The program started before specialty drugs became such a large expense for Medicare and its beneficiaries. Congress is considering legislation that would cap beneficiary out-of-pocket costs and require price discounts from manufacturers.
Carol Thompson is a 77-year-old retired payroll accountant in Lawrenceville, Georgia, who could not afford the medication her physician prescribed earlier this year for chronic lymphocytic leukemia, a form of blood cancer.
As retirees, Thompson and her husband, Tom, live on their Social
Security income and some retirement savings and were pleased to learn the first-month prescription of Imbruvica (ibrutinib) from Janssen Pharmaceuticals (a unit of Johnson & