken individually, the AWP for the vast 
majority of drugs either does not change or changes several times a 
year by a modest amount.
    Once a card is selected, beneficiaries are committed to their card 
for the calendar year (with a few exceptions). This is a key program 
design feature to improve the discounts to beneficiaries under a drug 
discount card. Historically, drug discount cards have not included 
discounts from manufacturers because sponsors could not guarantee 
market share. By having committed beneficiaries, Medicare approved 
sponsors are able to guarantee a certain patient population. This 
guarantee increases their negotiating leverage with manufacturers and 
improves their ability to secure discounts and rebates, which are 
passed on to the beneficiaries. Because approved programs will be 
competing for Medicare beneficiaries to be able to increase their 
negotiating power, the programs will have an incentive to pass 
negotiated savings along to the beneficiaries in the form of the lowest 
possible drug prices.
    While approved discount card programs may update their prices and 
lists of offered drugs on a weekly basis, CMS will monitor drug price 
changes to ensure that prices do not deviate from expected market 
changes, such as those in average wholesale price. While we do not 
anticipate that sponsors will be changing prices for unwarranted 
reasons, CMS will nonetheless closely monitor changes in prices over 
time for each drug that a card sponsor offers:

      If a card sponsor's drug prices change in an amount that 
is not consistent with the expected change due to AWP, then the sponsor 
must report it and provide a rationale.
      Also, CMS will routinely check for price changes from 
week to week compared to what is expected, based on changes in AWP. 
Price changes that are not expected will be flagged and evaluated.
      If the price change is not due to legitimate changes in 
their operating environment, such as losing a manufacturer contract, or 
unexpected costs of operating the call center, then a card sponsor 
could be sanctioned by CMS.
      Sanctions could include prohibiting further marketing and 
enrollment, monetary penalties, and terminating the card program.
FRAUD
    Although the drug discount card program has not yet been 
implemented, some Medicare beneficiaries have already received calls as 
well as in-person solicitations from individuals/companies posing as 
Medicare officials attempting to gain personal information from 
beneficiaries for identity theft.
    A beneficiary should NEVER share personal information such as their 
bank account number, Social Security number or health insurance card 
number (or Medicare number) with any individual who calls or comes to 
the door claiming to sell ANY Medicare related product.
    Beneficiaries who are contacted by these false card companies 
should remember that Medicare-approved cards will not be available 
until May. The names of approved card sponsors have been made public 
and the companies will begin to market their cards through commercial 
advertising and direct mail beginning this month. Medicare-approved 
card sponsors will not market their cards door-to-door or over the 
phone.
    In response to these complaints, CMS is coordinating information 
with customer service representatives at 1-800-MEDICARE, the call 
centers at the Medicare contractors and the State Health Insurance 
Assistance Programs (SHIPs). CMS has already informed the public 
through a press release about how to protect themselves from fraud. OIG 
referrals have been made for two complaints where we had specific 
enough information to make a fraud referral.
    CMS is continuing to explore methods to limit the scope of these 
scams and develop a process to work with the appropriate law 
enforcement agencies to avoid further spread of this type of activity. 
CMS' Office of Program Integrity is hosting a law enforcement fraud and 
abuse meeting this month. The primary participants will include the 
Department of Justice, Federal Bureau of Investigation, and the DHHS' 
Office of the Inspector General. Participants from other agencies that 
have dealt with issues of Prescription Drug fraud will also be invited. 
The primary topic of this meeting will be the discussion of the drug 
discount card program and how to prevent and deter fraud, waste and 
abuse in this area.
CONCLUSION
    Thank you again for the opportunity to testify today about this new 
important transition toward a prescription drug benefit for Medicare 
beneficiaries. This voluntary drug discount card program will provide 
immediate assistance in lowering prescription drug costs for Medicare 
beneficiaries until the new Medicare drug benefit takes effect on 
January 1, 2006. We recognize the importance of the discount cards and 
the low-income credit to Medicare beneficiaries, who, for too long, 
have gone without outpatient prescription drug coverage. We at CMS are 
dedicated to meeting the deadlines set out in the historic Medicare 
Prescription Drug, Improvement and Modernization Act of 2003 and are 
working expeditiously to satisfy the May 3 and June 1, 2004, effective 
dates for enrollment and implementation, respectively. Thank you again 
for this opportunity, and I look forward to answering any questions you 
might have.

                                 

