Health Law Daily Increasing brand-name drug costs to blame for rising Part D reimbursement
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Tuesday, June 5, 2018

Increasing brand-name drug costs to blame for rising Part D reimbursement

By Patricia K. Ruiz, J.D.

A review by the Office of Inspector General (OIG) found that Medicare Part D reimbursement has increased drastically since 2011 and will continue to rise. The OIG cited increasing manufacturer prices for brand-name drugs, particularly expensive maintenance drugs used to treat chronic, long-term conditions, as the reason for the increase. The OIG expects reimbursement to continue to rise with prices for brand-name drugs (OIG Data Brief, No. OEI-03-15-00080, June 2018).

Part D Reimbursement. Pharmacy reimbursement for Part D drugs is based on negotiations between plan sponsors and pharmacies, with benchmark prices or wholesale acquisition costs serving as the bases for the negotiated prices. A plan sponsor may also negotiate rebates with drug manufacturers to reduce Part D drug costs to beneficiaries and the government. Beneficiary cost-sharing obligations—or out-of-pocket costs—may include deductibles, copayments, and coinsurance amounts. Beneficiaries may pay more for brand-name drugs than generics, depending on the tiered cost-sharing implemented by their plan sponsors. A study conducted by the Medicare Payment Advisory Commission (MedPAC) in 2017 found that newer, more expensive drugs significantly affected overall Part D reimbursement. Because beneficiaries who need these expensive drugs are more likely to reach the catastrophic-coverage phase of their benefits, the government pays a greater share of their drug costs.

Methodology. For this study, the OIG used prescription drug event records to provide an analysis of reimbursement amounts and utilization changes for brand-name drugs in Part D between 2011 and 2015. It also examined the impact of manufacturer rebates on Part D reimbursement over the same time period. To control for the possibility that increases in utilization or newer, more expensive brand-name drugs may have driven increases in Part D reimbursement, the OIG analyzed the number of prescriptions and average unit costs for brand-name drugs reimbursed by Part D during the study period. Finally, the OIG evaluated beneficiary out-of-pocket costs for brand-name drugs.

Findings. The OIG found that, even though there were 17 percent fewer prescriptions for brand-name drugs in 2015 than in 2011, increases in Part D unit costs for brand-name drugs resulted in a 77 percent increase in overall Part D spending and higher out-of-pocket costs for beneficiaries. Even after accounting for manufacturer rebates, reimbursement still increased 62 percent. These increases significantly outpaced inflation. Plan sponsors base their pharmacy reimbursement amounts on the prices manufacturers set for their drugs, so increasing manufacturer prices for brand-name drugs may result in increasing costs for Medicare and its beneficiaries, particularly those requiring expensive maintenance drugs. Because maintenance drugs are used to treat chronic, long-term conditions, increasing reimbursement for such drugs will continue to affect Part D and its beneficiaries for years to come.

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