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FROM THE FIELD

State Pharmaceutical Assistance Programs For Older And Disabled Americans

President George W. Bush proposes to provide short-term relief to low-income Medicare beneficiaries through grants to state-managed pharmaceutical assistance programs and, over the long term, to make drug benefits available in the context of comprehensive Medicare reform.³ Other proposals would simply add a prescription drug benefit to Medicare. States now provide prescription drug assistance to persons with low or moderate incomes through Medicaid and state-funded programs. All states provide such assistance under Medicaid, but it is primarily available to Medicare beneficiaries who have low incomes and few assets. By April 2001 twenty states were providing direct subsidies for purchase of pharmaceuticals.⁴

This paper assesses the experiences of six pharmaceutical assistance programs in terms of eligibility standards and processes, benefits, outreach efforts, quality assurance systems, funding sources, and cost containment mechanisms as they existed in 2000. The purpose of the study is to help inform the policy debate at the federal and state levels about how to provide publicly funded drug coverage.

Research methods. This research relied upon a qualitative case-study design to elicit information from state officials and key stakeholders in six states with mature pharmaceutical assistance programs. The states were chosen from among fourteen that were operating such programs in 1999. These states generally aimed their programs at older persons and persons with disabilities; all programs had income tests, and several had asset limits.⁵

We chose six states (Illinois, Maryland, Massachusetts, New Jersey, New York, and Pennsylvania) to represent the variation in existing programs. To obtain the perspective of programs that had considerable experience, state programs were included only if they were of modest size or larger and had existed for at least two years.

Interviews were conducted with six state officials who administer pharmaceutical assistance programs, five state Medicaid officials, eleven consumer representatives, and four representatives of pharmacists. Staff from the Pharmaceutical Research and Manufacturers of America (PhRMA) supplied the perspective of manufacturers. Interviewees were guaranteed anonymity and were told that they would not be identified by type of representative within a state.

Telephone and in-person interviews were conducted in the spring and fall of 2000 using an open-ended questionnaire. The questionnaire addressed program structure and various aspects of the states’ programs as they existed in 2000. State program staff reviewed a draft of this paper to ensure that descriptions of the programs were accurate. Although many of the states are expanding their programs in 2001, these programs were not in place when the interviews took place.

The interview data indicate the types of challenges that state and federal policymakers are likely to face in administering pharmaceutical assistance programs. However, experiences in other states or at the federal level could differ from those described here.

Program design issues. The six states created their pharmaceutical assistance programs to provide prescription drugs to persons who have no other source of coverage. While all of the states imposed some type of means test to control the number of potential enrollees, the states varied in the range of drugs and types of beneficiaries they covered in 2000. Illinois and Maryland restricted the types of drugs they covered to those essential for treatment of certain chronic conditions. New York and Pennsylvania covered a wide range of drugs but served only the elderly. New Jersey and Massachusetts provided comprehensive coverage of drugs and made them available to older persons as well as to younger persons with disabilities.

As policymakers consider how to provide pharmaceutical assistance, they need to consider a number of program design issues, including (1) program eligibility standards; (2) what benefits enrollees will receive; (3) how the program will conduct outreach and enroll potential beneficiaries; (4) what sources of revenue the program will have, and how costs will be contained; and (5) how the program will ensure quality and prevent fraud.

Eligibility Standards

 
The case-study states restricted the categories of persons who could enroll in their programs in 2000 as a way of targeting their limited resources to the groups considered to be most in need (Exhibit 1). Maryland was the only study state to offer benefits to persons of any age and with no disability requirement. Massachusetts, New Jersey, and Illinois extended benefits to younger persons with disabilities, primarily those who met the Social Security Disability Insurance (SSDI) definition of disability, while imposing varying age restrictions. Massachusetts did not cover persons with disabilities until November 1999. Two of the largest programs—New York and Pennsylvania—restricted program eligibility to persons age sixty-five and older.

All study states used means testing to limit the number of enrollees, and Maryland was the only state to impose an asset test. The six states’ annual income standards in 2000 ranged from less than $10,000 a year for a single person in Maryland to $18,587 in New Jersey. Maryland, Massachusetts, and New Jersey indexed their income limits for inflation; the amounts rose with increases in Social Security benefits in New Jersey and Maryland and with the federal poverty level in Massachusetts. The other states have on occasion raised their income standards but do not do so automatically. To ensure that only persons at or below the income standard obtain benefits, New Jersey and Pennsylvania compared state tax returns with information on enrollees’ application forms.