    Chairman JOHNSON. Thank you very much. Could you go into 
some further detail about how you plan to monitor the prices 
that companies put up on their website? I am very pleased that 
they have to put up a price, and that there will be some people 
to help seniors determine which plan is best for them.
    If they put up the price, and you join the plan and then 
they double the price, to me that will represent failure. I 
know that represents failure to you, too. You have done a lot 
of thinking about how you prevent that kind of bait-and-switch 
activity by plans. First of all, would you tell us what in the 
contracting language prohibits them from indulging in this kind 
of behavior, and then what kind of oversight will you have and 
what kind of penalties will you impose?
    Ms. MCMULLAN. The contract requires them to provide us with 
a percent discount off of the average-wholesale price. If they 
need to change the percent discount, it has to be for cause. 
The cause would be something like losing a manufacturer 
contract or something else in the business part of the 
relationship in getting the rebates or the discount.
    So, there has to be cause for them to change the percent 
discount. Without any cause, then they guaranteed a percent 
discount off of the average-wholesale price. We will monitor 
those prices to ensure that they are doing that. We get the 
pricing files from all of the drug card sponsors. We have a 
monitoring mechanism in place to evaluate these, to make sure 
that they stay within the expected range of prices, and we 
review them. We will review them for any kind of trends and 
patterns that we do not expect. In addition, our program 
integrity contractor will be looking carefully for any 
potential issues that have been identified through the 
complaint process or the grievance process to ensure that the 
contractors are doing what they have committed to do in the 
contract.
    In addition, there is the power of the marketplace, and the 
fact that we have these prices on the website so people can see 
what other card sponsors are offering and ensure that the card 
sponsor that they have elected is staying within the market 
price and that feedback will come to us and we will also be 
responding to any concerns that are raised to us. So, we have 
an extensive analytic process to look at all of those drug--all 
of the drug data, to review it for any kinds of patterns. In 
addition, we will be doing regular monitoring type of reviews 
with contractors.
    Chairman JOHNSON. If you discover behavior you think is not 
in conformance with the contract agreement, then what?
    Ms. MCMULLAN. The contractor would then be required to cure 
the error. They could be subject to sanctions with the ultimate 
sanction being the termination of their contract.
    Chairman JOHNSON. Thank you. Mr. Stark.
    Mr. STARK. Is there any guaranteed or minimum discount in 
this plan?
    Ms. MCMULLAN. There are guaranteed discounts. The 
guaranteed discount is exactly what we are contracting for.
    Mr. STARK. What is the minimum discount that you accept? 
What is the lowest discount? Five percent? Three percent? Two 
percent? What?
    Ms. MCMULLAN. I am not familiar enough with each of the 
contracts to tell you that. We anticipate the discounts to be 
between--the overall discounts to be between 10 and 15 percent 
and as high as 25 percent on an individual drug.
    Mr. STARK. Don't you have any comprehensive list? That 
wasn't established before you granted the license to these 
companies? There was no established discount?
    Ms. MCMULLAN. There was no established discount.
    Mr. STARK. So, it could be anything. It could be 2 percent, 
or 1 percent or 100 percent?
    Ms. MCMULLAN. It could be.
    Mr. STARK. Is there anything that sets the discount other 
than these plans?
    Ms. MCMULLAN. Our anticipated level----
    Mr. STARK. I don't care what you anticipated. Is there 
anything in the law or the regulation that requires a discount 
to be a certain amount?
    Ms. MCMULLAN. We anticipated--we asked them to do it within 
the market. We anticipated----
    Mr. STARK. What if they don't? What if they don't do it? 
What if they all come in at 2 percent?
    Ms. MCMULLAN. Well, we do not see that happening.
    Mr. STARK. I know you don't see it happening. You don't 
have a crystal ball. In the free market you don't have any 
control. So, what happens if they all come in at 2 percent?
    Ms. MCMULLAN. They will all come in----
    Mr. STARK. Somebody just gave you a note. She may know what 
happens. Do you know, lady, whoever it was that handed her the 
note? What does the note say?
    Ms. MCMULLAN. The drug card sponsors were given an idea of 
what we were looking for. We--in our impact analysis, we told 
them about our anticipated----
    Mr. STARK. So, what you are telling me is there is no 
discount set?
    Ms. MCMULLAN. What they have to----
    Mr. STARK. Just a second. I don't want to hear this. I am 
going to let her finish. I want to know if there is a number. 
Is there a number that I can see to look forward to, Ms. 
McMullan? Is there a number?
    Ms. MCMULLAN. We believe----
    Mr. STARK. Yes or no?
    Ms. MCMULLAN. We believe between 10 and 15 percent.
    Mr. STARK. If that isn't there, what are you going to do?--
there is no guarantee, is there? There is no guarantee of it, 
is there?
    Ms. MCMULLAN. The percentage discounts that come in----
    Mr. STARK. Stop. Is there a guarantee that it will be 
between 10 and 15 percent?
    Ms. MCMULLAN. No.
    Mr. STARK. All right. That is what I want. It took you a 
long time to get there, but thank you for your answer. Now, is 
there any guarantee that a drug will not be dropped once 
someone signs up and they have to stay in the program for a 
year, is there any guarantee that a drug that their physician 
has prescribed will not be dropped from the program?
    Ms. MCMULLAN. The----
    Mr. STARK. Yes or no?
    Ms. MCMULLAN. A drug card sponsor can drop a drug. 
However----
    Mr. STARK. So, that is it. I--Hello, Mrs. Chairman. Let me 
finish talking. If you want to inquire you can----
    Chairman JOHNSON. The witness will not respond until the 
gentleman has finished talking. Then the gentleman will not 
interrupt the witness until the witness has finished talking.
    Mr. STARK. The Chairman won't interrupt me on my time. 
Thank you very much. Now, would you like to tell me, if you 
know, Ms. McMullan--or if you are willing, is there anything 
that guarantees that a drug will not be dropped from a program. 
Yes or no?
    Ms. MCMULLAN. No.
    Mr. STARK. That is what I thought. So, there is no 
guarantee that once somebody signs up for a year, that their 
drug which they need and has been prescribed by their physician 
may not be dropped, and there is no guarantee of any particular 
size of discount. So----
    Ms. MCMULLAN. The market will act and ensure that the drug 
card sponsors----
    Mr. STARK. What do you know about the market, Ms. McMullan? 
Have you ever had a job in private industry? Do you know 
anything about the market?
    Ms. MCMULLAN. The----
    Mr. STARK. What do you know about the market? Could you 
explain your knowledge of the market?
    Ms. MCMULLAN. The analysis that went into the development 
of this program, included an analysis of how the market works. 
The market will provide the incentives to the drug card 
sponsors to provide the kinds of discounts that----
    Mr. STARK. However, there are no guarantees. So, if you 
don't think the analysis is any good, there is no guarantee.
    Ms. MCMULLAN. We have no----
    Mr. STARK. Madam Chairman----
    Mrs. JOHNSON. You have interrupted her three consecutive--
--
    Mr. STARK. You have interrupted more often than anybody 
has. If you would be quiet on my time, we could get this done.
    Chairman JOHNSON. Luckily your time is about to expire.
    Mr. STARK. That is right. If I start interrupting you, the 
way you have been interrupting me, you would be unhappy.
    Chairman JOHNSON. I am asking for common courtesy.
    Mr. STARK. I don't care what you are asking for. I have the 
time.
    Chairman JOHNSON. I had her let you finish. I asked you to 
let her finish, in response.
    Mr. STARK. Look, ma'am, I can interrogate a witness in any 
manner that I choose. If you can find something in the rules to 
change that, I would be glad to listen. If you would just let 
people have their time instead of interrupting them.
    Chairman JOHNSON. The gentleman's time has expired. Mr. 
McCrery.
    Mr. MCCRERY. I thank the Chairman. In listening to the 
gentleman from California's remarks, his point of view is 
perfectly legitimate. He has expressed it many times over the 
years that I have been on this Committee. He doesn't often have 
a lot of confidence in the market to provide benefits to 
consumers, and I understand that. That is a legitimate point of 
view. That is why we do have some government regulations and so 
forth to try to make sure that markets do work. In the case of 
a discount card, I think there is already a lot of experience 
in the market for discount cards. For example, my stepmother, 
prior to my purchasing a discount card for her in the open-
market, admittedly, I am paying $28 a month for this card, but 
still it is an open-market creation, it is a free-market 
creation, her drug bills were close to $8,000 a year.
    Now, they are about $5,000 a year. That is a significant 
savings for my stepmother she got through the free market by 
purchasing a discount card. They, I am sure, are using the very 
same principles that these companies that have asked to qualify 
for Medicare discount cards are going to use. Now, they may not 
be able to do quite as good a job because they are not going to 
be charging as much, $30 a year as opposed to $30 a month. 
Still, I expect they will be able to use their purchasing power 
and the allure of a long list of member Medicare seniors to 
attract discounts. So, there is some proof in the market that 
this concept can work. Is there any guarantee it will work? No, 
sir, there is no guarantee. Some of us do have a little more 
faith in the markets than my colleague from California, and we 
hope we are right. We think we will be. No, there is no 
guarantee. I don't think that is so bad. Now, Ms. McMullan, 
there is going to be a lot of choices for seniors, 28 national 
cards, 28 different cards. What plans does CMS have to help 
beneficiaries make sure that they pick the best card that is 
available, or that they know everything about the various cards 
that are going to be out there?
    Ms. MCMULLAN. We are doing a substantial amount of 
education about the availability of drug cards, including a 
direct mail to all Medicare beneficiary households telling them 
about the card, and telling them that they can get assistance 
by calling 1-800-MEDICARE, or by going to www.medicare.gov. The 
tool that I mentioned in my testimony will provide either the 
individual themselves, if they are an Internet user, or by 
calling 1-800-Medicare, or by going to a local community-based 
organization, the opportunity to compare drugs on the issues 
that are important to them, including the availability of 
pharmacies within a geographic area, within 5 miles of their 
home, or if they want a particular pharmacy that they use, they 
can specify the pharmacy on the corner that they are accustomed 
to.
    We will then ask them for the drugs that they are using and 
the dosage, and all of that information will be fed into a 
screening tool that then presents back to them the available 
drug cards that meet their specifications, and will show their 
aggregate savings in descending order from the most savings to 
the least, and then they can go in and look at the exact 
savings on a drug-by-drug basis. So, they can use that 
information in evaluating what is more important to them, and 
maybe more important to them that the pharmacy is closer to 
them, or the amount of savings. We will narrow the number of 
pharmacies that they have to consider, the pharmacy of the drug 
card plans that they will have to consider.
    Mr. MCCRERY. Now, some have criticized the ability of these 
plans to change their prices and formularies during the course 
of the year. Why should we allow them to change their prices 
and formularies?
    Ms. MCMULLAN. Well, the changes will reflect any changes in 
the average-wholesale price. These changes can go up and they 
can go down. As I said, they are reflected to changes in the 
manufacturers cost and of supply and demand. So, they can go 
down as well as going up.
    As far as what is included in the formulary, again, we 
don't anticipate that they are going to change them in any kind 
of wholesale way. We have asked the drug card sponsors to 
include those drugs that are most commonly used by the Medicare 
population, and there are strong incentives for these drug card 
sponsors to give the beneficiaries what they need, because they 
want to keep the loyalty of these individuals into the 2005 
year, and also many of these drug card sponsors are positioning 
to become part of the Part D benefit, and so all of this, they 
want to have good will and good faith of the members of their 
drug card plans.
    Mr. MCCRERY. Thank you. Thank you, Madam Chair.
    Chairman JOHNSON. Thank you. Mr. Cardin.
    Mr. CARDIN. Madam Chair, I think Mr. Doggett was here 
first. Thank you, Madam Chair. Thank you for the courtesy of 
allowing me to ask these questions. Ms. McMullan, I appreciate 
the reference in your opening comments to the fraud that we are 
discovering with telemarketers who are alleging that they are 
Medicare-approved discount card sponsors, getting information 
from beneficiaries. We believe their goal is identity theft, 
and perhaps also to get money out of beneficiaries.
    I have a concern about implementation of this new program. 
You plan to permit the approved plans to contact Medicare 
beneficiaries who are already very sensitive about being 
contacted by telephone. We should restrict marketing to means 
other than via telephone, which, I think, is somewhat 
threatening to handle for many elderly persons. On February 24, 
I wrote a letter to Secretary Thompson about this. I urge you 
to develop a code of conduct for the approved plans, as to how 
they can contact seniors, obtain and update information, et 
cetera, so that we don't encounter abusive behavior by these 
now-approved plans.
    Ms. MCMULLAN. We have published some of the marketing 
guidelines. We continue to refine those, and will take your 
concerns into consideration in making sure that they are as 
tight as possible in protecting the Medicare population. We are 
very aware of this and very concerned that we don't expose 
people with Medicare to any of this risk. Currently, our 
approach is to only allow calls that the beneficiary seeks the 
caller or agrees to get a call.
    Mr. CARDIN. I think that would be an improvement, if there 
is an express consent to the call. This still raises the fact 
that, it is hard to document what occurs during a phone call. 
Whereas, if it is done by mail or e-mail, we know that we have 
some documentation which is useful for us to be able to monitor 
conduct. If there is a specific request from a beneficiary to 
handle the transaction by telephone, then obviously that would 
be fine. Just be cautious in this area. Let me just return to 
the point that was mentioned earlier, Mr. McCrery mentioned it 
and Mr. Stark mentioned it. There are discount cards out now 
today, obviously not Medicare-approved.
    I understand your point about market share--trying to lower 
the cost by locking in a beneficiary for a year. The concern 
that has been expressed, though, is that because the plan can 
change the drugs that are covered on a weekly or bi-weekly 
basis, and beneficiaries are locked in for a long period of 
time, although the drugs can change, we know that 
pharmaceutical prices are going up well beyond the cost of 
inflation and discounts are not guaranteed.
    All of that put together, we are not exactly sure how much 
impact these cards will have on the actual out-of-pocket costs 
for Medicare beneficiaries, particularly those who do not 
qualify for low-income assistance. That is our concern. We 
would hope that while these plans are in effect, there will be 
some way to monitor exactly what is happening with plans 
dropping drugs, and why are they dropping drugs.
    Was it a come-on to get people to enroll in the program, 
and then after they are enrolled to go to a different drug on 
which they can make a greater profit? I don't know. These are 
some of the concerns that many of us have, because this is new 
for the government to be involved in this type of program. We 
ask you to monitor this very carefully and very closely, and 
report back to this Committee and to Congress as to what is 
happening as far as the approved plans, dropping drugs, or 
changing the discount levels, knowing that the beneficiary is 
locked in for a year.
    Ms. MCMULLAN. We intend to do that. We have a pretty 
sophisticated analysis of the different drug offerings, plan to 
look at both the changes in formularies and in the changes in 
prices. Again, we do not believe that the incentives are there 
to do that, and the contract also requires these companies to 
provide the drugs that are most usually needed by people with 
Medicare. So, we don't anticipate that we are going to see 
this, because it doesn't set them up very appropriately. We 
will monitor for it. If it does occur, we will act upon it.
    Mr. CARDIN. Let me just challenge that statement. Having a 
particular drug in your formulary may be very important for 
marketing, but you may not have a particularly good 
relationship with the manufacturer. You may use it as a 
marketing tool, but later drop it from your formulary because 
of the profit level. So, I think you need to monitor that 
practice. Just don't assume that plans will have and continue 
to offer all those drugs.
    Ms. MCMULLAN. We will.
    Chairman JOHNSON. Mr. Camp.
    Mr. CAMP. Thank you, Madam Chair.
    Ms. McMullan, I appreciate your testimony. I have had a 
chance to look at the written portion of it. If you could tell 
me, it appears as though there will be 28 various drug cards, 
discount drug cards being offered or prescription cards. Can 
you tell me, how will seniors keep track of the fact that the 
discounts and benefits can vary among those cards? How will 
seniors follow that and be aware of that?
    Ms. MCMULLAN. We are going to be ensuring that individuals 
with Medicare--they will receive a direct mail. We are also 
doing advertising too, to let them know that they can all call 
1-800-MEDICARE, or go to the website to get information about 
the drug cards that are available to them in their area. We 
will then use--we have a tool that we have on the website that 
our customer service representatives will use. We are also 
training community-based organizations to use this tool, like 
State health insurance assistance programs and others. What 
that tool does is asks the individual for a set of eligibility 
information, asks them what is important to them, like are they 
interested in retail pharmacy, mail order pharmacy, how close 
would they like a pharmacy to be to them? What drugs do they 
take? If they have a particular pharmacy that they want to use, 
they can specify that pharmacy.
    Using all of that information, we then present to them the 
drug cards that are available that meet those parameters. We 
list those in descending order by the lowest price to the 
highest price. They can see both the aggregate savings as well 
as the per-drug savings that each of those cards offers, and 
then each individual makes the decision that is best for them 
based on what their evaluation is, whether it is convenience of 
pharmacy, lower cost, and--but we will narrow the field to 
those that meet the parameters that the individual has 
specified.
    Mr. CAMP. Any senior not enrolled in Medicare Advantage 
would be eligible to receive one of those cards?
    Ms. MCMULLAN. Yes.
    Mr. CAMP. Is there any chance that a beneficiary could be 
worse off financially with any of the available cards than they 
are today?
    Ms. MCMULLAN. The target for the drug discount card are 
those people who don't have drug--outpatient prescription drug 
coverage now. So, that is a significant number of people. 
Within that, the advantage of the $600 credit for those people 
who are below the 135 percent of poverty. So, the target for 
this card are people who don't have discounts now, who pay cash 
prices at the register, and the people who have the opportunity 
to get $600 against their $1,400 on average drug cost a year. 
So, the target is going to be advantaged.
    Mr. CAMP. I think just for people that are watching, the 
poverty rate really means for a married couple an income level 
of $16,862, and then for a single it would be an income of 
$12,569. Those income levels and below, they would be able to 
be eligible for the $600 discount?
    Ms. MCMULLAN. Yes.
    Mr. CAMP. What--if you can tell me, there has been some 
concern that there may be fraudulent cards in the marketplace, 
that may be marketed. What are you doing to ensure that some 
beneficiaries may not enroll in the wrong kind of card program?
    Ms. MCMULLAN. We have, as I mentioned, we are doing a 
direct mail that will go out at the end of April and the 
beginning of May that gives beneficiaries information about the 
drug cards. In this, we tell them to look for the Medicare 
approved seal which has to be on one of these cards in order to 
make them an authentic approved Medicare card. In addition, we 
have a booklet that we will make available, it is on the 
website now, and can be ordered through 1-800-MEDICARE, that 
gives them much more detailed information. Again emphasizes the 
fact that in order for it to be an authentic card, it has to 
have the Medicare approved seal on the card. So, we are using 
our different educational channels to make sure that people get 
this information and engaging as many community partners as we 
can to make sure that people at a local level also get this 
information.
    Mr. CAMP. Thank you. Thank you, Madam Chairman.
    Chairman JOHNSON. Mr. Doggett.
    Mr. DOGGETT. Thank you, Madam Chairman. Like my colleagues, 
Mr. Camp and Mr. Cardin, and Ms. McMullan, I am concerned about 
the potential for fraud with these cards, the reports that are 
already out. What is the approximate dollar value of the 
additional resources that the agency has allocated to combating 
fraud with much greater potential for fraud with these cards?
    Ms. MCMULLAN. I don't know the dollar value. I will be 
happy to provide that for the record. We are taking this issue 
very seriously. We are engaging with our partners in the law 
enforcement area, as I mentioned earlier. We are sponsoring a 
meeting among the Department of Justice, the FBI, and the 
Inspector General to ensure that we are all working together on 
identifying both the risks to individuals as well as the 
opportunities to prevent those risks. We are taking very 
seriously the reports that we have gotten thus far and will 
continue to monitor that.
    [The information was not received at the time of printing.]
    Mr. DOGGETT. I believe there are some more precise figures 
that you have for fraud with reference to the media campaign to 
promote this system. I believe that is a campaign that the U.S. 
General Accounting Office has found to, quote, ``have notable 
omissions and other weaknesses.'' It is still investigating the 
legality of the video news releases that are a part of that 
campaign. Am I correct that the approximate cost of the 
promotional campaign is about $12 million on broadcast media 
that fill our airwaves and about $10 million on the flyer you 
have sent out to all Medicare recipients?
    Ms. MCMULLAN. That--those numbers are correct.
    Mr. DOGGETT. That is a contract that was given to the same 
public relations firm that is handling the Bush-Cheney 2004 
campaign, isn't it?
    Ms. MCMULLAN. The prime contractor for our ad work is 
Ketcham & Associates.
    Mr. DOGGETT. The same firm that is handling the President's 
reelection campaign, right?
    Ms. MCMULLAN. I don't know that.
    Mr. DOGGETT. Was that a Halliburton sole source contract, 
or how was that contract awarded?
    Ms. MCMULLAN. It was competitively awarded.
    Mr. DOGGETT. In what way? By what standards and when?
    Ms. MCMULLAN. One of the mechanisms that we use in the 
Federal acquisition is something called an indefinite delivery 
indefinite quantity contract. We competed those contracts, the 
contracts to do beneficiary communications and customer 
consumer research fully, and then we have a stable of 
contractors that we do limited competitions among. We did a 
limited competition among that group of indefinite delivery 
indefinite quality contracts, and Ketcham & Associates is the 
prime contractor that was awarded the contract.
    Mr. DOGGETT. It was awarded under what you referred to as a 
limited competition. So----
    Ms. MCMULLAN. A limited competition after a full and open 
competition.
    Mr. DOGGETT. Have they done any work for the agency 
previously?
    Ms. MCMULLAN. Yes, they have. I can't tell you exactly what 
work. However, yes, they have.
    Mr. DOGGETT. On the--are they--I just had one other 
question and then I will yield back my time. Go ahead.
    Chairman JOHNSON. I wanted her to clarify the difference 
between a general open competition.
    Ms. MCMULLAN. In order to create the smaller group that you 
can do a limited competition among, you have to do a full and 
open competition, which is the broad competition, to get down 
to the smaller number, and then qualify for a limited 
competition. It is a two-stage process. We have a list of four 
contractors that are within that stable of contractors that 
then qualify for a limited competition. They won in both the 
large contract to be listed among the four, and then won within 
the limited competition.
    Mr. DOGGETT. On a different topic, the transitional 
assistance, the $600, I believe the plan is that you have to 
certify the enrollees before they will qualify for the 
conditional assistance. How do you plan to certify the 
applicants so that they get that benefit as soon as possible?
    Ms. MCMULLAN. We have worked very hard during the months 
leading up to this to enter into agreements to get information 
from the Internal Revenue Service (IRS), from the Office of 
Personnel Management (OPM), for the Federal employees, from the 
U.S. Department of Veterans Affairs (VA), and from the Railroad 
Retirement Board in order to get the information that we need 
to assure that when people attest to their--that they qualify 
for these cards, that they are qualified. Then we can enroll 
them.
    Mr. DOGGETT. When would you expect that the first 
assistance would be available?
    Ms. MCMULLAN. June 1.
    Mr. DOGGETT. On the flyer that was sent out to Medicare 
recipients, was that prepared with the--in consultation with 
the same firm that did the television ads?
    Ms. MCMULLAN. I don't remember if we did any consultation 
with them on that at all. That was done mainly within the 
Federal staff. Then we printed it using the U.S. Gvernment 
Printing Office.
    Mr. DOGGETT. Thank you very much. Thank you, Madam 
Chairman.
    Chairman JOHNSON. To follow up on a preceding question. 
Would you clarify who can get a discount card. If you are 
already on Medicaid, if you are already qualified under the VA 
system, can you get a card? If you are qualified under a State 
drug subsidy program, can you get a card? If you are a senior 
that just already has a private card, can you get a card?
    Ms. MCMULLAN. The only people with Medicare who are not 
able to get a card are people with Medicaid. The transitional 
assistance is not available to people who already have 
outpatient prescription drug coverage. So, a card, anyone with 
Medicare who does not also have Medicaid, full outpatient 
prescription drug coverage under Medicaid, or an 1115 waiver, 
they do not qualify for the card. Anyone other than that can 
get a card. Those people who, in order to qualify for the $600 
transitional assistance, you may not have other outpatient drug 
coverage, such as Federal Employees Health Benefits Program 
(FEHBP), TRICARE, or employer group coverage.
    Chairman JOHNSON. You can have another discount card?
    Ms. MCMULLAN. Yes.
    Chairman JOHNSON. A private discount card?
    Ms. MCMULLAN. Yes.
    Chairman JOHNSON. So, all of those people not eligible for 
Medicaid in the 38 States that define Medicaid as 75 percent of 
poverty, of the Federal poverty income, are under. So, all of 
those people that are in between 75 percent of poverty income 
and 135 percent of poverty income, in all of those 38 States, 
they all will get the $600 and have the discount card, and if 
they already have a discount card, they can have two, so they 
can select the one that gives them the most discount on 
whatever drug they intend to buy?
    Ms. MCMULLAN. Yes. You asked about State pharmacy 
assistance programs. Members of State pharmacy assistance 
program plans may also get the card, and if they qualify on 
income, the transitional assistance.
    Chairman JOHNSON. Well, that is very interesting. Since, 
some of the State pharmacy assistance programs have very high 
deductibles. So, they can effect that high deductible by using 
their discount card. Are there other questions of the CMS 
representative? Thank you very much, Ms. McMullan, for being 
with us. I appreciate your hard work to get this launched, and 
the good attention that you have paid to helping seniors with 
their choices. There was--I am sorry. There was one thing that 
needed to be clarified. You have identified the cards at this 
time. Have the cards negotiated their prices yet?
    Ms. MCMULLAN. In order--we notified the card sponsors that 
we were going to approve them. They are now finalizing their 
contracts. They will start sending us the pricing information 
during the month of April, and we will have that information on 
the website by April 29.
    Chairman JOHNSON. So, you actually don't know at this time. 
You just approved their structure, and the fact that they could 
do the job, and so on?
    Ms. MCMULLAN. Also discount----
    Chairman JOHNSON. We don't know what kind of prices they 
are going to be able to negotiate from the manufacturers. The 
seniors themselves, before they sign up, will know the prices 
at their nearest pharmacy, or they can ask the lowest price in 
their area, so the--but by the time this goes into effect, 
those negotiated prices will be known, but they are not known 
now?
    Ms. MCMULLAN. Correct.
    Chairman JOHNSON. That is part of the reason why you can't 
say whether they will be 10 percent across the board, 15 
percent across the board, or they will be 40 percent here and 1 
percent there in the same plan for different drugs. Thank you 
for clarifying that. Now, let's turn to the second panel, if 
they will come to the dais, please.
    I would like to welcome Susan Rawlings, the Vice President 
and head of Retiree Markets of Aetna. I would like to welcome 
Steven Nelson, the Senior Vice President, Senior Products 
Division, Health Net. I would like to welcome Gail Shearer, the 
Director of Health Policy Analysis of the Consumers Union. 
Thank you very much for being here. I apologize for having kept 
you so long this afternoon. Ms. Rawlings.

