Prescription Drug Discount Cards: Savings Depend on Pharmacy and Type of Card Used
Published: 2003-09-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: While prescription drugs have become an increasingly important part of health care for the elderly, more than one-quarter of all Medicare beneficiaries have no prescription drug coverage. Over the past decade, private companies and not-for-profit organizations have sponsored prescription drug discount cards that offer discounts from the prices the elderly would otherwise have to pay for their prescriptions. These cards are typically administered by pharmacy benefit managers (PBM). Pharmaceutical manufacturers also sponsor and administer their own discount cards. The Administration has been interested in endorsing specific drug cards for Medicare beneficiaries to make the discounts more widely available. Legislative proposals in the Senate and House of Representatives have included drug cards as a means to lower prescription drug prices for Medicare beneficiaries. GAO was asked to examine how existing drug discount cards work and the prices available to card holders. Specifically, GAO evaluated the extent to which PBM-administered drug discount cards offer savings off non-card prices at 40 pharmacies in California, North Dakota, and Washington, D.C., and the differences between PBM-administered cards and cards sponsored by pharmaceutical manufacturers.
section_title: What GAO Found
paragraphs: Medicare beneficiaries can receive prices with prescription drug discount cards at retail pharmacies that are generally lower than those available to seniors without cards. Prices available for a particular drug tend to be similar across PBM-administered cards. Savings from PBM-administered cards, however, can differ because retail pharmacy prices vary widely. For example, in Washington, D.C., which had the highest median retail pharmacy prices of the three areas GAO surveyed, median savings using a PBM-administered card ranged from $2.09 to $20.95 for a 30-day supply of the nine drugs frequently prescribed for the elderly that GAO examined. This was after accounting for the 10 percent discount for senior citizens given by each of the 14 surveyed pharmacies. Savings in California with the use of a card tended to be lower because 10 of the 13 California pharmacies GAO surveyed participated in the state's Medicaid program (Medi-Cal) and are required to give Medicare beneficiaries the Medi-Cal price. For seven of the nine drugs, savings ranged from $0.44 to $13.06. For the other two drugs the cards offered no savings at Medi-Cal-participating pharmacies because the Medi-Cal prices were lower than the median price available with a PBM-administered card. Savings in North Dakota for the nine drugs ranged from $0.54 to $7.72 even though 10 of the 13 pharmacies there did not offer a senior discount. Any savings achieved with a card are reduced by the annual or one-time fee charged by the PBM-administered cards. Prices available with a pharmaceutical-manufacturer-sponsored card for a particular drug are typically lower than prices obtained using PBM-administered cards, and are often a flat price of $10 or $15. PBM-administered cards differ from pharmaceutical-manufacturer-sponsored cards with respect to eligibility and the range of drugs they cover, as well as the price available with the card. PBM-administered discount cards are available to all adults and can be used to purchase most outpatient prescriptions. Pharmaceutical-manufacturer-sponsored cards are available only to Medicare beneficiaries with incomes below a certain level who have no prescription drug coverage and can be used to purchase only outpatient prescription drugs produced by the sponsoring manufacturers.

section_title: Letter
paragraphs: Prescription drugs have become an increasingly important part of health  care for the elderly. While many Medicare beneficiaries have some of their  out-of-pocket drug costs covered by employer-sponsored retiree health  plans, Medicare+Choice plans, Medicare supplemental plans, or Medicaid,  more than one-quarter of all Medicare beneficiaries have no prescription  drug coverage. Over the past decade, private companies and not-for-profit  organizations have sponsored card programs that give the elderly  discounts from the retail prices they would otherwise have to pay for their  prescriptions.
In July 2001, the President announced a set of principles for reforming  Medicare, including adding a prescription drug benefit for the elderly. As  an initial step toward providing a drug benefit, the Administration  proposed establishing a drug discount card program to lower prescription  drug out-of-pocket expenses for Medicare beneficiaries. The Centers for  Medicare & Medicaid Services (CMS) issued a final rule in September 2002  for the Medicare-Endorsed Prescription Drug Plan Assistance Initiative, in  which the agency would endorse discount card programs developed by  private entities if they met certain standards. The initiative would promote  the use of drug discount cards by Medicare beneficiaries. A federal district  court judge found in January 2003, however, that CMS did not have  authority for the initiative and permanently enjoined the agency from  going forward with it. In March 2003, CMS filed a notice of appeal from  this decision. More recently, legislative proposals in the Senate and the  House of Representatives have included drug cards as a means to lower  the prices Medicare beneficiaries pay for their prescription drugs.