Eligibility requirements limited the number of persons who qualified for benefits in the case-study states; enrollees ranged from 33,000 beneficiaries in Maryland to more than 200,000 in Pennsylvania in 2000. Enrollment as a percentage of Medicare beneficiaries in 1999 ranged from 3 percent in Illinois and Massachusetts to 16 percent in New Jersey.⁷

Few observers objected to the idea of having an income test of some sort. Consumer representatives argued that income tests should be more generous and indexed for inflation because without indexing, people will lose eligibility for the program as their Social Security and other pensions increase. For example, a stakeholder from Pennsylvania reported that the state has raised income standards only once every four to six years and that beneficiaries have lost coverage as a result.

Observers generally opposed asset tests because they exclude too many potential applicants and make the application too complicated. Observers in Maryland noted that the asset test was a "real barrier to enrollment" because people are reluctant to impoverish themselves to receive coverage.

Program Benefits

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 
The case-study states have had to balance the need to provide meaningful benefits to enrollees with the need to limit program expenditures. The states have used a number of mechanisms to control use of benefits, including (1) limiting the range of drugs covered; (2) imposing benefit limits, copayments, premiums, or deductibles; and (3) promoting use of generic drugs (Exhibit 2). States used these mechanisms in the face of considerable political pressure to expand the scope of benefits.

Cost-sharing mechanisms. In 2000 Massachusetts, New York, Pennsylvania, and New Jersey covered all drugs for which manufacturers agreed to pay rebates; thus, coverage typically conformed to the wide range of drugs covered by their Medicaid programs. However, all states imposed some sort of cost sharing on beneficiaries, including coinsurance, copayments, premiums, or deductibles. Illinois, Massachusetts, and one of New York’s programs had annual income-related enrollment fees ranging from $8 to $280 a year. Every state except Illinois, which had 20 percent coinsurance on drug costs exceeding $800 a year, had copayments ranging from $3 to $23 per prescription. New York varied its copayments according to the price of the drug, while Illinois, Massachusetts, and Pennsylvania varied their copayments or coinsurance so that beneficiaries paid less for generic than for brand-name drugs. Three states—Illinois, New York, and Pennsylvania—used deductibles. Illinois imposed a deductible of $15 or $25 a month, depending on income, and one of Pennsylvania’s programs had an annual deductible of $500. One of New York’s programs had an income-related deductible for persons at the upper-income eligibility levels.

Targeting according to income. Massachusetts’s Pharmacy Program Plus, which was available only in 2000, targeted benefits to persons whose drug costs were high relative to their incomes. Those with incomes up to 500 percent of poverty and drug expenditures that were at least 10 percent of their gross incomes in three of the last six months were eligible to receive coverage.

Stakeholders’ assessments. Most stakeholders—consumer advocates, representatives of pharmacists, and many state officials —recommended against limiting the medical conditions that an assistance program covers. Those who do not have qualifying conditions do not get coverage regardless of their need, and determining which conditions to cover is often difficult.

Deductibles and high copays were considered barriers to enrollment because people can incur high out-of-pocket costs before they receive benefits. For example, stakeholders in Pennsylvania said that its Pharmaceutical Assistance Contract for the Elderly—Needs Enhancement Tier (PACENET) program’s $500 deductible prevents many persons from applying for coverage, and New Jersey dropped its deductible in the late 1970s because it was a major barrier to enrollment.

Outreach To Potential Enrollees

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 
The case-study states all gave potential enrollees information about their pharmaceutical assistance programs through local entities in 2000. Several states have used additional mechanisms to publicize their programs, some in response to disappointing enrollment levels. Illinois and Maryland made information available through local entities such as social service departments and Area Agencies on Aging. Maryland also educated health care providers about the programs.

New Jersey used local entities that had computerized screening systems that determined whether each caller might be eligible for the program. In addition, utility companies sent out information to all customers with their bills. Observers generally agreed that awareness of New Jersey’s program is high among the older population.

Pennsylvania used local entities and state legislators’ offices to make information and applications for the state’s programs available. To boost enrollment, in 1999 Pennsylvania hired a major public relations firm to conduct a multimedia campaign, but the number of program beneficiaries increased very little. The state concluded that most older persons already knew about the program because of the local outreach efforts. Officials also concluded that people apply for the program only when they need help paying for drugs.