STATEMENT OF SUSAN RAWLINGS, VICE PRESIDENT AND HEAD OF RETIREE 
                     MARKETS, AETNA, INC.

    Ms. RAWLINGS. Thank you. Good afternoon, Madam Chairman, 
Congressman Stark, and Members of the Subcommittee. My name is 
Susan Rawlings, and I am the Vice President and head of Retiree 
Markets for Aetna. I am very pleased to be here this afternoon 
to talk with you about Aetna's role as one of the carriers 
selected to issue a prescription drug discount card to 
America's seniors.
    I want to begin by emphasizing that Aetna strongly supports 
the Medicare Modernization Act, and I would like to highlight 
for you the immediate impact of this law passed just 3 months 
ago on seniors. As a result of the increased payments under the 
new law, Aetna has revised its existing coverage effective 
March 1, 2004. We applied 50 percent of the new money to 
reducing member premiums and lowering costs, 30 percent of the 
new money was applied to increasing benefits and preventive 
care, and the remaining 20 percent of the money was applied to 
improving our provider networks. My written statement includes 
these details and the enhancements we made to our product 
portfolio.
    Aetna's participation in Medicare dates all of the way back 
to the beginning, when we paid the very first Medicare claim on 
July 9, 1966. Today we serve more than 105,000 beneficiaries 
through health plans that we offer in 5 States. As we look to 
the future, we are evaluating several options to expand our 
participation in the Medicare program. For example, the disease 
management demonstration project, for which we are immediately 
and intimately waiting for the request for proposals that we 
expect to get at any moment. We are very excited about that. 
Providing an even broader range of health plan choices down the 
road, including potential Medicare Advantage service area 
expansions in 2004 and 2005, and participation in the regional 
preferred provider organization (PPO) and Medicare Part D 
coverage that are authorized by the Medicare Modernization Act 
beginning in 2006.
    Now, we would like to talk in more detail about the Aetna 
Rx savings card. Effective June 1, beneficiaries will receive 
further assistance under another important initiative 
established by the Medicare Modernization Act, the Medicare 
approved prescription drug discount card. At Aetna, we are 
proud that we have been approved as a national card sponsor. In 
order to better understand the needs of eligible beneficiaries 
who might seek this card, we wanted to talk directly with them. 
We conducted focus groups in California, Colorado, and Florida 
in early March of this year. We sought the opinion of these 
beneficiaries in order to gauge their understanding of the 
discount card program, how they viewed the value of the 
program, and in what manner they would prefer to receive 
information.
    These discussions and the insights received will enable us 
to better communicate with seniors and allow us to implement 
the program to best serve their needs. Aetna's card will be 
available to all Medicare beneficiaries, eligible Medicare 
beneficiaries in all 50 States, which will enable Aetna to 
support the intent of the Medicare Modernization Act by 
increasing access to more affordable prescription drugs. 
Eligible beneficiaries include all enrollees in the original 
Medicare fee-for-service system, enrollees in Aetna's 
Medicare's advantage plans, and enrollees in other Medicare 
Advantage plans that do not sponsor the exclusive drug cards.
    The Aetna Rx savings card includes a number of standard 
features supplemented by several features unique to Aetna that 
will enable beneficiaries to receive maximum value from the 
discount card program. For example, the card will give 
enrollees access to Aetna InteliHealth, our online consumer 
health information resource. This website contains the Ask the 
Pharmacist feature and offers health information that consumers 
in consultation with their health care professionals may use to 
take an active role in their health care decisions. 
Additionally, our discount card will also enable enrollees to 
receive discounts on over-the-counter vitamins and nutritional 
supplements through our Vitamin Advantage program. Our card 
will be an open formulary card. Instead of adopting a closed 
formulary, the Aetna savings card will offer discounts on all 
prescription drugs that are allowed by CMS. We do not intend to 
limit the prescription drugs available for discount.
    Based on focus groups we conducted, we gained insights that 
will help us provide information on how to enroll for the card. 
In early May Aetna will launch a new website to provide 
beneficiaries with answers to frequently asked questions and 
other educational information on the card program. This website 
will include instructions to help beneficiaries enroll in our 
drug card through an online enrollment form. We also plan to 
work with our provider network to help identify needy 
beneficiaries who might qualify for the transitional assistance 
benefit. Furthermore, we plan to share information on the Aetna 
Rx savings cards with the 13 million medical members of Aetna's 
health plans so that they can be equipped with the knowledge of 
the card's benefits and how it might be of value for their 
Medicare-eligible family and friends.
    Beneficiaries who choose the Aetna Rx savings card will be 
aided by customer service representatives who have received 
specialized training on how to effectively communicate with 
seniors and respond to their questions. Aetna will begin making 
information available to Medicare beneficiaries as soon as 
possible. Enrollment should start in early May with an 
effective coverage date of June 1. The Aetna Rx savings card 
will use private sector pharmacy benefit management tools and 
techniques such as negotiated discounts on brand-name drugs, 
the option to use mail-order pharmacies, and programs that 
encourage the use of generic drugs. These tools will increase 
beneficiaries' access to prescription drugs, and reduce out-of-
pocket costs, and form a bridge to the Part D program in 2006.
    In conclusion, I would like to thank the Subcommittee 
Members for your interest in the Medicare-approved prescription 
drug discount program and for closely monitoring its 
implementation. Please be assured that Aetna is strongly 
committed to making this program work for Medicare 
beneficiaries. We believe that our plan to make information 
available to beneficiaries will help minimize the confusion 
while they are choosing their prescription drug discount card. 
We are confident that this card will maximize access to and the 
affordability of prescription drugs seniors need. Thank you 
very much.
    [The prepared statement of Ms. Rawlings follows:]
  Statement of Susan E. Rawlings, Vice President and Head of Retiree 
              Markets, Aetna, Inc., Hartford, Connecticut
    Good afternoon, Madam Chairwoman and Members of the Subcommittee. I 
am Susan Rawlings, Vice President and Head of Retiree Markets for 
Aetna. I appreciate having this opportunity to testify about Aetna's 
longstanding commitment to meeting the health care needs of Medicare 
beneficiaries, as well as our enthusiasm about serving beneficiaries 
through the new programs that were authorized by the Medicare 
Modernization Act of 2003 (MMA).
    I want to begin by emphasizing that Aetna strongly supports the 
MMA. Throughout the 2003 Medicare debate, we played an active role in 
encouraging Congress to enact legislation to provide Medicare 
beneficiaries with access to high quality health care and the widest 
range of choices. The MMA advances these goals in several ways: by 
immediately increasing funding for the health benefits of Medicare 
health plan enrollees; by establishing a new regional PPO program in 
2006; by providing beneficiaries with short-term prescription drug 
assistance in 2004 and 2005; by establishing a permanent prescription 
drug benefit in 2006; and by expanding beneficiary access to preventive 
services and disease management services that were pioneered by the 
private sector. We applaud Congress for enacting this historic 
legislation to improve choices and benefits for Medicare beneficiaries.
    Aetna's participation in Medicare dates all the way back to July 
1966 when we paid the first claim in the history of the Medicare 
program. In the intervening years, we have expanded our involvement by 
providing comprehensive health coverage through Medicare's private 
health plan program, which is currently known as Medicare Advantage. 
Today, we serve more than 105,000 beneficiaries through health plans we 
offer in five states: California, New Jersey, New York, Pennsylvania, 
and Maryland. This includes active participation in the Medicare+Choice 
point-of-service plan offered under the demonstration project announced 
in 2002 by CMS.
    Looking to the future, we are eager to further expand our 
participation in Medicare by sponsoring Medicare-approved prescription 
drug discount cards and we will evaluate offering beneficiaries a 
broader range of health plan options, including the regional PPOs that 
are authorized by the MMA beginning in 2006. We are prepared to 
carefully review the CMS proposed regulations that we anticipate will 
provide the industry with further guidance in late spring.
Improvements in Medicare Advantage
    Although the Medicare-Approved Prescription Drug Discount Card 
Program is the official topic of today's hearing, I want to begin by 
highlighting the benefit enhancements and cost savings that our 
Medicare Advantage enrollees are already receiving as a direct result 
of the additional funding the MMA provided for the Medicare Advantage 
program in 2004.
    In late January, Aetna submitted revised 2004 benefit packages--
also known as adjusted community rate (ACR) proposals--to the Centers 
for Medicare and Medicaid Services (CMS), specifying how we proposed to 
use the MMA funding to improve benefits and lower costs for our 
Medicare enrollees. Our revised benefit packages were subsequently 
approved by the agency and, since March 1, beneficiaries have seen 
numerous improvements in Aetna's Golden Medicare Plan HMO\TM\ and in 
Aetna's Golden Choice\TM\ POS Plan, such as:

      Reduced Member premium or enhanced benefits--and 
sometimes both--in every market we serve;
      Generic prescription drug coverage available in every 
county we serve;
      The addition of brand name prescription drug coverage in 
many counties, including all of our service areas in Pennsylvania and 
Maryland;
      Reduction of co-payments for inpatient hospital care by 
50 percent--from $200 to $100 per day--in several counties in New 
Jersey and New York; and
      The elimination of co-payments for a broad range of 
preventive services including routine physicals, bone mass 
measurements, colorectal screening exams, prostate screening exams, 
mammograms, pelvic exams, and routine hearing and vision exams.

    Across our services areas, our members and providers benefited 
directly from the passage of the MMA. 50% of the MMA dollars were 
applied in the form of member premium reductions, 30% in benefits 
enhancements and 20% in network development because of the passage of 
the MMA. I have attached a sample communications package on our new 
benefits and premiums (as of March 1, 2004) to demonstrate just how 
thorough and comprehensive we are when it comes to communicating with 
seniors. We will prepare and distribute similar communications 
materials to seniors as needed to implement the discount card program.
    Similar coverage improvements have been adopted by Medicare 
Advantage plans all across the nation. CMS recently reported that the 
2004 funding increase for the Medicare Advantage program has resulted 
in improved benefits for 3.7 million beneficiaries, lower cost-sharing 
for 2 million beneficiaries, and reduced premiums for 1.9 million 
beneficiaries. These improvements are clear evidence that the MMA is 
providing significant value for seniors and disabled Americans, less 
than four months after the President signed this measure into law.
The Aetna Rx Savings Card\SM\
    Beginning June 1, beneficiaries will receive further assistance 
under another important initiative established by the MMA: the 
Medicare-Approved Prescription Drug Discount Card Program.
    In order to meet the needs of eligible Medicare beneficiaries we 
conducted focus groups in California, Colorado and Florida in March 
2004. We sought the opinion of these beneficiaries in order to gauge 
their understanding of the discount drug card program, how they viewed 
the value of the card, and in what manner they would prefer to receive 
information. These discussions will enable us to better communicate and 
allow us to implement procedures to serve their needs.
    Aetna strongly supports the steps this program will take to provide 
beneficiaries with discounted prices on prescription drugs and, at the 
same time, provide up to $600 annually in added assistance for those 
with low incomes. On March 25, CMS announced that Aetna has been 
approved as a general card sponsor on a nationwide basis, meaning that 
our Aetna Rx Savings Card will be available to all eligible Medicare 
beneficiaries in all 50 states which enables Aetna to support the 
intent of the MMA by broadening access to more affordable prescription 
drugs through the country. Eligible beneficiaries include all enrollees 
in the Medicare fee-for-service system, enrollees in Aetna's Medicare 
Advantage plans, and enrollees in other Medicare Advantage plans that 
do not sponsor drug cards.
    The Aetna Rx Savings Card includes a number of features--and is 
supplemented by several Aetna initiatives--that will enable 
beneficiaries to receive maximum value from the discount drug card 
program. For example:

