Prescription Drugs:

Adapting Private Sector Management Methods for a Medicare Benefit

T-HEHS-00-112: Published: May 11, 2000. Publicly Released: May 11, 2000.

Additional Materials:


William J. Scanlon
(202) 512-7114


Office of Public Affairs
(202) 512-4800

Pursuant to a congressional request, GAO discussed the President's proposal to manage the high and rising costs of prescription drugs for the elderly by extending the private sector's prescription drug cost control techniques to the Medicare program.

GAO noted that: (1) private insurers, managed care plans, and employers have tried to manage the high and rising costs of prescription drugs by adopting cost and utilization control techniques; (2) in many cases, insurers and managed care plans contract with a pharmacy benefit management (PBM) company to develop and implement these strategies; (3) if a prescription drug benefit were added to the Medicare program, the federal government would face similar cost pressures and would need to employ methods to control spending; (4) the experience gained in the private sector can provide useful insights into options for managing a possible Medicare benefit; (5) however, the unique responsibilities and characteristics of the Medicare program raise a number of issues and introduce questions about applying private sector tools to the traditional Medicare-fee-for-service program and the appropriate roles of the Health Care Financing Administration and other entities, such as PBMs, in managing a drug benefit; and (6) in adapting these cost and utilization management techniques, it is important to keep in mind that: (a) the size of the Medicare program and the need for transparency in its actions may reduce the effectiveness of some cost control techniques; (b) using private-sector entities to implement a drug benefit introduces concerns related to beneficiary equity and concentrating market power; (c) private-sector management tools require a capacity to process and scrutinize a large number of claims more quickly than is typical of the traditional Medicare program; and (d) strategies involving coverage restrictions impose an obligation to provide beneficiaries with adequate information about the benefit.

Looking for more? Browse all our products here