Because of a disappointing first-year enrollment of 15,000 persons, Massachusetts publicized its programs by advertising on radio, billboards, and cable television. In addition, the state worked with pharmacists, religious and advocacy organizations, and local entities to disseminate information and distribute applications. Informational brochures were available in five languages, although the application had to be filled out in English. Despite these efforts, several Massachusetts stakeholders argued that the program was having difficulty reaching the non-English speaking community.

Similarly, New York began using many venues to publicize its programs in response to low enrollment. In the late 1980s the state estimated that it would have 475,000 beneficiaries, but enrollment has hovered around 100,000 for a number of years. The state sponsored annual media campaigns and worked closely with pharmacies to distribute information to customers. In addition, the state had five outreach workers, located across the state, who worked with local entities. Stakeholders agreed that the state has tried most available methods of conducting outreach, but enrollment has remained low relative to the number of potential enrollees, partly because of the difficulty in reaching persons who are ill or homebound.

Observers contended that getting information to potential beneficiaries is difficult but that there are ways of addressing the challenge. Recommended strategies included working closely with providers, particularly hospital discharge planners and pharmacists, to get them to distribute program information and applications. Stakeholders held that individual applicants frequently need help in filling out forms, and applications should be accessible to those whose first language is not English. Some observers said that one-on-one communication and education are crucial, particularly in minority communities. This kind of communication occurred to a limited extent in the states that had community outreach programs or provided information to individual callers, but large, potentially expensive formal programs to engage in one-on-one communication of the sort recommended did not exist in the study states.

Enrollment Processes

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 
In designing their enrollment processes, states must balance simplicity in obtaining benefits against making sure that only persons who meet the eligibility criteria receive benefits. Observers noted problems with certain eligibility determination practices, including complex application forms and delays in processing them, both of which are viewed as barriers to timely enrollment. On the other hand, some states have simplified their application procedures in recent years, and the study states separated the application for pharmaceutical assistance programs from Medicaid to prevent applicants from considering the programs as part of the welfare system.

Pennsylvania’s application was said to be complex because state law required that first time applicants provide proof of age and residency, and many applicants were required to document each income stream annually. However, persons whose incomes were at or below 75 percent of the program’s upper income limit were required to reapply only every two years. Once completed, the forms were processed within three days of receipt.

Initially, New York had a ten-page application form that required documentation of every income source. This proved too confusing and complicated, so the state simplified its requirements. In 2000 the program had a special expedited review process where staff took applications over the telephone and enrolled applicants within twenty-four hours if they were likely to be eligible.

Stakeholders in Massachusetts complained that it often took three to six weeks from the date of application for enrollees to receive their program cards, and eligibility was not retroactive to date of application. State officials said that eligibility determination for the regular Pharmacy Program took one to two weeks, while processing for the Massachusetts Pharmacy Program Plus could take more time. The regular program had a very simple form that required only proof of income, whereas the Plus program required documentation of drug expenditures.

All study states prohibited enrollment in both Medicaid and the pharmaceutical assistance programs, and states generally matched computer files to prevent dual coverage. Maryland was the only state that required applicants who might be eligible for Medicaid to apply for it. The other states generally let applicants who might be eligible for Medicaid know about the possibility of alternative coverage.

The study states enrolled persons in their pharmaceutical assistance programs separately from Medicaid. Applicants generally did not have to apply for the pharmaceutical assistance program through welfare offices; rather, local Area Agencies on Aging usually collected applications. Processing of the applications could occur elsewhere. Observers said that the separate processes arose to avoid the welfare stigma that many potential beneficiaries associate with Medicaid. To reduce barriers to enrollment, stakeholders recommended that programs have simple application forms and requirements for verification of income. In addition, states should take steps to process applications quickly.

Funding And Limiting Program Expenditures

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 
Funding sources. Most states relied on general revenues to fund their programs, but special funding sources also played a role in three states (Exhibit 3). Pennsylvania relied on state lottery revenues; New Jersey depended, in large part, on casino taxes; and Massachusetts used cigarette taxes in addition to general revenues. These revenue sources have been problematic because they have not kept pace with increases in program costs. This was especially of concern in Pennsylvania, which was the only state to rely entirely on one special source of funding.