      The Aetna Rx Savings Card will give enrollees access to 
``Aetna InteliHealth','' an online consumer health 
information resource. This website includes an ``Ask the Pharmacist'' 
feature and offers health information that consumers, in consultation 
with their health care professionals, may use to take an active role in 
their health care decisions.
      Our discount drug card will also allow enrollees to 
receive discounts on over-the-counter vitamins and nutritional 
supplements through the Vitamin Advantage\TM\ program.
      Aetna will begin making information available to Medicare 
beneficiaries as soon as possible. Approval to market is expected in 
early May 2004 and we expect our first members to be effective June 1. 
Aetna is committed to communicating quickly and thoroughly on changes 
such as these, as evidenced by the recent communications supporting the 
Medicare Advantage improvements March 1 (an example is attached as 
exhibit 1).
      Instead of adopting a closed formulary, the Aetna Rx 
Savings Card will offer discounts on all prescription drugs that are 
allowed by CMS. We do not intend of limit the drugs available for 
discount.
      When drug card enrollment begins in early May, Aetna will 
launch a new website to provide beneficiaries with answers to 
Frequently Asked Questions (FAQs) and other educational information on 
the discount card program. This website will also include instructions 
to help beneficiaries enroll in our drug card through an online 
enrollment form.
      Beneficiaries who choose the Aetna Rx Savings Card will 
be aided by customer service representatives located in service centers 
in the United States. These representatives have received specialized 
training on how to effectively communicate with seniors and respond to 
their questions.
      The $30 annual enrollment fee for beneficiaries who 
qualify for low-income assistance under the discount drug card program 
will not apply, as this fee will be paid by CMS.
Value of Private Sector Tools and Techniques
    The discount card program, along with other key components of the 
MMA, establishes an important role for the private sector. We believe 
this is good news for beneficiaries, considering that the private 
sector has a strong track record of providing high value under the 
Medicare program.
    The Aetna Rx Savings Card will use United States based private 
sector pharmacy benefit management tools and techniques such as 
negotiated discounts on brand name drugs, the option to use mail-
service pharmacies, and programs that encourage the use of generic 
drugs. These tools will increase beneficiary access to prescription 
drugs by reducing out-of-pocket costs.
    A number of studies have demonstrated that the use of these 
techniques by private sector health plans is beneficial to enrollees in 
public programs. For example, a 2003 study, conducted by Associates and 
Wilson \1\ on behalf of America's Health Insurance Plans (AHIP), found 
that the PACE program in Pennsylvania--the largest state pharmacy 
assistance program in the nation--could save up to 40 percent by 
adopting the full range of private sector pharmacy benefit management 
techniques.
---------------------------------------------------------------------------
    \1\ Prescription Drug Benefit Management: Improving Quality, 
Promoting Better Access and Reducing Cost, Associates & Wilson, October 
2003.
---------------------------------------------------------------------------
    In addition, the General Accounting Office (GAO) \2\ has reported 
that pharmacy benefit management techniques used by health plans in the 
Federal Employees Health Benefits Program (FEHBP) resulted in savings 
of 18 percent for brand-name drugs and 47 percent for generic drugs, 
compared to the average cash price customers would pay at retail 
pharmacies.
---------------------------------------------------------------------------
    \2\ Federal Employees' Health Benefits: Effects of Using Pharmacy 
Benefit Managers on Health Plans, Enrollees, and Pharmacies, U.S. 
General Accounting Office, January 2003.
---------------------------------------------------------------------------
    These findings demonstrate that Aetna and other private sector 
companies are well-positioned to use our experience and capabilities to 
make prescription drugs more affordable for a broader range of Medicare 
beneficiaries. With respect to both the quality and affordability of 
health care, the private sector has a strong track record that bodes 
well for its involvement in the discount card program as well as 
longer-term Medicare reforms.
Conclusion
    In conclusion, I want to thank Subcommittee Members for your 
interest in establishing the Medicare-Approved Prescription Drug 
Discount Card Program and for closely monitoring its implementation. 
Please be assured that Aetna is strongly committed to making this 
program work for Medicare beneficiaries.
    We plan to make information available that will help minimize the 
confusion of Medicare beneficiaries while they are choosing their 
prescription drugs and maximize their access to the prescription drugs 
they need.
    We are confident that a strong public-private partnership will 
enable the discount card program to fulfill its potential to provide 
beneficiaries with more affordable prescription drugs over the next two 
years and lay the groundwork for the Medicare prescription drug benefit 
that will be implemented in 2006.

                                 

    Chairman JOHNSON. Thank you, Ms. Rawlings. Mr. Nelson.

 STATEMENT OF STEVEN H. NELSON, SENIOR VICE PRESIDENT, SENIOR 
PRODUCTS DIVISION, HEALTH NET, INC., WOODLAND HILLS, CALIFORNIA

    Mr. NELSON. Thank you. Good afternoon, Chairman Johnson, 
and Congressman Stark and Members of the Subcommittee. I am 
Steve Nelson, head of Medicare programs for Health Net, Inc., 
and I appreciate the opportunity to testify about Health Net's 
participation in this important program. I will offer specific 
examples of how our programs are working and the value they 
bring to beneficiaries. For more than 10 years, we have been 
proud to serve Medicare beneficiaries. My message to the 
Subcommittee today is what Congress passed, and was signed in 
December, has already had a tangible positive impact. We look 
forward to our participation in the drug discount program. We 
have been providing pharmacy benefits to most of our senior 
members, and this new program will make sure their dollars go 
farther. Congress' decision to provide transitional benefits to 
low-income seniors means that a number of our beneficiaries 
will get a $600 subsidy to help them purchase prescription 
drugs.
    Since the passage of the Medicare Modernization Act, Health 
Net has made significant improvements to the benefits we 
provide our Medicare members. These include lower premiums for 
more than 65 percent of our members, lower copayments for more 
than 90 percent, enhanced benefits for approximately 20 
percent, and a drug discount card for every single member. That 
is really all within the last 3 months. This is all compelling 
evidence that our 171,000 beneficiaries are better off today 
than they were just 3 months ago. Before we made these 
improvements, we conducted focus groups and listening sessions 
to gain new insights into our seniors' health care needs. In 
California, we learned that our beneficiaries wanted lower 
premiums and a better drug benefit. So, in one California 
county, for example, members now have no monthly premium 
compared with a $40 monthly premium last year, unlimited 
generic drug coverage, and $500 annual brand drug benefit 
compared to no drug benefit at all last year. In Connecticut 
they wanted lower out-of-pocket costs. Now copayments have 
dropped by as much as 50 percent.
    Two months from today, on June 1, our Medicare 
beneficiaries will see another significant improvement in their 
benefits when our drug card goes into effect, giving them 
discounted prices on prescription drugs. We have been approved 
to offer a card exclusively to enrollees in our health plans, 
and we will waive the annual enrollment fee of $30. With the 
card our beneficiaries will see immediate savings of up to 25 
percent on the cost of their medications. We have launched a 
companywide effort to provide more support for seniors with the 
following goals in mind: one, providing easy-to-understand 
information; two, lowering prescription drug costs; three, 
integration of the drug card with existing pharmacy benefits; 
and four, expanding our care coordination programs.
    Health Net is implementing a series of educational 
initiatives that assist beneficiaries in navigating through the 
program with easy-to-follow instructions, answers to frequently 
asked questions, and pertinent information about transitional 
assistance. As part of our ongoing education effort, 
beneficiaries will also receive a brochure on our drug discount 
card and related information in our summary of benefits and our 
evidence of coverage documents. We are also publishing new 
webpages to support the Medicare drug discount card program and 
updating Health Net's Medicare website to include new Medicare 
prescription benefits. In addition, we have enlisted our 
physicians and pharmacy partners in an education campaign for 
beneficiaries. In fact, just this week Health Net volunteered 
to participate in a pilot test run by CMS where beneficiaries 
will be invited to review our materials and participate in 
practice calls to our customer service representatives.
    To make things simple and effective for beneficiaries, we 
are doing the following things. We are working closely with our 
pharmacy partners to assure that members will receive the 
lowest cost at the time the medication is dispensed by simply 
presenting their Health Net Medicare drug discount 
identification card. We are enhancing our patient safety 
programs to reduce potential drug errors. We are improving 
customer service capacity to help members take full advantage 
of the new programs, including transitional assistance. We will 
improve patient support by encouraging members to call health 
coaches, who are experienced clinical nurses, to discuss any 
significant medical event, chronic therapy, or symptom concern. 
Health Net is making every effort to ensure our beneficiaries 
receive the greatest possible value for their drug card. Our 
goal is to ensure access to an affordable drug benefit for all 
our Medicare members. I am pleased to have had this opportunity 
to share with you our ideas for making this program a success, 
and would be happy to answer any questions.
    [The prepared statement of Mr. Nelson follows:]
 Statement of Steven H. Nelson, Senior Vice President, Senior Products 
               Division, Health Net, Inc., Tempe, Arizona
    Good afternoon, Chairwoman Johnson, Congressman Stark and 
distinguished Members of the Subcommittee. I am Steve Nelson, Senior 
Vice President, Senior Products Division of Health Net, Inc. I 
appreciate the opportunity to discuss Health Net's participation in the 
Medicare Prescription Drug Discount Card and Transitional Assistance 
Program.
    Health Net's HMO, insured PPO and government contracts subsidiaries 
provide health benefits to approximately 5.3 million individuals in 14 
states through group, individual, Medicare, Medicaid and TRICARE 
programs. Health Net's subsidiaries also offer managed health care 
products related to behavioral health and prescription drugs.
Introduction
    Health Net is strongly committed to serving the health care needs 
of Medicare beneficiaries. For more than ten years, we have 
participated in the Medicare health plan program--through 
Medicare+Choice, and now Medicare Advantage.
    Currently, our Medicare Advantage HMO plans provide coverage to 
171,000 beneficiaries in 44 counties in Arizona, California, 
Connecticut, New York, and Oregon. Health Net offers a Medicare 
Advantage Preferred Provider Organization (PPO) product, called Health 
Net Options Plus, in 21 counties in Arizona, Oregon, and Washington. We 
are offering this PPO plan under a demonstration project the Centers 
for Medicare and Medicaid Services (CMS) launched in late 2002.
    Looking forward, we are excited about expanding our participation 
in Medicare under the new programs authorized by the Medicare 
Modernization Act of 2003 (MMA), including the discount card program 
that is the focus of today's hearing. We commend Congress for enacting 
this important legislation that enhances choices and benefits for 
current and future generations of Medicare beneficiaries.
Medicare Advantage: Enhanced Benefits and Lower Costs
    Although my testimony will focus primarily on the discount card 
program, I will briefly review another component of the MMA that is 
providing real and meaningful value to millions of Medicare 
beneficiaries. Specifically, I am referring to the additional funding 
that Congress provided, beginning in 2004, for the health benefits of 
Medicare Advantage enrollees. These urgently needed funds enabled 
Health Net to reduce out-of-pocket costs and expand benefits for 
enrollees in our Medicare Advantage plans.
    Here are a few examples of how Health Net's Medicare Advantage 
enrollees have seen their coverage improve, effective March 1, as a 
result of the MMA:

      more than 65 percent of our Medicare Advantage enrollees 
have had their plan premiums either reduced or completely eliminated;
      more than 90 percent have lower copayments for physician 
and hospital services, with hospital copayments reduced by more than 40 
percent in some cases; and
      approximately 20 percent now have access to enhanced 
benefits.

    For enrollees in our Medicare Advantage plans--and for millions of 
other beneficiaries all across America--these coverage improvements are 
extremely important. Because we serve a disproportionately large share 
of low-income beneficiaries--as do many Medicare Advantage plans--the 
2004 funding increase makes a huge difference in the lives of many 
seniors and disabled persons who rely on Medicare Advantage.
The Discount Card Program: Lower Drug Prices and Low-Income Assistance
    Two months from today, on June 1, beneficiaries will see another 
significant improvement in Medicare when the drug discount card program 
goes into effect, giving them discounted prices on prescription drugs. 
This program will also give low-income beneficiaries as much as $600 
annually in transitional assistance to apply toward the purchase of 
prescription drugs.
    On March 25, CMS officially approved Health Net to offer a drug 
discount card exclusively to enrollees in our Medicare Advantage health 
plans and our PPO demonstration plans. Although the MMA allows card 
sponsors to charge an annual enrollment fee of $30, we will not charge 
any fee for our card. We anticipate that our enrollees will see 
immediate savings of 10 to 25 percent on the cost of their medications.
Exclusive Sponsorship: Integration of Drug Card With Existing Drug 
        Benefits
    As an ``exclusive'' card sponsor, our program differs from general 
card programs. First, our drug discount card is available only to 
beneficiaries covered by our Medicare Advantage plans. Second, as 
required by MMA, beneficiaries covered by our Medicare Advantage plans 
are not permitted to choose any other Medicare-approved drug discount 
card while they are Health Net members. These rules allow us to 
integrate our drug discount card with our current prescription drug 
benefit thus making the program simpler for beneficiaries.
    For example, in cases where beneficiaries receive transitional 
assistance, Health Net will allow the $600 to be applied to the Health 
Net drug benefit co-payments and deductibles. As long as their 
transitional assistance is available, members who use Health Net drug 
benefits will have minimal out-of-pocket drug expenses up to our 
benefit limits.
Beneficiary Education Initiatives
    Health Net is implementing a series of education initiatives based 
on CMS requirements and model materials, to ensure that beneficiaries 
are fully informed about our drug discount card. As a starting point, 
we have developed educational materials that will assist beneficiaries 
in navigating through the program with easy-to-follow instructions, 
answers to frequently asked questions (FAQs), and pertinent information 
about the transitional assistance.
    Health Net also will provide all of our enrollees information about 
the program, prior to its initiation, through:

      a member notification letter,
      a member handbook,
      discounted price information about the top 100 
prescription drugs, and
      an application form for transitional assistance.

    As part of our ongoing education effort, beneficiaries will also 
receive a brochure on our drug discount card and related information in 
our summary of benefits and our evidence of coverage documents. We are 
also publishing new webpages to support the Medicare Drug Discount Card 
Program, and updating Health Net's Medicare website to include new 
Medicare prescription benefits.
    In addition, we are developing a two-phased approach to our 
customer service operations. During the program's start-up phase, 
customer service and call center representatives are being trained to 
respond to initial questions about what the program does and give 
detailed guidance to Medicare beneficiaries about how to enroll and 
apply for transitional assistance. Beneficiaries are also being 
referred to the 1-800 Medicare call center. Once the program is 
underway, Health Net will adjust these messages on an ongoing basis and 
conduct refresher training as we learn more about how beneficiaries use 
their discount cards to obtain prescription drugs. Finally, our 
pharmacies and physicians will receive the same Medicare-approved 
outreach materials that our enrollees will receive in recognition of 
the important role they have in beneficiary education.
    Health Net assigns a high priority to ensuring that beneficiaries 
are fully educated about this program. Accordingly, we are one of three 
drug card sponsors that have volunteered to participate, beginning this 
week, in a pilot test run by CMS. Under this pilot test, Medicare 
beneficiaries will be invited to take part in a review of our proposed 
materials, as well as in mock customer calls to our customer service 
representatives. With this review, we believe that CMS and Health Net 
will receive firsthand information about the adequacy and clarity of 
our materials and the capabilities that our customer call centers must 
have to meet the information needs of interested Medicare 
beneficiaries.
Serving Our Low-Income Beneficiaries
    Health Net believes it is imperative that all of our members who 
meet the income eligibility requirements receive transitional 
assistance. As an exclusive card sponsor, Health Net Medicare members 
will be able to use their transitional assistance to complement the 
drug benefits they receive under their Medicare Advantage plan. By 
using transitional assistance for copayments or coinsurance, Medicare 
members will be able to conserve limited income. In addition, with 
transitional assistance, beneficiaries are far more likely to comply 
with drug regimens--a critical factor in maintaining health status. 
Members will not have to make the awful choice between the rent and 
their prescriptions.
    It is important to note that each member with transitional 
assistance will use these funds on a dollar-for-dollar basis for any 
drug they purchase. If the beneficiary does not use his or her 
transitional assistance dollars, these amounts will not accrue to 
Health Net.
Start-Up Requirements
    Launching a drug discount card under the MMA program requires a 
significant commitment from card sponsors. To qualify as an approved 
exclusive card sponsor, Health Net completed an application that 
demonstrated our capability to undertake the program according to the 
regulatory requirements. As an organization, Health Net reviewed the 
requirements, developed operational plans, and identified and overcame 
obstacles to provide an application that was fully responsive to CMS.
Operational Requirements
    Health Net's preparation for participating in the drug discount 
card program has been extensive. These preparations affect almost every 
area of our Medicare Advantage plans and their operations. The time 
period for implementation of the program is extremely short given the 
number of systems, safeguards, and communications necessary for its 
operation.
    Moreover, requirements of the new program impact a significant 
number of Health Net operational areas. As a result, Health Net has 
made extensive operational changes, including updating existing 
processes or creating new procedures for operational areas such as 
enrollment, billing or customer service. Health Net has also made 
extensive enhancements to all business systems to support this new 
program. System updates have been adopted to help facilitate 
communications between Health Net business systems and CMS, thus 
allowing accurate and timely data exchanges and reporting. Health Net 
is also working very closely with our pharmacy claims processing 
vendors to implement major system enhancements to administer the 
beneficiary discounts and the transitional assistance, along with the 
integration of the current prescription drug benefits.
Implementation Activities
    In spite of the complexities we have described, Health Net has 
engaged in companywide activities in the following areas to make the 
program as simple as possible for the beneficiaries. These are all 
steps Health Net is taking to ensure implementation results that (1) 
minimize confusion for the beneficiaries; (2) lower prescription drug 
costs for the beneficiaries; and (3) integrate the drug discount card 
with existing pharmacy benefits.

