Catastrophic Care Would Pay More for Drugs Than VA, Study Finds

The federal government will pay much higher prices for prescription drugs under Medicare’s controversial catastrophic care program than it does under Department of Veterans Affairs programs that provide health care for military beneficiaries, a new congressional study shows.

The price differences for some commonly used drugs will range from 12% to 88% because the catastrophic care law does not provide for obtaining drugs at discount rates from manufacturers, as the VA system does, according to the study by the staff of the Senate Aging Committee.

The drug price disparity will be examined Tuesday when the committee receives the report and begins a series of hearings on pharmaceutical prices. A copy of the study was obtained by The Times.

May Intensify Debate

The comparison is likely to intensify the debate over the catastrophic care law, enacted by Congress last year and now the target of a campaign demanding that it undergo major changes. The Medicare coverage for prescription drugs is scheduled to begin in 1991.

The projected disparity in drug prices is a result of the significant differences in the Department of Veterans Affairs and Medicare systems of providing health care.

The VA operates its own hospitals and clinics and makes bulk purchases of the drugs it dispenses at the facilities. As a large-volume buyer, it is able to negotiate cut-rate, wholesale prices for the products from manufacturers and distributors.

Medicare, which does not operate its own facilities, does not purchase drugs directly for its beneficiaries. Under the catastrophic care program, beneficiaries would buy their prescriptions from private pharmacists at retail prices and the federal program would then provide partial reimbursement.

Want Minimum Markup

Nevertheless, committee staff members suggested that the government should be able to press manufacturers to keep their markup to a minimum, since the government eventually bears much of the cost of the products. Since the catastrophic care program will limit the dispensing fee that pharmacists can charge for their services, this additional action could cut the sharp disparity with the VA drug prices, they said.

“Medicare will be a big purchaser of drugs,” a committee staff member said. “Why shouldn’t it get as good a deal as the VA?”

The study shows, for example, that the VA pays $113 for 100 tablets of Feldene, a drug used to treat arthritis. Under the Medicare drug benefit, the price paid by the government is projected to be $153.

Procardia, a medication for chest pain, costs the VA $76 per 300 capsules, compared to Medicare’s expected cost of $103; and Tenormin, for high blood pressure, costs the VA $39 and Medicare an expected $53 per 100 tablets.

Pressure From Constituents

Members of Congress are feeling pressure from constituents about the cost of the new catastrophic care program. Critics are demanding a reduction or repeal of the surtax that will be imposed for the new health coverage and prescription drug benefits. The tax can range up to $800 for a single beneficiary and $1,600 for a married couple.

The catastrophic care law provides unlimited days of hospital care, starting this year, after the patient pays $560 for the first day. A ceiling on out-of-pocket outlays for doctor bills is scheduled to begin next year.

When the drug benefit begins in 1991, Medicare will pay 50% of drug costs after the beneficiary has paid the first $600 for the year. The next year, Medicare would pay 60%, and in 1993 it would pay 80%, with the annual deductible adjusted each year for rising costs.

The drug provision is the most costly component of the catastrophic care package. In any single year, as many as 17% of the 33 million Medicare beneficiaries are expected to have high enough drug bills to receive reimbursements.

Government officials have estimated that drug prices are rising at twice the general inflation rate, and believe that pharmaceutical use could climb rapidly when the government begins paying some of the bills.

Sen. David Pryor (D-Ark.), chairman of the Aging Committee, has been conducting an investigation of drug prices and pharmaceutical company profits. He is forwarding the panel’s findings on drug prices to Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, which is weighing the demands for changes in the Medicare legislation.