Summary: Proposals to add a Medicare prescription drug benefit have come during a period of rapid growth in national spending for pharmaceuticals and transformations in the prescription drug market. What remains unchanged since 1965, however, is the absence of coverage for outpatient prescription drugs by traditional Medicare. One third of the Medicare population lacks the supplemental drug coverage provided to most beneficiaries through employer-sponsored plans, managed care organizations, Medicaid, or Medigap insurance. Moreover, high drug use among Medicare beneficiaries translates into a potentially daunting financial burden. The implications of adding prescription drug coverage to Medicare depend on the choice made about details, such as its scope and financing. Its design and implementation will also shape the impact of this benefit on beneficiaries, Medicare spending, and the pharmaceutical market. Recent experience suggests at least two approaches for implementing a drug benefit. One would involve the Medicare program obtaining price discounts from manufacturers. Such an arrangement could be modeled after Medicaid's drug rebate program. The second approach would draw from private sector experience in negotiating price discounts from manufacturers in exchange for shifting market share.
