The programs are entirely dependent on the Pennsylvania Lottery for their revenue. The lottery’s net income growth is about a percent a year, except for last year when their income actually dropped for the first time in history. The annual inflation rate of the PACE program on a per-capita basis is approaching 20 percent, produced by the increase in utilization, increased cost of existing products and the introduction of new products which are more expensive than previous products. However, since the eligibility limits are fixed and a certain number of people disenroll each year because their income goes up and they move out of the program, the net overall program cost growth is something closer to 13 percent.

RB: The General Assembly asked the department to convene an advisory group of legislators and, with that group, to review specific cost containment strategies that could be applied to reducing the cost of PACE. We’ve done a lot of cost simulations and other things to make sure that our projections based on our evaluations are accurate. Our report of recommendations is not a set of legislative proposals, specifically, but is meant to lay out for the General Assembly that there is a short-term problem and a long-term problem. The short-term problem is that we are in a financial situation where we have to do something or the money is going to run out while they’re talking about all the other alternatives. Secondly, it says that, in order for the program to be sustained in the future, not to mention increased benefits and an increased number of persons who could be served, they’re going to have to take additional steps.

RB: The rationale started with the size of the fiscal problem. The Budget Office estimates that we need to save a minimum of $70 million dollars a year over the next couple of years to put off the date in which the net of income and reserves available would be fully exhausted. That gave us a target. Of our three proposals, two of them are features that are part of the state Medicaid program not enjoyed by the PACE program. One of them is federal upper limits for generic products, a form of maximum allowable cost, which is commonly used for paying for generic products offered by several manufacturers. That number is lower than what we’re paying now, so that would save us $28 million in the first year. Our second proposal is referred to as best price, a number established by the federal government for branded products that are sold to retail pharmacies around the country. Best price would take the effect of the program’s current rebate from about 16 percent up to about 21 percent. The net benefit to the program in doing that is about $31 million dollars. The third option we are proposing is to allow a consumer to go to a participating pharmacy to get a 90-day supply rather than being limited to a 30-day supply, which is our current policy. The effect is that the dispensing cost to the pharmacy is substantially lower and therefore we can pay them less. We would be paying a dispensing fee that’s equivalent to about two-thirds of what they would have received, had the person come in three times for 30-day supplies. It also adds a convenience to the consumer, since about 90 percent of the prescriptions that are currently written in the program are maintenance medications. That component would produce about $18 million dollars in savings the first year and almost twice that in the second year. The alternative to selecting the 90-day supply policy probably would have been to raise the co-payment for consumers.

RB: There are other proposals that we historically have found to be even more controversial than the ones we’ve proposed. A tiered co-payment or a drug formulary were not proposed by us in the short run because we see those as being steps that the General Assembly historically has been more reluctant to do. In the opinion of the Department of Aging, a formulary will be necessary in the future, but there are other things that can be done and need to be done in order to keep the lottery fund solvent while these other things are being worked out.

Another cost containment proposal was performance criteria for pharmacies, meaning you’d establish a closed network of pharmacies. We rejected that because the program has always been open to all participating pharmacies and we think that’s a strength of the program and we wouldn’t want to preclude pharmacies from participating. Also, we’ve served elders in all parts of the Commonwealth including places where there’s only one or two pharmacies in a small town. It could be pretty inconvenient for consumers if you start to create closed networks.

Of all the things we looked at, the one thing that we reject out of hand is the idea of establishing an upper limit of benefits. In many private insurance plans there’s a maximum benefit for each consumer. We think that’s the reverse of what we’re trying to accomplish here. When a person really needs a lot of products, the economic problems that would be produced by needing them is even greater. Other reforms that are possible include establishing utilization controls on expensive medications with a prior authorization mechanism. We think of that as being a cousin to a formulary and actually administratively more intrusive. Pennsylvania uses prior authorization in the Medicaid program. You’re basically substituting a hassle factor for the prescriber as being the way of controlling things and it would produce the same resistance in the General Assembly as a formulary would.

RB: Step therapy is something that is, we think, a feasible thing to do. We would have a technical advisory group of practitioners and pharmacologists who would establish protocols, where appropriate. It’s not a huge cost-saver. It saves some money, but it moves into another issue that we have historically stayed out of, and that is the idea of interfering with the independence of prescribers. We had done some work with the Philadelphia College of Pharmacy a couple of years ago trying to examine step therapy having to do with ulcer medications. It turned out that the level of consensus on the approach was just not as high as it appeared to be. So, our take on that experience, and from a couple of others since then, is that we would not want to interfere with the latitude of physicians on product selection, at least chemical element selection. Until we have a very highly developed sense of how to approach these things, we’re reluctant to claim a whole lot of cost savings on the basis of this.

RB: As for state price controls on pharmaceutical companies, whether you think they’re desirable or not, we just don’t think it’s legally feasible. The way those proposals were drafted was to control prices for everybody, including private payers. The combination of everything into one pharmacy benefit management contract has a whole array of obstacles. The first is that the 19 programs that they’re talking about throwing together include employee benefit plans that are negotiated by union agreements with respective parts of state government, as well as the pharmacy plan for state legislators, for retirees and current state employees that are not union members. Those contract negotiations are hard-won. The General Assembly would be basically saying that all of those contracts that have been negotiated over time are null and void. We think that’s not going to pass legal muster. It also relies on the idea that they could do better than we are currently doing. Right now, Medicaid gets the best prices of the state programs. We get the second best. Everybody else is paying even more than we are, and they’re privately managed. Even with their net rebates with favored products, private plans generally get rebates on the order of eight to nine percent. Ours are nearly double that. So, we just don’t think it’s an accurate contention that lumping it all together and giving it to a private contractor would produce any more savings.

Also, one of the reasons why our hands have been tied by the General Assembly is that, for a program that’s serving older people, everybody wants to make sure that the decisions being made that would affect the way consumers interact with the program, how they’re served, how their physicians and pharmacists can interact with them—anything that would impinge on their latitude—are exposed to public scrutiny. If you turn everything over to a contractor, that means that you would be moving all of these decisions from public view over to being obscured by a private contractor. We think that, at least in the PACE program, the general public has been conditioned to believe that they have the opportunity to inspect what we do. It’s public money and we think that that’s an appropriate environment for us to manage it.

RB: If you go to the last part of the report, basically what we’re saying is that we would love to expand eligibility. We would love to institute management techniques that would enable the department to manage the program over a longer period of time within the confines of the lottery. We say point-blank that, eventually, that’s going to have to happen. Or, the General Assembly can produce some other revenue source so that they don’t have to take these steps. The bottom line is that, like any form of entitlement that is involved with something very expensive, eventually you either have go come up with more money, or you have to accept reductions in the number of people that you cover, or you have to figure out ways to be less generous.