Medicare Part D
Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier Gao ID: GAO-10-242 January 29, 2010The Centers for Medicare & Medicaid Services (CMS) allows Part D plans to utilize different tiers with different levels of cost sharing as a way of managing drug utilization and spending. One such tier, the specialty tier, is designed for high-cost drugs whose prices exceed a certain threshold set by CMS. Beneficiaries who use these drugs typically face higher out-of-pocket costs than beneficiaries who use only lower-cost drugs. GAO was asked to provide information about high-cost drugs eligible for a specialty tier. This report provides information on these drugs including spending under Medicare Part D in 2007, the most recent year for which claims data were available; how different cost-sharing structures could be expected to affect beneficiary out-of-pocket costs; how negotiated drug prices could be expected to affect beneficiary out-of-pocket costs; and information Part D plan sponsors reported on their ability to negotiate price concessions and to manage utilization. GAO examined CMS data, including 2007 claims data, negotiated price and out-of-pocket cost data for selected drugs--including the 10 highest-utilization specialty tier-eligible drugs in 2007--and plans from 2006 through 2009, and formulary information provided to CMS by plan sponsors. GAO interviewed officials from CMS and 8 of the 11 largest plan sponsors, based on enrollment in 2008. Seven of the 11 plan sponsors provided data including price concessions for selected drugs for 2006 through 2008.
High-cost drugs eligible for a specialty tier commonly include immunosuppressant drugs, those used to treat cancer, and antiviral drugs. Specialty tier-eligible drugs accounted for 10 percent, or $5.6 billion, of the $54.4 billion in total prescription drug spending under Medicare Part D plans in 2007. Medicare beneficiaries who received a low-income subsidy (LIS) accounted for most of the spending on specialty tier-eligible drugs--$4.0 billion, or 70 percent of the total. Among all beneficiaries who used at least one specialty tier-eligible drug in 2007, 55 percent reached the catastrophic coverage threshold, after which Medicare pays at least 80 percent of all drug costs. In contrast, only 8 percent of all Part D beneficiaries who did not use a specialty tier-eligible drug reached this threshold in 2007. Differences in plans' cost-sharing structures--flat copayments or coinsurance rates--can be expected to result in varying out-of-pocket costs for non-LIS beneficiaries only until they reach the catastrophic coverage threshold, which 31 percent of non-LIS beneficiaries did in 2007. After that point, non-LIS beneficiaries' annual out-of-pocket costs for a given drug are likely to be similar regardless of their plans' cost-sharing structures. LIS beneficiaries' out-of-pocket costs are generally not affected by their plans' cost-sharing structures because Medicare sets fixed limits on the cost-sharing amounts for these beneficiaries and pays any difference between these fixed amounts and the amount required under the plans' cost-sharing structures. Variations in negotiated drug prices--between different drugs, across plans for the same drug, and over time--can affect out-of-pocket costs. For example, the average negotiated price for Gleevec across our sample of plans increased by 46 percent between 2006 and 2009, from about $31,200 per year to about $45,500 per year. Correspondingly, the average out-of-pocket cost for a non-LIS beneficiary taking Gleevec for the entire year could have been expected to rise from about $4,900 in 2006 to more than $6,300 in 2009. Plan sponsors reported having little leverage to negotiate price concessions from manufacturers for most specialty tier-eligible drugs, although sponsors were more often able to negotiate price concessions for drugs with more competitors on the market--such as for drugs used to treat rheumatoid arthritis. One factor sponsors cited for this limited leverage was CMS requirements limiting sponsors' ability to exclude drugs from their formularies in favor of competing drugs. Finally, plan sponsors employ practices such as prior authorization to manage beneficiaries' utilization of specialty tier-eligible drugs, and sponsors reported employing those practices somewhat more frequently for these drugs than for lower-cost Part D drugs. GAO provided a draft of this report to CMS. CMS agreed with portions of GAO's findings and suggested additional information for us to include in our report, which we incorporated as appropriate.
GAO-10-242, Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier
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Report to the Chairman, Subcommittee on Health, Committee on Ways and
Means, House of Representatives:
United States Government Accountability Office:
GAO:
January 2010:
Medicare Part D:
Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for
High-Cost Drugs Eligible for a Specialty Tier:
GAO-10-242:
GAO Highlights:
Highlights of GAO-10-242, a report to the Chairman, Subcommittee on
Health, Committee on Ways and Means, House of Representatives.
Why GAO Did This Study:
The Centers for Medicare & Medicaid Services (CMS) allows Part D plans
to utilize different tiers with different levels of cost sharing as a
way of managing drug utilization and spending. One such tier, the
specialty tier, is designed for high-cost drugs whose prices exceed a
certain threshold set by CMS. Beneficiaries who use these drugs
typically face higher out-of-pocket costs than beneficiaries who use
only lower-cost drugs.
GAO was asked to provide information about high-cost drugs eligible
for a specialty tier. This report provides information on these drugs
including spending under Medicare Part D in 2007, the most recent year
for which claims data were available; how different cost-sharing
structures could be expected to affect beneficiary out-of-pocket
costs; how negotiated drug prices could be expected to affect
beneficiary out-of-pocket costs; and information Part D plan sponsors
reported on their ability to negotiate price concessions and to manage
utilization. GAO examined CMS data, including 2007 claims data,
negotiated price and out-of-pocket cost data for selected drugs”
including the 10 highest-utilization specialty tier–eligible drugs in
2007”and plans from 2006 through 2009, and formulary information
provided to CMS by plan sponsors. GAO interviewed officials from CMS
and 8 of the 11 largest plan sponsors, based on enrollment in 2008.
Seven of the 11 plan sponsors provided data including price
concessions for selected drugs for 2006 through 2008.
What GAO Found:
High-cost drugs eligible for a specialty tier commonly include
immunosuppressant drugs, those used to treat cancer, and antiviral
drugs. Specialty tier–eligible drugs accounted for 10 percent, or $5.6
billion, of the $54.4 billion in total prescription drug spending
under Medicare Part D plans in 2007. Medicare beneficiaries who
received a low-income subsidy (LIS) accounted for most of the spending
on specialty tier–eligible drugs”$4.0 billion, or 70 percent of the
total. Among all beneficiaries who used at least one specialty tier–
eligible drug in 2007, 55 percent reached the catastrophic coverage
threshold, after which Medicare pays at least 80 percent of all drug
costs. In contrast, only 8 percent of all Part D beneficiaries who did
not use a specialty tier–eligible drug reached this threshold in 2007.
Differences in plans‘ cost-sharing structures”flat copayments or
coinsurance rates”can be expected to result in varying out-of-pocket
costs for non-LIS beneficiaries only until they reach the catastrophic
coverage threshold, which 31 percent of non-LIS beneficiaries did in
2007. After that point, non-LIS beneficiaries‘ annual out-of-pocket
costs for a given drug are likely to be similar regardless of their
plans‘ cost-sharing structures. LIS beneficiaries‘ out-of-pocket costs
are generally not affected by their plans‘ cost-sharing structures
because Medicare sets fixed limits on the cost-sharing amounts for
these beneficiaries and pays any difference between these fixed
amounts and the amount required under the plans‘ cost-sharing
structures.
Variations in negotiated drug prices”between different drugs, across
plans for the same drug, and over time”can affect out-of-pocket costs.
For example, the average negotiated price for Gleevec across our
sample of plans increased by 46 percent between 2006 and 2009, from
about $31,200 per year to about $45,500 per year. Correspondingly, the
average out-of-pocket cost for a non-LIS beneficiary taking Gleevec
for the entire year could have been expected to rise from about $4,900
in 2006 to more than $6,300 in 2009.
Plan sponsors reported having little leverage to negotiate price
concessions from manufacturers for most specialty tier–eligible drugs,
although sponsors were more often able to negotiate price concessions
for drugs with more competitors on the market”such as for drugs used
to treat rheumatoid arthritis. One factor sponsors cited for this
limited leverage was CMS requirements limiting sponsors‘ ability to
exclude drugs from their formularies in favor of competing drugs.
Finally, plan sponsors employ practices such as prior authorization to
manage beneficiaries‘ utilization of specialty tier–eligible drugs,
and sponsors reported employing those practices somewhat more
frequently for these drugs than for lower-cost Part D drugs.
GAO provided a draft of this report to CMS. CMS agreed with portions
of GAO‘s findings and suggested additional information for us to
include in our report, which we incorporated as appropriate.
View [hyperlink, http://www.gao.gov/products/GAO-10-242] or key
components. For more information, contact John E. Dicken at (202) 512-
7114 or DickenJ@gao.gov.
[End of section]
Contents:
Letter:
Background:
In 2007, Specialty Tier-Eligible Drugs Accounted for 10 Percent of
Part D Spending and Most of That Spending Was for Prescriptions Filled
by LIS Beneficiaries:
Differences in Plans' Cost-Sharing Structures Result in Out-of-Pocket
Costs for Non-LIS Beneficiaries That Vary Initially and Then Become
Similar, but Different Structures Do Not Significantly Affect Out-of-
Pocket Costs for LIS Beneficiaries:
Variations in Negotiated Drug Prices Can Be Expected to Affect Out-of-
Pocket Costs for Non-LIS Beneficiaries but Largely Do Not Affect Out-
of-Pocket Costs for LIS Beneficiaries:
Plan Sponsors Report Having a Limited Ability to Negotiate Price
Concessions for Specialty Tier-Eligible Drugs but Frequently Use
Practices to Manage Utilization:
Agency Comments and Our Evaluation:
Appendix I: Sample of 20 Specialty Tier-Eligible Drugs:
Appendix II: Scope and Methodology:
Appendix III: Comparison of Price Concessions Negotiated by Seven Plan
Sponsors for a Sample of 20 Drugs:
Appendix IV: Comments from the Department of Health and Human Services:
Appendix V: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Utilization Management Practices under Medicare Part D:
Figures:
Figure 1: Medicare Part D Cost-Sharing Structure for Specialty Tier-
Eligible Drugs under the Defined Standard Benefit, 2009:
Figure 2: Medicare Part D Cost-Sharing Structure for Specialty Tier-
Eligible Drugs under the Defined Standard Benefit for Full Subsidy LIS
Beneficiaries, 2009:
Figure 3: Medicare Part D Cost-Sharing Structure for Specialty Tier-
Eligible Drugs under the Defined Standard Benefit for Partial Subsidy
LIS Beneficiaries, 2009:
Figure 4: Spending on Specialty Tier-Eligible Drugs under Part D MA-PD
and PDP Plans, 2007:
Figure 5: Cumulative Non-LIS Beneficiary Out-of-Pocket Costs under
Different Cost-Sharing Structures for a Drug with a Negotiated Price
of $1,100 per Month:
Abbreviations:
AWP: average wholesale price:
CMS: Centers for Medicare & Medicaid Services:
HIV: human immunodeficiency virus:
HHS: Department of Health and Human Services:
LIS: low-income subsidy:
MA-PD: Medicare Advantage prescription drug plan:
MedPAC: Medicare Payment Advisory Commission:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
NDC: national drug code:
PBM: pharmacy benefit manager:
PDE: Prescription Drug Event:
PDP: prescription drug plan:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 29, 2010:
The Honorable Pete Stark:
Chairman:
Subcommittee on Health:
Committee on Ways and Means:
House of Representatives:
Dear Mr. Chairman:
Medicare--the federal health insurance program that serves about 45
million elderly and disabled individuals--offers an outpatient
prescription drug benefit known as Medicare Part D. According to the
2009 Medicare Trustees' Report, federal spending on Part D totaled
$49.3 billion in 2008--accounting for nearly 11 percent of total
Medicare expenditures.[Footnote 1] Part D spending depends on several
factors, including the number of Part D beneficiaries, their health
status and extent of drug utilization, the number of beneficiaries who
receive Part D's low-income subsidy (LIS), and the cost of drugs
covered by Part D.[Footnote 2] Some drugs covered by Part D have
particularly high costs--sometimes exceeding tens of thousands of
dollars per year--and may be responsible for a significant share of
this spending.