The Medicare-endorsed card initiative has focused interest on private- sector prescription drug discount card programs. You requested that we  examine these programs and pertinent state laws and regulations.  Specifically, you asked (1) how do existing prescription drug discount  card programs work, (2) how do the prescription drug prices available  with existing discount cards compare to prices available without a  discount card, and (3) how do states regulate card programs?
To obtain information on discount card programs, we used a structured  interview guide to conduct telephone interviews with officials from five  organizations that administer many of the programs. Four of these  organizations are among the nation’s largest pharmacy benefit managers  (PBM)—Medco Health Solutions (formerly Merck-Medco Managed Care),  AdvancePCS, Express Scripts, and WellPoint Health. They administer  numerous nationwide card programs sponsored by a range of entities,  such as health insurers, retail pharmacies, employee associations, and  other organizations. The fifth organization was Citizens Energy, a  nonprofit company that sponsors and administers the Citizens Health drug  discount card, which is available to all adults in Connecticut,  Massachusetts, and Rhode Island. We also obtained information from  company Web sites on the prescription drug discount card programs  introduced in the last 2 years by four pharmaceutical manufacturers—Eli  Lilly, GlaxoSmithKline, Novartis, and Pfizer—as well as the Web site for  Together Rx, a card that provides discounts on some drugs produced by  eight pharmaceutical manufacturers. An estimated 18 to 19 million people  have enrolled in one or more of the drug discount card programs that we  examined. In addition, we examined CMS’s final rule on the Medicare- Endorsed Prescription Drug Plan Assistance Initiative. To understand the  role of drug discount cards in the retail pharmacy marketplace, we spoke  with representatives of three retail pharmacy chains whose pharmacies  comprise about 22 percent of all retail pharmacies nationwide.
We obtained April 2002 prices from 40 retail pharmacies in California,  North Dakota, and the Washington, D.C. area for nine drugs frequently  prescribed for the elderly. The prices reflect any senior citizens discount  that the pharmacies routinely provide. We compared these prices to prices  for these drugs in the same period that were available using five PBM- administered discount cards at retail pharmacies or through the PBMs’  mail order pharmacies. We did not independently verify the drug prices  that we obtained, and they may not reflect current prices.
To examine state regulation of drug discount cards, we obtained  information from the National Conference of State Legislatures, the  National Association of Chain Drug Stores, and several PBMs that track  state regulation of discount cards. We also contacted legislators from New  Hampshire, South Dakota, and Mississippi to learn more about why they  supported legislation to regulate drug cards. We performed our work from  July 2002 through August 2003, in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: Prescription drug discount cards are a relatively new option for  consumers. Most of the large PBM-administered programs have been  operating for less than 5 years, although some cards, such as one  administered by Express Scripts, have been available for about a decade.  Pharmaceutical-manufacturer-sponsored discount cards are a more recent  development; the first one began in fall 2001. Together Rx began operating  in June 2002.
subsections: section_title: Features Common to Most Cards
paragraphs: PBM-administered drug discount card programs are generally offered to  consumers through such organizations as retail stores, retail pharmacies,  employee and other associations, nonprofit organizations, insurance  companies, and PBMs. The sponsoring organization typically markets the  program under its own name, but contracts with another organization— usually a PBM—to administer the program. Generally, the PBM creates a  network of participating pharmacies that have contracts with the PBM  specifying discount arrangements. The PBM processes orders for the cards  and operates a mail order pharmacy that cardholders may use. Consumers  can have as many different cards as they like. Each card can be used at  any participating retail pharmacy or through the PBM’s mail order  pharmacy.
