Speaking Different Languages…

The federal government uses a number of mechanisms for paying claims and benefits in its various programs.  It may come as no surprise, but many agencies duplicate each other’s’ efforts by providing the same services, sometimes even to the same people, using different systems.  Additionally, due to the laws Congress passed relating to various agencies, some are more free to negotiate pricing or streamline their methods.  This is perhaps most evident in issues relating to drug pricing for Medicare, Medicaid (Medi-Cal in California)and Department of Veterans Affairs (VA) benefit recipients.

The VA and Department of Defense (DOD) generally pay the lowest amount for prescription drugs through its TriCare insurance program.  Essentially, TriCare is an extremely large group insurance plan that is able to negotiate with drug companies in order to lower its rates.  The VA and DOD use the “Federal Supply Schedule” when determining drug prices as well, which is the lowest price schedule among the varying rates of drugs provided through federal programs.  However, Medicare and Medicaid, which are also largely federally funded, are not privy to the Federal Supply Schedule rates for prescription drugs.  Inexplicably, both Medicare and Medicaid have their own prices for prescriptions.

Medicare offers prescription coverage primarily through the unfunded federal drug insurance program, Medicare Part D.  The program creates competition between plan sponsors (insurance provider) and pharmacy benefit managers who negotiate and report prices.  However, the Medicare program does not directly negotiate prices.  Participants pay premiums and copays while the government foots the rest of the bill.  Medicaid, on the other hand, works on a rebate system wherein drug providers agree to pay rebates for certain prescriptions based on a complex formula.  Overall, the rebates for Medicaid are higher than those for Medicare Part D, although the result varies by drug.

In the climate of increasing budget hawkishness within the government, it would seem that the federal government would have an interest in not only keeping its prescription prices low, but keeping them consistent across agencies in order to streamline the processing and payment of prescription drug benefits.  Additionally, since Medicare beneficiaries share a large portion of the costs, individuals are affected by increased costs between programs.

Similarly, the VA and DOD use different systems for processing medical claims notwithstanding increased costs and bureaucracy and the fact that the DOD is currently seeking a new database program, but has not yet decided on one.  The causes of these problems exist at all levels of the government: Congress makes rules and formulas, and courts occasionally make the rules difficult to administer in a uniform way (consider allowing states to opt out of Obamacare’s Medicaid expansion).  The executive branch, which houses the President, is also home to most of the federal agencies involved in these problems.  Perhaps now is the time to encourage government agencies to communicate more effectively so that individuals are not facing vastly different prices and treatment levels from the same overriding provider: the federal government.  Of course, inequities would remain among federal agency care, private insurance, and the lack of insurance.  Planning ahead to qualify for the best prescription coverage for your family is an important aspect of your estate planning.

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