      Information & Outreach: To ensure an accurate and 
consistent message, we have synchronized the timing and message of our 
announcements about the program with CMS' announcements. CMS is widely 
advertising this program and has developed an extensive library of 
outreach and membership materials. To minimize confusion, we want our 
information to be consistent with the agency's message and we are 
therefore adopting the CMS materials to the greatest possible extent.
      Prescription Benefits Management & Pharmacy Operations: 
Health Net is working closely and extensively with our pharmacy claims 
processors to assure that the necessary design and programming is 
accomplished, in order to ensure that members will receive the lowest 
cost at the time the medication is dispensed at the pharmacy, by simply 
presenting their Health Net Medicare drug discount identification card.
      Care Management Programs: As a result of having 
prescription data available for all medications filled by the 
beneficiaries under the drug discount card program, our health care 
management programs will be enhanced. These programs integrate 
pharmaceutical and medical care, help to reduce potential drug errors, 
avoid drug-to-drug and drug-disease interactions, and enhance the 
overall use of medications by our beneficiaries.
      Call Centers & Customer Services: Health Net is enhancing 
these capabilities focused on the eligibility requirements for the 
discount card and transitional assistance, the timing of marketing and 
enrollment activities, helping beneficiaries complete the drug card and 
transitional assistance enrollment forms, and helping them understand 
the information and outreach materials they will receive from CMS and 
from Health Net.
      Enrollment & Membership: Health Net is integrating 
enrollment processes for the drug card into our existing Medicare 
Advantage enrollment processes. This enables us to utilize the same 
trained staff that has been successfully processing Medicare health 
plan enrollments and disenrollments for the past 10 years.
      Disease Management: Our drug discount card will also be 
integrated with Health Net's Decision Power\SM\ disease management 
program. One key component of this program allows members to contact 
Health Coaches by phone to discuss any significant medical event, 
chronic therapy, or symptom concern. With Decision Power\SM\, Health 
Net engages our members as active participants in making decisions 
about their health care.
Working With CMS
    Health Net believes this program brings considerable value to our 
Medicare members and we are proactively engaged with CMS to make this 
program available to beneficiaries as rapidly as possible.
    CMS has provided necessary direction and flexibility to enable 
sponsors to develop programs for beneficiaries. Given the timeframes 
and the complexities of this program, CMS has conducted an 
implementation program that is unprecedented to meet these challenges. 
These include

      establishing a specific drug sponsor website with 
technical and operational questions and answers, systems and file 
specifications, member materials, conference presentations, and much 
more;
      conducting frequent sponsor calls to discuss technical 
and operational issues;
      granting waivers and extending deadlines to make the 
process successful;
      providing computer software and connectivity for sponsors 
to communicate enrollments and reports electronically; and
      reviewing marketing materials on a flow basis.

    We believe that the combined efforts of CMS and Health Net will 
result in a very successful and timely launch of this program. Every 
effort is being made to ensure that beneficiaries will be fully 
informed about the program and that they will receive discounted prices 
on their prescription drugs--just as the MMA intended.
Conclusion
    Health Net is committed to working with the government in the 
spirit of public-private partnership to meet the health care needs of 
America's seniors and individuals with disabilities. Our company vision 
is to add value to the lives of the people we serve by delivering:

      access to quality health care that helps people achieve 
improved health outcomes;
      understandable, reliable and affordable products; and
      service that exceeds expectations.

    Looking ahead, the Medicare Prescription Drug Discount Card and 
Transitional Assistance Program is an important step toward providing 
beneficiaries with the prescription drug benefit scheduled to start in 
2006. This program is providing an opportunity to build on our 
extensive experiences in administering prescription drug programs for 
Medicare beneficiaries, as well as communicating with beneficiaries 
about how to make the best use of prescribed medications. We believe 
this experience will be helpful to our organization, our health care 
providers, CMS--and most importantly--to all Medicare beneficiaries.
    As we begin to implement the drug discount card program, Health Net 
is making every effort to ensure that our beneficiaries receive the 
assistance and tools they need to understand how to receive the 
greatest possible value from our drug discount card--to help achieve 
our ultimate goal of ensuring access to an affordable drug benefit for 
our Medicare members. I am pleased to have had this opportunity to 
share with you our ideas for making this program a success for our 
beneficiaries.

                                 

    Chairman JOHNSON. Thank you, Mr. Nelson. Ms. Shearer.

 STATEMENT OF GAIL SHEARER, DIRECTOR, HEALTH POLICY ANALYSIS, 
                        CONSUMERS UNION

    Ms. SHEARER. Thank you, Madam Chairman and Members of the 
Committee. Thank you so much for providing Consumers Union the 
opportunity to testify today. American consumers are desperate 
for relief from the high prices they are charged for 
prescription drugs. Consumers Union is not optimistic that the 
new discount drug card program enacted as part of the Medicare 
Modernization Act will provide the level of relief needed. We 
are concerned that Medicare beneficiaries will be confused by 
the new program and will be at risk of being victimized by 
companies who will seek to take advantage of their confusion.
    We believe that the challenge of making prescription drugs 
affordable to all consumers deserves immediate focus by 
Congress. The costs of failing to do so are high. Recently 
there were reports in the press that 23 million Americans are 
not taking statins to lower their high cholesterol level even 
though they are recommended for them because they cannot afford 
them. These press reports came to light in the wake of new 
research that shows the high effectiveness in terms of reduced 
heart attacks and mortality of using cholesterol-reducing 
medicines. If just 5 percent of those unable to afford statins 
suffer negative health consequences, then more than 1 million 
consumers in this country will be victims of our failed health 
care policies. We urge you to consider the reality that 
medicines that are unaffordable mean dire consequences for 
those who cannot take them.
    In my testimony, I will highlight key concerns that we have 
with the new discount drug card program. Seniors and the 
disabled will be confused about how to choose and whether to 
choose a discount drug card. We don't need elaborate surveys 
about discount drug cards when we are able to poll our mothers 
to quickly discover that there is already a high degree of 
confusion and anxiety about the choices that they will soon 
face regarding discount drug cards.
    It is important to remember the characteristic of the 
population that will be eligible. An estimated 23 percent have 
cognitive impairments and are likely to be overwhelmed by the 
task of selecting a card. One of the lessons of the Medigap 
market in the 1970s and 1980s, and I know that the Members here 
today will remember that, is that complicated choices in the 
health insurance marketplace can result in fraudulent schemes 
that victimize a vulnerable population. It is important that 
CMS aggressively police against fraud. Congress must provide 
resources and make a commitment to help consumers sort out the 
confusion.
    The CMS must be vigilant in curbing marketplace behavior 
that complicates the market and creates financial burdens for 
beneficiaries who choose the wrong discount drug card. Centers 
for Medicare and Medicaid Services must guard against bait and 
switch or other market manipulation. If price changes are large 
and frequent, or if the drug list changes frequently and drugs 
are dropped, then CMS should consider revoking the approval for 
a card while protecting existing enrollees. In addition, this 
type of practice should disqualify a company from serving as a 
prescription drug plan when the Medicare drug benefit begins in 
2006.
    The CMS should aggressively expand the role of generics in 
the marketplace and police against discount drug cards that 
steer beneficiaries toward brand-name drugs. For example, we 
would like the Medicare website to automatically include 
comparative pricing information for generic drugs whenever they 
are available, even if they are not available through the 
discount drug card offer. The CMS should compare the discounts 
available from all discount drug cards with a standard pricing 
basis such as the Federal Supply Schedule to help consumers 
compare cards. If prices are rising at a rate of 10 percent to 
15 percent per year, then a discount of 10 percent would not 
provide substantial financial relief. The CMS should establish 
a reliable measure of the discounts.
    The CMS and Congress should pay particular attention to the 
use of formularies, drug lists by the discount drug card 
companies. Formularies are basically lists of prescription 
drugs, in this case for which the discount drug card company 
will negotiate a discount on behalf of enrollees. Formularies 
in the eventual Medicare prescription drug benefit have a far-
reaching impact since they will determine whether the drug is 
covered by the enrollee's insurance coverage and whether any 
out-of-pocket costs count toward reaching the catastrophic 
benefit. It is unclear what the benefits for consumers are of 
having scores of different formularies--drug lists--for each 
discount drug card. Whether formularies, as determined by 
companies offering discount drug cards, serve the best interest 
of consumers should be monitored carefully throughout this 
program.
    In light of the fact that high prescription drug prices are 
denying millions of Americans access to needed prescription 
drugs, Congress should take steps to lower prescription drug 
prices for all, including those not eligible for Medicare. We 
urge you to fund Section 1013 of the Medicare Modernization Act 
that calls for synthesis of medical evidence about the 
comparative clinical effectiveness of alternative prescription 
drugs by the Agency for Health Care Research and Quality. When 
implemented, this provision will provide consumers and 
government programs with a scientific basis and analysis to 
make sound decisions based on evidence, reducing the impact of 
the decisions that are based on an incomplete picture that is 
often presented in direct consumer advertising.
    In conclusion, the challenge of assuring that Medicare 
beneficiaries and all Americans have access to affordable 
prescription drugs is daunting. The Congress and the 
Administration should take steps to reduce confusion, police 
against fraud, guard against marketplace manipulation, 
encourage the use of generics, provide a standard basis for 
evaluating discounts offered, and aggressively pursue other 
steps to help all Americans have affordable--have access to 
affordable, safe medications. Thank you.
    [The prepared statement of Ms. Shearer follows:]
Statement of Gail Shearer, Director, Health Policy Analysis, Consumers 
                                 Union
Summary: Consumers Union Testimony on Discount Drug Cards
    Consumers of all ages are in dire need of relief from the high cost 
of prescription drugs. The discount drug card program that is about to 
begin may offer modest relief to some low-income Medicare 
beneficiaries, but Congress needs to do much more to provide meaningful 
discounts for Medicare beneficiaries and relief for non-beneficiaries 
as well. Ten of Consumers Union's concerns about the program are 
outlined below.

     1.  Seniors and the disabled will be confused about how to 
choose--and whether to choose--a discount drug card.
     2.  One of the lessons from the medigap market in the 1970's and 
1980's is that complicated choices in the health insurance marketplace 
can result in fraudulent schemes that victimize a vulnerable 
population.
     3.  Congress must provide resources and make a commitment to help 
consumers sort out the confusion. The need for this is demonstrated by 
the fact that even the Federal Government is providing ``guidance'' 
that could lead to some beneficiaries enrolling in programs that do not 
offer the most savings for them.
     4.  The Centers for Medicare and Medicaid Services (CMS) must be 
vigilant in curbing marketplace behavior that complicates the market 
and creates financial burdens for beneficiaries who choose the 
``wrong'' discount drug card.
     5.  The CMS should aggressively expand the role of generics in the 
marketplace, and police against discount drug cards that steer 
beneficiaries toward brand name drugs.
     6.  The CMS should compare the discounts available from all 
discount drug cards with a standard drug-pricing basis such as the 
federal supply schedule to help consumers compare cards.
     7.  The CMS and Congress should pay particular attention to the 
use of formularies (drug lists) by the discount drug cards.
     8.  The CMS and Congress should apply additional lessons (e.g., 
the reliance on evidence-based, scientific findings; changing coverage, 
changing prices; harm due to consumer lock-in) to refine and improve 
the Medicare prescription drug benefit scheduled to begin in 2006.
     9.  The government should aggressively reach out to all those 
eligible for the $600 subsidy to assure that all who are eligible 
receive the subsidy, when that's the best deal for them.
    10.  In light of the fact that high prescription drug prices are 
denying millions of Americans access to needed prescription drugs and 
contributing significantly to the high cost of health insurance, 
Congress should take steps to lower prescription drug prices for all, 
including those not eligible for Medicare.
Introduction
    American consumers are desperate for relief from the high prices 
they are charged for prescription drugs. Consumers Union \1\ is not 
optimistic that the new discount drug card program enacted as part of 
the Medicare Modernization Act will provide the level of relief needed. 
Indeed, it seems like a missed opportunity. We are concerned that 
Medicare beneficiaries will be confused by the new program and will be 
at risk of being victimized by companies who will seek to take 
advantage of their confusion. Even some of the government's efforts to 
educate consumers could deepen the level of confusion. We urge Congress 
to take further steps to achieve meaningful relief for all consumers, 
to police against market practices that could harm consumers, and to 
study and apply lessons from the discount drug program to the Medicare 
prescription drug program that begins in 2006.
---------------------------------------------------------------------------
    \1\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the State of New York to provide 
consumers with information, education and counsel about goods, 
services, health, and personal finance. Consumers Union's income is 
solely derived from the sale of Consumer Reports, its other 
publications and from noncommercial contributions, grants and fees. In 
addition to reports on Consumers Union's own product testing, Consumer 
Reports, with approximately 4.5 million paid circulation, regularly 
carries articles on health, product safety, marketplace economics and 
legislative, judicial and regulatory actions that affect consumer 
welfare. Consumers Union's publications carry no advertising and 
receive no commercial support.
---------------------------------------------------------------------------
    The potential for savings from the discount drug program are 
limited. CMS estimates that only 19% of Medicare beneficiaries will 
enroll, and about two thirds of enrollees will do so largely to get the 
$600 subsidy.
    We believe that the challenge of making prescription drugs 
affordable for all consumers deserves immediate focus by Congress. The 
costs of failing to do so are high. Recently, there were reports in the 
press that 23 million Americans do not take statins to lower their 
cholesterol level--even though they are recommended for them--because 
they cannot afford them. These press reports came about in the light of 
new research that shows the high effectiveness (in terms of reduced 
heart attacks and mortality) of using cholesterol reducing medicines. 
If just five percent of those unable to afford statins suffer negative 
health consequences (and I believe this figure is an underestimate), 
then more than one million consumers in this country will be the 
victims of our failed health care policies. Because these are 
``statistical'' health consequences and deaths--and not discrete 
events--they have not captured the attention of policymakers and the 
public. But we urge you to consider the reality that medicines that are 
unaffordable do mean dire consequences for those who cannot take them. 
This crisis demands your attention.
    In our testimony below, we explore ten key areas of concern 
regarding the discount drug care program.