Retail pharmacies play an important role in drug discount card programs  because they agree to offer a lower price to cardholders. The PBM  administrators with whom we spoke estimated that retail pharmacies fill  75 to 95 percent of the prescriptions paid for using PBM-administered  discount cards, with mail order filling the remaining prescriptions. A large  majority of prescriptions paid for using pharmaceutical-manufacturer- sponsored cards are also filled by retail pharmacies, rather than through  mail order. To the typical pharmacy, however, card users comprise a small  share of their prescription business. Representatives of three retail  pharmacy chains we contacted told us that from 2 to 10 percent of a  pharmacy’s prescriptions are purchased using a card.
section_title: Medicare-Endorsed Prescription Drug Card Assistance Initiative
paragraphs: Under the Administration’s proposed Medicare-Endorsed Prescription  Drug Plan Assistance Initiative, established drug card sponsors could  apply to CMS for a Medicare endorsement; if they get it, sponsors could  advertise this endorsement. Before the injunction was issued,  applications from card sponsors were due March 7, 2003, and a final  decision on the initial cards that would be Medicare-endorsed was slated  to be announced in May 2003. On this timetable, CMS said it expected that  beneficiaries would be able to enroll in the card program of their choice  beginning in September 2003. Cards receiving the endorsement would  have to meet certain standards, which are described below. The CMS rule  does not provide details on some of these standards and is silent on how  the agency would ensure compliance with some of them.
Beneficiary eligibility. A card program would have to be open to all  Medicare beneficiaries. Each beneficiary could be enrolled in only one  Medicare-endorsed card program at a time, but could withdraw from it at  any time. (A database of all cardholders would be maintained to ensure  that each beneficiary was enrolled in only one Medicare-endorsed card  program.) After withdrawing from a card program, the beneficiary could  enroll in another Medicare-endorsed card program, but that enrollment  would not take effect until the first day of the following July or January,  whichever came first.
Fees. A card program could charge an enrollment fee of no more than $25  to each Medicare beneficiary.
Coverage. Each card program would provide a discount for at least one  brand name or generic prescription drug from each therapeutic class of  drugs (specified in the final rule) commonly needed by Medicare  beneficiaries. CMS said it anticipated periodically modifying the  therapeutic classes to keep them up to date with Medicare beneficiaries’  use of drugs and with changes in the pharmaceutical marketplace,  including newly approved drugs.
Advertised discounts. The discount that a beneficiary would receive by  purchasing drugs with a Medicare-endorsed prescription drug card must  be advertised in dollars, not as a percentage. CMS said it anticipated  working with beneficiaries and the pharmaceutical industry to create a  means to compare prices for drugs among all Medicare-endorsed  prescription drug cards. CMS stated that it would give a special  designation to up to 10 percent of cards that offered the deepest discounts  to beneficiaries.
Negotiation of discounts. Medicare-endorsed cards would require card  administrators to negotiate with pharmaceutical manufacturers to provide  lower prices to retail pharmacies for drugs purchased by cardholders.  Discount card administrators would have to ensure that a “substantial”  share of the lower prices was passed on to beneficiaries, either indirectly,  through retail pharmacies, or directly.
Information for beneficiaries. Enrollment fees, the availability of  patient management services, such as drug interaction warnings, and  information about the generic equivalent of brand name drugs for each  Medicare-endorsed card would be included on CMS’s Web site and in the  documents that contain card price comparisons developed by CMS.
section_title: Characteristics of Drug Discount Cards Vary Based on Their Sponsor
paragraphs: PBM-administered drug discount cards differ from pharmaceutical- manufacturer-sponsored cards with respect to eligibility, the range of  drugs they cover, the extent to which the retail pharmacy is paid for all or  part of the difference between the price a person pays without a discount  card and the discount card price for a particular drug, and the prices  available with a card. The discount card programs administered by PBMs  are available to any adult, while the pharmaceutical manufacturers’ cards  are available only to Medicare-eligible individuals and couples with  incomes below a certain level who do not have prescription drug  coverage. Each PBM-administered card covers most outpatient  prescription drugs, while the cards sponsored by pharmaceutical  manufacturers generally provide discounts only on the outpatient  prescription drugs that company produces. PBM-administered discount  cards specify that the cardholder’s price will be the lower of a percentage  below a commonly used reference price or the pharmacy’s usual price  (generally referred to as the usual and customary price). The typical card  sponsored by a pharmaceutical manufacturer offers cardholders either a  price that is a specified percentage off a list price or a fixed price for a  specified quantity of each covered drug. (See appendix I for selected  characteristics of the drug card programs that we examined.)
