Medicare Coverage and Reimbursement of Outpatient Prescription Drugs in the US: History, Recent Changes and Outlook for the Future

US Medicare provides health insurance to 41.5 million disabled and elderly Americans. Outpatient coverage, including a limited pharmacy benefit, is provided by Medicare Part B. Even with very restrictive criteria, Part B incurs $US8.5 billion annually for outpatient prescription medications. Prior to passage of the Medicare Prescription Drug and Improvement Modernization Act (MMA) 2003, the Part B pharmacy benefit was criticised for its limited coverage criteria and flawed reimbursement practices. Despite the changes made under the MMA, these two issues continue to be concerns for the Medicare Part B outpatient prescription drug programme because (a) the criteria for selection of drugs for coverage do not necessarily reflect valuable advances in medicine, and the extent to which the new private-sector style 2006 Medicare Part D drug benefit will correct this is unknown; and (b) although pre-MMA average wholesale price-based reimbursement practices were clearly flawed, MMA changes such as use of the average sales price and providing increased reimbursement to physicians for drug administration may or may not be successful, and could lead to new problems. The extent to which the MMA and its associated Part D drug benefit address concerns and advance towards better, more cost-effective healthcare is reviewed and recommendations made.