Under Part D, coverage and beneficiary cost sharing can vary. Medicare
beneficiaries obtain Part D drug coverage by choosing from multiple
competing plans offered by plan sponsors--often private insurers--that
contract with the Centers for Medicare & Medicaid Services (CMS) in
order to offer the prescription drug benefit.[Footnote 3] Part D plan
sponsors can offer a range of plans with either a defined standard
benefit or an actuarially equivalent alternative, or plans with
enhanced benefits. Plans can vary in the coverage provided, monthly
premiums, and cost-sharing arrangements such as copayments and
coinsurance.[Footnote 4] For 2009, the Part D standard benefit
included an initial coverage period with 25 percent beneficiary
coinsurance, a coverage gap during which beneficiaries paid 100
percent of total drug costs, and a catastrophic coverage phase during
which Medicare paid 80 percent of costs.
Part D plan sponsors have several options available to them to manage
drug spending and utilization. For example, rather than requiring 25
percent coinsurance for all drugs, plan sponsors can modify the
standard benefit by assigning covered drugs to distinct tiers, such as
separate tiers for generic and brand-name drugs. These tiers often
have increasing levels of cost sharing in order to encourage
beneficiaries to utilize less costly drugs such as generics. CMS also
allows Part D plans to establish a "specialty tier" for high-cost
drugs when the total cost for a drug--as determined through
negotiations between the plan and pharmacies--exceeds a certain
threshold, set by CMS at $500 per month for 2007 and $600 per month
for 2008 through 2010.[Footnote 5] Drugs eligible to be placed on
specialty tiers are among the most expensive drugs on the market at
costs that may exceed tens of thousands of dollars per year.
Beneficiaries who use these very expensive drugs typically face higher
cost sharing and therefore higher annual out-of-pocket costs than
beneficiaries who use only lower-cost drugs.
In addition, plans have some flexibility in the drugs they place on
their formularies. Plan sponsors may be able to manage drug spending
by negotiating price concessions with manufacturers or price discounts
with pharmacies when deciding which drugs to place on their
formularies.[Footnote 6] Plan sponsors can also employ various
practices--referred to as utilization management--that place
restrictions on the usage of certain drugs on a plan's formulary.
You raised concerns that the costs associated with Part D coverage for
these high-cost drugs may lead to significant premium increases and
increased government spending. You also expressed interest in
obtaining information on Part D plan coverage, spending, and
utilization; out-of-pocket costs for Medicare beneficiaries; and cost
management approaches related to these drugs in Part D plans. This
report provides information on (1) spending under Medicare Part D on
specialty tier-eligible drugs covered in 2007, the most recent year
for which claims data were available; (2) how the different cost-
sharing structures used by Part D plans for specialty tier-eligible
drugs could be expected to affect beneficiary out-of-pocket costs; (3)
how prices negotiated with pharmacies for specialty tier-eligible
drugs could be expected to affect beneficiary out-of-pocket costs; and
(4) the ability of Part D plans to negotiate price concessions from
manufacturers for specialty tier-eligible drugs, and the approaches
plans reported using from 2006 through 2009 to manage utilization of
these drugs compared to other covered Part D drugs.
To determine spending on specialty tier-eligible drugs covered under
Part D in 2007, we examined CMS's Prescription Drug Event (PDE) claims
data from 2007 for Medicare Advantage prescription drug (MA-PD) plans
and stand-alone prescription drug plans (PDP).[Footnote 7] We analyzed
these claims data to identify drugs eligible to be placed on a Part D
plan's specialty tier. For the purposes of this study, we considered
specialty tier-eligible drugs to be all drugs with claims reimbursed
under Part D with a median negotiated cost of at least $500 for a 30-
day supply (i.e., where at least half of the claims for these drugs in
2007 met or exceeded the CMS cost threshold of $500 per month).
[Footnote 8] We then determined the total amount of Part D spending
for specialty tier-eligible drugs by Medicare, MA-PD and PDP plans,
and beneficiaries in 2007. We also used 2007 PDE data to determine the
utilization, in the aggregate, of the specialty tier-eligible drugs we
identified--based on the number of 30-day prescriptions and the number
of beneficiaries taking the drug. Finally, we determined the number of
beneficiaries taking the drug who reached the catastrophic coverage
portion of the Part D benefit--the portion where Medicare assumes 80
percent of total drug costs. We also conducted each of these analyses
separately for LIS and non-LIS beneficiaries. We performed the same
analyses for all Part D covered drugs, regardless of cost, in order to
compare spending and utilization for specialty tier-eligible drugs to
spending and utilization for all drugs covered under Part D.
To determine how the different cost-sharing structures used by Part D
plans for specialty tier-eligible drugs could be expected to affect
beneficiary out-of-pocket costs, we examined out-of-pocket costs under
a $50 flat monthly copayment and different coinsurance rates (25
percent and 33 percent) for a hypothetical drug with a monthly
negotiated price of $1,100.[Footnote 9] We selected these cost-sharing
structures because some plans charge a flat monthly copayment for
specialty tier-eligible drugs while others charge a coinsurance rate.
[Footnote 10] We analyzed the effect of each of these typical cost-
sharing structures on beneficiary out-of-pocket costs in each phase of
the Part D benefit. The results of this analysis can be generalized to
Part D beneficiaries taking any specialty tier-eligible drug across
most plans.
In order to estimate how negotiated drug prices could be expected to
affect beneficiary out-of-pocket costs and the trends in these
expected costs from 2006 to 2009, we chose a judgmental sample of 20
specialty tier-eligible drugs and also selected a sample of 36 high-
enrollment MA-PD and PDP plans from six counties based on enrollment
as of March 2008.[Footnote 11] Our sample of drugs included those used
to treat selected chronic conditions as well as the 10 most heavily
utilized specialty tier-eligible drugs based on the number of 30-day
prescriptions in 2007. (For a list of the 20 drugs included in our
sample, see appendix I.) We used CMS negotiated price data[Footnote
12] and CMS estimates of beneficiary out-of-pocket costs for our
sample of drugs in 35 of the 36 selected plans[Footnote 13] to analyze
how negotiated drug prices could be expected to affect beneficiary out-
of-pocket costs from 2006 through 2009. The results of this analysis
cannot be generalized beyond our judgmental sample of drugs and
selected plans.
To determine the ability of Part D plans to negotiate price
concessions for specialty tier-eligible drugs and the approaches plans
reported using from 2006 through 2009 to manage utilization of these
drugs compared to other covered Part D drugs, we conducted interviews
with representatives from 8 of the 11 largest MA-PD and PDP plan
sponsors based on 2008 enrollment data from CMS. In addition to our
interviews, seven of the plan sponsors we interviewed provided price
concession data for our sample of 20 specialty tier-eligible drugs for
2006 through 2008. These seven plan sponsors represented 51 percent of
all MA-PD enrollment and 67 percent of all PDP enrollment in 2008. In
addition, we analyzed data from the Part D Formulary, Pharmacy
Network, and Pricing Information files to determine utilization
management approaches reported by all Part D plans for 2007.[Footnote
14] For additional details on our scope and methodology, see appendix
II.
To test the internal consistency and reliability of the data we used
in our review, we discussed our data sources with knowledgeable agency
officials, performed data reliability checks such as manually and
electronically checking the data for missing values and obvious
errors, interviewed CMS officials about concerns we uncovered, and
reviewed the internal controls that CMS uses to ensure that data are
complete and accurate. We checked the negotiated price data for 2006
through 2008 provided by the plan sponsors through the data collection
instrument for internal consistency by comparing these data, when
possible, to data the plan sponsors had previously provided to CMS. We
determined that the data were sufficiently reliable for our purposes.
We conducted our work from March 2009 through December 2009 in
accordance with all sections of GAO's quality assurance framework that
are relevant to our objectives. The framework requires that we plan
and perform the engagement to obtain sufficient and appropriate
evidence to meet our stated objectives and to discuss any limitations
in our work. We believe that the information and data obtained, and
the analysis conducted, provide a reasonable basis for any findings
and conclusions.
Background:
All 45 million elderly and disabled Medicare beneficiaries, regardless
of income, may enroll in the Part D drug benefit. As of February 2009,
CMS reported that 26.7 million beneficiaries were enrolled in Part D
plans, of which 17.5 million were enrolled in PDPs and 9.0 million
were enrolled in MA-PD plans.[Footnote 15] Of the 26.7 million
beneficiaries, about 36 percent, or 9.6 million, received assistance
with premiums and cost sharing through Medicare's LIS.
Medicare Part D Plan Structure:
Part D plan sponsors offer plans with either a defined standard
benefit or an actuarially equivalent alternative, and can also offer
plans with enhanced benefits. In 2009, plans offering the defined
standard benefit required non-LIS beneficiaries to pay out-of-pocket
costs during the initial coverage period of: a deductible equal to the
first $295 in drug costs, followed by 25 percent coinsurance for all
drugs--with the plan paying the remaining 75 percent--until total drug
costs reached $2,700, with beneficiary out-of-pocket costs accounting
for $896.25 of that total. (See figure 1.) This initial coverage
period is followed by a coverage gap--the so-called doughnut hole--in
which beneficiaries pay 100 percent of their drug costs. In 2009, the
coverage gap lasted until total drug costs reached $6,153.75, with
beneficiary out-of-pocket costs accounting for $4,350 of that total.
This point is referred to as the catastrophic coverage threshold and
is in addition to any monthly premiums required by beneficiaries' Part
D plans.[Footnote 16] After reaching the catastrophic coverage
threshold, non-LIS beneficiaries in a defined standard benefit plan
taking a specialty tier-eligible drug pay 5 percent of total drug
costs for each prescription for the remainder of the year, while the
drug plan pays 15 percent and Medicare pays the remaining 80 percent.
[Footnote 17]
Figure 1: Medicare Part D Cost-Sharing Structure for Specialty Tier-
Eligible Drugs under the Defined Standard Benefit, 2009:
[Refer to PDF for image: illustration]
Initial coverage period:
Beneficiary paid $295 deductible;
Plan paid 75 percent of drug costs;
Beneficiary paid 25 percent of drug costs;
$2,700 in total drug costs (Beneficiary paid $896.25 out of pocket).
Coverage gap:
Beneficiary paid 100 percent of drug costs;
$6,153.75 in total drug costs (Beneficiary paid $4,350 out of pocket).
Catastrophic coverage period:
Medicare paid 80 percent of drug costs;
Plan paid 15 percent of drug costs;
Beneficiary paid 5 percent of drug costs[A].
Source: GAO analysis of CMS data.
[A] Because of the high cost of specialty tier-eligible drugs, the
beneficiary will always pay 5 percent of drug costs during the
catastrophic coverage period.
[End of figure]
In addition to cost sharing for prescription drugs, many Part D plans
also charge a monthly premium. In 2009, premiums across all Part D
plans averaged about $31 per month, an increase of 24 percent from
2008.[Footnote 18] Beneficiaries are responsible for paying these
premiums except in the case of beneficiaries who receive the LIS,
whose premiums are subsidized by Medicare as long as they enroll in an
eligible plan.[Footnote 19]
Low-Income Subsidy:
When Medicare Part D was established, it replaced Medicaid as the
primary source of drug coverage for beneficiaries with coverage under
both programs--referred to as dual-eligible beneficiaries. Part D
provides substantial premium and cost-sharing assistance through the
LIS for dual-eligible beneficiaries and some other low-income
beneficiaries. Instead of paying the cost-sharing amounts established
by each plan for covered drugs, these beneficiaries--referred to as
full subsidy beneficiaries--pay a small copayment (between $1.10 and
$6.00 in 2009) and Medicare pays the difference between these amounts
and the cost sharing required by the plans (see figure 2).
