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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

September 2003:

Prescription Drug Discount Cards:

Savings Depend on Pharmacy and Type of Card Used:

GAO-03-912:

GAO Highlights:

Highlights of GAO-03-912, a report to congressional requesters 

Why GAO Did This Study:

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.

What GAO Found:

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. 


What GAO Recommends:

www.gao.gov/cgi-bin/getrpt?GAO-03-912. To view the full product, 
including the scope and methodology, click on the link above. For more 
information, contact Laura A. Dummit at (202) 512-7119.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Characteristics of Drug Discount Cards Vary Based on Their Sponsor:

Card Savings Depend on Usual Pharmacy Prices and Any Card Fees:

State Regulatory Efforts Focus on Protecting Consumers:

Comments from External Reviewers:

Appendix I: Selected Drug Discount Card Characteristics:

Appendix II: Median Retail Pharmacy PBM-Administered Drug Discount Card 
Prices and Median Retail Pharmacy Noncard Prices:

Table:

Table 1: Selected Provisions of State Regulation of Prescription Drug 
Discount Card Programs, November 2002:

Abbreviations:

CMS: Centers for Medicare & Medicaid Services:

PBM: pharmacy benefit managers:

United States General Accounting Office:

Washington, DC 20548:

September 3, 2003:

Congressional Requesters:

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.[Footnote 1] 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.[Footnote 2] 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.[Footnote 3] 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)[Footnote 4]--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.[Footnote 5] 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.[Footnote 6] 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.[Footnote 7] 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.[Footnote 8] 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.

Results in Brief:

PBM-administered cards differ from pharmaceutical-manufacturer-
sponsored cards with respect to eligibility, the range of drugs they 
cover, whether the pharmaceutical manufacturer pays the pharmacy part 
of the card discount, and the price available with the card. Most of 
the card programs administered by PBMs are available to all adults, 
while the pharmaceutical manufacturers' cards are available only to 
Medicare beneficiaries with incomes below a certain level who have no 
prescription drug coverage. The PBM-administered cards provide 
discounts on most outpatient prescription drugs, while each of the 
cards sponsored by a pharmaceutical manufacturer typically provides 
discounts on all the outpatient prescription drugs that its 
manufacturer produces. For drugs purchased with PBM-administered cards, 
retail pharmacies accept a lower price from cardholders than their 
usual price, and in some cases receive partial payment for the 
difference. For drugs purchased with cards sponsored by pharmaceutical 
manufacturers, retail pharmacies receive payment from the manufacturer 
for a portion of the difference between the usual price and the 
cardholder's price. PBM-administered cards typically offer a price to a 
cardholder that is 10 to 15 percent below either a standard reference 
price or the retail pharmacy's usual price, whichever is lower. Prices 
available with a manufacturer-sponsored card for a particular drug are 
typically lower than those through PBM-administered cards because the 
pharmaceutical-manufacturer-sponsored cards offer either a larger 
discount off a lower reference price or a flat price ($10 or $15).

PBM-administered drug discount cards used at retail pharmacies or the 
PBMs' mail order pharmacies generally offer savings to cardholders 
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 example, even though all the surveyed Washington, D.C. pharmacies 
offered a 10 percent discount to senior citizens, cards provided the 
highest median savings because the usual pharmacy prices were higher 
than in the other areas. The median savings with the use of a PBM-
administered card were from $2.09 to $20.95 for a 30-day supply of the 
nine drugs. The range of card savings in North Dakota for these drugs 
was from $0.54 to $7.72, even though most of the pharmacies there did 
not offer a senior discount. Because the majority of the California 
pharmacies we surveyed participated in the state's Medicaid program 
(Medi-Cal) and are required to give Medicare beneficiaries the Medi-Cal 
price for drugs, card savings ranged from $0.44 to $13.06 for seven of 
the drugs. Medi-Cal prices for the other two drugs were lower than the 
median drug card prices so a card offered no savings at Medi-Cal 
participating pharmacies. Savings achieved through a drug discount card 
would be reduced by any fee that the card charges.

As of October 2002, 16 states had enacted laws regulating one or more 
aspects of prescription drug discount card programs. 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 required that a notice appear prominently on the card declaring 
that it does not represent insurance coverage (the cards may be similar 
in appearance to insurance cards). Eleven states required that the 
discounts offered by the cards not be misleading, deceptive, or 
fraudulent. Twelve states required that the discounts be specifically 
authorized by separate contracts between the card administrator and 
each pharmacy or pharmacy chain that accepts the card. Under certain 
conditions, Mississippi requires a drug card program to compensate a 
pharmacy for accepting the card price.

