Medicare Part D: Spending, Beneficiary Out-of-Pocket Costs, and Efforts to Obtain Price Concessions for Certain High-Cost Drugs
Published: 2010-03-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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. This testimony is based on GAO's January 2010 report entitled Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier (GAO-10-242) in which GAO examined, among other things, (1) Part D spending on these drugs in 2007, the most recent year for which claims data were available; (2) how different cost-sharing structures could be expected to affect beneficiary out-of-pocket costs; (3) how negotiated drug prices could be expected to affect beneficiary out-of-pocket costs; and (4) information Part D plan sponsors reported on their ability to negotiate price concessions. For the second and third of these objectives, this testimony focuses on out-of-pocket costs for beneficiaries responsible for paying the full cost-sharing amounts required by their plans. GAO examined CMS data and interviewed officials from CMS and 8 of the 11 largest plan sponsors, based on enrollment in 2008. Seven of the 11 plan sponsors provided price concession data for a sample of 20 drugs for 2006 through 2008.
section_title: What GAO Found
paragraphs: 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 filed claims but did not use any specialty tier-eligible drugs reached this threshold in 2007. Most beneficiaries are responsible for paying the full cost-sharing amounts required by their plans. For such beneficiaries who use a given specialty tier-eligible drug, different cost-sharing structures result in varying out-of-pocket costs only until they reach the catastrophic coverage threshold, which 31 percent of these beneficiaries did in 2007. After that point, beneficiaries' annual out-of-pocket costs for a given drug are likely to be similar regardless of their plans' cost-sharing structures. Variations in negotiated drug prices can also affect out-of-pocket costs for beneficiaries who are responsible for paying the full cost-sharing amounts required by their plans. Variations in negotiated prices can occur between drugs, across plans for the same drug, and from year to year. For example, the average negotiated price for the cancer drug 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 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. One reason for this limited leverage was that many of these drugs have few competitors on the market. Plan sponsors reported that they 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. Two additional reasons cited for limited negotiating leverage were CMS requirements that plans include all or most drugs from certain therapeutic classes on their formularies, limiting sponsors' ability to exclude drugs from their formularies in favor of competing drugs; and that the relatively limited share of total prescription drug utilization among Part D beneficiaries for some specialty tier-eligible drugs was insufficient to entice manufacturers to offer price concessions. CMS provided GAO with comments on a draft of the January 2010 report. CMS agreed with portions of GAO's findings and suggested additional information for GAO to include in the report, which GAO incorporated as appropriate.

section_title: Letter
paragraphs: I am pleased to be here today to discuss high-cost drugs covered under  Medicare Part D and to provide highlights from our January 2010 report  entitled Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost- Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier.  Medicare Part D is the outpatient prescription drug benefit offered by  Medicare, the federal health insurance program which serves about   45 million elderly and disabled individuals. Some drugs covered by Part D  have particularly high costs—sometimes exceeding tens of thousands of  dollars per year—and beneficiaries who take these drugs often face high  annual out-of-pocket costs.
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. As of February 2010, CMS  reported that 27.6 million beneficiaries were enrolled in Part D plans.  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 structure such as copayments and  coinsurance. Most Part D beneficiaries—approximately 18 million—are  responsible for paying the full premium and cost-sharing amounts required  by their plans. Part D provides premium and cost-sharing assistance  through its low-income subsidy (LIS) for other beneficiaries who meet  certain income and asset requirements.
Plan sponsors can assign 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. Drugs eligible to be placed on  specialty tiers are among the most expensive drugs on the market. They  are used by a small proportion of beneficiaries and commonly include  immunosuppressant drugs, those used to treat cancer, and antiviral drugs.  Plan sponsors may be able to manage spending on these high-cost drugs  by negotiating price concessions with manufacturers or price discounts  with pharmacies.
My statement today is based upon our January 2010 report, in which we  examined, among other things, (1) spending under Medicare Part D on  specialty tier-eligible drugs covered in 2007, the most recent year for  which claims data were available when we conducted our study; (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. For the second and third of  these objectives, my statement today focuses primarily on out-of-pocket  costs for most beneficiaries—those who are responsible for paying the full  cost-sharing amounts required by their plans. Details on out-of-pocket  costs for LIS beneficiaries, which are subsidized by Medicare, can be  found in our January 2010 report.
To do the work for our report, 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) to  determine spending on drugs eligible to be placed on a Part D plan’s  specialty tier. For our purposes, 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). We analyzed the effect of typical cost- sharing structures on beneficiary out-of-pocket costs. We also chose a  judgmental sample of 20 specialty tier-eligible drugs and a sample of   36 high-enrollment MA-PD and PDP plans from six counties based on  enrollment as of March 2008. We used CMS negotiated price data and  CMS estimates of beneficiary out-of-pocket costs for our sample of drugs  in 35 of the 36 selected plans 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. 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, 7 of the  plan sponsors we interviewed provided price concession data for our  sample of 20 specialty tier-eligible drugs for 2006 through 2008. These   7 plan sponsors represented 51 percent of all MA-PD enrollment and   67 percent of all PDP enrollment in 2008. We determined that the data we  used for our report were sufficiently reliable for our purposes. We  conducted the work for our report 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 in this product. A detailed explanation of our  methodology is included in our January 2010 report.
