Medicare brand-name needs go unmet

From the day the new Medicare drug plan was introduced, critics warned that it had a big loophole -- the “doughnut hole” -- a coverage gap that leaves some recipients with $3,000 in costs to pick up themselves.

The private sector was supposed to help. And last year, Sierra Health Services, an insurer based in Las Vegas, announced it would do so. In exchange for higher monthly premiums, Sierra offered comprehensive coverage of brand-name medications for patients who had to fill the cost gap.

But the Sierra Rx Plus plan lost $3 million in January, its first month of operation. Faced with that red ink, the company announced in late February that next year it would no longer offer a plan that covers brand-name drugs in the gap.

About the same time, hundreds of enrollees started getting notices that their Sierra coverage was being discontinued for nonpayment -- although some said they already had sent in checks. Medicare officials recently intervened to order about 2,000 customers reinstated, including about 200 AIDS patients.

The episode draws attention to problems inherent in Medicare’s partnership with private insurers to provide drug coverage for elderly and disabled Americans. Because Sierra was the only major plan to cover brand-name drugs in the gap this year, recipients may have no comparable option for 2008.

Medicare’s coverage gap was designed by a Republican-led Congress to help keep program costs down. After the first $2,400 in total drug costs, beneficiaries are responsible for the next $3,051 -- the doughnut hole. Beyond that, the program pays 95%. Plugging the gap for all seniors could cost taxpayers as much as $450 billion over 10 years.

“It’s not very likely to happen in this Congress,” said Rep. Pete Stark (D-Fremont). “Closing the doughnut hole would be expensive unless you did a whole host of other things, such as having the government negotiate for the purchase of drugs. And the president would probably veto that.”

Yet many healthcare experts say the doughnut hole has become a major hindrance to the program’s ability to help some of the most severely ill patients.

More than 3 million Medicare recipients face the coverage gap, and insurers that attempt to offer a relatively generous benefit to fill it risk attracting the costliest patients. It’s a chance most companies won’t want to take.

“Brand-name coverage in the gap has had a pretty fast death spiral,” said Jack Hoadley, a research professor at Georgetown University’s Health Policy Institute.

Sierra’s vice president for public and investor relations, Peter O’Neill, said the company’s financial losses had nothing to do with the wave of canceled policies. He blamed the cancellations on a misunderstanding over company efforts to correct a typographical error: Sierra had notified beneficiaries that they had 90 days to pay their premiums; the company meant to say it was 30 days.

The company has now complied with Medicare orders to reinstate all the patients -- as well as the longer grace period, he said.

Some advocates for patients were skeptical of Sierra’s explanation. The financial losses afflicting the company “raise red flags,” said David Lipschutz, a lawyer for California Health Advocates in Los Angeles, a nonprofit that represents Medicare beneficiaries.

Sierra has about 42,000 patients in its enhanced plan, and an additional 163,000 in a basic plan. Unlike its experience with the enhanced plan, the company expects the basic plan to make $11 million to $14 million this year. The basic plan does not offer any coverage in the doughnut hole.

Indeed, most Medicare prescription plans do not provide any coverage in the gap. Some, for higher monthly premiums, cover generics in the gap. Another insurer, Humana, tried covering brand name drugs in 2006 but lost money and did not offer such a plan this year.

“There are two plans that have had experience with providing [brand-name] coverage in the doughnut hole, and neither one of us got it correct,” Sierra executive O’Neill said.

Insurance that covers brand-name drugs is important for patients being treated with medications that have no generic alternatives. For some diseases, such as multiple sclerosis or rheumatoid arthritis, patients rely primarily on brand-name drugs. And in the doughnut hole, not even common brand-name drugs such as cholesterol-lowering Lipitor are covered.

O’Neill urged policymakers to find ways to make brand-name coverage more comprehensive. The benefit “should be modified so that it works, because it’s just too important a need to a particular population,” he said.

But Sierra’s problems may actually have the opposite result -- reinforcing insurers’ reluctance to cover brand-name medications. Its decision has resulted in scores of disgruntled patients who question the company’s motives and say their health was put at risk.

Antonio Hernandez of Oklahoma City said he believed Sierra was “trying to get rid of me” when he went to the pharmacy a few weeks ago and was told he had no coverage. His premium was being paid by the state of Oklahoma, and he said a Sierra representative had assured him on the phone that he would have no problems obtaining his prescriptions.

Hernandez, 44, is disabled as a result of cardiovascular problems and HIV, and said he took about 20 medications regularly. In addition to seniors, Medicare covers about 7 million people younger than 65 who are permanently disabled.

Hernandez said he suspected his coverage was dropped because of cost. “With people like me, they don’t make any money off us,” he said.

He added that he was able to keep getting his HIV drugs through the state, but without his other medications, his health went into a tailspin. He previously had had two strokes, which affected his balance. And he has a type of nerve damage that causes pain in his legs.

“My blood pressure spiked, and the pain in my legs got so bad that basically I just stayed in bed and tried to deal with it,” he said.

O’Neill said privacy rules precluded him from commenting on individual cases.

AIDS patients in six other states were also dropped by Sierra. Advocates contacted a national organization, which alerted Medicare.

Abby L. Block, the Medicare official who oversees the prescription drug program, said she ordered Sierra to reinstate the patients and reinstitute a 90-day grace period for premiums. Medicare is looking into whether Sierra failed to give adequate notice before it started dropping customers, she said.

Former Medicare Administrator Mark McClellan, who oversaw the introduction of the prescription benefit in 2006, said lawmakers shouldn’t give up trying to find ways to address the coverage gap. One possibility would be a modest increase in premiums, now averaging about $30 a month for basic coverage.

“The low cost of the basic benefit has encouraged a lot of people to enroll,” McClellan said. “If you raised the cost a little bit and put that into expanding coverage, it makes sense that most people would want to stay in the program.”

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ricardo.alonso-zaldivar@latimes.com

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(BEGIN TEXT OF INFOBOX)

Comprehensive coverage is scarce

The Medicare prescription benefit has a $3,000 coverage gap after the first $2,400 in annual costs--the “doughnut hole.” Only a few of the private insurers offering the benefit cover brand-name drugs in the gap. Here’s a look:

Few plans have gap coverage ...

No coverage: 85%

Generics only: 13%

Brands and generics: 2%

... and monthly premiums* are higher

No gap coverage: $30.17

Only generics in the gap: $51.11

Brands and generics in the gap: $93.46

* Average premiums, not weighted for enrollment

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Source: Kaiser Family Foundation