We received technical comments on a draft of this report from four of 
the five PBM administrators we surveyed, as well as from one 
pharmaceutical manufacturer that sponsors its own card and participates 
in the Together Rx card, and from one independent expert reviewer. We 
incorporated their technical comments as appropriate.

Background:

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.[Footnote 9] Pharmaceutical-manufacturer-sponsored discount 
cards are a more recent development; the first one began in fall 2001. 
Together Rx began operating in June 2002.

Features Common to Most Cards:

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.

Medicare-Endorsed Prescription Drug Card Assistance Initiative:

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.[Footnote 10] 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.

Characteristics of Drug Discount Cards Vary Based on Their Sponsor:

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.):

Eligibility Requirements:

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.

Covered Drugs:

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.[Footnote 11]

Retail Pharmacy Payment Arrangements:

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.

Expression of Card Prices:

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[Footnote 12] 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,[Footnote 
13] 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.

Card Savings Depend on Usual Pharmacy Prices and Any Card Fees:

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.

Cards Used at Retail Pharmacies:

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.[Footnote 14] 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.

Cards Used at Mail Order Pharmacies:

Mail order prices for a 30-day supply[Footnote 15] 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.[Footnote 16]

Card Fees' Effect on Savings:

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.

State Regulatory Efforts Focus on Protecting Consumers:

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.

Table 1: Selected Provisions of State Regulation of Prescription Drug 
Discount Card Programs, November 2002:

Provision: Card must prominently display that it does not represent 
insurance; States that have adopted the provision: Ark., Ga., Idaho, 
Ind., Kans., Ky., Minn., Mont., N.H., Oreg., S.C., S. Dak., Tenn. 

Provision: Discounts' description must not be misleading, deceptive, or 
fraudulent; States that have adopted the provision: Ark., Idaho, Ind., 
Kans., Minn., N.H., Oreg., S.C., S. Dak., Tenn., Tex. 

Provision: Discounts must be authorized by separate contracts for each 
retail pharmacy; States that have adopted the provision: Ark., Ga., 
Idaho, Ind., Kans., Ky., Minn., Oreg., S.C., S. Dak., Tenn., Tex. 

Provision: Card seller must register with state; States that have 
adopted the provision: N.H., Oreg., S.C. 

Provision: Card administrator required to pay a portion of any 
discount; States that have adopted the provision: Miss. 

Provision: Specifies restrictions on use of information about consumers 
by retailer issuing card; States that have adopted the provision: 
Conn. 

Source: National Conference on State Legislatures and National 
Association of Chain Drug Stores.

[End of table]

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.

Comments from External Reviewers:

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.

Laura A. Dummit 
Director, Health Care--Medicare Payment Issues:

Signed by Laura A. Dummit: 

List of Congressional Requesters:

The Honorable John D. Dingell 
Ranking Minority Member 
Committee on Energy and Commerce 
House of Representatives:

The Honorable Henry A. Waxman 
Ranking Minority Member 
Committee on Government Reform 
House of Representatives:

The Honorable Charles B. Rangel 
Ranking Minority Member 
Committee on Ways and Means 
House of Representatives:

The Honorable Sherrod Brown 
Ranking Minority Member 
Subcommittee on Health Committee on Energy and Commerce 
House of Representatives:

The Honorable Pete Stark 
Ranking Minority Member 
Subcommittee on Health 
Committee on Ways and Means 
House of Representatives:

The Honorable Mike Ross 
House of Representatives:

[End of section]

Appendix I: Selected Drug Discount Card Characteristics:

Table 2: 

Card sponsor: Retail pharmacies, employee associations, and insurance 
companies (All administered by PBMs); Card name: Cards use different 
names; Eligibility: No eligibility requirements; Income requirements: 
No requirements; Drugs covered: Each card covers all generic drugs and 
most brand name drugs; Advertised prices: 10 to 15 percent off average 
wholesale price; Approximate number of enrollees: 17-18 million[A].

