Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier
Published: 2010-01-29T00:00:00

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. 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.
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 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.

section_title: Letter
paragraphs: 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. 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. 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. 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. 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. 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.
Plan sponsors can also employ various practices—referred to as utiliza 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). 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). 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. 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 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.
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 app. I.) 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.
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. 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.
subsections: section_title: Background
paragraphs: 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. Of the 26.7 million beneficiaries, about 36 percent, or   9.6 million, received assistance with premiums and cost sharing through  Medicare’s LIS.
subsections: section_title: Medicare Part D Plan Structure
paragraphs: 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  fig. 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. 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.
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 beneficiaries who receive the LIS, whose premiums are subsidized by  Medicare as long as they enroll in an eligible plan.
section_title: Low-Income Subsidy
paragraphs: 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 fig. 2).
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 fig. 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.
section_title: Medicare Part D Spending and Utilization Management
paragraphs: 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. 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 permonth 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 t o pay  33 percent coinsurance for those drugs during the initial coverage period .  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) to negotiate with drug manufacturers and retail  pharmacies for the prices of the drugs that each plan covers. 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.)
section_title: 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
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. 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 fig. 4.)
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.
section_title: 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
paragraphs: 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.
subsections: section_title: 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
paragraphs: 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. Non-LIS beneficiaries’ out-of-pocket costs eventually become  similar for a given specialty tier–eligible drug regardless of their plan 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, they generally pay only 5 percent of the negotiated drug price for the  remaind er of the calendar year. (See fig. 5.)
Plan sponsors must maintain the catastrophic coverage threshold set by CMS pursuant to  law ($4,350 in 2009).
section_title: For LIS Beneficiaries, Plans’ Cost-Sharing Structures Do Not Significantly Affect Out-of- Pocket Costs
paragraphs: 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.
section_title: 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
paragraphs: 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.
subsections: section_title: For Non-LIS Beneficiaries, Variations in Negotiated Drug Prices Affect Out-of- Pocket Costs
paragraphs: 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.
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. 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.
section_title: For Most LIS Beneficiaries, Variations in Negotiated Drug Prices Do Not Affect Out-of-Pocket Costs
paragraphs: 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.
section_title: Plan Sponsors Report Having a Limited Ability to Negotiate Price Concessions for Specialty Tier– Eligible Drugs but Frequently Use Practices to Manage Utilization
paragraphs: 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.
subsections: section_title: 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
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. 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. 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. 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: Part D Plans Employ Utilization Management Practices Somewhat More Frequently for Specialty Tier–Eligible Drugs Than for Other Covered Drugs
paragraphs: 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, 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.
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 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.
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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.
section_title: Appendix I: Sample of 20 Specialty Tier– Eligible Drugs
paragraphs: Utilization rank (2007)
1.  Glatiramer acetate (Copaxone)  2.
Interferon beta-1a (Avonex)
Rheumatoid arthritis, psoriasis, Crohn’s disease  3.  Adalimumab (Humira)  4.  Anakinra (Kineret)   5.  Etanercept (Enbrel)
Human immunodeficiency virus (HIV)  6.  Atazanavir sulfate (Reyataz)  7.  Emtricitabine and tenofovir disoproxil fumarate  (Truvada)  8.  Lamivudine and zidovudine (Combivir)  9.  Lopinavir and ritonavir (Kaletra)  10.  Erlotinib (Tarceva)  11.  Imatinib mesylate (Gleevec)  12.  Interferon alfa-2b (Intron-A)  13.  Peginterferon alfa 2a (Pegasys)  14.  Darbepoetin alfa (Aranesp)  15.  Epoetin alfa (Procrit)  16.  Miglustat (Zavesca)—Gaucher disease drug  17.  Ambrisentan (Letairis)  18.  Bosentan (Tracleer)
section_title: Appendix II: Scope and Methodology
paragraphs: To determine spending o 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). 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 ceeding $500 for a  at least one claim with a cost equal to or ex 30-day supply. 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–eligi e  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). 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  baries through MA-PD and PDP plans in 2007 for these specialty enefici 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  ories taking the drug. Finally, we determined the number of f beneficia 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  n specialty tier–eligible drugs covered under   separately for low-income subsidy (LIS) and non-LIS beneficiaries. Weperformed 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 unde $50 flat monthly copayment and different coinsurance rates (25 percent  and 33 percent) for a hypothetical drug with a monthly negotiated cost o $1,100.  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 coinsuranc 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. We analyzed the effect of each of these  typical cost-sharing structures on beneficiary out-of-pocket costs in ea phase of the Part D benefit. The results of this analysis can be generalize to Part D beneficiaries taking any specialty tier–eligible drug acro 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 othe r  covered Part D drugs, we conducted interviews with representative s 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 20  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 intervi and 7 provided specific price concession data for our sample of    The 7 plan  20 specialty tier–eligible drugs for 2006 through 2008. sponsors that provided price concession data represented 51 perc 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.
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 C MS  officials about concerns we uncovered, and reviewed the internal controlsCMS 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 dat when possible, to data the plan sponsors had previously provided to C We determined that the data were sufficiently reliable for our purposes.  We conducted our work from March 2009 through December 2009 in  a,  MS.  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.
section_title: Appendix III: Comparison of Price Concessions Negotiated by Seven Plan Sponsors for a Sample of 20 Drugs
paragraphs: Average price per 30- day supply, after price  , weighted  concessions by utilization (dollars) )
Drugs   (including strength and dosage form),   by indication  Inflammatory conditions (e.g., rheumatoid arthritis, psoriasis, Crohn’s disease  Human immunodeficiency virus (HIV)
Emtricitabine and tenofovir disoproxil fumarate  (Truvada)  200 mg/300 mg tablet  1,561 Average price per 30- day supply, after price  concessions, weighted  y utilization (dollars) by utilization (dollars)
Enzyme disorders (e.g., Gaucher disease)
Other (selected based on high utilization) eyed. s (rhe s. W electede s tis, psoriasis, and ur mple.  -year period wsmall to allow us to reaintaininas too onfidevalues whiport le mntiality. g c One of the seven plan sponsors we surveyed did not submit any da listed for this drug are based on data submitted by six plan sponsors, rather than seven plan  sponsors. r this drug. Therefore, values  veyed re orted uti ation of  a sca in 2 6. by the FDA on June  07. The efore,  none of the plan  onsors w    2006.
section_title: Appendix IV: Comments from the Department of Health and Human Services
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, major contributors to this report  In addition to the contact named above, major contributors to this report  were Will Simerl, Assistant Director; Karen Howard; Alexis MacDonald;  were Will Simerl, Assistant Director; Karen Howard; Alexis MacDonald;  Cleo Samuel; and Michael Zose. Martha Kelly and Suzanne Worth provided  Cleo Samuel; and Michael Zose. Martha Kelly and Suzanne Worth provided  technical support in design, methodology, and data analysis; George  technical support in design, methodology, and data analysis; George  Bogart provided legal support; and Krister Friday assisted in the message  Bogart provided legal support; and Krister Friday assisted in the message  and report development.  and report development.