     1.  Seniors and the disabled will be confused about how to 
choose--and whether to choose--a discount drug card.

    We don't need elaborate surveys about discount drug cards when we 
are able to poll our mothers and senior friends to quickly discover 
that there is already a high degree of confusion and anxiety about 
choices that they will soon face regarding discount drug cards. Should 
I get a discount drug card? Which one is best for me? Will I still be 
able to use other discount drug cards? Will the prices change? Will the 
drugs that I need continue to be covered? What if I want to change to a 
different card? These are not easily answered questions, especially in 
light of the possibility that prices and drugs on the list could change 
as often as once a week, but beneficiaries will be locked into the card 
that they select. A further complication is uncertainty about how the 
discount drug cards will work with existing state discount programs and 
existing prescription drug company subsidy programs.
    It is important to remember the characteristics of the population 
that will be eligible for a discount drug card. These are not federal 
employees who are used to annual open enrollment decisions, with 
assistance from human resources staffs and Washington Checkbook. 
Instead, they are people 65 and over, and younger adults with 
disabilities. The Kaiser Family Foundation estimates that 36 percent of 
Medicare enrollees need assistance with at least one activity of daily 
living. An estimated 23 percent have cognitive impairments. The 
challenges of sorting out the best discount drug card for those who are 
cognitively impaired, for those who may have difficulty reading fine 
print, may be overwhelming. Yet the importance of making the right 
choice could be of great importance to them.
    We have questions about whether the modest anticipated discounts 
(especially compared with other options that Congress has rejected) 
justify this program which will be confusing for beneficiaries and will 
require a huge resource commitment by senior health insurance 
counselors in order to help beneficiaries make a decision that will 
provide very short-term benefits for them.

     2.  One of the lessons from the medigap market in the 1970's and 
1980's is that complicated choices in the health insurance marketplace 
can result in fraudulent schemes that victimize a vulnerable 
population.

    As you know, the CMS has expressed concern about recent illegal 
activities. Individuals are incorrectly indicating that they are 
offering government-approved discount drug cards. Apparently, scam 
artists have made telephone calls and went door-to-door in Alabama, 
Georgia, Idaho, Nebraska, Oklahoma, New York, Rhode Island, and 
Virginia, peddling phony discount drug cards while indicating they were 
from the government.\2\ They tried to obtain personal information.
---------------------------------------------------------------------------
    \2\ Phony Medicare drug cards, Consumer Reports, May 2004.
---------------------------------------------------------------------------
    Recently, according to SCAMS--Senior Counselors Against Medicare 
Swindlers--the California Medicare Patrol Project, the consumer 
complaint website, http://ripoffreport.com/ reported having received 
700 e-mails complaining about a website called pharmacycards.com that 
claimed to offer 80 percent drug discounts, listing an address in 
British Columbia. This company was withdrawing cash from checking 
accounts from people who had never even heard of the site. While this 
scandal may be unrelated to the discount drug card issue before you 
today, it is a reminder that the lure of deep drug discounts, the 
increasing use of the Internet, and the potential to tap into seniors' 
checking accounts, can combine to set the stage for possible abuses in 
the future.
    Members of this Committee may remember similar problems that arose 
in the Medicare supplement insurance (medigap) market in the 1970's and 
1980's, prior to the landmark reforms of OBRA 1990. Insurance agents 
preyed on the fears of vulnerable seniors (and sometimes represented 
that they were affiliated with the Medicare program) and this often 
resulted in abuses such as selling one person multiple duplicative 
policies. When seniors--many of whom have visual or cognitive 
impairments--are confused and overwhelmed with the choices that they 
face, this opens the door to predators in the marketplace who are out 
to make a quick buck at the expense of the vulnerable victim. It is 
important the CMS aggressively police against this type of preying on 
the nation's seniors and disabled.

     3.  Congress must provide resources and make a commitment to help 
consumers sort out the confusion. The need for this is demonstrated by 
the fact that even the Federal Government is providing ``guidance'' 
that could lead to some beneficiaries enrolling in programs that do not 
offer the most savings for them.

    Will CMS educational materials be part of the solution or part of 
the problem? Recent materials offered as part of the CMS educational 
campaign raise serious concerns. On January 8, 2004, CMS released a 
document called: ``Better Benefits--More Choices: Good News About the 
Medicare Prescription Drug, Improvement and Modernization Act of 
2003!'' \3\ The sheet explains how the Medicare Endorsed Prescription 
Drug Discount Card will help those who need it most. The final bullet 
provides this example:
---------------------------------------------------------------------------
    \3\ http://www.cms.hhs.gov/medicarereform/issueoftheday/
01082004iotd.pdf.

          Beneficiary A needs to fill a prescription for Celebrex. In 
        2002, an estimated retail price for 30 tablets of Celebrex (200 
        mg) was $86.28. For a low-income senior, the Act could mean a 
        savings of nearly $22 a month off the retail price and this 
        could be covered by the $600 in assistance. This example is 
---------------------------------------------------------------------------
        based on a 20% discount off the retail price.

    Unfortunately, there are several problems with this advice:

      The government is making no attempt to help people 
compare the Medicare card savings against other discount options like 
the Pfizer Share card, for which anyone eligible for the low-income 
assistance would qualify. In effect, by encouraging beneficiaries to 
sign up for the discount drug card coverage (instead of other discount 
programs), the government is benefiting drug companies (who will have 
lower costs for their subsidy programs) at the expense of taxpayers 
(who will be bearing the cost of the $600 subsidy).
      In addition, by failing to provide information about 
lower cost drug alternatives, the government is missing an opportunity 
to encourage consumers to consider lower-cost non-brand options. The 
state of Oregon recently conducted an in-depth evidence-based drug 
review for non-steroidal anti-inflammatory drugs (NSAIDSs) for 
arthritis and pain. The review concluded that ``all of the medicines 
listed [list includes Ibuprofen, Celebrex, and Vioxx] are equally 
effective in treating arthritis.\4\ The monthly cost of Celebrex was 
estimated (by AARP) to be $104, while the monthly cost of Ibuprofen 
(generic) $19.\5\ We believe that CMS should help consumers identify 
lower cost alternatives that are equally effective.
---------------------------------------------------------------------------
    \4\ Oregon Health Resources Commission. The review notes that 
``patients with recent history of bleeding ulcers should avoid using 
aspirin, NSAIDS or COX-2 inhibitors, and that ``compared to other 
NSAIDS, Vioxx and Celebrex may be less likely to cause bleeding ulcers 
in seniors.'' See: http://www.oregonrx.org/OrgrxPDF/
One%20Page%20Summaries/OHPR%20factsheet%20NSAIDs1.pdf.
    \5\ http://www.aarp.org/or/rx/Articles/a2003-10-02-or-rx-
arthritustable.html.

     4.  The CMS must be vigilant in curbing marketplace behavior that 
complicates the market and creates financial burdens for beneficiaries 
who choose the ``wrong'' discount drug card. CMS must guard against 
---------------------------------------------------------------------------
``bait and switch'' or other market manipulation.

    As you know, companies that offer discount drug cards will be 
allowed to change both the prices they charge for various medications 
and the list of drugs that are offered as often as once a week. At the 
same time, consumers are locked into the card that they select, and are 
allowed to switch cards only once (during a short period at the end of 
2004). This raises the troubling possibility that a diligent consumer 
will carefully complete worksheets comparing their savings from various 
discount drug cards, will commit to one card because it offers 
discounts on the drugs that he/she needs, and then will find that the 
company offering the card drops the drugs the individual needs from 
their list of covered drugs. Some have raised the prospects of large-
scale ``bait and switch'' operations. Any consumer who loses discounts 
on the drug that they need is likely to be justifiably upset about this 
program. It is essential that CMS monitor the price changes and the 
drug lists carefully and take appropriate steps. If price changes are 
large and frequent, or if the drug list drops drugs frequently, then 
CMS should consider revoking the approval for a card (while protecting 
existing enrollees). In addition, this is the type of practice that 
should disqualify a company from serving as a prescription drug plan 
when the Medicare drug benefit begins in 2006.

     5.  The CMS should aggressively expand the role of generics in the 
marketplace, and police against discount drug cards that steer 
beneficiaries toward brand name drugs.

    We have questions about whether the discount drug card program will 
adequately encourage the use of generics instead of high-priced brand 
name drugs. CMS has established 209 drug categories. Generics must be 
offered in 55 percent of these categories (which, according to CMS, 
represents 95 percent of the drugs for which generics are 
available).\6\ This means that there will be only brand-name drugs 
available in 94 categories. We are concerned that the large number of 
drug categories may unnecessarily limit the inclusion of generic drugs. 
The Academy of Managed Care Pharmacy argues that fewer categories would 
have allowed larger discounts; similarly, fewer categories may have 
allowed for greater reliance on generics.\7\
---------------------------------------------------------------------------
    \6\ p. 69853, Federal Register notice, Medicare Program; Medicare 
Prescription Drug Discount Card, 42 CFR Part 403, CMS-4063-IFC. 
Department of Health and Human Services, Centers for Medicare & 
Medicaid Services.
    \7\ ``Drug Makers Split with PBMs, Insurers Over Coverage of Drug 
Card,'' InsideHealthPolicy.com, February 4, 2004.
---------------------------------------------------------------------------
    We are concerned about the potential for drug manufacturers to 
manipulate the discounts that they offer in these categories to ensure 
a place on the sponsors' formularies, possibly through large discounts 
on these brand name drugs. The end result could be patients locked into 
brand-name drug therapy. We urge the CMS to carefully monitor whether 
the program in fact steers enrollees to brand name drugs when generics 
(possibly in other related categories) would be appropriate. We note 
that manufacturers have supported the CMS approach, while pharmacy 
benefit managers (PBMs) and pharmacies have opposed it. We would hope 
that the Medicare website would automatically include comparative 
pricing information (possibly at reputable websites) for generic drugs 
whenever they are available, even if they are not available through the 
discount drug card offered.

     6.  The CMS should compare the discounts available from all 
discount drug cards with a standard drug-pricing basis such as the 
federal supply schedule to help consumers compare cards.

    One troubling reality of the new discount drug care program is the 
failure of Congress and CMS to establish base reference prices against 
which the discounts are measured. Families USA has pointed out that 
``there are also no rules that prevent base prices from increasing 
substantially quickly.'' \8\ Between January 2002 and January 2003, 
prices for the top 50 drugs increased at a rate of almost three-and-
one-half times the rate of inflation, according to Families USA.\9\ Not 
only should CMS establish a base price for comparison purposes, but it 
would be helpful if CMS also provided information about how the 
discount card prices compare with other prices. Beneficiaries who are a 
short bus trip away from Canada may well be interested in Canadian 
prices. People who are not eligible for federal programs (such as 
Medicaid and veterans' benefits) would not be able to benefit from the 
same low prices for prescription drugs in these programs. Still, they 
would be interested to know how their prices compare with the prices 
available to federal purchasers (i.e., the federal supply schedule), 
and to the VA to cover veterans' drugs (though of course veterans pay 
modest cost-sharing for this deeply discounted price). These programs 
can demonstrate to the public the benefits of negotiating for deep 
discounts and using bulk purchasing power saving money for consumers 
and taxpayers.
---------------------------------------------------------------------------
    \8\ The New Medicare Prescription Drug Discount Card: A Very Flawed 
Program, at www.familiesusa.org.
    \9\ Dee Mahan, Out of Bounds: Rising Prescription Drug Prices for 
Seniors, Families USA, 2003.

     7.  The CMS and Congress should pay particular attention to the 
---------------------------------------------------------------------------
use of formularies (drug lists) by the discount drug card companies.

    Formularies are basically lists of prescription drugs, in this 
case, for which the discount drug card company will negotiate a 
discount on behalf of enrollees. (Formularies in the eventual Medicare 
prescription drug benefit have more far-reaching impact since they 
determine whether the drug is covered by the enrollee's insurance 
coverage, and whether any out-of-pocket costs count toward reaching the 
catastrophic benefit.) One of Consumers Union's concerns about the 
ultimate implementation of the Medicare Modernization Act of 2003 in 
the year 2006 is the model that relies on participation by hundreds of 
insurance companies and health plans in providing the benefit, and 
their use, in turn, of possibly hundreds of formularies that determine 
which drugs are covered for enrollees. The intent of the legislation is 
that these formularies be evidence-based. It is unclear to us, given 
that all formularies are meant to be constructed based on objective 
scientific evidence, why there should be scores or hundreds of 
alternative formularies. In 2006, this will mean that a Medicare 
beneficiary on one street could have in effect different drug coverage 
than a beneficiary on the next street. More formularies do not 
necessarily result in more choice for beneficiaries, who remain at the 
mercy of decisions of the prescription plans to enter the market in 
their region. It is unclear what the benefits for consumers are of 
scores of different formularies/drug lists by each discount drug card. 
Whether formularies, as determined by the companies offering discount 
drug cards, serve the best interests of consumers should be monitored 
carefully throughout this program.

     8.  The CMS and Congress should apply additional lessons from the 
discount drug program (e.g., the reliance on evidence-based, scientific 
findings; changing coverage, changing prices; harm due to consumer 
lock-in) to refine and improve the Medicare prescription drug benefit 
that begins in 2006.

    Throughout this program that will last approximately one-and-one-
half years, there will be issues that may have implications for the 
drug benefit that begins in 2006. We urge Congress--and CMS--to 
carefully consider the implications of this program for the future drug 
benefit. In addition to the use of formularies, Congress should 
consider whether additional limits should be placed on changes in 
formularies; prices charged; implications of consumers being locked-in 
to the plan they choose; the adequacy of choices available in different 
regions; the affordability of the coverage, and many other elements. 
This learning period will also be important for the discount drug card 
companies, many of which are participating with the intent of gaining 
experience (and market share) that will benefit them when the 2006 
benefit begins.

     9.  The government should aggressively reach out to all those 
eligible for the $600 subsidy to assure that all who are eligible 
receive the subsidy, when that's the best deal for them.

    Low- and moderate-income Medicare beneficiaries need all the help 
that they can get to make prescription drugs affordable. It is 
important that CMS take aggressive steps to be sure that these seniors 
and disabled enroll in the program that is best for them, while 
minimizing costs to the taxpayer. (As noted above, shifting costs from 
pharmaceutical company programs to the taxpayers, without extra relief 
for beneficiaries, is not a good idea). We would hope that the 
government would minimize the enrollment hoops demanded of 
beneficiaries, as these restrict access to the programs. For example, 
we urge Congress to encourage CMS to automatically enroll all current 
Medicare Savings Program beneficiaries (QMB, SLMB, and QI-1 
individuals) in the transitional assistance and special transitional 
assistance programs without requiring a separate enrollment process.

    10.  In light of the fact that high prescription drug prices are 
denying millions of Americans access to needed prescription drugs, 
Congress should take steps to lower prescription drug prices for all, 
including those not eligible for Medicare.

