Statement of Bruce E. Bradley, Director, Health Plan Strategy and Public Policy,
General Motors Corporation, Detroit, Michigan

Testimony Before the House Committee on Ways and Means

Hearing on Integrating Prescription Drugs into Medicare

April 17, 2002

Mr. Chairman, Ranking Member Rangel, and distinguished Committee members, I am Bruce Bradley, Director of Health Plan Strategy and Public Policy at General Motors (GM).  It is an honor to testify before this historic Committee as you work to design and to pass a Medicare prescription drug benefit. 

There are few issues more important to seniors, eligible people with disabilities, their families—and employers—as filling the coverage gap represented by the absence of a Medicare prescription drug benefit.  Moreover, a meaningful prescription drug benefit is critically important to employers, who are struggling to provide retiree health coverage while facing double-digit increases in health insurance premiums and pharmaceutical costs. 

GM faces extraordinary financing and delivery challenges in the administration of our prescription drug benefits, particularly as it relates to the benefits we provide to our retirees.  We have a great deal of experience in administering drug benefits and well recognize the challenges you face in attempting to design a workable and meaningful drug benefit for the Medicare program. 

We commend the Ways and Means Committee for addressing this issue.  My testimony will focus on the challenge GM faces in the delivery of our pharmaceutical benefit, how we manage it, and what our priorities would be for a Medicare prescription drug benefit.  It is our hope that the lessons we’ve learned can be useful to this Committee as it takes critical steps towards achieving a bipartisan agreement on a meaningful and universal Medicare prescription drug benefit.

Prescription Drug Cost Challenges Facing GM

GM insures 1.2 million workers, retirees and their families.  We are the largest private provider of health care coverage.  GM spends over $1.3 billion a year on prescription drugs for its current and retired workforce and their families.  Despite our aggressive management of our prescription drug benefit and associated costs, the current 15-20 percent annual growth rate still more than quadruples the general inflation rate, and clearly represents a troubling trend. 

From our perspective, these drug costs are driven by a multitude of factors, including increased utilization (both appropriate and inappropriate), and price. While we are attempting to manage these costs through a number of interventions that will be outlined later in this testimony, we do not see significant potential to reduce the trend without assistance from the federal government.  More specifically, only the federal government can pass legislation to increase coverage by enacting a Medicare drug benefit.

Although GM’s Medicare-eligible population represents only 33 percent of our covered population, it accounts for about nearly half of the prescription drug cost or $508 million.  The current financing challenges that our Medicare-eligible population poses will only grow worse as the baby boom generation starts to retire less than ten years from today.  The growing financial burden posed by prescription drug costs literally threatens the ability of many U.S. companies to be effective competitors within the world marketplace.  If we do not get a handle on these costs in short order, companies will have to make undesirable choices that may limit access or shift costs to current and retired workforce.  Faced with overwhelming retiree health cost challenges, many other companies have actually chosen to drop health benefits for this population.  In fact, between 1994 and 2001, there was a 43 percent decline in firms offering retiree coverage.[1]

GM Management of Drug Benefit Plans

GM has responded to the multi-faceted challenge of rising prescription drug costs with a multi-faceted management response, with a mind to assuring the best medical outcomes and value.  We have a great deal of experience in administering a drug benefit and believe that our management techniques have made a positive difference in the quality and value of the benefit we offer, and could be applied to the design of a Medicare drug benefit.

We have utilized pharmacy benefit managers (PBMs) to help effectively purchase medications, and have ensured that the company receives the benefits of their negotiations through very explicit performance standards.  Our contracts with PBMs encourage medically appropriate and cost-effective prescribing and dispensing practices.  Among the tools our PBMs use are:

