With the Bipartisan Budget Act of 2018 (BBA), Congress made changes to the Medicare prescription drug benefit program, also known as Part D, to lower spending for beneficiaries and the federal government.

These changes increased the size of the discount from 50% to 70% on brand-name drugs that manufacturers are required to subsidize beneficiaries in the coverage gap. This move was designed to shrink the share of spending in the “doughnut hole” covered by Part D plan sponsors and beneficiaries.

Since then, pharmaceutical manufacturers have continued to pressure Congress to roll back the discount to 63%—to increase Part D plan-sponsor liability—and block any increase in the total amount beneficiaries must spend out-of-pocket on their prescription drugs before catastrophic coverage kicks in.

While pharma is attempting to increase costs to the system, in much the same way as they did during the recent discussions, it’s critical that legislators strive to fully understand what is at stake and seek solutions that equitably serve every stakeholder in a way that ensures a more sustainable healthcare system—rather than blindly obstructing one stakeholder over another in a way that raises costs and undermines financial and medical outcomes.

Potential Changes to Part D

Rolling back the discount would benefit drug manufacturers more than Medicare beneficiaries. While beneficiary spending in the coverage gap would be slightly reduced, manufacturers’ spending would be reduced far more. Furthermore, Medicare spending under Part D would increase to cover the savings to both stakeholders.

During its regular meeting, the Medicare Payment Advisory Commission (MedPAC), an independent commission appointed to advise Congress on policy and payment issues related to the Medicare program, raised two issues important for members of the Academy of Managed Care Pharmacy (AMCP), an organization that represents pharmacy payers. MedPAC found that closing the doughnut hole under the Medicare Part D program increased use of catastrophic, government-subsidized coverage among Medicare Part D eligible individuals.

When the prescription drug benefit was implemented in 2006 until 2011, individuals were primarily responsible for paying prescription costs in the doughnut hole or coverage gap. MedPAC and the Centers for Medicare & Medicaid Services (CMS) found that individuals often stopped taking medications because of increased out-of-pocket costs.

In 2011, individuals began to receive subsidies to offset costs in the coverage gap and utilization began to rise. Consequently, MedPAC concluded that more individuals are shifting to federally subsidized catastrophic prescription drug coverage where the federal government subsidizes 80% of costs, the plan 15%, and individuals not eligible for low-income subsidies must pay 5% of costs.

MedPAC stated that the current subsidy structure has increased Part D costs to the government and does not provide incentives for plans to manage individuals’ medication costs during catastrophic coverage. They concluded from this that shifting costs to plans might lower costs.

In addition, MedPAC looked at the trend of Part D plans to lower copayments for individuals who use preferred pharmacies, a trend that emerged in 2012 when six plans implemented preferred pharmacy networks. CMS states that costs for brand-name drugs are approximately 19% greater at non-preferred pharmacies and generics cost approximately $5-$10 more.

MedPAC has concluded, however, that they need more information to determine the full impact of preferred pharmacy networks.

An Examination of Catastrophic Cost Sharing

In 2018, the Medicare Part D catastrophic threshold was $5,000 in out-of-pocket total drug spending incurred by the beneficiary. Above this, Medicare pays 80%, prescription drug plans (PDPs) pay 15%, and beneficiaries pay 5%. Recent growth in catastrophic spending, however, has been sparked by costly specialty drugs.

This means that the 5% liability, in addition to out-of-pocket spending, could be a barrier for beneficiary access to specialty drugs. In response, MedPAC has proposed eliminating beneficiary catastrophic cost sharing, while PDPs pay 20% and Medicare pays 80%.

In an effort to assess other government cost-sharing approaches and consider how they would affect pharmaceutical access, PDP Part D incentives, and pharmaceutical innovation, economic researchers reviewed published literature and government reports on cost sharing between U.S. government divisions or between government and private commercial entities.

They also discussed their cost-sharing applicability to Part D and found that the U.S. government has utilized numerous cost-sharing approaches to enhance public-private partnerships. They reviewed four cost-sharing arrangements and their applicability to Medicare: The Byrd-Bond Amendment to the Clean Air Act—Medicare bulk purchases drugs costing $8,000 +; North Atlantic Treaty Organization (NATO)—cost sharing based on high-risk markets; the Ryan White Comprehensive AIDS Resources Emergency (CAREAct—grants to PDPs in high-risk markets and grants to beneficiaries who cannot afford drugs; and the Department of Veterans Affairs—drug price negotiation for expensive drugs.

In the end, the researchers concluded that a variety of federal cost-sharing approaches provide precedent for altering PDP cost sharing.

Closing the Doughnut Hole

To better understand the impact of catastrophic coverage, it is helpful to look back at the evolution of the Medicare Part D coverage and the introduction of the Part D Gap or Medicare doughnut hole. This period of consumer payment for prescription medication costs lies between the initial coverage limit and the catastrophic-coverage threshold, when the consumer is a member of a Medicare Part D prescription-drug program administered by the U.S. federal government.

Also called the Medicare prescription drug benefit, Medicare Part D is an optional federal-government program to help Medicare beneficiaries pay for self-administered prescription drugs through prescription drug insurance premiums. The cost of almost all professionally administered prescriptions is covered under optional Part B of Medicare.

In 2006, the first year of operation for Medicare Part D, the doughnut hole in the defined standard benefit covered a range in true out-of-pocket expenses (TrOOP) costs from $750 to $3,600. The first $750 of TrOOP comes from a $250 deductible phase, and $500 in the initial coverage limit, in which the CMS covers 75% of the next $2,000.

The gap is reached after shared insurer payment—consumer payment for all covered prescription drugs—reaches a government-set amount and is left only after the consumer has paid full, unshared costs of an additional amount for the same prescriptions. Provisions of the Patient Protection and Affordable Care Act of 2010 gradually phase out the coverage gap, eliminating it by 2020.

In 2020, the coverage gap will be considered “closed” when both generic and brand-name drugs will cost Medicare Part D plan members 25% of the retail drug price: Individuals will pay $250 for a medication with a $1,000 retail cost until reaching catastrophic coverage. In the catastrophic coverage stage, the fourth stage of Medicare Part D drug coverage, following the doughnut hole stage, individuals pay only a coinsurance for covered drugs for the remainder of the plan year.

Once the individual has spent $5,100 out-of-pocket in 2019, he/she is out of the coverage gap for Medicare prescription drug coverage and automatically gets catastrophic coverage. It ensures that the person only pays a small coinsurance amount or copayment for covered drugs for the rest of the year.

Recently, MedPAC began work on developing a plan to overhaul the Medicare Part D program, so stay tuned as they work out the details of the restructured proposal.

  • Dea Belazi

    Dea Belazi, PharmD, MPH is President & CEO at AscellaHealth, a national PBM with almost two million lives under management. Dea has more than 20 years of experience in the healthcare industry, mostly developing and managing pharmacy benefit management companies.


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