subsections: section_title: Background
paragraphs: Under the defined standard benefit in 2009, beneficiaries subject to full  cost-sharing amounts paid out-of-pocket costs during the initial coverage  period that included a deductible equal to the first $295 in drug costs,  followed by 25 percent coinsurance for all drugs until total drug costs  reached $2,700, with beneficiary out-of-pocket costs accounting for  $896.25 of that total. (See fig. 1.) This initial coverage period is followed by  a coverage gap—the so-called doughnut hole—in which these  beneficiaries paid 100 percent of their drug costs. In 2009, the coverage  gap lasted until total drug costs—including the costs accrued during the  initial coverage period—reached $6,153.75, with beneficiary out-of-pocket  drug costs accounting for $4,350 of that total. This point is referred to as  the catastrophic coverage threshold. After reaching the catastrophic  coverage threshold, beneficiaries taking a specialty tier-eligible drug paid   5 percent of total drug costs for each prescription for the remainder of the  year.
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.  Beneficiaries are responsible for paying these premiums except in the case  of LIS beneficiaries, whose premiums are subsidized by Medicare.
section_title: In 2007, Specialty Tier-Eligible Drugs Accounted for 10 Percent of Part D Spending
paragraphs: 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. 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 fig. 2.) The fact that spending on specialty tier-eligible drugs in  2007 was largely accounted for by LIS beneficiaries is noteworthy because  e  their cost sharing is largely paid by Medicare.  their cost sharing is largely paid by Medicare.
While only 8 percent of Part D beneficiaries in MA-PD and PDP plans who  filed claims but did not use any 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, 31 percent of beneficiaries  responsible for paying the full cost sharing required by their plans and   67 percent of beneficiaries whose costs were subsidized by Medicare  through the LIS 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.
section_title: Differences in Plans’ Cost-Sharing Structures Result in Out-of-Pocket Costs for Most Beneficiaries That Vary Initially and Then Become Similar
paragraphs: For most beneficiaries—those who are responsible for paying the full cost- sharing amounts required by their plans—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 beneficiaries who used at  least one specialty tier-eligible drug and who were responsible for the full  cost-sharing amounts 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, the estimated out-of-pocket costs for  these beneficiaries 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.
However, even if 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 out- of-pocket costs in 2009). (See fig. 3.) 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. This threshold ($4,350 in out-of-pocket  costs) includes costs paid by the beneficiary during the initial coverage  period. Therefore, beneficiaries who paid higher out-of-pocket costs in the  initial coverage period had less to pay in the coverage gap before they  reached the threshold. Conversely, 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.
section_title: Variations in Negotiated Drug Prices Affect Out-of- Pocket Costs for Most Beneficiaries
paragraphs: For most beneficiaries—those who are responsible for paying the full cost- sharing amounts required by their plans—variations in negotiated drug  prices affect out-of-pocket costs during the initial coverage phase if their  plans require them to pay coinsurance. All 35 of our selected plans  required beneficiaries to pay coinsurance in 2009 for at least some of the  20 specialty tier-eligible drugs in our sample. Additionally, negotiated drug  prices will affect these 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 pay 5 percent of a drug’s negotiated price during the catastrophic  coverage phase. As the following examples illustrate, there are variations  in negotiated prices between drugs, across plans for the same drug, and  from year to year.
Variations between drugs: In 2009—across our sample of 35 plans— 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.
Variations across plans: 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 beneficiaries taking the drug over  the entire year.
Variations over time: 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. 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 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.
section_title: Plan Sponsors Report Three Main Reasons Why They Have a Limited Ability to Negotiate Price Concessions for Specialty Tier-Eligible Drugs
paragraphs: 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. Additionally, 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. 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 app. I for an excerpt  of the price concession data presented in our January 2010 report.)
The plan sponsors we interviewed 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. 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.  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.
section_title: Agency Comments and Our Evaluation
paragraphs: The Department of Health and Human Services (HHS) provided us with  CMS’s written comments on a draft version of our January 2010 report.  CMS agreed with portions of our findings and suggested additional  information for us to include in our report. We also provided excerpts of  the draft report to the eight plan sponsors who were interviewed for this  study and they provided technical comments. We incorporated comments  from CMS and the plan sponsors as appropriate in our January 2010  report.
Mr. Chairman, this completes my prepared remarks. I would be happy to  respond to any questions you or other Members of the Committee may  have at this time.
section_title: GAO Contact and Staff Acknowledgements
paragraphs: For further information about this statement, please contact John E.  Dicken at (202) 512-7114 or DickenJ@gao.gov.
Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this statement. Key contributors  to this statement in addition to the contact listed above were Will Simerl,  Assistant Director; Krister Friday; Karen Howard; Gay Hee Lee; and Alexis  MacDonald.
section_title: Appendix I: Comparison of Price Concessions Negotiated by Seven Plan Sponsors for a Sample of 20 Drugs in 2008
paragraphs: Number of plan  sponsors that  obtained price  price concessions,  weighted by  utilization (dollars)
Drugs (including strength and dosage form), by indication  utilization (dollars)
Inflammatory conditions (e.g., rheumatoid arthritis, psoriasis, Crohn’s  disease)
Human immunodeficiency virus (HIV)
Drugs (including strength and dosage form), by indication  price concessions,  weighted by  utilization (dollars) utilization (dollars)
Enzyme disorders (e.g., Gaucher disease)
Other (selected based on high utilization)
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.
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