• Partners for Healthy Aging: An enrollee/patient and physician education effort which provides information on issues of pharmaceutical safety and use among the elderly
•  Therapeutic Interchange: Contacts with physicians to encourage use of formulary medications
•  Physician Profiling and Peer Rating: An expansion on the above which provides feedback on quality and utilization performance
•  Severe Drug-Drug Interaction Edits: On-line, electronic feedback at the time of dispensing that prevents dispensing drugs that could represent life-threatening interactions.  This situation often arises when an enrollee is seeing more than one physician and the respective physicians are not aware of all of the drugs the enrollee is taking.  When one of these cases arises, the pharmacist contacts the prescribing physician and reviews the facts of the case before dispensing the potentially conflicting medication.
• Digestive Health Solutions: Addresses unique concerns of patients with gastro-intestinal disease.  It provides educational materials to enrollees and encourages appropriate prescribing practices by physicians.
• Dose Optimization: Simplifies the dosing regimen for patients and capitalizes on cost savings of taking one pill versus two.
• Encourage High Quality, Cost-Effective Generic Drug Use: When an appropriate generic drug is available, it is dispensed unless the physician specifies “dispense as written” or the enrollee requests the brand drug.  If the brand drug is dispensed at the enrollee request, the enrollee pays the difference between the cost of the generic and brand, in addition to the normal co-pay.

GM’s Priorities for a Medicare Benefit

GM believes that all Medicare beneficiaries—both seniors and eligible people with disabilities alike—should have access to an affordable, meaningful Medicare drug benefit.  Notwithstanding our concerns about prescription drug costs, we regard such coverage as necessary because in many cases, prescription drugs are the most clinically appropriate and cost-effective treatment.

We therefore believe that any Medicare drug benefit should include the following four components:

• First, a Medicare drug benefit should be universal in nature.  All Medicare beneficiaries should have the choice of an affordable drug benefit.  The Medicare program has largely been a great success, representing the only population in this nation with the benefit of universal coverage.  Virtually every private insurer for the under-65 population recognizes that it is essential to have a prescription drug benefit for quality medical care today. 
• Moreover, the distribution of seniors without prescription drug coverage is not limited to low-income populations.  In fact, fully half of those seniors without coverage have incomes over 200 percent of the poverty level.  Further, of those seniors who do have coverage today, many have extremely limited coverage or are at risk of losing their good coverage because of cost.  Addressing this problem effectively, therefore, means designing a universal benefit.
• Second, a Medicare prescription drug benefit should be meaningful and affordable to both beneficiaries and taxpayers.  To ensure a stable and accessible drug benefit that is voluntarily chosen by all beneficiaries, it will be necessary to design a substantive benefit that has an affordable premium.  This will require a significant investment of federal dollars.  We well recognize, however, that Congress has to achieve a bipartisan consensus around what level of federal dollars are available for such an investment, and clearly resources are not infinite.  This underscores the importance of a well-managed, cost-effective prescription drug benefit.
• Third, the design of the Medicare prescription drug benefit must be oriented to achieve positive medical outcomes and value.  Just as important as designing an affordable, meaningful, and universal drug benefit is managing it well.  It would be irresponsible for the Congress to pass a drug benefit without significant attention towards ensuring that the benefit is cost-effectively designed and managed.  To that end, the benefit should be designed to encourage appropriate use of high-quality, cost-effective generic medications, require cost-sharing that guards against excessive and inappropriate utilization, and integrates state-of-the-art pharmacy management techniques that ensure the use of high-quality, high-value pharmaceuticals.
• Lastly, a prescription drug benefit should provide incentives for employers who are already financing prescription drug coverage for Medicare-eligible individuals to continue to do so.  We recognize that the Congress may not be able to afford the same level of benefits that many leading corporations provide to their beneficiaries, but it should provide a much-needed floor of protection.  As such, it should ensure that employers and health plans currently providing drug coverage can design benefits to wrap around Medicare.  Or, alternatively, Medicare should provide these entities with direct financial subsidies that are equivalent to the value of the underlying Medicare benefit.  Such policies would appropriately avoid penalizing firms who have generously and voluntarily provided such coverage and slow the recent trend of companies withdrawing their benefits for these populations.

Conclusion

GM well recognizes the design, financing, and other challenges the Congress faces in constructing and passing a Medicare prescription drug benefit.  There are few domestic policy issues that are more important to successfully address.  We hope that our experience, as well as our support, can help you develop and pass a long-overdue Medicare drug benefit.  We look forward to working with you in the days and months to come.

[1] William P. Mercer.  Health Benefit Costs Up 11.2% in 2001 – Highest Jump in 10 Years.  National Survey of Employer-Sponsored Health Plans 2001.  New York: William P. Mercer, Inc.