    In enacting the Medicare Modernization Act of 2003, Congress 
rejected other pricing models that have successfully saved money for 
consumers and taxpayers. A 1998 CBO study found that federal facilities 
paid 58 percent of the average invoice price paid by retail pharmacies 
for 100 brand-name drugs in 1994, compared with 91 percent for 
hospitals and 82 percent for HMOs.\10\ In other words, federal facility 
prices were 29 percent lower than HMO prices, a substantial savings. 
More recently, through the use of an evidence-based formulary and 
volume discounts, the Department of Veterans Affairs is able to achieve 
discounts well below the federal supply schedule prices, which are 
already among the lowest prices in the market.\11\
---------------------------------------------------------------------------
    \10\ p. 25, How Increased Competition From Generic Drugs has 
Affected Prices and Returns in the Pharmaceutical Industry, 
Congressional Budget Office, July 1998. See also: p. 155-156, and 
footnote 17, Huskamp, et. al., ``The Impact of a National Prescription 
Drug Formulary on Prices, Market Share, and Spending: Lessons for 
Medicare?'' Health Affairs, Vol. 22, No. 3, May/June 2003.
    \11\ Description and Analysis of the VA National Formulary, 
Institute of Medicine, 2000.
---------------------------------------------------------------------------
    Another high priority for prompt Congressional attention (and the 
topic of an FDA task force) is the issue of legalization of 
reimportation of prescription drugs from other countries. Consumers 
Union believes that in light of the urgent need for relief from high 
prices and the reality of reimportation that is underway, Congress has 
a responsibility to help ensure the quality and safety of these 
medications in order to protect those consumers who are reimporting 
drugs. The lower prices from reimported drugs make the difference 
between many consumers being able to get needed medications and going 
without. The use of licensed brokers, with strict quality controls, as 
currently done successfully within Europe, is one model that should be 
carefully considered. Congress and the Food and Drug Administration 
should move forward expeditiously to make safe and fairly priced drugs 
available to U.S. consumers.
    At the same time, it is important that the Congress recognize its 
responsibility in using market forces where possible to provide better 
value to taxpayers and consumers for prescription drug values. Oregon 
has done pioneering work that studies the scientific evidence about 
clinical effectiveness as a basis for the selection of drugs in its 
Medicaid program. The Medicare Modernization Act of 2003 includes a 
provision in section 1013 that calls for further synthesis of medical 
evidence about the comparative clinical effectiveness of alternative 
prescription drugs by the Agency for Healthcare Research and Quality. 
This important provision should be funded promptly and implemented soon 
to provide consumers and government programs with the scientific basis, 
and analysis, to make sound decisions based on evidence, reducing the 
impact of decisions that are based on an incomplete picture that is 
often presented in direct-to-consumer advertising.
Conclusion
    The challenge of assuring that Medicare beneficiaries (and all 
Americans) have access to affordable prescription drugs is daunting. 
The discount drug card program that will soon go into effect may offer 
beneficiaries modest relief (especially for those eligible for the $600 
subsidy). However, the program is fraught with potential problems: 
beneficiaries will be confused and bad actors will try to take 
advantage of their confusion. The Congress and the Administration 
should guard against marketplace manipulation, encourage the use of 
generics, provide a standard basis for evaluating the discounts 
offered, monitor the use of formularies, and aggressively pursue other 
steps to help all Americans have access to affordable, safe medicines.

                                 