Spending controls. States have attempted to control their drug spending by limiting reimbursement for drugs and dispensing fees. Maryland, Massachusetts, and New Jersey used the federally prescribed Medicaid reimbursement methodology, paying pharmacists for the drugs dispensed at the lowest of the average wholesale price minus 10 percent, the lowest price accepted from any payer, or the federal maximum allowable cost under Medicaid for drugs available from multiple sources. The other states had payment systems that were very close to the Medicaid methodology.

States paid dispensing fees to pharmacists ranging from$2.75 to $4.21 per prescription in 2000. In some states dispensing fees varied to meet policy objectives. New Jersey paid a higher dispensing fee if the pharmacist consulted with the patient and if the pharmacy provided twenty-four-hour service and had a high volume of low-income clients. New York paid a higher fee for pharmacies that offered twenty-four-hour emergency services and free emergency delivery, maintained patient drug profiles, and consulted with patients.

Almost every person we interviewed agreed that the states’ payments were at least adequate and, in some cases, much better than those available from managed care plans. One set of observers—pharmacists—advocated extra payment for cognitive services. They claimed that pharmacists could run disease management programs, which help patients to manage the multiple drugs that may be necessary to treat their chronic conditions.

States used various other methods to control program expenditures, including deductibles and coinsurance (described above), generic substitution, and obtaining manufacturer rebates. Two states—New Jersey and New York—encouraged lower-cost generic drugs by requiring pharmacists to dispense these drugs unless the physician’s prescription states otherwise. Pennsylvania required generic substitution for brand-name, multisource products when an approved Food and Drug Administration (FDA) A-rated generic product was available. Prescriptions for these brand-name drugs could be filled only if the pharmacist or physician documented medical necessity.

The states only covered drugs from manufacturers that agreed to provide rebates; rebate practices generally followed most but not all of Medicaid’s requirements. Illinois stood out among the study states because it contracted with a pharmacy benefit management (PBM) company to negotiate rebates directly with manufacturers and because, according to the U.S. General Accounting Office, its rebates were a smaller proportion of expenditures than was the case in the other five case-study states in 1999.⁸

Many state officials wanted additional tools to limit program expenditures because they feared that costs would continue to rise rapidly over time. Some officials mentioned that they would like to create a formulary to limit the drugs their programs cover, but consumer advocates cautioned that formularies are problematic if enrollees cannot receive assistance with certain key drugs. Some observers also would like to create disease management programs to ensure that patients use drugs optimally to control chronic illnesses. No observer in the study states called for directly regulating drug prices, and the manufacturers actively opposed this idea; they asserted that states should negotiate directly with manufacturers for discounts.

Quality Assurance And Fraud Prevention

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 
All six study states had contractors that performed drug utilization review (DUR) programs, which are designed to flag problems before beneficiaries obtain prescriptions and to uncover problematic patterns of prescription drug use or dispensing. Prospective DUR programs had a number of computerized screens that alerted pharmacists to potential problems with dosage levels, drug interactions, and drugs that are therapeutically equivalent. Pharmacists were required to discuss these potential problems with enrollees or physicians and could override most warnings themselves.

Similarly, retrospective DUR programs used computerized screens designed to find inappropriate prescribing on the part of physicians, enrollees’ potential misuse of prescription drugs, and pharmacies with potentially fraudulent practices. Remedies for problems found in either type of review program often consisted of letters to physicians to educate them about potential quality problems or inappropriate prescriptions. Beneficiaries found to be misusing or abusing their benefits could be restricted to certain pharmacies or disenrolled from the program. Pharmacies could be disenrolled for engaging in improper practices, and potential criminal activities were referred to the appropriate authorities. In addition to DUR programs, most of the six states also conducted random audits of pharmacies to detect fraud, but fraud was not reported to be a major problem.

Observers believed that the DUR programs generally accomplished their goals, and so they made few recommendations for improving the quality- or fraud-control systems. The manufacturers cautioned against liberal use of pharmacist overrides in DUR because that could reduce opportunities to deal with problem prescriptions. Because of the time involved, pharmacists wanted compensation for consulting with physicians or patients when DUR uncovered potential problems.

Lessons From The States

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 
In response to the same political pressures that policymakers are facing across the country, some of the case-study states are expanding their pharmaceutical assistance programs in 2001. Massachusetts replaced its two programs with a new insurance plan that is available to persons with disabilities who have incomes up to 188 percent of the federal poverty level and older persons of any income level. Illinois and New York increased the generosity of their income tests and reduced cost-sharing amounts, and Illinois expanded the categories of drugs it will cover. Maryland also expanded its programs somewhat.