subsections: section_title: Eligibility Requirements
paragraphs: The eligibility requirements for a card generally depend on whether it is  administered by a PBM or sponsored by a pharmaceutical manufacturer.  Unlike the PBM-administered cards, which are available to any individual,  the drug company-sponsored cards are available only to Medicare-eligible  individuals and couples with no prescription drug coverage who earn less  than a certain amount. Income eligibility limits for these cards range from  $18,000 to $30,000 for an individual and from $24,000 to $40,000 for a  couple.
section_title: Covered Drugs
paragraphs: PBM-administered discount cards usually cover most brand name and  generic drugs. PBM officials said exceptions could include high-cost drugs  in limited supply, those needing special administration, and the relatively  few outpatient prescription drugs covered by Medicare. Each of the cards  sponsored by a pharmaceutical manufacturer typically covers all the  outpatient prescription drugs that the manufacturer produces. The number  of drugs covered by the four manufacturer-sponsored cards we reviewed  ranges from 14 to 46. The Together Rx card offers discounts on about 150  brand name drugs manufactured by its participating pharmaceutical  manufacturers.
section_title: Retail Pharmacy Payment Arrangements
paragraphs: Under all drug discount card programs, retail pharmacies agree to accept a  lower price from a cardholder than the usual price they would charge a  noncardholder. The card programs vary, however, in whether and to what  extent the pharmacies are paid for the difference between these two  prices. For purchases with the Medco Health Solutions and WellPoint  Health PBM-administered cards, there is no such payment. For some of  the purchases made with the other three PBM-administered cards, the  retail pharmacy is either paid a portion of the difference between the  pharmacy’s usual price and the price the cardholder pays. For other  purchases made with any of these three cards, the pharmacy is not paid  for any of the difference between the usual price and the price the  cardholder pays.
Under the typical pharmaceutical manufacturer-sponsored card, the  manufacturer pays retail pharmacies for a portion of the difference  between the usual price it charges for a drug and the lower price the  pharmacy agrees to charge a cardholder. Some manufacturers set limits on  the usual price that will be used to determine this portion.
section_title: Expression of Card Prices
paragraphs: While PBM-administered drug discount cards typically express their  savings to cardholders as a percentage off what a cardholder would  otherwise pay, the cards differ in how they calculate the price that  cardholders pay at a retail pharmacy. For example, all the PBM- administered cards other than Citizens Health express the cardholder’s  price as the lower of the average wholesale price minus 10 to 15 percent  or the retail pharmacy’s usual price. Citizens Health and the AARP card  administered by Express Scripts use similar formulas, but further stipulate  that the cardholder’s price must be at least one dollar below the retail  pharmacy’s usual price.
Drug prices available with pharmaceutical manufacturer-sponsored cards  are typically lower than the prices available with PBM-administered cards  because a manufacturer-sponsored card’s price is either a percentage off  the manufacturer’s list price to wholesalers, which is generally lower  than average wholesale price, or a dollar amount for a specified amount of  a drug. For example, Aventis cardholders pay no more than 15 percent  below its list price to wholesalers for a covered drug, and a Pfizer Share  Card enrollee pays $15 for each 30-day supply of any covered drug. With  GlaxoSmithKline’s Orange card a cardholder pays a price that is the  pharmacy’s usual price, subject to a limit determined by the manufacturer,  minus 25 percent off the company’s list price to wholesalers. Each  manufacturer participating in Together Rx sets the price for each of its  drugs independently, while guaranteeing that the price will be at least 15  percent off the manufacturer’s list price to wholesalers.
