How Do M+C Plans Manage Pharmacy Benefits? Implications for Medicare Reform

Understanding how Medicare+Choice (M+C) plans manage their drug benefits may generate important lessons for Medicare. This report, based on interviews with both national and regional managed care firms, provides an in-depth look at how plans have managed their M+C outpatient pharmacy benefits in recent years. Findings show that plans rely on a number of cost management strategies to constrain the growth in drug spending including formularies, tiered-copayments, mail-order benefits, and fixed caps or dollar limits on drug benefits. When spending begins to spiral and Medicare capitation rates do not increase commensurately, plans may revert to more certain methods for controlling drug costs like capping drug benefit levels, which helps limit their financial exposure, but shifts risk onto beneficiaries.

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