Card sponsor: Consortium of 8 pharmaceutical manufacturers; Card name: 
Together Rx; Eligibility: Medicare eligibility and no other 
prescription drug coverage; Income requirements: Individual annual 
income below $28,000 or couple income below $38,000[B]; Drugs covered: 
About 150 brand name drugs produced by participating pharmaceutical 
manufacturers; Advertised prices: At least 15 percent off 
manufacturer's list price to wholesalers; Approximate number of 
enrollees: 920,000[C].

Card sponsor: Eli Lilly; Card name: LillyAnswers; Eligibility: Medicare 
eligibility and no other prescription drug coverage; Income 
requirements: Individual annual income below $18,000 or household 
income below $24,000; Drugs covered: All drugs manufactured by the 
company, except controlled substances, and products not distributed by 
retail pharmacies; Advertised prices: $12 for a 30-day supply; 
Approximate number of enrollees: 100,000[D].

Card sponsor: GlaxoSmithKline; Card name: Orange Card; Eligibility: 
Medicare eligibility and no other prescription drug coverage; Income 
requirements: Individual annual income below $30,000 or couple income 
below $40,000[E]; Drugs covered: All outpatient prescription drugs 
manufactured by the company; Advertised prices: Average savings of 30 
percent off the usual price; Approximate number of enrollees: 
100,000[F].

Card sponsor: Novartis; Card name: Care Card; Eligibility: Medicare 
eligibility and no other prescription drug coverage; Income 
requirements: Individual annual income below $18,000 or household 
income below $24,000; Drugs covered: Certain Novartis outpatient 
prescription drugs; Advertised prices: $12 for a 30-day supply or 25 to 
40 percent off depending on the beneficiary's income; Approximate 
number of enrollees: 15,000[G].

Card sponsor: Pfizer; Card name: Share Card; Eligibility: Medicare 
eligibility and no other prescription drug coverage; Income 
requirements: Individual annual income below $18,000 or household 
income below $24,000; Drugs covered: All Pfizer prescription drugs; 
Advertised prices: $15 for up to a 30-day supply; Approximate number of 
enrollees: 250,000[H].

Source: Pharmaceutical manufacturers' Web sites and interviews with 
card administrators.

[A] Based on information provided by five PBM card administrators 
surveyed in February 2003.

[B] As of February 2003.

[C] As of August 2003.

[D] As of October 2002.

[E] In Alaska, individual annual income must be below $35,000 or a 
couple's income below $48,000. In Hawaii, individual annual income must 
be below $33,000 or a couple's income below $44,000.

[F] As of November 2002.

[G] As of April 2002.

[H] As of December 2002.

[End of table]

[End of section]

Appendix II: Median Retail Pharmacy PBM-Administered Drug Discount Card 
Prices and Median Retail Pharmacy Noncard Prices:

Table 3: 

Drug: Atenolol 50 mg; Median retail drug card price: $5.57; California 
median retail price[A]: $5.19; North Dakota median retail price[B]: 
$9.65; Washington, D.C. median retail price[C]: $9.09.

Drug: Celebrex 200 mg; Median retail drug card price: $75.35; 
California median retail price[A]: $69.76; North Dakota median retail 
price[B]: $78.12; Washington, D.C. median retail price[C]: $84.68.

Drug: Fosamax 70 mg; Median retail drug card price: $62.42; California 
median retail price[A]: $62.86; North Dakota median retail price[B]: 
$70.14; Washington, D.C. median retail price[C]: $71.05.

Drug: Furosemide 40 mg; Median retail drug card price: $5.04; 
California median retail price[A]: $5.60; North Dakota median retail 
price[B]: $7.65; Washington, D.C. median retail price[C]: $8.99.

Drug: Lipitor 10 mg; Median retail drug card price: $63.77; California 
median retail price[A]: $69.62; North Dakota median retail price[B]: 
$66.09; Washington, D.C. median retail price[C]: $70.85.

Drug: Norvasc 5 mg; Median retail drug card price: $41.37; California 
median retail price[A]: $45.16; North Dakota median retail price[B]: 
$41.91; Washington, D.C. median retail price[C]: $50.93.

Drug: Premarin .625 mg; Median retail drug card price: $22.53; 
California median retail price[A]: $25.33; North Dakota median retail 
price[B]: $23.10; Washington, D.C. median retail price[C]: $26.00.

Drug: Prilosec 20 mg; Median retail drug card price: $123.19; 
California median retail price[A]: $130.06; North Dakota median retail 
price[B]: $126.95; Washington, D.C. median retail price[C]: $125.28.