section_title: Card Savings Depend on Usual Pharmacy Prices and Any Card Fees
paragraphs: PBM-administered drug discount cards used at retail pharmacies or the  PBMs’ mail order pharmacies generally offer savings to consumers  because card prices are typically lower than the prices retail pharmacies  would otherwise charge. Card savings—the difference between the  pharmacy’s usual price and the cardholder’s price—vary, primarily  because the usual price varied across the 40 pharmacies we surveyed. For  certain drugs at certain pharmacies, however, no savings were achieved  through the use of the card because the retail pharmacy’s usual price was  lower than the median card price. Savings achieved through a PBM- administered card would be reduced by the annual or one-time fee that the  card charges.
subsections: section_title: Cards Used at Retail Pharmacies
paragraphs: The range of savings achieved using a PBM-administered drug discount  card at a retail pharmacy for a 30-day supply of the nine drugs we  examined varied within and across geographic areas, primarily because of  differences in the usual prices charged by the pharmacies. Choice of  pharmacy rather than choice of card had more effect on how much a  person saved with a discount card. (See appendix II for more information  on the median retail drug card prices and the median retail pharmacy  prices in the three areas we examined.)
Median savings available with a PBM-administered card in the  Washington, D.C. pharmacies ranged from $2.09 to $20.95 for the nine  drugs. All 14 of the surveyed pharmacies offered a 10 percent senior  discount. Card savings amounted to an additional 1.7 percent to 43.9  percent off the median pharmacy price. The highest percentage discount  was for the two generic drugs in our sample (atenolol and furosemide),  although because these were the lowest priced drugs, the dollar savings  were among the lowest in the sample. The substantial price differences  across pharmacies affected the card savings for a given drug. For example,  the noncard price for a 30-day supply of 200 milligrams of Celebrex at the  surveyed Washington, D.C. pharmacies ranged from $74.33 to $95.59.
Median savings in North Dakota ranged from $0.54 to $7.72 for the nine  drugs or from 1.3 percent to 42.3 percent off the median pharmacy price.  Only 3 of 13 pharmacies offered a senior discount (two offered 10 percent  and one offered 5 percent). At one of the pharmacies offering a senior  discount, some card prices for eight of the nine drugs were higher than the  pharmacy’s usual price for those drugs.
In California, Medi-Cal, the state’s Medicaid program, requires retail  pharmacies that participate in the program to offer the Medi-Cal price to  Medicare beneficiaries who do not have prescription drug coverage. At  the 10 Medi-Cal-participating pharmacies, savings for seven of the nine  drugs ranged from $0.44 to $13.06 or from 0.7 percent to 11.1 percent off  the median pharmacy price. The Medi-Cal prices for the other two drugs at  these pharmacies were lower than the median drug card prices for these  drugs so the use of the card offered no savings. At the two pharmacies that  did not participate in Medi-Cal, but offered a 10 percent senior discount,  the savings were similar to those at the Medi-Cal participating pharmacies,  although one pharmacy’s prices for four drugs were lower than the median  card prices. Savings at the other pharmacy, which did not offer a senior  discount or participate in Medi-Cal, were considerably higher.
section_title: Cards Used at Mail Order Pharmacies
paragraphs: Mail order prices for a 30-day supply of a drug with a PBM-administered  discount card were typically lower than the retail pharmacies’ usual price  without a discount card, resulting in greater card-related savings. The mail  order prices with a discount card resulted in savings ranging from $6.30 to  $27.56 for eight of the nine drugs we examined at the Washington, D.C.  pharmacies we surveyed. The average retail pharmacy usual price without  a discount card for the other drug was lower than the mail order price  with a card. In North Dakota, the savings realized by using a PBM- administered drug card to purchase the nine drugs from a mail order  pharmacy ranged from $0.63 to $17.58. In California, mail order prices  using a PBM-administered drug card were lower than the Medi-Cal price  for eight of the nine drugs we examined, resulting in savings ranging from  $1.03 to $19.67; the Medi-Cal price was lower than the mail order drug card  prices for the other drug. Mail order savings at the three California  pharmacies that were not participating in Medi-Cal ranged from $3.12 to  $104.32, except at one of the pharmacies offering a 10 percent senior  discount where the retail price for two drugs was lower than the mail  order price.