Figure 2: Medicare Part D Cost-Sharing Structure for Specialty Tier-
Eligible Drugs under the Defined Standard Benefit for Full Subsidy LIS
Beneficiaries, 2009:
[Refer to PDF for image: illustration]
Initial coverage period:
Medicare paid $295 deductible[A];
Medicare paid the difference between 25 percent of drug costs and
beneficiary copayment[A];
Plan paid 75 percent of drug costs;
Beneficiary paid $1.10 to $6.00 per month;
$2,700 in total drug costs.
Coverage gap:
Medicare paid all drug costs in excess of beneficiary copayment[A];
Beneficiary paid $1.10 to $6.00 per month;
$6,153.75 in total drug costs.
Catastrophic coverage period:
Medicare paid 80 percent of drug costs plus the beneficiary
coinsurance of 5 percent[B];
Plan paid 15 percent of drug costs.
Source: GAO analysis of CMS data.
[A] This is a payment made by Medicare that otherwise would have been
paid by the beneficiary, if he or she did not receive the LIS.
[B] For these high-cost drugs, 5 percent of drug costs would otherwise
have been paid by the beneficiary, if he or she did not receive the
LIS.
[End of figure]
Medicare also provides somewhat lower levels of assistance for other
beneficiaries who have low incomes and modest assets, making them
eligible for the LIS, but who do not meet the eligibility requirements
for Medicaid. Instead of paying the cost-sharing amounts established
by each plan for covered drugs, these beneficiaries--referred to as
partial subsidy beneficiaries--pay 15 percent coinsurance during the
initial coverage period and coverage gap. Medicare pays the difference
between these amounts and the cost sharing required by the plans (see
figure 3). About 9.6 million Medicare beneficiaries were receiving the
LIS as of February 2009; of this total, more than 80 percent were full
subsidy beneficiaries.
Figure 3: Medicare Part D Cost-Sharing Structure for Specialty Tier-
Eligible Drugs under the Defined Standard Benefit for Partial Subsidy
LIS Beneficiaries, 2009:
[Refer to PDF for image: illustration]
Initial coverage period:
Beneficiary paid $60 deductible;
Medicare paid $295 deductible[A];
Medicare paid 10 percent of drug costs[A];
Plan paid 75 percent of drug costs;
Beneficiary paid 15 percent of drug costs;
$2,700 in total drug costs.
Coverage gap:
Medicare paid 85 percent of drug costs[A];
Beneficiary paid 15 percent of drug costs;
$6,153.75 in total drug costs.
Catastrophic coverage period:
Medicare paid 80 percent of drug costs and the difference between
beneficiary copayment and 5 percent of drug costs[B];
Beneficiary paid $1.10 to $6.00 per month.
Source: GAO analysis of CMS data.
[A] This is a payment made by Medicare that otherwise would have been
paid by the beneficiary, if he or she did not receive the LIS.
[B] For these high-cost drugs, 5 percent of drug costs would otherwise
have been paid by the beneficiary, if he or she did not receive the
LIS.
[End of figure]
Medicare Part D Spending and Utilization Management:
In order to manage drug spending and utilization, plans may establish
tiers with different levels of beneficiary cost sharing. For example,
a plan may establish separate tiers for generic drugs and brand name
drugs--with the generic drug tier requiring a lower level of cost
sharing than the brand-name drug tier. The Medicare Payment Advisory
Commission (MedPAC) has reported that most Part D beneficiaries are in
plans that use different drug tiers.[Footnote 20] CMS also allows
plans participating in Part D to use a specialty tier in their
formulary for high-cost drugs with negotiated prices exceeding a
certain threshold, set at $500 per month in 2007 and $600 per month in
2008 through 2010. MedPAC estimated that more than 80 percent of Part
D beneficiaries in 2009 were in plans that use a specialty tier for
high-cost drugs, with the median beneficiary in such a plan required
to pay 33 percent coinsurance for those drugs during the initial
coverage period.[Footnote 21] Specialty tier-eligible drugs represent
a limited number of drugs used by a small proportion of beneficiaries
and commonly include immunosuppressant drugs, those used to treat
cancer, and antiviral drugs. Although Part D beneficiaries using a
drug on a nonpreferred brand-name drug tier may seek an exception to
obtain the drug at the lower cost-sharing terms applicable to drugs in
another tier, plans are not obligated to provide an exception for
drugs placed on a plan's specialty tier even if no other drug is
available to treat a beneficiary's condition.
In addition to establishing different cost-sharing tiers, Part D plan
sponsors have several options available to them to help contain drug
spending. For example, plan sponsors can negotiate prices with drug
companies and pharmacies. Plan sponsors may use pharmacy benefit
managers (PBM)[Footnote 22] to negotiate with drug manufacturers and
retail pharmacies for the prices of the drugs that each plan covers
[Footnote 23] Discounts negotiated with pharmacies are typically
reflected in the price that a beneficiary pays at the pharmacy, while
price concessions negotiated with drug manufacturers are typically in
the form of rebates that are provided to plan sponsors and ultimately
passed on to the program.
Furthermore, plans may place utilization management requirements on
the use of certain drugs on their formulary, such as requiring
beneficiaries to obtain prior authorization from their plan before
being able to fill a prescription, requiring beneficiaries to first
try a preferred drug to treat a medical condition before being able to
obtain an alternate drug for that condition, or limiting the quantity
of drugs that they cover over a certain period of time. (See table 1.)
Table 1: Utilization Management Practices under Medicare Part D:
Prior authorization:
Prior authorization means that a beneficiary will need prior approval
from his or her plan before being able to fill a prescription. If a
drug has a prior authorization requirement, a beneficiary will need to
work with his or her plan and physician to obtain an authorization.
Many prior authorization requirements can be resolved at the point of
sale and do not require any additional information from the physician.
Step therapy:
In some cases, plans require a beneficiary to first try one drug to
treat his or her medical condition before they will cover another drug
for that condition. For example, if Drug A and Drug B both treat a
medical condition, a plan may require doctors to prescribe Drug A
first. If Drug A does not work for a beneficiary, then the plan will
cover Drug B.
Quantity limits: For safety and cost reasons, plans may limit the
quantity of drugs that they cover over a certain period of time. For
example, if a beneficiary currently takes 2 pills per day and the
quantity limit is 30 pills per month, he or she would need to work
with the plan to get authorization for the higher quantity.
Source: CMS.
[End of table]
In 2007, Specialty Tier-Eligible Drugs Accounted for 10 Percent of
Part D Spending and Most of That Spending Was for Prescriptions Filled
by LIS Beneficiaries:
We found that specialty tier-eligible drugs accounted for about 10
percent, or $5.6 billion, of the $54.4 billion in total prescription
drug spending under Part D MA-PD and PDP plans in 2007.[Footnote 24]
Additionally, even though only 41 percent of prescriptions for
nonspecialty tier-eligible drugs filled under Part D MA-PD and PDP
plans in 2007 were for LIS beneficiaries, more than 75 percent of
prescriptions for specialty tier-eligible drugs were for LIS
beneficiaries. Prescriptions for LIS beneficiaries accounted for about
70 percent, or about $4.0 billion, of the $5.6 billion spent on
specialty tier-eligible drugs under MA-PD and PDP plans that year.
(See figure 4.)
Figure 4: Spending on Specialty Tier-Eligible Drugs under Part D MA-PD
and PDP Plans, 2007:
[Refer to PDF for image: illustration]
Specialty tier-eligible drugs:
$5.6 billion in spending (10% of total Part D drug spending).
LIS beneficiaries:
$4.0 billion in spending (70% of specialty tier-eligible spending):
Paid by Medicare: $3.11 billion (79%);
Paid by Plans: $0.84 billion (21%);
Paid by Beneficiaries: $0.01 billion (0.2%).
Non-LIS beneficiaries:
$1.7 billion[A] in spending (30% of specialty tier-eligible spending):
Paid by Medicare: $0.70 billion (42%);
Paid by Plans: $0.63 billion (38%);
Paid by Beneficiaries: $0.33 billion (20%).
Source: GAO analysis of CMS data.
[A] Totals do not add to $5.6 billion due to rounding.
[End of figure]
The fact that spending on specialty tier-eligible drugs in 2007 was
largely accounted for by LIS beneficiaries is noteworthy because their
cost sharing is largely paid by Medicare. Specifically, of the $4.0
billion in spending on specialty tier-eligible drugs for LIS
beneficiaries, about 79 percent, or $3.1 billion, was paid by
Medicare, 21 percent was paid by plans, and 0.2 percent was paid by
beneficiaries. Of the $3.1 billion paid by Medicare for LIS
beneficiaries, $1.0 billion was for the LIS and $2.1 billion was for
catastrophic coverage. In contrast, of the $1.7 billion spent on
specialty tier-eligible drugs in 2007 for non-LIS beneficiaries,
Medicare was responsible for 42 percent, plans were responsible for 38
percent, and beneficiaries were responsible for 20 percent.
While only 8 percent of Part D beneficiaries in MA-PD and PDP plans
who did not use specialty tier-eligible drugs reached the catastrophic
coverage threshold of the Part D benefit in 2007, 55 percent of
beneficiaries who used at least one specialty tier-eligible drug
reached the threshold. Specifically, among those beneficiaries who
used at least one specialty tier-eligible drug in 2007, 67 percent of
LIS beneficiaries and 31 percent of non-LIS beneficiaries reached the
catastrophic coverage threshold. Most (62 percent) of the $5.6 billion
in total Part D spending on specialty tier-eligible drugs under MA-PD
and PDP plans occurred after beneficiaries reached the catastrophic
coverage phase of the Part D benefit.
Differences in Plans' Cost-Sharing Structures Result in Out-of-Pocket
Costs for Non-LIS Beneficiaries That Vary Initially and Then Become
Similar, but Different Structures Do Not Significantly Affect Out-of-
Pocket Costs for LIS Beneficiaries:
Based on our review of typical cost-sharing structures, we found that,
for non-LIS beneficiaries who use a given specialty tier-eligible
drug, different cost-sharing structures can be expected to result in
varying out-of-pocket costs during the benefit's initial coverage
period. However, as long as beneficiaries reach the catastrophic
coverage threshold in a calendar year, their annual out-of-pocket
costs for that drug are likely to be similar regardless of their
plans' cost-sharing structures. LIS beneficiaries' out-of-pocket costs
for all drugs, including specialty tier-eligible drugs, are not
significantly affected by different plans' cost-sharing structures
because Medicare has established fixed cost-sharing levels for all LIS
beneficiaries, regardless of the plans in which they are enrolled.
For Non-LIS Beneficiaries, Different Cost-Sharing Structures Can Be
Expected to Result in Out-of-Pocket Costs That Vary Initially but
Become Similar Once Beneficiaries Reach the Catastrophic Coverage
Threshold:
For non-LIS beneficiaries who use a given specialty tier-eligible
drug, different cost-sharing structures can be expected to result in
varying out-of-pocket costs during the benefit's initial coverage
period. However, as long as beneficiaries reach the catastrophic
coverage threshold in a calendar year--as 31 percent of non-LIS
beneficiaries using at least one specialty tier-eligible drug did in
2007--their annual out-of-pocket costs for that drug are likely to be
similar regardless of their plans' cost-sharing structures.
