Health Law Daily OIG study finds high-price drugs are jeopardizing future of Medicare Part D
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Friday, January 6, 2017

OIG study finds high-price drugs are jeopardizing future of Medicare Part D

By Jessica Y. Washington, J.D.

A recent study conducted by the HHS Office of Inspector General (OIG) on the impact of high-price drugs on Medicare beneficiaries and the health care system, specifically as related to Part D catastrophic coverage, has found that: (1) federal payments for Part D catastrophic coverage exceeded $33 billion in 2015, which is more than three times the amount paid in 2010; (2) spending for high-price drugs contributed significantly to the growth in federal payments for Part D catastrophic coverage; (3) 10 high-price drugs accounted for approximately one-third of all drug spending for catastrophic coverage in 2015; and (4) some Medicare beneficiaries in the catastrophic coverage stage face high out-of-pocket costs. The OIG is calling for a multi-faceted approach to secure the future of the Part D program and to ensure that beneficiaries have access to needed drugs (OIG Report, No. OEI-02-16-00270, January 5, 2017).

Background. The dramatic growth in federal payments for catastrophic coverage and the underlying issue of high-price drugs prompted the OIG study. The specific objectives of the study were to describe the growth in federal payments for Medicare Part D catastrophic coverage and to determine which drugs account for the highest spending in catastrophic coverage. Catastrophic coverage is designed to protect beneficiaries from high out-of-pocket costs. Beneficiaries reach the catastrophic coverage stage when their out-of-pocket costs exceed a certain threshold. Under catastrophic coverage, most beneficiaries pay a 5-percent coinsurance for drugs, while the federal government pays the majority of the remaining costs. However, beneficiaries who reach this stage often carry a substantial financial burden; many have medical conditions that require high levels of drug spending, and Part D’s catastrophic coverage does not place a cap on their out-of-pocket expenses. The federal government’s share of drug costs is the highest at the catastrophic coverage stage.

Federal payments. Federal payments for catastrophic coverage more than tripled from 2010–2015, increasing from $10.8 billion to $33.2 billion. This represents 80 percent of total drug spending in catastrophic coverage (after accounting for rebates and other price concessions). The 208 percent, or $22.4 billion growth in these payments in recent years is dramatically higher than the growth from 2006–2010, which saw an 85 percent, or $5 billion increase. Federal payments for catastrophic coverage reached their most expensive level in 2014, and by 2015, these payments accounted for 42 percent of Part D federal payments.

High-price drug spending and high out-of-pocket costs. Much of the growth in federal payments for catastrophic coverage can be attributed to the cost of high-price drugs (drugs with average costs of more than $1,000 per month). Drug spending in catastrophic coverage (the amount paid for a drug to the pharmacy by all payers, including the beneficiary, the government, and the sponsor) increased nearly sevenfold from 2010–2015, rising from $5 billion to $33.4 billion, with the most substantial increase occurring in 2015. By 2015, high-price drug costs accounted for close to two-thirds of total catastrophic coverage drug spending (compared to one-third of such spending in 2010). Total catastrophic coverage drug spending in 2015 was $51.4 billion; high-price drugs accounted for 65 percent ($33.4 billion). Contrast that to 2010, when high-price drugs accounted for only 32 percent of total drug spending in catastrophic coverage. Other factors contributing to the increase in catastrophic coverage drug spending include the increase in the proportion of beneficiaries receiving high-price drugs (28 percent in 2015 compared to 14 percent in 2010) and the increase in the overall number of beneficiaries in catastrophic coverage (from 2.4 million to 3.6 million, or 53 percent, from 2010–2015). The majority of this increase occurred in 2014, when the number of beneficiaries entering the catastrophic coverage stage increased by more than half a million.

Ten high-price drugs used to treat conditions such as hepatitis C, cancer, and multiple sclerosis, were responsible for approximately 30 percent, or $15.6 billion of all catastrophic coverage drug spending in 2015. Many of these drugs cost thousands of dollars per month. The study found that the average price for these drugs ranged from $1,200 to almost $34,000 per month, which resulted in high out-of-pocket costs for some beneficiaries in catastrophic coverage. The total spending for each of these drugs ranged from $635.5 million to $6.3 billion. The out-of-pocket costs for high-price drugs increased significantly during the period 2010–2015 for some beneficiaries. During this time frame, out-of-pocket costs for high-price drugs in catastrophic coverage rose 47 percent. In 2015, beneficiaries paid, on average, $257 per month for each high-price drug in catastrophic coverage, compared to $175 per month in 2010.

Combating rising drug costs. The OIG has called for a multi-faceted approach to solving the issue of high-price drugs in Medicare Part D catastrophic coverage, which, the agency notes, affects the entire Part D benefit and can lead to higher costs for all beneficiaries. "Securing the future of the Part D program while ensuring that beneficiaries have access to needed drugs is a complex issue" and a priority. The OIG study highlights policy options suggested by groups including the Medicare Payment Advisory Commission, Kaiser Family Foundation, and Congressional Budget Office. These options include restructuring the Part D benefit to give sponsors more incentives and opportunities to lower costs, creating more transparency in drug pricing, promoting value-based options, and revising the law to allow the government to negotiate prices for certain drugs. The OIG is currently reviewing the increase in prices for brand-name drugs covered under Part D. Moreover, CMS recently published information regarding certain drugs that have experienced significant price increases and asked the pharmaceutical industry to partner with it to identify solutions that will allow for both innovation and affordability. The department also hosted a forum focused on strengthening incentives and promoting competition.

MainStory: TopStory OIGReports CMSNews AuditNews DrugBiologicNews GenericDrugNews PartDNews PrescriptionDrugNews

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