Because it generally offers lower prices than retail pharmacies, mail order  can be an attractive option for purchasing drugs for the chronic conditions  common among the elderly, such as diabetes, arthritis, and high blood  pressure. Two PBM administrators noted, however, that many elderly  people cannot afford to buy at one time the 90-day supply of a drug that  mail order pharmacies typically dispense.
Consumers who use a mail order option can purchase drugs at Internet  pharmacies without a discount card. Our comparison of prices using data  from November 2001 found that the median mail order price using a PBM- administered discount card was generally lower than Internet pharmacy  prices for a drug. But we also found at least one Internet pharmacy at that  time that offered a price lower than the median discount card mail order  price for 8 of 17 drugs that we examined.
section_title: Card Fees’ Effect on Savings
paragraphs: The savings from using a card are reduced if the card charges a fee. None  of the pharmaceutical manufacturers’ cards charges a fee. The PBMs  whose cards we examined generally charged a one-time fee or an annual  fee. For example, the discount card we examined from Wellpoint Health  charges a one-time fee of $25 for an individual and about $50 for a family.  The Citizens Health card costs $12 a year for an individual and $28 a year  for a family.
section_title: State Regulatory Efforts Focus on Protecting Consumers
paragraphs: As of October 2002, 16 states had passed laws regulating one or more  aspects of prescription drug discount card programs (see table 1). While  the scope of each of the laws varies, the sponsors of several of the laws  have characterized their purpose as consumer protection.
Thirteen of the states require that a notice appear prominently on the card  declaring that it does not represent insurance coverage. Eleven of the  states require that the reporting of discounts offered by the cards not be  misleading, deceptive, or fraudulent. New Hampshire’s law, for example,  requires that the advertising for any discount card expressly state that the  discount is available only at participating pharmacies. The law was  enacted in May 2001 after some consumers complained about confusion in  how and where discount cards could be used. The sponsor of the New  Hampshire law told us that she heard from consumers in her state who  said they would pay for a card over the telephone, only to later find that  the nearest pharmacy honoring it was 50 to 100 miles away from their  home.
Twelve states require that the discounts be specifically authorized by  separate contracts between the card administrator and each participating  pharmacy or pharmacy chain. South Dakota’s law, which includes such a  provision, was enacted following complaints from pharmacists that  companies were selling cards that promised discounts at various  pharmacies, but that the companies did not have agreements with all of  those pharmacies to actually provide the discounts. The sponsor of the  South Dakota law said some cardholders claimed that certain pharmacies  that the card’s sponsor advertised as accepting the card did not do so. The  sponsor of the law told us that it is intended to protect consumers and  pharmacies from deceptive sales practices by drug discount card  sponsors.
Mississippi’s drug discount card law bars a program administrator, such as  a PBM, from requiring pharmacies to accept a card as a condition of  receiving a contract for the PBM’s other business, unless the administrator  “pays a portion” of the cost of the discount given by the pharmacy.  According to a representative of the Mississippi Attorney General’s office,  which is responsible for enforcing the law, the state has not defined  “portion” in regulation and the meaning of the term has not been the  subject of litigation.
section_title: Comments from External Reviewers
paragraphs: We provided a draft of this report for review to the five PBM  administrators whose cards we examined, four of whom responded. We  also obtained comments from a pharmaceutical manufacturer that  sponsors its own card and participates in the Together Rx card, and one  independent expert reviewer. They provided technical comments that we  incorporated as appropriate.
As agreed with your offices, unless you publicly announce this report’s  contents earlier, we plan no further distribution until 30 days after its issue  date. At that time, we will send copies to the Administrator of CMS, the  PBMs that administered the cards we examined, the pharmaceutical  manufacturers that sponsored cards we examined and other interested  parties. We will also make copies available to others upon request. This  report is also available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staffs have any questions about this report, please call me at  (202) 512-7119 or John Hansen at (202) 512-7105. Major contributors to  this report were Roseanne Price, Michael Rose, and Jeff Schmerling.
section_title: Appendix I: Selected Drug Discount Card Characteristics
section_title: Appendix II: Median Retail Pharmacy PBM- Administered Drug Discount Card Prices and Median Retail Pharmacy Noncard Prices
paragraphs: Washington, D.C.