During the initial coverage period, non-LIS beneficiaries' estimated
out-of-pocket costs for a given specialty tier-eligible drug are
likely to vary because some Part D plans may place the drug on a tier
with coinsurance while other plans may require a flat copayment for
the drug. For example, estimated 2009 out-of-pocket costs during the
initial coverage period, excluding any deductibles, for a drug with a
monthly negotiated price of $1,100 would range from $25 per month for
a plan with a flat $25 monthly copayment to $363 per month for a plan
with a 33 percent coinsurance rate.[Footnote 25] Non-LIS
beneficiaries' out-of-pocket costs eventually become similar for a
given specialty tier-eligible drug regardless of their plans' cost-
sharing structure because these beneficiaries are generally
responsible for 100 percent of their drug costs during the coverage
gap. The coverage gap begins once total drug costs in a calendar year--
including the amount paid by the plan and the beneficiary--reach a
fixed amount, which, in 2009, was $2,700 under the standard benefit.
Once non-LIS beneficiaries reach the catastrophic coverage threshold,
which, in 2009, was $4,350 in beneficiary out-of-pocket costs for all
Part D plans,[Footnote 26] they generally pay only 5 percent of the
negotiated drug price for the remainder of the calendar year. (See
figure 5.)
Figure 5: Cumulative Non-LIS Beneficiary Out-of-Pocket Costs under
Different Cost-Sharing Structures for a Drug with a Negotiated Price
of $1,100 per Month:
[Refer to PDF for image: multiple line graph]
Catastrophic coverage threshold ($4,350 out of pocket).
Number of months the beneficiary filled a prescription for the drug in
2009: 1;
$50 copayment: $345;
25 percent coinsurance: $496;
33 percent coinsurance: $561.
Number of months the beneficiary filled a prescription for the drug in
2009: 2;
$50 copayment: $395;
25 percent coinsurance: $771;
33 percent coinsurance: $924.
Number of months the beneficiary filled a prescription for the drug in
2009: 3;
$50 copayment: $1,045;
25 percent coinsurance: $1,496;
33 percent coinsurance: $1,689.
Number of months the beneficiary filled a prescription for the drug in
2009: 4;
$50 copayment: $2,145;
25 percent coinsurance: $2,596;
33 percent coinsurance: $2,789.
Number of months the beneficiary filled a prescription for the drug in
2009: 5;
$50 copayment: $3,245;
25 percent coinsurance: $3,696;
33 percent coinsurance: $3,889.
Out-of-pocket costs become similar once beneficiaries reach the
catastrophic coverage threshold.
Number of months the beneficiary filled a prescription for the drug in
2009: 6;
$50 copayment: $4,345;
25 percent coinsurance: $4,372;
33 percent coinsurance: $4,382.
Number of months the beneficiary filled a prescription for the drug in
2009: 7;
$50 copayment: $4,405;
25 percent coinsurance: $4,427;
33 percent coinsurance: $4,437.
Number of months the beneficiary filled a prescription for the drug in
2009: 8;
$50 copayment: $4,460;
25 percent coinsurance: $4,482;
33 percent coinsurance: $4,492.
Number of months the beneficiary filled a prescription for the drug in
2009: 9;
$50 copayment: $4,515;
25 percent coinsurance: $4,537;
33 percent coinsurance: $4,547.
Number of months the beneficiary filled a prescription for the drug in
2009: 10;
$50 copayment: $4,570;
25 percent coinsurance: $4,592;
33 percent coinsurance: $4,602.
Number of months the beneficiary filled a prescription for the drug in
2009: 11;
$50 copayment: $4,625;
25 percent coinsurance: $4,647;
33 percent coinsurance: $4,657.
Number of months the beneficiary filled a prescription for the drug in
2009: 12;
$50 copayment: $4,680;
25 percent coinsurance: $4,702;
33 percent coinsurance: $4,712.
Source: GAO.
Note: All scenarios include a $295 annual deductible paid by the
beneficiary, $2,700 initial coverage limit, and $4,350 catastrophic
coverage threshold.
[End of figure]
Even if non-LIS beneficiaries pay different out-of-pocket costs during
the initial coverage period, their out-of-pocket costs become similar
due to the coverage gap and the fixed catastrophic coverage threshold
($4,350 in 2009). There are several reasons for this. First,
beneficiaries taking equally-priced drugs will reach the coverage gap
at the same time--even with different cost sharing structures--because
entry into the coverage gap is based on total drug costs paid by the
beneficiary and the plan, rather than on out-of-pocket costs paid by
the beneficiary. Since specialty tier-eligible drugs have high total
drug costs, beneficiaries will typically reach the coverage gap within
3 months in the same calendar year. Second, during the coverage gap,
beneficiaries typically pay 100 percent of their total drug costs
until they reach the catastrophic coverage threshold (a total of
$4,350 in out-of-pocket costs in 2009). This same threshold applies to
all non-LIS beneficiaries and includes out-of-pocket costs paid during
the initial coverage period. Therefore, non-LIS beneficiaries who paid
higher out-of-pocket costs in the initial coverage period had less to
pay in the coverage gap before they reached $4,350 in out-of-pocket
costs. Conversely, non-LIS beneficiaries who paid lower out-of-pocket
costs in the initial coverage period had more to pay in the coverage
gap before they reached the same threshold of $4,350 in out-of-pocket
costs. Third, after reaching the threshold, beneficiaries' out-of-
pocket costs become similar because they typically pay 5 percent of
the drug's negotiated price for the remainder of the calendar year.
[Footnote 27]
For LIS Beneficiaries, Plans' Cost-Sharing Structures Do Not
Significantly Affect Out-of-Pocket Costs:
LIS beneficiaries' out-of-pocket costs for all drugs, including
specialty tier-eligible drugs, are not significantly affected by
different plans' cost-sharing structures because Medicare has
established fixed limits on the cost-sharing amounts for all LIS
beneficiaries, regardless of the plans in which they are enrolled.
Medicare pays the difference between the LIS beneficiaries' out-of-
pocket costs and the cost-sharing amounts that are required by the
plans.
As is the case with non-LIS beneficiaries, LIS beneficiaries reach the
catastrophic coverage threshold if they take any specialty tier-
eligible drug for the entire calendar year, but actual out-of-pocket
costs for specialty tier-eligible drugs can vary greatly depending on
the level of assistance an LIS beneficiary receives. In 2009, full
subsidy LIS beneficiaries, regardless of the plan in which they were
enrolled, paid a copayment between $1.10 and $6.00 per drug per month
until the total of their low-income subsidy amount paid by Medicare
and their out-of-pocket costs reached the catastrophic coverage
threshold of $4,350 for the calendar year. From this point forward,
Medicare paid all beneficiary out-of-pocket costs for prescription
drugs for the remainder of the calendar year. For a full subsidy LIS
beneficiary who took any one specialty tier-eligible drug in 2009,
these copayments resulted in a maximum of $72 in out-of-pocket costs
over the course of the calendar year--or $6.00 per month, and for
plans that charged a deductible, the beneficiary's out-of-pocket costs
may have been lower.
Partial subsidy LIS beneficiaries in 2009, regardless of the plan in
which they were enrolled, paid up to a $60 deductible followed by up
to 15 percent coinsurance until the total of their LIS amount paid by
Medicare and their out-of-pocket costs reached the catastrophic
coverage threshold of $4,350 in the calendar year. From this point
forward, these beneficiaries paid either a $2.40 or $6.00 monthly
copayment per drug for the remainder of the calendar year. For a
partial subsidy LIS beneficiary who took any one specialty tier-
eligible drug in 2009, this coinsurance may have resulted in over $900
in out-of-pocket costs by the time he or she reached the catastrophic
coverage threshold and then payments of up to $6.00 per month for the
remainder of the calendar year.
Variations in Negotiated Drug Prices Can Be Expected to Affect Out-of-
Pocket Costs for Non-LIS Beneficiaries but Largely Do Not Affect Out-
of-Pocket Costs for LIS Beneficiaries:
Variations in negotiated drug prices affect non-LIS beneficiaries' out-
of-pocket costs during the initial coverage phase if their plans
require them to pay coinsurance. Additionally, negotiated drug prices
will affect all non-LIS beneficiaries' out-of-pocket costs during the
coverage gap and the catastrophic coverage phase. Differences in
negotiated drug prices do not affect out-of-pocket costs for full
subsidy LIS beneficiaries, and affect out-of-pocket costs for partial
subsidy LIS beneficiaries only until they reach the catastrophic
coverage threshold.
For Non-LIS Beneficiaries, Variations in Negotiated Drug Prices Affect
Out-of-Pocket Costs:
Variations in negotiated drug prices affect non-LIS beneficiaries' out-
of-pocket costs during the initial coverage phase if their plan
requires them to pay coinsurance, which all 35 of our selected plans
did in 2009 for at least some of the 20 specialty tier-eligible drugs
in our sample. Additionally, negotiated drug prices will affect all
non-LIS beneficiaries' out-of-pocket costs during the coverage gap and
the catastrophic coverage phase because beneficiaries generally pay
the entire negotiated price of a drug during the coverage gap and 5
percent of a drug's negotiated price during the catastrophic coverage
phase. Negotiated prices for specialty tier-eligible drugs can vary in
three ways that affect out-of-pocket costs for non-LIS beneficiaries.
These are variations between drugs, variations across plans for the
same drug, and variations from year to year.
First, variations in negotiated drug prices between different drugs
have a significant effect on out-of-pocket costs throughout the
benefit for non-LIS beneficiaries. For example, in 2009--across our
sample of 35 plans--non-LIS beneficiaries who took the cancer drug
Gleevec for the entire year could have been expected to pay about
$6,300 out-of-pocket because Gleevec had an average negotiated price
of about $45,500 per year, while beneficiaries could have been
expected to pay about $10,500 out-of-pocket over the entire year if
they took the Gaucher disease drug Zavesca, which had an average
negotiated price of about $130,000 per year.[Footnote 28]
Second, negotiated prices across plans for the same drug generally
vary less dramatically than prices for different drugs but can still
affect non-LIS beneficiary out-of-pocket costs even for plans with the
same cost-sharing structure. For example, in 2009, the negotiated
price for the human immunodeficiency virus (HIV) drug Truvada varied
from about $10,900 to about $11,400 per year across different plans
with a 33 percent coinsurance rate, resulting in out-of-pocket costs
that could be expected to range from about $4,600 to $4,850 for non-
LIS beneficiaries taking the drug over the entire year.
Third, changes in negotiated drug prices over time also affect non-LIS
beneficiaries' annual estimated out-of-pocket costs. Since 2006,
average negotiated prices for the specialty tier-eligible drugs in our
sample have risen across our sample of plans; the increases averaged
36 percent over the 3-year period.[Footnote 29] These increases, in
turn, led to higher estimated beneficiary out-of-pocket costs for
these drugs in 2009 compared to 2006. For example, the average
negotiated price for a 1-year supply of Gleevec across our sample of
plans increased by 46 percent, from about $31,200 in 2006 to about
$45,500 in 2009. Correspondingly, the average out-of-pocket cost for a
non-LIS beneficiary taking Gleevec for an entire year could have been
expected to rise from about $4,900 in 2006 to more than $6,300 in 2009.
For Most LIS Beneficiaries, Variations in Negotiated Drug Prices Do
Not Affect Out-of-Pocket Costs:
In contrast to the situation for non-LIS beneficiaries, differences in
negotiated drug prices do not affect out-of-pocket costs for full
subsidy LIS beneficiaries, and affect out-of-pocket costs for partial
subsidy LIS beneficiaries only until they reach the catastrophic
coverage threshold.