    Chairman JOHNSON. I thank the panelists very much. Ms. 
Shearer, I think your idea that we watch these plans and learn 
from them and draw some standards for those who participate in 
2006 is a very worthy comment. Surely if we see plans getting 
in and actually moving their prices a lot, that may very well 
not be a plan we want to be a permanent participant in the drug 
plan. So, I am sure you will be active in helping us watch 
performance. Certainly, what you do is more important than what 
you say, and we do need to watch carefully the performance of 
the plans as we look to the more permanent plan of 2006. It 
certainly is too bad that 23 million aren't taking statins they 
should. That is part education. These discounts will help. When 
the big plan comes in place, it is not just discounts, it is 
also a 75 percent subsidy for the majority of seniors. So, we 
should be making very good progress in that direction.
    I am not quite as concerned as you are about the senior 
confusion because I have watched literally every senior center 
in my district learn exactly how to order drugs from Canada in 
a hurry. So, there will be a lot of good resources out there. I 
am sure every congressional office will work in their area as 
long as the--as well as the federally funded educators. I think 
the development of comparative pricing capability is very 
important in the long run, and we did make a step forward in 
this bill in that direction. I think your organization and 
others can help us on that as we go through this, and we can 
look back and then see what are the additional tools we need.
    Mr. Nelson, let me just ask you a comment briefly, or ask 
you--I am really impressed that, first of all, the changes in 
the bill have had such a beneficial effect for your 
participants in your Medicare formerly Choice Now Advantage 
Plan, but I am particularly interested that you are using the 
discount card to give people access to other portions of your 
plan. Now, as I understand it, the discount card is only 
eligible to the people in your plan.
    Mr. NELSON. That is correct.
    Chairman JOHNSON. So, presumably they did have access to 
these things beforehand.
    Mr. NELSON. Actually, the drug benefit programs that we 
offer with our Medicare Advantage plans vary by county. So, for 
example, in Oregon, and one county in Washington, we have a 
demonstration PPO plan. We have about 4,000 members there. 
However, a drug benefit is not available to them through this--
through our demonstration PPO product.
    Chairman JOHNSON. So, this will give a uniform access all 
across your plans except in those plans that already have the 
richer benefit.
    Mr. NELSON. Correct. However, the transitional assistance 
program will apply to individuals in our plans where a drug 
discount, or where a drug benefit does exist. It will help with 
the copays, out-of-pocket expenses, and then it will also help 
when they reach their limit, which a lot of our drug benefits 
have.
    Chairman JOHNSON. I do want to comment on the fact that you 
are hooking them into this Decision Power Disease Management 
Program, because I think that kind of advice, and you describe 
it as a coach, is extremely important. If now your seniors have 
access not only to health care, but to prescription drugs and 
have a chronic illness, using that coach, they will be able to 
really dramatically improve their health and reduce their 
costs. So, I was very glad to see that connecting up so early. 
So, by June, many will have much, much better access to disease 
management. Ms. Rawlings, I really am impressed with the 
research you have done and the quality of the product you are 
putting out there. I don't quite understand--can you tell us 
anything about what the average discount will be? Is there some 
goal you have? Will it vary tremendously per drug?
    Ms. RAWLINGS. I think the best way to explain it is this. 
Our discounts, in terms of the specific question on the range, 
I think that public information we have discussed is ranges 
between 10 and 25 percent on different drugs during--through 
different processes it may be even a little bit higher. We are 
not sharing specifics just because we will be in a competitive 
environment, and until we are ready to launch, we frankly would 
like to keep our position a little secure. We chose to offer 
this card nationally to offer broader access to the millions of 
people who do not have an existing benefit today, and we felt 
by offering compelling discounts as I just mentioned, that we 
can expand access and create greater awareness of the drugs 
that are available and make them more affordable for people to 
receive them.
    Chairman JOHNSON. I also understood in your testimony that 
you mentioned that the General Accounting Office has reported 
that pharmacy benefit management techniques, which this bill 
does allow, used by health plans in the FEHBP have resulted in 
savings of 18 percent for brand-name drugs and 47 percent for 
generic drugs. So, we can, I believe, hope that these discount 
cards, which is only the first step and doesn't involve quite 
as many price-cutting tools as the full bill allows, in this 
first step, because of the competition, there are multiple 
plans, that we will see discounts that will be 10 percent and 
much deeper.
    I would--I think it didn't come out clearly earlier when we 
talk about the market, what we are really saying is that if a 
senior calls up and they find out that this company gives them 
a 1 percent discount at this drug store, they are unlikely to 
sign up with that company. So, your job will be to make sure--
make clear to seniors kind of what general discount they get 
across the drugs, and then which particular drugs they get a 
really good deal with you, and to make sure that that discount 
gets down to the local pharmacist in their area that they 
choose to deal with. Is that a fair statement?
    Ms. RAWLINGS. Yes, it is. If I might add, Madam Chair, I--
our plan, the way our network--we have a national network in 
place to support this card, and they are negotiated. The 
discounts are negotiated on a pharmacy basis and apply to all 
drugs that would be purchased through that particular pharmacy 
all around the country.
    I think it is an important point to note that--and you 
mentioned this a moment ago--that this particular program is an 
excellent first step toward moving to 2006 when the Medicare 
Advantage program offers broader choices and hopefully much 
broader participation around the country which will enable 
companies like Aetna to more fully integrate our disease 
management and care management programs across the country.
    Chairman JOHNSON. Your card, unlike Mr. Nelson's card, is 
not available just to those who participate in some of your 
senior integrated care plans, but to all seniors, correct?
    Ms. RAWLINGS. That is correct.
    Chairman JOHNSON. Inside and outside of that network.
    Ms. RAWLINGS. That is correct. If I could also add one 
point to that. When we did the research and did the focus 
groups in the three States that I mentioned, the probably most 
significantly shocking thing to me was that most folks were not 
all that aware of reform, which surprised me. Secondarily, they 
were all acutely aware of what they were spending on their 
pharmaceuticals. The majority of the folks in the room were on 
varying types of insurance or on traditional Medicare, and all 
seemed to be quite conscious of the fact that they would weigh 
the premium, whether there is one or not or what the level is, 
versus what discounts they would be able to achieve with that 
card and make a decision that was a very individual one.
    I think the fact CMS mentioned they would have the pricing 
tool available on the web, I agree with you on making a clear 
comparison between brand and generics is an excellent service 
for these folks. I think all of the--my colleagues and 
competitors and all of us will have every interest to make sure 
that these folks feel like they are able to make a good, clear 
decision for what is right.
    Chairman JOHNSON. It is disappointing when a senior can 
bring to you, who has done comparative shopping, something that 
shows that one pharmacy was going to cost them $93 for exactly 
the same prescription that someone else was going to charge 
them $20 for in the same shopping area. So, it is going to be 
important not only for people to understand what your discounts 
are, but what the price effect is going to be, because 40 
percent off of $93 is not as good a deal as 40 percent off of 
$20. So, thank you. Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. Ms. Shearer, in your 
opinion, how much of a discount might Medicare enrollees 
receive, and how--again, in your opinion--do you suppose the 
Medicare discount cards will compare with discount cards that 
are already out in the market, which many seniors already have. 
Pfizer Inc. has one if your income is below $28 thousand, I 
think, for certain drugs. How will this proposed Medicare drug 
card compare with what is already out there?
    Ms. SHEARER. Congressman Stark, I wish I could give you a 
definitive answer. Let me just talk briefly about the cards 
that are on the market. When Consumer Reports has looked at 
them, and I am thinking really about the general discount drug 
cards, we have found that for the most part people are better 
off just doing some pretty aggressive shopping around. They 
don't save additional money; that the potential savings are 
very limited. I can't really estimate what the level of 
discount will be under this program.
    I am concerned, though when you look at the numbers, CMS is 
estimating about 7.3 million enrollees in the first year and 
7.4 million in the second. If there are about 100 companies--I 
realize there could be somewhat less--it comes to about 700,000 
per card. I just question the economic analysis that leads to 
the conclusion that this kind of purchasing is the bulk 
purchasing that can lead to really significant discounts. Just 
in summing up, I am reminded of back in the days of the 
Kassebaum-Kennedy bill (P.L. 104-191) when that was enacted 
with great fanfare, that an estimated 25 million people were 
going to benefit, and now I am hearing words like up to 25 
percent. Honestly, I am skeptical about the savings on average. 
I mean, I think we would be lucky if they were 10 percent on 
average.
    Mr. STARK. Kaiser has about 600,000 or 700,000 enrollees in 
my county in California, and they don't anticipate that they 
can provide significant discounts as big as they are. Had I 
been able to talk some more with our previous witness, I would 
have pointed out that the Secretary is supposed to require that 
card sponsors have business integrity in the contracting 
regulations, and Medco isn't here, but they have paid 
settlements of $2 million and $45 million for improper business 
practices. Aetna, some time ago was part of a class action that 
forced physicians to enter into economically unfavorable 
contracts, imposed unnecessary administrative burdens on 
providers, improperly denied claims in whole or in part, and 
did not pay their claims in a timely manner, or did not pay 
them at proper rates. I am just curious, Ms. Rawlings, how did 
the Secretary determine that your company had good business 
integrity, given that record?
    Ms. RAWLINGS. Well, I can't speak for them. I will give you 
my view. I think first and foremost we have settled that 
lawsuit and have changed our leadership over the last several 
years to build strong relationships in the communities with our 
physician and hospital partners, and I think have made 
significant progress in reestablishing ourselves.
    Mr. STARK. So, you have changed.
    Ms. RAWLINGS. We have changed.
    Mr. STARK. Good. Mr. Nelson, then let me ask you just one 
question, and my time will expire. Tell me if I am wrong, but 
it is my understanding that you are not going to charge the $30 
enrollment fee.
    Mr. NELSON. Correct.
    Mr. STARK. So, you are not going to make any money on that.
    Mr. NELSON. Correct.
    Mr. STARK. If you get a million enrollees, and you are one 
of the bigger providers, using the Consumers Union estimates of 
700,000 enrollees per card, you may get a couple million 
people, how are you going to make any money? Where does your 
profit come from, if you don't charge the fee for enrolling 
people? You have to get some kickback or share in the discounts 
which you keep and don't pass through to the cardholders; is 
that not correct?
    Mr. NELSON. That is not correct.
    Mr. STARK. How can you make a profit in this?
    Mr. NELSON. The idea of adding additional benefits for our 
beneficiaries is, believe it or not, very exciting to us. It is 
an opportunity to do three things: extend a drug benefit to all 
of our enrollees; to offer the opportunity to participate in 
transitional assistance; and then, third, at least--or last but 
not least important is the opportunity to connect them into our 
pharmacy management system so we can interact with them and do 
all the things that our industry and our company is--has become 
very skilled at over the years.
    Mr. STARK. So, only your existing members can join your 
card.
    Mr. NELSON. That is correct.
    Mr. STARK. Aetna, how will you make a profit, with your 
card being open to anyone who wants to enroll?
    Ms. RAWLINGS. That is correct.
    Mr. STARK. Where does the revenue come in? Mr. Nelson will 
get it through outreach and perhaps marketing, but where will 
your profit come from? How do you make money on this?
    Ms. RAWLINGS. Well, our view on this card is something I 
mentioned earlier, is that it is a tool for Aetna to 
demonstrate to the broader country, if you will, our commitment 
to the Medicare program and our desire to broaden prescription 
drug access.
    Mr. STARK. Okay. In the past both of you have dropped 
members from your managed care plans when you weren't making 
money on them. So, I don't suspect that you are going to 
operate a plan that doesn't make money over time.
    Ms. RAWLINGS. Well, I think the way I would explain it is 
simply, and being conscious of your time as I can, is that we 
have every interest in broadening our participation in the 
Medicare program, and we feel, as I mentioned earlier, that the 
Medicare Modernization Act made significant changes to the 
program around aligning costs with trend that enables us to 
stay in.
    I think secondarily, because of the strains that have been 
on the program over the last several years, and you just 
mentioned this, the industry and Aetna specifically have gotten 
much, much greater understanding of how older consumers access 
care and how we can best serve them. A lot of that is through 
disease management and care management programs that we offer 
as part of our basic package. The Medicare prescription drug 
discount card is a means by which Aetna can launch a card and 
serve hopefully as many millions of beneficiaries who would 
like to enroll, at the same time learn about them, contribute 
to the value of their pocketbook and enable them to learn about 
Aetna and the new programs available for 2006.
    Mr. STARK. Do you ever anticipate that you will be able to 
deliver managed care for less than the fee-for-service fees 
that we pay for the Medicare standard benefit?
    Ms. RAWLINGS. Well, it is a hard question to answer clearly 
because the fees move all over the place. What I can tell you 
is that we believe with an integrated approach that it involves 
disease management and care management, understanding where 
people have risk, and bringing them into the system, which is 
contrary to normal, or to some opinion, that you can actually 
balance the scales and lower costs over time while creating 
greater value. So, I can't really answer it specifically, but 
we do believe we bring the industry and us specifically brings 
great value through the integration of the health care system.
    Mr. NELSON. Congressman Stark. If I might add to that, we 
are very proud of what we do and what we contribute to the 
health outcomes of the seniors that we serve. There is plenty 
of evidence out there that we provide additional choices, 
lower-cost care and better outcomes than the fee-for-service 
counterpart. So, I don't think there is really a question that 
we are capable of delivering better results.
    Mr. STARK. We will see, I hope. You may be right. Thank 
you, Madam Chairman.
    Chairman JOHNSON. Thank you, Mr. Stark. Mr. McCrery.
    Mr. MCCRERY. Thank you. Ms. Shearer, I understand and 
recognize that your organization doesn't think that the 
legislation we passed last year goes far enough or provides 
enough help to seniors with their prescription drug needs. I 
think that is pretty close to what you stated in your 
testimony. However, don't you think that the legislation will 
provide significant assistance to a large number of seniors?
    Ms. SHEARER. Well, there is no question----
    Mr. MCDERMOTT. I am not talking about the 2006 program. I 
am talking about this drug card and the transitional 
assistance.
    Ms. SHEARER. The $600 subsidy is a significant subsidy to 
those who will get it. I am not optimistic that the discount 
drug cards are going to yield the kind of savings that you 
would like, we would all like to see. I am happy to talk about 
other issues, but I think you really wanted me to limit it to 
the discount drug card.
    Mr. MCDERMOTT. The $600 transitional assistance.
    Ms. SHEARER. Yes.
    Mr. MCCRERY. I mean, the drug card, we don't know what 
level of discount those are going to produce, and I admit that. 
Based on my own personal experience and the free market that is 
out there right now, I can tell you that there are significant 
very large discounts available from retail. You said, well, we 
have found or research has found that in most cases seniors can 
just do smart shopping and do just as well as buying one of 
these discount cards. Well, that was not my experience. We 
tried to do smart shopping. We were somewhat limited. My 
stepmother lives in a small town, and so our choices were 
limited at least in that geographic area, but we did try. This 
card that I ended up getting her into has just been a godsend 
to her. It has saved her a huge amount of money. So, my 
personal experience does not comport with your research, at 
least not as you described it today.
    Ms. SHEARER. If I could just say, Congressman, I would 
really urge the Committee to make sure that CMS does careful 
analysis, because I think we all would like to know what the 
savings are, and the methodological challenges of measuring the 
savings are not very easy, because there are lots of different 
prices you could measure against. I think we need to design 
that study very carefully. I think we would all be interested 
in knowing just what level of savings are achieved.
    Mr. MCCRERY. Yes. No, there is no question that it is hard 
to pinpoint a price in this market, as large as it is and as 
many points of delivery as there are. There is no question that 
is very difficult, if not impossible. I will be glad to give 
you the list of my stepmother's drugs, which were extensive, 
and tell you what she was paying at the drugstore and now what 
she is paying with her discount card. It is pretty plain to see 
the savings. Then the $600 subsidy to low-income seniors 
clearly is a very good benefit. It may not be enough, but it is 
certainly enough to provide those low-income seniors who need a 
statin with a statin at retail. Never mind any discount they 
might get. Retail. They can get a statin, these days, for $600 
a year. They can get two maybe.
    Assuming that you agree with me that this legislation does 
help seniors to at least some degree, my question is, what is 
Consumers Union going to do to let seniors know what is out 
there, what is available, what to be wary of in the market, 
those kinds of things, or are you going to do anything to help 
seniors take advantage of this help that is now going to be 
available to them?
    Ms. SHEARER. We have some possible projects under 
development. Like any organization, we need to figure out what 
the business model is, how we are going to produce them, who 
would do them. We are considering various things. I can't 
really say more, but we would like to help get the word out 
about just what the choices are in the marketplace. It is not 
clear exactly where that will all lead, but we are considering 
things.
    Mr. MCCRERY. Okay. Good. Do you have anything already on 
the books? Since we only have 2 months until the seniors can 
start making choices. Have you done anything yet?
    Ms. SHEARER. No. No, we have not. I mean, we are an 
organization a little bit different than many that are helping. 
We produce Consumer Reports. We have a Washington office. We do 
advocacy. We don't have a large niche in the marketplace to 
help seniors get this kind of information. So, this is a new 
area for us to consider. So, we are----
    Mr. MCCRERY. Oh, I see press reports all the time citing 
Consumer Union. You could do a lot. You could hold a press 
conference. You could put in your Consumer Reports magazines, 
all kinds of things that you could do. I hope that you will 
help seniors, because your organization does claim to be 
looking out for the interest of consumers and regular folks, 
and so I hope that you will use all of that power to inform 
people and help them.
    Chairman JOHNSON. Thank you, Mr. McCrery. I thank all the 
panelists. I would say, it could be very helpful to us, Ms. 
Shearer, if your organization--you worked with us. I have 
reviewed a number of things you have said about the bill, and 
they are quite factual and accurate, so, I would like to work 
more closer together so that you are working from, I think, 
more substantial data about the bill, because we can do our 
seniors in America no greater harm than confusing them, and 
some who could get really good benefits won't. Others will make 
poor choices. There isn't anyone--first of all, this is all 
voluntary. There isn't anyone who is going to do worse with one 
of these cards than without any card. So, what we need to do is 
help seniors understand what their options are and how 
important shopping is, just like it is important in food or any 
other area. So, I would very much like to work with you, having 
relied on Consumers Union some periods of my life quite 
heavily. I would have to say that I have been distressed as I 
sit and review materials that you put out that there is a lot 
of factual inaccuracies, and so I would like to work with you 
at the beginning and not at the end.
    It is very nice to have you here to talk about your 
concerns, which are real, and legitimate, and the depth of 
research that the companies have done to get into this market, 
and I would say nothing was more discouraging than to watch 
some of the Choice plans withdraw, because they invested big 
money to get in. It is hard to put a product on the market and 
then not have it do well. I think everyone has the intention of 
making this all work, and I think working together, 
communicating aggressively to our seniors, helping them 
understand this isn't everything, this is merely a step, but I 
think together we can make a significant difference in the 
costs of drugs and the availability of medicines for other 
seniors in the next few weeks. I am pleased that this bill has 
had a near-term as well as a long-term impact for our seniors. 
Thank you all for participating today.
    [Whereupon, at 4:30 p.m., the hearing was adjourned.]
    [Submission for the record follows:]
                           Statement of AARP
    On behalf of AARP's more than 35 million members, we thank you for 
holding this hearing on the new Medicare-endorsed prescription drug 
discount card program. AARP has consistently supported a discount card 
program as a building block for a full Medicare drug benefit. The 
discount card program will provide some help with drug costs right away 
by providing modest discounts for people who now pay full retail costs. 
It will provide additional help to those who need it most by providing 
a $600 credit on the cards in 2004 and 2005 for those with limited 
incomes. We are pleased to see this process now underway.
    As we move forward, it is clear that we face significant challenges 
in educating beneficiaries and helping them to enroll in this program. 
This is especially true for those with limited incomes who qualify for 
the card programs' $600 annual transitional assistance. AARP is working 
through a broad coalition--the Access to Benefits Coalition for 
Prescription Drugs--to conduct hands-on, grassroots outreach efforts.
    We believe success of the transitional assistance program could be 
greatly enhanced by removing regulatory barriers that were not mandated 
by the statute. Removing these barriers could expand eligibility and 
ease or even guarantee enrollment of many eligible people.
Education and Enrollment Challenges
    Educating beneficiaries and helping them to enroll in this program 
is a significant challenge. There will be many cards to choose from, 
each with different discounts, formularies, enrollment forms, and 
marketing campaigns. The challenge is not one of lack of communication 
but of information surfeit. The potential for confusion and 
miscommunication is substantial.
    We will need to explain honestly to beneficiaries that the 
discounts provided by the cards are expected to be modest, averaging 
probably 10 to 15 percent off of full retail brand prices. Many 
beneficiaries already receive discounts of that magnitude, and it will 
be important to help people evaluate whether they would benefit 
additionally from the card program.
    Those who can benefit will need help in determining which card 
would help them the most. Some cards may have tightly limited 
formularies that provide greater discounts on a smaller number of drugs 
and thus may be better for those who rely on a limited number of those 
specific medications. Other cards may have broad or open formularies 
that provide discounts on a wide range of drugs, which is an option 
that some beneficiaries may prefer. And each card will have its own 
network of retail pharmacies, requiring beneficiaries to determine 
whether they can use a given card in their neighborhood or at a 
favorite drug store.
    Medicare is launching a broad education campaign and will be 
providing individual assistance through its 1-800 Medicare hotline and 
through a web-based tool to help individuals evaluate specific card 
options. These are valuable tools for assisting people in understanding 
the program and their specific options. However, they will bring 
beneficiaries only up to and not through the enrollment process. 
Beneficiaries will need to take an additional step on their own in 
finding, filling out, and submitting the right enrollment form for the 
card of their choice.
Transitional Assistance is a Special Challenge
    Perhaps the greatest opportunity--and challenge--is reaching those 
eligible for the $600 annual transitional assistance credit. People 
eligible for this program have limited incomes--below 135 percent of 
the federal poverty limit--and in most cases no other drug coverage. 
These are the people who most need help with prescription drug costs.
    Outreach may be particularly challenging for beneficiaries in this 
population, as they may face the greatest barriers to learning about, 
understanding, and enrolling in the drug card program. Previous efforts 
to reach these same people have had very limited success. For example, 
virtually all of those eligible for transitional assistance are 
eligible for one of the Medicare Savings Programs (known separately as 
the QMB, SLMB, and QI1 programs) that help pay Medicare cost-sharing 
requirements. Yet less than two thirds of those eligible for these 
programs are enrolled.
    It is clear that simply doing the kind of outreach that has been 
done before probably will not be enough to ensure broad enrollment.
ABC Coalition
    Because the challenge in reaching those eligible for transitional 
assistance is so great, we are working through a broad coalition--the 
Access to Benefits Coalition for Prescription Drugs--to target them 
through hands-on, grassroots outreach efforts.
    The Coalition includes more than 40 groups representing 
beneficiaries, providers, and others that can help find, educate, and 
enroll eligible people in the program. The goal of the Coalition will 
be to ensure that all low-income beneficiaries know about and benefit 
from the discount card, as well as other available resources, for 
saving money on prescription drugs.
    Coalition plans include a national media campaign and production of 
toolkits to help outreach workers explain and assist in enrollment. We 
also will organize, analyze and share knowledge about best practices 
and cost effective strategies that overcome barriers in reaching this 
important population.
Removing Regulatory Barriers
    In addition to grassroots outreach efforts, odds for success of the 
transitional assistance program could be greatly enhanced by removing 
regulatory barriers. Specifically, we believe the following changes in 
regulations issued by the Centers for Medicare and Medicaid Services 
(CMS) should be made:

      A universal enrollment form should be authorized. 
Currently each card sponsor will have two different application forms, 
one for those who do not qualify for transitional assistance and 
another for those who do. This means local community outreach workers 
providing one-on-one help in evaluating cards and completing the 
application forms will need to carry around dozens of different forms. 
That will be unmanageable, with great potential for confusion and 
error. A universal application form that could be used to apply for 
different drug cards by checking off a box for the chosen card sponsor 
would greatly increase their ability to be effective.
      Automatic enrollment for people in Medicare Savings 
Programs should be conducted. People eligible for transitional 
assistance are by definition eligible for these programs. They are very 
difficult to reach through traditional outreach efforts, as experience 
has proven with less than two thirds of all eligibles enrolled. 
Automatically enrolling people in Medicare Savings Programs into the 
discount card transitional assistance program if eligible beneficiaries 
do not choose a card after a specified time period, while still giving 
them an option to decline or change enrollment if they wish, would 
ensure that millions of difficult-to-reach people will receive this 
benefit.
      State pharmacy assistance programs should be allowed to 
directly enroll their members when they already have the information 
necessary to determine eligibility. Many of these state programs 
already have income data telling them which of their enrollees qualify 
for transitional assistance. These state programs also are eager to 
maximize enrollment in transitional assistance--again while giving 
individuals the option to decline or change enrollment--because it will 
help stretch their own resources in these continuing times of state 
budget shortfalls.
      Family size definitions should include entire household 
size. The legislation authorizes transitional assistance for 
beneficiaries below 135 percent of the federal poverty level. However, 
CMS regulations exclude many people who are below 135 percent of 
poverty by stipulating that income eligibility be based only by whether 
a beneficiary is married or single. They do not take into consideration 
any dependent children or grandchildren that may also be a part of a 
beneficiary's household, even though these dependents can be a 
significant drain on a low-income family's resources, and as part of 
the household increase the amount of income that falls below 135 
percent of poverty. For example, a married couple raising two 
grandchildren under the new 2004 poverty guidelines can have an income 
of up to $25,448 and be under 135 percent of poverty, which is 
substantially greater than the $16,862 allowed for this same household 
to qualify for transitional assistance under the CMS regulation.
Conclusion
    The Medicare-endorsed drug discount card program is important as a 
bridge to the overall effort to enact a comprehensive Medicare drug 
benefit. The transitional assistance component for those with limited 
incomes is particularly important because these are the people who most 
need help. Yet some program complexities could create significant 
amounts of confusion.
    We believe that the changes outlined in our statement will help to 
make the program run more smoothly. Educating and enrolling people--
especially those eligible for transitional assistance--will be a 
substantial challenge. Simply engaging in traditional outreach 
methods--particularly for a program designed to last only 18 months--
will likely fall short. It is critical that we all work together to 
conduct the outreach efforts and take the regulatory steps that are 
essential for this program to be a success.

                                 
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