As other state and federal policymakers consider creating or expanding pharmaceutical assistance programs, challenges can be anticipated by learning from the experiences of the case-study states. At least six lessons emerge from examining these state programs.

Income testing. First, although this may not be the case for federal initiatives, income testing appears to be politically acceptable to a wide range of stakeholders for state funded and state-run programs. However, verification of applicants’ income proved controversial, with some observers citing the need to make sure that only eligible persons received benefits and others asserting that income verification can be administratively complex and slows the application process.

Coverage of younger disabled. Second, a key eligibility issue is coverage of younger persons with disabilities, a group that has not received a great deal of attention in the Medicare debate. Disabled Medicare beneficiaries without drug coverage face many of the same access problems as older Medicare beneficiaries without such coverage, and some unique problems as well. Several of the states either do not cover younger persons with disabilities at all or cover them in a less favorable manner. These inequities create serious disadvantages for a population that tends to have even higher use of prescription drugs than older persons have.

Outreach. Third, to meet enrollment goals, new voluntary pharmaceutical assistance programs at the state and federal levels are likely to have to engage in extensive outreach that is user-friendly and accessible to non-English-speaking applicants. Even when states invest heavily in broad media advertising, its effectiveness appears to be limited. Instead, the use of multiple strategies designed to put applications into the hands of people when they hear about the program appears to be important in getting them to enroll.

Adequate coverage, cost containment. Fourth, benefit design must strike a balance between simplicity and comprehensiveness of benefits on the one hand and achieving cost containment and targeting needy beneficiaries on the other. Complicated copayment schedules, large deductibles, and restrictive formularies can limit the willingness of people to apply for the programs and, if they do enroll, may prevent them from obtaining essential prescriptions. Several observers identified deductibles as particularly problematic and likely to discourage participation by some applicants.

Fifth, although a program’s generosity is likely to be key to consumer satisfaction, state officials stressed the need to restrain program expenditures in the face of the rapidly increasing cost of drugs. To date, state programs depend almost entirely on beneficiary cost sharing, obtaining drug rebates, encouraging use of generic drugs, and limiting eligibility to control spending.

Utilization review. Sixth, state officials and representatives of pharmacists generally viewed prospective and retrospective DUR as key methods of monitoring quality, although no one interviewed cited any studies of effectiveness. Those consumer advocates with opinions about DUR programs concurred. These programs are designed to catch potential adverse drug interactions, dosage errors, and similar problems, which could adversely affect enrollees’ health. Observers did not raise financial fraud as a major problem but felt that audits of pharmacists were appropriate.

Editor's Notes

 
Jane Tilly is senior research associate and Josh Wiener is principal research associate at the Urban Institute in Washington, D.C.

The Urban Institute gratefully acknowledges funding for this research from the Robert Wood Johnson Foundation’s State Coverage Initiatives program. We also thank the respondents in Illinois, Maryland, Massachusetts, New Jersey, New York, and Pennsylvania for their many insights.

NOTES

Top Eligibility Standards Program Benefits Outreach To Potential Enrollees Enrollment Processes Funding And Limiting Program... Quality Assurance And Fraud... Lessons From The States NOTES

 

1. J.A. Poisal and L. Murray, "Growing Differences between Medicare Beneficiaries With and Without Drug Coverage," Health Affairs (Mar/Apr 2001): 74–85.
2. D.H. Kreling et al., Prescription Drug Trends: A Chartbook (Menlo Park, Calif.: Henry J. Kaiser Family Foundation, July 2000).
3. J.K. Iglehart, "Medicare and Prescription Drugs," New England Journal of Medicine 344, no. 13 (2001): 1010–1015.
4. National Conference of State Legislatures, "State Senior Pharmaceutical Assistance Programs," <www.ncsl.org/programs/health/drugaid.htm> (17 July 2001).
5. U.S. General Accounting Office, State Pharmacy Programs: Assistance Designed to Target Coverage and Stretch Budgets, Pub. no. GAO/HEHS-00-162 (Washington: GAO, 2000).
6. White House National Economic Council/Domestic Policy Council, Disability, Medicare, and Prescription Drugs (Washington: Executive Office of the President, 2000).
7. U.S. GAO, State Pharmacy Programs.
8. Ibid.

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