Potential Medicare & Medicaid Savings with the FDA’s OTC Drug Proposal

The Food and Drug Administration (FDA) is considering changing how individuals obtain drugs for common ailments such as high blood pressure, high cholesterol, diabetes, allergies, migraines and other conditions that currently require a prescription.  This change could have a dramatic impact on how much money federal and state governments spend on treating health conditions.

An earlier blog post reported that the FDA sought comments on how to best provide some drugs without prescription in a February 28, 2012 Federal Register Notice.  That Notice described a system where individuals could go to their pharmacist, complete a questionnaire (maybe via kiosk) and have that data compared to their electronic medical records. If the facts supported the use of a medication, the individual would receive that medication. In a later post we described how this change could increase the number of individuals who would be treated for these conditions.

Cost Implications

The impact on payers was discussed at an  FDA meetings on March 22nd and 23rd, 2012. At these meetings, concerns were raised that when these medications no longer require a prescription, payers such as Medicare, Medicaid, and private insurers would no longer pay for the medication and that the individual would have to pay for the medication out of their own pocket.

Marissa Schlaifer, Director of Pharmacy Affairs for the Academy of Managed Care Pharmacy, testified that Medicare and Medicaid currently only cover the cost of a drug if it is prescribed by a physician. Over-the-counter (OTC) medications are not covered, with the exception of OTC medications as part of step therapy.  Medicare, however, does not reimburse plans that chose to cover OTC medications that are part of step therapy; plans have to pay for these drugs out of their own administrative costs to cover those medications.

Another potential cost saving to Medicare and Medicaid would result as individuals would no longer need to see a physician to obtain a prescription. Currently medications for these conditions require a visit to the doctor’s office to monitor the state of the disease and to obtain a prescription or refill a prescription. The amount of money reimbursed under Medicare’s physician fee schedule could decrease significantly as fewer beneficiaries make office visits to get their prescriptions refilled.

While  it is generally viewed that this change will lead to a dramatic decrease in costs to the health care system, it was also noted by Eric Juhl, director of Federal Public Policy with the National Association of Chain Drug Stores  that overall cost could go up if a significant number of patients could not afford to purchase the medication out of their own pockets. The costs associated with poor outcomes resulting from not using the medication might increase the costs of hospitalizations and emergency room visits.

New Coverage Category

The creation of a new category of drugs, behind-the-counter, could be created by the FDA to join the existing categories of OTC and drugs requiring a prescription. This new category could allow payers to change their coverage and allow coverage for services such as pharmacist services. Under this coverage payers could reimburse for the provision of the medication and some consulting at a reduced rate.

An example of how significant savings using this type of paradigm were achieved was observed in the TRICARE program, the health care program for uniformed members of the U.S.military, retirees and their families. Eric Juhl related how TRICARE allowed beneficiaries to obtain the flu and pneumococcal vaccines from retail pharmacies. Over 18,000 vaccines for H1N1, flu, and pneumococcal were administered at a cost of nearly $300,000. Had those vaccines been administered under TRICARE’s medical benefit, the cost would have been $1.8 million. This clearly represents significant health care savings, which one would expect to be amplified and replicated if pharmacists were allowed a broader portfolio of vaccinations or immunizations to a broader patient population.

The FDA is still in general discussion on any changes it would make to how medications are prescribed, and while the conversations are still centered around the quality of care to patients these changes will provide, affects on the payers in the health care system are also being considered.