Negotiated drug prices do not affect out-of-pocket costs for full
subsidy LIS beneficiaries because they pay a flat monthly copayment
(between $1.10 and $6.00 per drug in 2009) until they reach the
catastrophic coverage threshold and pay no out-of-pocket costs for the
remainder of the calendar year. On the other hand, partial subsidy LIS
beneficiaries are affected by negotiated drug prices until they reach
the catastrophic coverage threshold, because they pay 15 percent of a
drug's negotiated cost. Therefore, variations in the negotiated price
between drugs, across plans for the same drug, and from year to year
affect the amount that partial subsidy LIS beneficiaries pay out of
pocket. However, once these beneficiaries reach the catastrophic
coverage threshold, their out-of-pocket costs are no longer affected
by negotiated drug costs because they pay a flat monthly copayment
(between $2.40 and $6.00 per drug in 2009) for the remainder of the
calendar year.
Plan Sponsors Report Having a Limited Ability to Negotiate Price
Concessions for Specialty Tier-Eligible Drugs but Frequently Use
Practices to Manage Utilization:
All of the Part D plan sponsors we interviewed, including the seven
that provided price concession data for our sample of specialty tier-
eligible drugs, reported having a limited ability to negotiate price
concessions with manufacturers of specialty tier-eligible drugs. The
reasons they gave included a lack of competitors for many of these
drugs, CMS formulary requirements that may limit plan sponsors'
ability to exclude drugs from their formularies in favor of competing
drugs, and low utilization for some drugs, which limits incentives for
manufacturers to provide price concessions. However, plan sponsors are
able to employ practices, such as prior authorization, to manage
beneficiaries' utilization of specialty tier-eligible drugs, and they
employ these practices somewhat more often for specialty tier-eligible
drugs than for other drugs.
Part D Plan Sponsors Report Three Main Reasons Why They Have a Limited
Ability to Negotiate Price Concessions with Manufacturers for Many
Specialty Tier-Eligible Drugs:
The eight Part D plan sponsors we interviewed told us that they have
little leverage in negotiating price concessions for most specialty
tier-eligible drugs. All seven of the plan sponsors we surveyed
reported that they were unable to obtain price concessions from
manufacturers on 8 of the 20 specialty tier-eligible drugs in our
sample between 2006 and 2008.[Footnote 30] For most of the remaining
12 drugs in our sample, plan sponsors who were able to negotiate price
concessions reported that they were only able to obtain price
concessions that averaged 10 percent or less, when weighted by
utilization, between 2006 and 2008. (See appendix III for a drug-by-
drug comparison of the average price concessions negotiated by the
plan sponsors we surveyed, for our sample of 20 drugs, from 2006 to
2008.)
The plan sponsors we interviewed often cited three main reasons why
they have typically had a limited ability to negotiate price
concessions for specialty tier-eligible drugs. First, they stated that
pharmaceutical manufacturers have little incentive to offer price
concessions when a given drug has few competitors on the market, as is
the case for drugs used to treat cancer. For Gleevec and Tarceva, two
drugs in our sample that are used to treat certain types of cancer,
plan sponsors reported that they were not able to negotiate any price
concessions between 2006 and 2008. In contrast, plan sponsors told us
that they were more often able to negotiate price concessions for
drugs in classes where there are more competing drugs on the market--
such as for drugs used to treat rheumatoid arthritis, multiple
sclerosis, and anemia. The anemia drug Procrit was the only drug in
our sample for which all of the plan sponsors we surveyed reported
that they were able to obtain price concessions each year between 2006
and 2008.
Second, plan sponsors told us that even when there are competing
drugs, CMS may require plans to include all or most drugs in a
therapeutic class on their formularies, and such requirements limit
the leverage a plan sponsor has when negotiating price concessions.
When negotiating price concessions with pharmaceutical manufacturers,
the ability to exclude a drug from a plan's formulary in favor of a
therapeutic alternative is often a significant source of leverage
available to a plan sponsor. However, many specialty tier-eligible
drugs belong to one of the six classes of clinical concern for which
CMS requires Part D plan sponsors to include all or substantially all
drugs on their formularies, eliminating formulary exclusion as a
source of negotiating leverage.[Footnote 31] We found that specialty
tier-eligible drugs were more than twice as likely to be in one of the
six classes of clinical concern compared with lower-cost drugs in
2009.[Footnote 32] Additionally, among the 8 drugs in our sample of 20
specialty tier-eligible drugs for which the plan sponsors we surveyed
reported they were unable to obtain price concessions between 2006 and
2008, 4 drugs were in one of the six classes of clinical concern. Plan
sponsors are also required to include at least two therapeutic
alternatives from each of the other therapeutic classes on their
formularies.
Third, plan sponsors told us that they have limited ability to
negotiate price concessions for certain specialty tier-eligible drugs
because they account for a relatively limited share of total
prescription drug utilization among Part D beneficiaries. For some
drugs in our sample, such as Zavesca, a drug used to treat a rare
enzyme disorder called Gaucher disease, the plan sponsors we surveyed
had very few beneficiary claims between 2006 and 2008. None of the
plan sponsors we surveyed reported price concessions for this drug
during this period. Plan sponsors told us that utilization volume is
usually a source of leverage when negotiating price concessions with
manufacturers for Part D drugs. For some specialty tier-eligible drugs
like Zavesca, however, the total number of individuals using the drug
may be so limited that plans are not able to enroll a significant
enough share of the total users to entice the manufacturer to offer a
price concession.
Part D Plans Employ Utilization Management Practices Somewhat More
Frequently for Specialty Tier-Eligible Drugs Than for Other Covered
Drugs:
Plan sponsors employ various practices to manage beneficiaries'
utilization of Part D drugs. According to plan sponsors that we
interviewed and our analysis of CMS data, these practices are somewhat
more common for specialty tier-eligible drugs than for lower-cost
drugs. For example, based on our analysis of certain drugs and plans,
[Footnote 33] one or more plans placed at least one utilization
management requirement on 99 percent of specialty tier-eligible drugs
in 2007, while they placed at least one utilization management
requirement on a smaller percentage--89 percent--of nonspecialty tier-
eligible Part D drugs. According to the plan sponsors we interviewed,
prior authorization is the most common of the various utilization
management practices employed for specialty tier-eligible drugs. Based
on our analysis, one or more plans placed a prior authorization
requirement on 95 percent of specialty tier-eligible drugs in 2007.
Quantity limits and step therapy were used less often, with one or
more plans placing quantity limits on 58 percent of specialty tier-
eligible drugs and a step therapy requirement on 14 percent of
specialty tier-eligible drugs.
Most of the plan sponsors we interviewed described utilization
management as a strategy for promoting patient safety and limiting
inappropriate use of Part D drugs, including specialty tier-eligible
drugs. One plan sponsor explained that specialty tier-eligible drugs
often have a more serious side-effect profile than other drugs covered
under Part D and, as a result, plans may employ prior authorization to
minimize the potential for adverse effects among beneficiaries who are
prescribed these drugs. Plan sponsors also told us that they often use
prior authorization to ensure that beneficiaries who have been
prescribed specialty tier-eligible drugs are using them for a
medically-accepted indication.
Some plan sponsors explained that it is more difficult to employ
certain utilization management practices, like quantity limits and
step therapy, with specialty tier-eligible drugs than with other Part
D drugs, which is why these practices are used less often than prior
authorization. For example, plan sponsors said that because there are
often few, if any, therapeutic equivalents or alternatives for
specialty tier-eligible drugs, plans do not have many opportunities to
promote the use of less costly drugs through a step therapy protocol.
Plan sponsors also told us that they are less likely to employ
quantity limits for specialty tier-eligible drugs.
Agency Comments and Our Evaluation:
The Department of Health and Human Services (HHS) provided us with
CMS's written comments on a draft version of this report. These
comments are reprinted in appendix IV. CMS agreed with portions of our
findings, took issue with the amount of a deductible we present in one
of our figures, and suggested additional information for us to include
in our report.
In its written comments, CMS agreed with our finding that specialty
tier-eligible drugs accounted for about 10 percent of total
prescription drug spending under Part D in 2007. Also, consistent with
our finding that different cost-sharing structures used by plans can
initially affect beneficiary out-of-pocket costs, CMS noted that a
plan requiring 25 percent coinsurance plus a $295 deductible would
initially result in higher beneficiary out-of-pocket costs than a plan
requiring 33 percent coinsurance with no deductible. CMS did not agree
with the $295 deductible we included in figure 5 of our draft report
to illustrate certain cost-sharing scenarios. In its comments, CMS
pointed out that a $295 deductible does not apply in scenarios in
which plans charge 33 percent coinsurance, because CMS has a
requirement that plans cannot charge such a deductible when using 33
percent coinsurance for specialty tier drugs. Although CMS does have
such a requirement, we included the $295 deductible in our scenario
because plans may also place specialty tier-eligible drugs on
nonspecialty tiers that include both a $295 deductible and a
coinsurance rate above 25 percent (e.g., 33 percent or 42 percent).
Our analysis identified a number of plans requiring such cost-sharing
combinations for the 20 specialty tier-eligible drugs in our sample.
We included the $295 deductible for illustrative purposes to clearly
demonstrate how differences in the coinsurance percentage or copayment
amount would affect beneficiary out-of-pocket costs. However, using
different deductible amount--for example, $0--for one or more
scenarios would not change our overall finding: different cost-sharing
structures can be expected to result in out-of-pocket costs that vary
initially but become similar once beneficiaries reach the catastrophic
coverage threshold.
In its written comments, CMS suggested that we report changes in
negotiated drug prices over time in the context of changes to the
drug's average wholesale price (AWP). However, we chose to report
changes to actual negotiated prices as reported to CMS by plan
sponsors because they are a better reflection of prices paid by
beneficiaries, who may pay a percentage of the negotiated price during
the initial coverage period and often pay the entire negotiated price
during the coverage gap. Additionally, CMS questioned our statement
comparing the proportion of specialty tier-eligible drugs and lower-
cost drugs that belong to one of the six classes of clinical concern
and requested more information about our methodology. We modified our
report to include an expanded discussion of the methodology for this
analysis. Finally, CMS clarified that it permits plan sponsors to
cover drugs for any medically-accepted indication, which in some cases
can include off-label uses not approved by the Food and Drug
Administration.
We also provided excerpts of the draft report to the eight plan
sponsors who were interviewed for this study. The plan sponsors
provided technical comments, which we incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days after its issue date. At that time, we will send copies of this
report to the Secretary of Health and Human Services and interested
congressional committees. In addition, the report will be available at
no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have questions about this report, please contact
John E. Dicken at (202) 512-7114 or DickenJ@gao.gov. Contact points
for our Office of Congressional Relations and Public Affairs may be
found on the last page of this report. GAO staff members who made key
contributions to this report are listed in appendix V.
Sincerely yours,
Signed by:
John E. Dicken:
Director, Health Care:
[End of section]
Appendix I: Sample of 20 Specialty Tier-Eligible Drugs:
Indication and drug: Multiple sclerosis; 1. Glatiramer acetate
(Copaxone);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Multiple sclerosis; 2. Interferon beta-1a
(Avonex);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Rheumatoid arthritis, psoriasis, Crohn's
disease[B]; 3. Adalimumab (Humira);
Utilization rank (2007)[A]: 8.
Indication and drug: Rheumatoid arthritis, psoriasis, Crohn's
disease[B]; 4. Anakinra (Kineret);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Rheumatoid arthritis, psoriasis, Crohn's
disease[B]; 5. Etanercept (Enbrel);
Utilization rank (2007)[A]: 3.
Indication and drug: Human immunodeficiency virus (HIV); 6. Atazanavir
sulfate (Reyataz);
Utilization rank (2007)[A]: 5.
