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. 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. 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. 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.) 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. 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. 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. 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. 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.