Drug: Zocor 20 mg; Median retail drug card price: $116.39; California 
median retail price[A]: $129.45; North Dakota median retail price[B]: 
$119.69; Washington, D.C. median retail price[C]: $137.34.

Source: Drug prices obtained from five PBM-administered drug discount 
cards and 40 retail pharmacies.

Note: GAO analysis.

[A] Ten of the 13 pharmacies were Medi-Cal participants, meaning they 
had to offer seniors Medi-Cal drug prices. Two of the three pharmacies 
not participating in Medi-Cal offered a 10 percent senior discount; the 
other pharmacy offered no discount.

[B] Two of the 13 pharmacies offered a 10 percent senior discount and 
one offered a 5 percent discount; the other ten pharmacies offered no 
senior discount.

[C] All 14 pharmacies offered a 10 percent senior discount.

[End of table]

FOOTNOTES

[1] Medicare generally does not cover outpatient prescription drugs, 
except if they cannot be self-administered and are related to a 
physician's services, such as cancer chemotherapy, or are provided in 
conjunction with covered durable medical equipment, such as inhalation 
drugs used with a nebulizer. In addition, Medicare covers selected 
immunizations and certain drugs that can be self-administered, such as 
blood clotting factors and some oral drugs used in association with 
cancer treatment and immunosuppressive therapy.

[2] Medicare-Endorsed Prescription Drug Card Assistance Initiative, 67 
Fed. Reg. 56,618 (2002). 

[3] National Association of Chain Drug Stores v. Thompson, No. 01-1554 
(D.D.C. 2003).

[4] The primary functions of PBMs are negotiating drug prices with 
pharmacies and pharmaceutical manufacturers on behalf of health plans, 
processing drug claims for health plans, and dispensing prescriptions 
through mail order pharmacies. 

[5] Discount card sponsors put their name on the card and establish its 
terms and conditions.

[6] The founding members of Together Rx are: Abbott Laboratories; 
AstraZeneca; Aventis Pharmaceuticals, Inc.; Bristol-Myers Squibb 
Company; GlaxoSmithKline; Janssen Pharmaceutical Products, L.P.; 
Novartis; and Ortho-McNeil Pharmaceutical, Inc. Ortho-McNeil and 
Janssen are owned by Johnson & Johnson.

[7] The nine drugs are Atenolol, Celebrex, Fosamax, Furosemide, 
Lipitor, Norvasc, Premarin, Prilosec, and Zocor.

[8] For additional information on drug discount card prices see U.S. 
General Accounting Office, Prescription Drugs: Prices Available Through 
Discount Cards and From Other Sources, GAO-02-280R (Washington, D.C.: 
Dec. 5, 2001).

[9] Kaiser Family Foundation, Prescription Drug Discount Cards: Current 
Programs and Issues (Prepared by Health Policy Alternatives, Inc., Feb. 
2002), p. 9. 

[10] Major legislative proposals in both houses of Congress, S. 1 and 
H.R. 1, contain sections on establishing drug discount card programs.

[11] In November 2002, one retail pharmacy chain began offering 
discounts on generic drugs to Together Rx cardholders.

[12] Average wholesale price is often described as a list price or 
suggested retail price because it is not necessarily the price paid by 
a purchaser. Most manufacturers periodically report average wholesale 
prices to publishers of drug pricing data who make them publicly 
available. Because it is publicly available, average wholesale price is 
a commonly used reference price for determining drug discounts.

[13] The list price to wholesalers, also called the wholesale 
acquisition cost, is the price that manufacturers generally charge 
wholesalers, excluding any rebates or discounts, and is published by 
the manufacturers. 

[14] Florida is the only other state that requires retail pharmacies in 
the state that participate in Medicaid to offer the Medicaid price to 
Medicare beneficiaries who do not have prescription drug coverage. 

[15] The mail order option of PBM-administered cards generally 
dispenses a 90-day supply of a drug. The PBMs gave us their mail order 
prices for a 30-day supply, which allowed us to compare these prices to 
30-day retail pharmacy prices for purchases without a discount card. 

[16] See U.S. General Accounting Office, Prescription Drugs: Prices 
Available Through Discount Cards and From Other Sources, GAO-02-280R 
(Washington, D.C.: Dec. 5, 2001).

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