Indication and drug: Human immunodeficiency virus (HIV); 7.
Emtricitabine and tenofovir disoproxil fumarate (Truvada);
Utilization rank (2007)[A]: 4.
Indication and drug: Human immunodeficiency virus (HIV); 8. Lamivudine
and zidovudine (Combivir);
Utilization rank (2007)[A]: 10.
Indication and drug: Human immunodeficiency virus (HIV); 9. Lopinavir
and ritonavir (Kaletra);
Utilization rank (2007)[A]: 6.
Indication and drug: Cancer; 10. Erlotinib (Tarceva);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Cancer; 11. Imatinib mesylate (Gleevec);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Hepatitis C; 12. Interferon alfa-2b (Intron-A);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Hepatitis C; 13. Peginterferon alfa 2a (Pegasys);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Anemia; 14. Darbepoetin alfa (Aranesp);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Anemia; 15. Epoetin alfa (Procrit);
Utilization rank (2007)[A]: 1.
Indication and drug: Enzyme disorders; 16. Miglustat (Zavesca)--
Gaucher disease drug;
Utilization rank (2007)[A]: [Empty].
Indication and drug: Pulmonary arterial hypertension; 17. Ambrisentan
(Letairis);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Pulmonary arterial hypertension; 18. Bosentan
(Tracleer);
Utilization rank (2007)[A]: [Empty].
Indication and drug: Other (selected based on high utilization); 19.
Mycophenolate mofetil (CellCept)--immune suppressant; Utilization rank
(2007)[A]: 9.
Indication and drug: Other (selected based on high utilization); 20.
Teriparatide (Forteo)--osteoporosis;
Utilization rank (2007)[A]: 2.
Source: GAO analysis of CMS data.
[A] The drug with 7th highest utilization in 2007 did not meet the
cost threshold for specialty tier placement in 2009 and has therefore
been excluded from our sample.
[B] These three distinct diseases (rheumatoid arthritis, psoriasis,
and Crohn's disease) may be treated using some of the same drugs. We
selected three of those drugs for our sample.
[End of table]
[End of section]
Appendix II: Scope and Methodology:
To determine spending on specialty tier-eligible drugs covered under
Part D in 2007, we examined 2007 Prescription Drug Event (PDE) claims
data from the Centers for Medicare & Medicaid Services (CMS) for
Medicare Advantage prescription drug (MA-PD) plans and stand-alone
prescription drug plans (PDP).[Footnote 34] At the time our study
began, the 2007 PDE data were the most recent available. Specifically,
we analyzed 2007 PDE data at the nine-digit national drug code (NDC)
level to identify all drugs having at least one claim with a cost
equal to or exceeding $500 for a 30-day supply.[Footnote 35] We then
aggregated all claims--regardless of cost--for the relevant NDCs to
determine the median cost of a 30-day supply of each drug. For the
purposes of this study, we considered specialty tier-eligible drugs to
be all drugs with claims reimbursed under Part D in 2007 with a median
negotiated cost of at least $500 per 30-day supply (i.e., where at
least half of the claims for these drugs in 2007 met or exceeded the
CMS cost threshold of $500 per month).[Footnote 36] For the resulting
list of specialty tier-eligible drugs, we determined the total amount
of Part D spending for specialty tier-eligible drugs by Medicare, MA-
PD and PDP plans, and beneficiaries through MA-PD and PDP plans in
2007 for these specialty tier-eligible drugs. We also used 2007 PDE
data to determine the utilization, in the aggregate, of the specialty
tier-eligible drugs we identified--based on the number of 30-day
prescriptions and the number of beneficiaries taking the drug.
Finally, we determined the number of beneficiaries taking the drug who
reached the catastrophic coverage threshold of the Part D benefit--
after which Medicare assumes at least 80 percent of total drug costs.
We also conducted each of these analyses separately for low-income
subsidy (LIS) and non-LIS beneficiaries.[Footnote 37] We performed the
same analyses for all Part D covered drugs, regardless of cost, in
order to compare spending and utilization for specialty tier-eligible
drugs to spending and utilization for all Part D covered drugs.
To determine how the different cost-sharing structures used by Part D
plans for specialty tier-eligible drugs could be expected to affect
beneficiary out-of-pocket costs, we examined out-of-pocket costs under
a $50 flat monthly copayment and different coinsurance rates (25
percent and 33 percent) for a hypothetical drug with a monthly
negotiated cost of $1,100.[Footnote 38] We selected these cost-sharing
structures because some plans charge a flat monthly copayment for
specialty tier-eligible drugs while others charge a coinsurance rate.
We selected the 25 percent coinsurance rate to represent the standard
benefit design and the 33 percent coinsurance rate because it was the
rate required of the median enrollee in plans with specialty tiers in
2009.[Footnote 39] We analyzed the effect of each of these typical
cost-sharing structures on beneficiary out-of-pocket costs in each
phase of the Part D benefit. The results of this analysis can be
generalized to Part D beneficiaries taking any specialty tier-eligible
drug across most plans.
In order to estimate how negotiated drug prices could be expected to
affect beneficiary out-of-pocket costs and the trends in these
expected costs from 2006 to 2009, we chose a judgmental sample of 20
specialty tier-eligible drugs and also selected a sample of 36 high-
enrollment MA-PD and PDP plans from six counties.[Footnote 40] To
select our sample of specialty tier-eligible drugs, we reviewed
formularies for Part D plans and identified 10 chronic conditions
having drugs commonly placed on specialty tiers. We selected two
specialty tier drugs for each condition except in cases where only one
such drug was available. In doing so, we excluded drugs that are
administered through intravenous infusion and therefore generally
reimbursed through Medicare Part B. We ensured that each of the
selected drugs was covered by Part D in 2007 and that the median cost
of claims filed for each drug in 2007 exceeded $500 per 30-day
prescription. Additionally, we identified the 10 most heavily utilized
specialty tier-eligible drugs in 2007, which we determined using PDE
claims data by examining total prescription volume aggregated at the
drug level. We added any of these drugs not already included in our
sample, with the exception of one drug that no longer qualified as a
specialty tier-eligible drug in 2009 based on cost. (For a list of the
20 drugs included in our sample, see appendix I.) In order to select
the sample of 36 Part D plans, we chose six counties across the four
census regions (West, Midwest, South, and Northeast), ensuring that
the counties exhibited diversity in population density and poverty
rates. We selected the three MA-PD plans with the highest enrollment
and the three PDP plans with the highest enrollment in each county as
of March 1, 2008, and confirmed that the plans had nonzero enrollment
in the relevant county in each year from 2006 through 2009. In
selecting MA-PD plans, we excluded employer-sponsored and special
needs plans because they were not available to the general public. For
two of our selected counties, we were only able to identify one MA-PD
plan that met the selection criteria. In selecting the PDP plans, we
ensured that at least one of the three selected plans was eligible for
automatic enrollment of LIS beneficiaries; if none of the three plans
met this criterion, we added the highest enrollment PDP plan in each
county that did meet the criterion. This selection process resulted in
a sample containing 14 MA-PD plans and 22 PDP plans. We used CMS data
on negotiated drug prices[Footnote 41] and CMS estimates of
beneficiary out-of-pocket costs for our sample of drugs in 35 of the
36 selected plans[Footnote 42] to analyze how negotiated drug prices
could be expected to affect beneficiary out-of-pocket costs from 2006
to 2009. The results of our analysis cannot be generalized beyond our
judgmental sample of drugs and selected plans.
To determine the ability of Part D plans to negotiate price
concessions for specialty tier-eligible drugs and the approaches plans
reported using from 2006 through 2009 to manage utilization of these
drugs compared to other covered Part D drugs, we conducted interviews
with representatives from eight of the largest PDP and MA-PD plan
sponsors. To determine the largest MA-PD and PDP plan sponsors, we
examined 2008 Part D enrollment data and selected all MA-PD plan
sponsors with at least 200,000 beneficiaries (7 plan sponsors) and all
PDP plan sponsors with at least 500,000 beneficiaries (8 plan
sponsors). As a result of overlap between the two lists, there were 11
plan sponsors in total, of which 8 were interviewed and 7 provided
specific price concession data for our sample of 20 specialty tier-
eligible drugs for 2006 through 2008.[Footnote 43] The 7 plan sponsors
that provided price concession data represented 51 percent of all MA-
PD enrollment and 67 percent of all PDP enrollment in 2008. The
results of our interviews and data-collection instrument cannot be
generalized beyond the selected plan sponsors or drugs. In addition,
we analyzed Medicare Part D Formulary, Pharmacy Network, and Pricing
Information files to determine utilization management approaches
reported by all Part D plans in 2007 and the number of Part D drugs in
one of the six classes of clinical concern for 2007 through 2009.
[Footnote 44]
To test the internal consistency and reliability of the data we used
in our review, we discussed our data sources with knowledgeable
officials, performed data reliability checks such as manually and
electronically checking the data for missing values and obvious
errors, interviewed CMS officials about concerns we uncovered, and
reviewed the internal controls CMS uses to ensure that data are
complete and accurate. We checked the negotiated price data provided
by the plan sponsors through the data-collection instrument for
internal consistency by comparing these data, when possible, to data
the plan sponsors had previously provided to CMS. We determined that
the data were sufficiently reliable for our purposes. We conducted our
work from March 2009 through December 2009 in accordance with all
sections of GAO's quality assurance framework that are relevant to our
objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions.
[End of section]
Appendix III: Comparison of Price Concessions Negotiated by Seven Plan
Sponsors for a Sample of 20 Drugs:
Multiple sclerosis:
Drugs (including strength and dosage form), by indication: Glatiramer
acetate (Copaxone) 20 mg/ml injection;
Number of plan sponsors that obtained price concessions: 2006: 6;
Number of plan sponsors that obtained price concessions: 2007: 6;
Number of plan sponsors that obtained price concessions: 2008: 7;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,460;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,654;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,867;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,370;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,522;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,732.
Drugs (including strength and dosage form), by indication: Interferon
beta-1a (Avonex) 30 mcg intramuscular injection;
Number of plan sponsors that obtained price concessions: 2006: 3;
Number of plan sponsors that obtained price concessions: 2007: 4;
Number of plan sponsors that obtained price concessions: 2008: 5;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,412;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,578;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,935;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,397;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,544;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,884.
Inflammatory conditions (e.g., rheumatoid arthritis, psoriasis,
Crohn's disease[A]:
Drugs (including strength and dosage form), by indication: Adalimumab
(Humira) 40 mg/0.8 ml injection;
Number of plan sponsors that obtained price concessions: 2006: 6;
Number of plan sponsors that obtained price concessions: 2007: 7;
Number of plan sponsors that obtained price concessions: 2008: 7;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,430;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,517;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,600;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,343;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,408;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,469.
Drugs (including strength and dosage form), by indication: Anakinra
(Kineret) 100 mg injection;
Number of plan sponsors that obtained price concessions: 2006: [B];
Number of plan sponsors that obtained price concessions: 2007: [B];
Number of plan sponsors that obtained price concessions: 2008: [B];
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,299;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,364;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,424;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,299;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,363;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,423.
Drugs (including strength and dosage form), by indication: Etanercept
(Enbrel) 50 mg/ml injection;
Number of plan sponsors that obtained price concessions: 2006: 6;
Number of plan sponsors that obtained price concessions: 2007: 7;
Number of plan sponsors that obtained price concessions: 2008: 6;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,400;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,461;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,527;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,372;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,421;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,470.
Human immunodeficiency virus (HIV):
Drugs (including strength and dosage form), by indication: Atazanavir
sulfate (Reyataz) 150 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 5;
Number of plan sponsors that obtained price concessions: 2007: 6;
Number of plan sponsors that obtained price concessions: 2008: 6;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $779;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $809;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $853;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $758;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $782;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $810.
