Health Care Law Navigating The Changes Discount Card Will Usher In New Medicare Prescription Drug Benefits

The Medicare Prescription Drug Improvement and Modernization Act of 2003 contains the most extensive changes to Medicare since the program was enacted in 1965. Historically, Medicare has provided only a limited outpatient prescription drug benefit under Medicare Part B. Under the new law, eligible beneficiaries will be able to purchase drug discount cards starting this June, and enjoy comprehensive prescription drug coverage under a new Medicare Part D beginning in January 2006.


The concepts sound easy enough, but this legislation is far from simple, and there are some thorny implementation issues. This article delves into the discount card program, and continues next month with an examination of future changes in coverage under Medicare Part D.

The Discount Card

Starting this June, Medicare beneficiaries may purchase a prescription drug discount card to be offered by private sponsors. Each eligible beneficiary must have access to at least two different discount card programs. Medicare beneficiaries who elect to participate in this voluntary program will have access to all discounts negotiated by the program sponsor, for which they must pay an annual enrollment fee of up to $30. The drug discount card program winds down on Dec. 31, 2005 with a transition period for drug discount card enrollees to coordinate enrollment in the new Part D prescription drug plan.

The discount program offers transitional assistance for certain low-income beneficiaries. This includes waiver of the enrollment fee and a $600 annual credit to be applied to pay eligible costs incurred in 2004 and 2005. Each sponsor of a discount card program must provide point-of-sale information either electronically or by telephone.
Impact on Hospital Pharmacies

In order to provide beneficiaries with the discounts associated with the drug discount card, hospital pharmacies must be part of an endorsed sponsor’s network. The discount card will entitle an enrolled beneficiary to a discount only at network retail pharmacies or through a mail-order pharmacy. If a hospital pharmacy is not part of an endorsed sponsor network, then no discount would be available to hospital pharmacy customers. Hence, retail pharmacies may be asked (or may ask) to participate in new contractual arrangements with plan sponsors.

Impact on

Institutional Pharmacies

Generally, institutional pharmacies provide prescription drugs to residents of long-term-care facilities through an arrangement between the pharmacy and the facility. The vast majority of Medicare beneficiaries who are residents of long-term care nursing facilities are enrolled in both Medicare and Medicaid. Because the discount card program is available only to beneficiaries who do not have Medicaid drug benefits, these ‘dual-eligible’ beneficiaries will not qualify for a discount card. However, some of the Medicare residents in long-term care facilities who do not have Medicaid coverage may be eligible for transitional assistance under the drug discount card program.

Institutional pharmacies have a unique delivery system and are often not well-integrated into private pharmacy networks. The act establishes procedures and may waive requirements of the drug discount card program for sponsors that ensure access to transitional assistance for long-term care residents.

According to the final interim regulations, there will be an opportunity for institutional pharmacies to provide prescriptions to residents of long-term care facilities through the usual distribution channels while offsetting the cost borne by such residents who are eligible for transitional assistance. The regulations provide that sponsors are being strongly encouraged to include institutional pharmacies in their networks.

A ‘special endorsement’ waiving certain requirements will be available for sponsors who agree to contract with any willing institutional pharmacy provider in the service area.
Under the regulations, institutional pharmacies will be permitted to provide discount-card drugs only to transitional assistance enrollees of the sponsor’s program who reside in long-term care facilities served by the pharmacy.

Further, the regulations require special endorsed sponsors to process claims from out-of-network, long-term-care pharmacies that supply covered discount card drugs to long-term-care facility residents enrolled in the drug discount card program when the beneficiary has remaining transitional assistance.

Because residents of long-term-care facilities generally use the pharmacy selected by the facility, this provision will accommodate institutional pharmacies in the event they do not join a ‘special endorsed’ sponsor’s network.

Next month: what’s coming in 2006.

Marissa A. Olsen is an associate with Davis Wright Tremaine, LLP in Seattle. She specializes in employee benefits, health law, and health care compliance.

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