Avalere Health LLC | The intersection of business strategy and public policy Medicare Prescription Drug Payment Presented by Margaret Nowak September 24, 2008

© Avalere Health LLC Page 2 Why Focus on Medicare?  CMS* is a leader in defining evidence necessary for coverage and reimbursement »CMS’ process sets the standard for many payers »Payment systems, rates, and quality measures frequently are benchmarks for private payers and Medicaid  Medicare prescription drug benefit increases Medicare’s role and influence in the healthcare market  Unlike private payers, CMS must adopt publicly accountable and transparent processes * CMS = Centers for Medicare & Medicaid Services

© Avalere Health LLC Page 3 As of 2006, Medicare Covers Outpatient Prescription Drugs  Congress established a new outpatient prescription drug benefit (Part D) for Medicare beneficiaries  Private-sector health insurance plans (e.g., Aetna, Humana) contract with Medicare to deliver prescription drug benefits  Medicare Part D covers prescription drugs in much the same way as private insurance plans »Includes most drugs sold through retail pharmacies (e.g., Walgreen's) »The law requires that Part D plans also covers supplies associated with the administration of insulin, including syringes and needles »Needles and syringes for other self-injected drugs are not explicitly covered under Part D, however individual plans may choose to do so »Many self-injected drugs are packaged and sold in pre-filled syringes, in which case Medicare covers the “sharps” as part of the drug

© Avalere Health LLC Page 4 Payment for Drugs Is Shared Across Stakeholders Drug Manufacturer Insurance Plan Patient Medicare Pharmacy $ $ $ $ $ Rx

© Avalere Health LLC Page 5 Needle Disposal Costs Are Not Included in Medicare Drug Reimbursement  What Medicare can and cannot pay for under the Part D prescription drug benefit is defined in statute  Disposal costs do not meet any statutory definition of a Part D drug »CMS has specified that needle disposal is not directly related to injection of insulin, and therefore cannot be reimbursed by Part D* »For the Federal government to reimburse plans for disposal costs, Congress would have to pass legislation »Alternatively, plans could pay for disposal and pass cost on to enrollee * Source: CMS Final Regulations for Medicare Improvement and Modernization Act of 2003, January 28, 2005.