Drugs (including strength and dosage form), by indication:
Emtricitabine and tenofovir disoproxil fumarate (Truvada) 200 mg/300
mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $765;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $815;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $881;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $765;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $815;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $881.
Drugs (including strength and dosage form), by indication: Lamivudine
and zidovudine (Combivir) 150 mg/300 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 7;
Number of plan sponsors that obtained price concessions: 2007: 7;
Number of plan sponsors that obtained price concessions: 2008: 6;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $666;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $709;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $741;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $644;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $685;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $714.
Drugs (including strength and dosage form), by indication: Lopinavir
and ritonavir (Kaletra) 200 mg/50 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $697;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $720;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: v745;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $697;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $720;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $745.
Cancer:
Drugs (including strength and dosage form), by indication: Erlotinib
(Tarceva)[C] 150 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $2,746;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $3,103;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $3,393;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $2,746;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $3,103;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $3,393.
Drugs (including strength and dosage form), by indication: Imatinib
mesylate (Gleevec) 400 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $2,994;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $3,153;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $3,389;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $2,994;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $3,153;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $3,389.
Hepatitis C:
Drugs (including strength and dosage form), by indication: Interferon
alfa-2b (Intron-A) 3 million IU injection;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $476;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $655;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: v580;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $476;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $655;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $580.
Drugs (including strength and dosage form), by indication:
Peginterferon alfa 2a (Pegasys)[C] 180 mg/0.5 ml injection;
Number of plan sponsors that obtained price concessions: 2006: 5;
Number of plan sponsors that obtained price concessions: 2007: 5;
Number of plan sponsors that obtained price concessions: 2008: 6;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,589;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,648;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,817;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,457;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,461;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,561.
Anemia:
Drugs (including strength and dosage form), by indication: Darbepoetin
alfa (Aranesp) 100 mcg/0.5 ml injection;
Number of plan sponsors that obtained price concessions: 2006: 3;
Number of plan sponsors that obtained price concessions: 2007: 5;
Number of plan sponsors that obtained price concessions: 2008: 4;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,019;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $999;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,128;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,017;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $913;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $994.
Drugs (including strength and dosage form), by indication: Epoetin
alfa (Procrit) 40,000 units/ml injection;
Number of plan sponsors that obtained price concessions: 2006: 7;
Number of plan sponsors that obtained price concessions: 2007: 7;
Number of plan sponsors that obtained price concessions: 2008: 7;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $1,432;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $1,465;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $1,593;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $1,269;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $1,311;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $1,420.
Enzyme disorders (e.g., Gaucher disease):
Drugs (including strength and dosage form), by indication: Miglustat
(Zavesca)[D]100 mg capsule;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: [D];
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $8,848;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $8,344;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: [D];
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $8,848;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $8,344.
Pulmonary arterial hypertension:
Drugs (including strength and dosage form), by indication: Ambrisentan
(Letairis)[E]10 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: [E];
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $4,100;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $4,416;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: [E];
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $4,100;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $4,416.
Drugs (including strength and dosage form), by indication: Bosentan
(Tracleer) 125 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 0;
Number of plan sponsors that obtained price concessions: 2007: 0;
Number of plan sponsors that obtained price concessions: 2008: 0;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $3,483;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $4,065;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $4,423;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $3,483;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $4,065;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $4,423.
Other (selected based on high utilization):
Drugs (including strength and dosage form), by indication:
Mycophenolate mofetil (CellCept)--immune suppressant 500 mg tablet;
Number of plan sponsors that obtained price concessions: 2006: 5;
Number of plan sponsors that obtained price concessions: 2007: 7;
Number of plan sponsors that obtained price concessions: 2008: 7;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $576;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $614;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $681;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $554;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $590;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $652.
Drugs (including strength and dosage form), by indication:
Teriparatide (Forteo)[C]--osteoporosis 250 mcg/ml injection;
Number of plan sponsors that obtained price concessions: 2006: 3;
Number of plan sponsors that obtained price concessions: 2007: 5;
Number of plan sponsors that obtained price concessions: 2008: 4;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2006: $638;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2007: $689;
Average negotiated cost per 30-day supply, before price concessions,
weighted by utilization (dollars): 2008: $748;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2006: $600;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2007: $634;
Average price per 30-day supply, after price concessions, weighted by
utilization (dollars): 2008: $641.
Source: GAO analysis of price concessions data provided by seven plan
sponsors GAO surveyed.
[A] These three distinct diseases (rheumatoid arthritis, psoriasis,
and Crohn's disease) may be treated using some of the same drugs. We
selected three of those drugs for our sample.
[B] The total number of plan sponsors who reported receiving price
concessions for this drug across the 3-year period was too small to
allow us to report values while maintaining confidentiality.
[C] One of the seven plan sponsors we surveyed did not submit any data
for this drug. Therefore, values listed for this drug are based on
data submitted by six plan sponsors, rather than seven plan sponsors.
[D] None of the seven plan sponsors we surveyed reported utilization
of Zavesca in 2006.
[E] Letairis was approved by the FDA on June 15, 2007. Therefore, none
of the plan sponsors we surveyed reported utilization of Letairis in
2006.
[End of table]
[End of section]
Appendix IV: Comments from the Department of Health and Human Services:
Note: Page numbers in the draft report may differ from those in this
report.
Department Of Health & Human Services:
Office Of The Secretary:
Assistant Secretary for Legislation:
Washington, DC 20201:
January 6, 2010:
John E. Dicken:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Mr. Dicken:
Enclosed are comments on the U.S. Government Accountability Office's
(GAO) report entitled: "Medicare Part D: Spending, Beneficiary, Cost
Sharing, and Cost Containment Efforts for High-Cost Drugs Eligible for
a Specialty Tier" (GA0-10-242).
The Department appreciates the opportunity to review this report
before its publication.
Sincerely,
Signed by:
Andrea Palm:
Acting Assistant Secretary for Legislation:
Enclosure:
[End of letter]
General Comments From The Department Of Health And Human Services
(HHS) On The Government Accountability Office's (GAO) Draft Report
Entitled: "Medicare Part D: Spending, Beneficiary Cost Sharing, And
Cost Containment Efforts For High-Cost Drugs Eligible For A Specialty
Tier" (GA0-10-242):
Thank you for the opportunity to comment on the Government
Accountability Office's (GAO) Draft Report: "Medicare Part D:
Spending, Beneficiary Cost Sharing, and Cost Containment Efforts for
High-Cost Drugs Eligible for a Specialty Tier" (GA0-10-242). The
Centers for Medicare & Medicaid Services (CMS) appreciates the
importance of analyzing specialty tier utilization and costs, given
the proportion of Medicare Part D spending that is attributed to
specialty tier drugs.
The GAO evaluated contract year CY 2007 spending on specialty tier
drugs by identifying, through prescription drug event (PDE) data,
drugs that could be eligible for specialty tier placement. The report
estimates that 10 percent of total prescription Part D drug spending
was for specialty tier eligible drugs. Although a different
methodology was utilized, this estimate is not inconsistent with CMS'
internal estimate of 9.5 percent.
In the report, the out-of-pocket spending for a hypothetical drug with
a negotiated cost of $1,100 per month was analyzed at the following
beneficiary cost share levels: $50 monthly co-pay, 25 percent
coinsurance, and 33 percent coinsurance. We would like to note that
the overwhelming majority of Part D plans utilize a coinsurance
structure for specialty tier cost-sharing, with coinsurances as low as
10 percent and a maximum of 33 percent. The use of additional
coinsurance levels would provide for a broader range of example
beneficiary out-of-pocket costs. We understand that the methodology
for evaluating cost-sharing ignores the impact of deductibles.
However, plans are required to have a $0 deductible in order to have a
33 percent specialty-tier cost-sharing, which is fairly common for
Part D plans, particularly with those that have higher specialty drug
cost-sharing than the standard 25 percent coinsurance. Since Figure 5
ignores the impact of deductibles, it incorrectly presents that cost-
sharing for those using specialty-tier drugs with a 33 percent
coinsurance would pay more than those paying the standard 25 percent
coinsurance. In actuality, beneficiaries with no deductible and paying
the 33 percent specialty-tier coinsurance would start out paying less
than those with a standard deductible and coinsurance up to the
initial coverage limit, at which point both would have paid about the
same cost-sharing and would continue to do so for the balance of the
benefit.
Negotiated prices were analyzed for a sample of specialty tier
eligible drugs to estimate beneficiary out-of-pocket costs. Based on
analyses of these sample drugs, GAO reports that out-of-pocket costs
vary between different drugs. This result is expected given the
substantial differences in manufacturers' prices across all different
drugs. We would also expect to see some variation in negotiated prices
for the same drug across plans, given the various factors affecting
Part D sponsors' ability to negotiate with pharmaceutical
manufacturers. GAO reports that, on average, negotiated prices of the
sample specialty tier drugs increased by 36 percent between CY 2006
and CY 2009. We would like to note that price increases are not unique
to specialty tier drugs. An internal CMS analysis revealed a more than
30 percent increase in the price indices of brand name drugs (both
specialty and non-specialty tier drugs) between January 2006 and
October 2009. Negotiated prices are generally based on a discount to
Average Wholesale Price (AWP). Therefore, we recommend that any
specific examples addressed in the report, such as Gleevec, be
reported in the context of changes to the drug's AWP.
The GAO interviewed a sample of Part D sponsors to identify factors
affecting their ability to negotiate prices with manufacturers. One
reason cited as a barrier to negotiations related to formulary
requirement of all or substantially all drugs from the protected
classes (immunosuppressives for transplant rejection prophylaxis,
antidepressants, antiretrovirals, antipsychotics, antineoplastics, and
anticonvulsants). On page 21-22, GAO notes that "...specialty tier-
eligible drugs were more than twice as likely to be in one of the six
classes of clinical concern compared with lower-cost drugs in 2009."
We do not believe this statement to be true and respectfully request
that the methodology to support this conclusion be provided to us. On
page 23 of the draft report, a comment was provided by a Part D
sponsor that suggests CMS does not permit sponsors to cover
indications that are not approved by the Food and Drug Administration
(FDA). However, the definition of a Part D drug does provide for
coverage for any "medically accepted indication," which can include
off-label uses so long as they are supported by one or more citations
in specified compendia. We request that this clarification be included
in the final report.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
John E. Dicken, (202) 512-7114 or DickenJ@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, major contributors to this
report were Will Simerl, Assistant Director; Karen Howard; Alexis
MacDonald; Cleo Samuel; and Michael Zose. Martha Kelly and Suzanne
Worth provided technical support in design, methodology, and data
analysis; George Bogart provided legal support; and Krister Friday
assisted in the message and report development.
[End of section]
Footnotes:
[1] Includes Part D prescription drug spending and other spending such
as subsidies to employer-sponsored retiree prescription drug plans and
payments to states for making low-income eligibility determinations.
This amount was partially offset by $7.1 billion in payments from the
states with respect to the phased-in federal assumption of Medicaid
responsibility for premium and cost-sharing subsidies for dually-
eligible individuals and by $5 billion in beneficiary premium payments.
[2] The Part D LIS provides assistance with paying premiums and other
out-of-pocket costs to beneficiaries meeting certain income and asset
requirements.
[3] Part D plan sponsors offer drug coverage either through stand-
alone prescription drug plans (PDP) or through Medicare Advantage
prescription drug (MA-PD) plans for beneficiaries enrolled in Medicare
Advantage, Medicare's managed care program.
[4] A copayment is usually a fixed dollar amount paid by the
beneficiary, while coinsurance is a percentage of the cost.
[5] Specialty tier-eligible drugs are not synonymous with specialty
drugs although there is some overlap between the two groups. Specialty
drugs are typically used to treat certain complex chronic or life-
threatening conditions for which few other treatment options exist.
Specialty drugs may be biologics or drugs that require frequent dosage
adjustment, special storage, patient education, or special routes of
administration such as injection. In contrast, specialty tier-eligible
drugs are drugs that meet the cost threshold and may be placed on a
specialty tier by a Part D plan sponsor.
[6] Sponsors must pass price concessions on to the program. See the
Social Security Act §§ 1860 D-2(d)(1)(A), -15(b)(2), and -15(e)(1)(B)
(as added by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 [MMA]) (codified at 42 U.S.C. §§ 1395w-
102(d)(1)(A), -115(b)(2), and -115(e)(1)(B)).
[7] CMS's PDE data contain a record of each claim reimbursed under
Part D, including the plan in which the beneficiary was enrolled;
whether the drug was covered by the plan; the quantity of drug
supplied; drug price; amounts paid by the beneficiary, the plan, and
Medicare; LIS status of the beneficiary; and whether the beneficiary
was in the catastrophic coverage phase of the plan when the
prescription was filled. At the time we began our study, the 2007 PDE
data were the most recent available.
[8] Examples of drugs that are eligible for placement on a specialty
tier using our criterion include Enbrel for the treatment of
rheumatoid arthritis and Gleevec for treatment of leukemia. Drugs
identified as specialty tier-eligible may not have been placed on a
specialty tier by any Part D plans.
[9] $1,100 per month was the utilization-weighted average of the
median negotiated price of all specialty tier-eligible drugs in 2007
based on PDE claims data.
[10] We selected the 25 percent coinsurance rate to represent the
standard benefit design and the 33 percent coinsurance rate because it
was the rate required of the median enrollee in plans with specialty
tiers in 2009.
[11] In order to select a sample of Part D plans, we chose six
counties across the four census regions (West, Midwest, South, and
Northeast), ensuring that the counties exhibited diversity in
population density and poverty rates. The six counties were Grand
Traverse County, Michigan; Greene County, Georgia; Highlands County,
Florida; Kings County, New York; Lincoln County, Wyoming; and Orange
County, California.
[12] Negotiated drug prices are prices negotiated between pharmacies
and plan sponsors for drugs dispensed by a pharmacy to plan
beneficiaries and are reported by plan sponsors to CMS. CMS negotiated
price data, which reflect average prices reported by plans across
pharmacies available to beneficiaries, can be used only to estimate
average beneficiary out-of-pocket costs, and may not reflect actual
out-of-pocket costs paid by beneficiaries. The latter are influenced
by factors--such as the extent of price concessions negotiated between
plans and pharmacies--that vary by pharmacy and region.
[13] CMS was unable to provide negotiated drug price data and
estimated out-of-pocket costs for all four years--2006 through 2009--
for one plan in our sample. Therefore, we excluded this plan from our
analyses.
[14] The Part D Formulary, Pharmacy Network, and Pricing Information
files are public-use files provided by CMS that contain information--
including formulary placement, tier placement, copayment and
coinsurance amounts, and utilization management practices applicable
to each drug under each Part D plan--reported by the plans prior to
the start of each calendar year. This information is available to
beneficiaries through the Medicare Prescription Drug Plan Finder
[hyperlink, http://www.medicare.gov/mpdpf] as of December 14, 2009, as
a tool for plan selection.
[15] An additional 0.2 million beneficiaries were enrolled in other
types of Medicare health plans.
[16] In designing an actuarially equivalent alternative plan, plan
sponsors must maintain the catastrophic coverage threshold set by CMS
pursuant to law ($4,350 in 2009). See the Social Security Act §1860D-
2(b)(4)(B) (as added by the MMA) (codified at 42 U.S.C. §1395w-
102(b)(4)(B)).
[17] For 2010, the standard benefit amounts set by CMS are as follows:
a $310 deductible, $2,830 initial coverage limit, and a catastrophic
coverage threshold of $4,550.
[18] "A Status Report on Part D for 2009," Report to the Congress:
Medicare Payment Policy (Washington, D.C.: Medicare Payment Advisory
Commission [MedPAC], March 2009), [hyperlink,
http://www.medpac.gov/document_search.cfm] (accessed Aug. 13, 2009).
[19] An eligible plan is one with a premium less than or equal to the
benchmark premium in the beneficiary's region. The benchmark premium
for each region is based on a weighted average of the premiums for
basic prescription drug coverage charged by the Part D plans available
in the region. A beneficiary also can choose to enroll in a plan with
a premium higher than the benchmark premium and pay the difference
between the two.
[20] MedPAC, "A Status Report on Part D for 2009."
[21] MedPAC, "A Status Report on Part D for 2009."
[22] Health insurance plans typically contract with PBMs to help
manage their prescription drug benefits. PBMs negotiate rebates or
payments with drug manufacturers, encourage substitution of generic
drugs for therapeutically similar brand drugs, and negotiate
discounted prices with networks of retail and mail-order pharmacies,
passing along a portion of the savings to health plans and
beneficiaries. PBMs influence price negotiations with manufacturers
through formulary development and management and through the large
market share they often represent. In the case of Part D, some plan
sponsors are PBMs themselves (e.g., Medco Health Solutions, Inc. and
CVS Caremark Corporation).
[23] MMA prohibits the Secretary of Health and Human Services from
interfering with price negotiations between plan sponsors and drug
manufacturers and pharmacies. Pub. L. No. 108-173, § 101, 117 Stat.
2066, 2098 (codified at 42 U.S.C. § 1395w-111(i)).
[24] These amounts include spending by Medicare, the plans, and
beneficiaries.
[25] $1,100 per month was the utilization-weighted average of the
median negotiated price of all specialty tier-eligible drugs in 2007
based on PDE claims data.
[26] Plan sponsors must maintain the catastrophic coverage threshold
set by CMS pursuant to law ($4,350 in 2009).
[27] While not common, some plan sponsors offer MA-PD plans with lower
cost sharing than the usual 100 percent during the coverage gap or the
usual 5 percent during the catastrophic coverage period. In these rare
cases, non-LIS beneficiaries would have lower out-of-pocket costs for
specialty tier-eligible drugs over the course of the calendar year.
[28] Values reported are averages in 2009 across the 35 selected plans
used in our analysis. Of these 35 plans, 2 applied the standard
benefit parameters ($295 deductible, 25 percent coinsurance during the
initial coverage period, and $2,700 initial coverage limit) to the 20
drugs in our sample, while the other 33 plans used alternate benefit
parameters approved by CMS.
[29] We calculated average negotiated drug prices separately for 2006
and 2009 across all plans that covered a given drug for each year and
then compared the two average prices to determine the percent
increase. CMS did not provide negotiated prices or estimated out-of-
pocket costs for four drugs in our sample--Aranesp, Intron-A, Kaletra,
and Letairis--for 2006. Therefore, these drugs are excluded from this
calculation.
[30] One of the plan sponsors we interviewed declined to provide price
concession data through our survey.
[31] A therapeutic class or category of drugs is generally based on a
Food and Drug Administration-approved indication. Part D sponsor
formularies must include all or substantially all drugs in the
following six classes of clinical concern as identified by CMS:
immunosuppressant (for prophylaxis of organ transplant rejection),
antidepressant, antipsychotic, anticonvulsant, antiretroviral, and
antineoplastic. Examples of other therapeutic classes include
analgesics, blood glucose regulators, cardiovascular agents,
dermatological agents, respiratory tract agents, and sedatives.
[32] This analysis was conducted by comparing specialty tier-eligible
and nonspecialty tier-eligible drugs at the drug (ingredient) level
with a list of drugs in the six classes of clinical concern provided
by CMS.
[33] This analysis of utilization management practices for 2007 was
limited to certain drugs identified by proxy national drug codes (NDC)
assigned by CMS, and those PDP and MA-PD plans that used these proxy
NDCs in their formularies. A unique proxy NDC is assigned by CMS to
each drug at the brand name, generic name, dosage form, and strength
level. CMS recommends that this same proxy NDC be used for all
therapeutically equivalent versions of a drug. Our analysis was
limited to a total of 611 proxy NDCs identified for specialty tier-
eligible drugs and 6,652 proxy NDCs identified for lower-cost drugs.
[34] CMS's PDE data contain a record of each claim reimbursed under
Part D, including the plan in which the beneficiary was enrolled;
whether the drug was covered by the plan; the quantity of drug
supplied; drug price; amounts paid by the beneficiary, the plan, and
Medicare; low-income subsidy (LIS) status of the beneficiary; and
whether the beneficiary was in the catastrophic coverage phase of the
plan when the prescription was filled.
[35] NDCs are the universal product identifiers for drugs for human
use. The Food and Drug Administration assigns the first segment of the
NDC, which identifies the firm that manufactures, repackages, or
distributes a drug; the second segment identifies a specific strength,
dosage form, and formulation for a particular firm; and the third
segment identifies package size. A single drug can have multiple NDCs
associated with it. For example, a drug made by one manufacturer, in
one form or strength, but in three package sizes would have three
NDCs. Three-segment NDCs are denoted by 11 digits while two-segment
NDCs are denoted by 9 digits, and do not account for package size.
[36] Examples of drugs that are eligible for placement on a specialty
tier using our criterion include Enbrel for the treatment of
rheumatoid arthritis and Gleevec for treatment of leukemia. Drugs
identified as specialty tier-eligible may not have been placed on a
specialty tier by any Part D plans, and some drugs that did not meet
our definition of specialty tier-eligible may have been placed on a
specialty tier by one or more Part D plans.
[37] Part D includes substantial premium and cost-sharing assistance
through the LIS for beneficiaries who have limited assets and income.
[38] $1,100 per month was the utilization-weighted average of the
median negotiated price of all specialty tier-eligible drugs in 2007
based on PDE claims data.
[39] "A Status Report on Part D for 2009," Report to the Congress:
Medicare Payment Policy (Washington, D.C.: Medicare Payment Advisory
Commission [MedPAC], March 2009), [hyperlink,
http://www.medpac.gov/document_search.cfm] (accessed Aug. 13, 2009).
[40] The six counties were Grand Traverse County, Michigan; Greene
County, Georgia; Highlands County, Florida; Kings County, New York;
Lincoln County, Wyoming; and Orange County, California.
[41] Negotiated drug prices are prices negotiated between pharmacies
and plan sponsors for drugs dispensed by a pharmacy to plan
beneficiaries, including dispensing fees, and are reported by plan
sponsors to CMS. CMS negotiated price data, which reflect average
prices reported by plans across pharmacies available to beneficiaries,
can be used only to estimate beneficiary out-of-pocket costs, and may
not reflect actual out-of-pocket costs paid by beneficiaries. The
latter are influenced by factors--such as the extent of price
concessions negotiated between plans and pharmacies--that vary by
pharmacy and region.
[42] CMS was unable to provide negotiated drug price data and
estimated out-of-pocket costs for all four years--2006 through 2009--
for one plan in our sample. Therefore, we excluded this plan from our
analyses.
[43] We invited the remaining three plan sponsors to participate in
our study but received no response.
[44] The Part D Formulary, Pharmacy Network, and Pricing Information
files are public-use files provided by CMS that contain information--
including formulary placement, tier placement, copayment and
coinsurance amounts, and utilization management practices applicable
to each drug under each Part D plan--reported by the plans prior to
the start of each calendar year. This information is available to
beneficiaries through the Medicare Prescription Drug Plan Finder
[hyperlink, http://www.medicare.gov/mpdpf] as of December 14, 2009, as
a tool for plan selection.
[End of section]
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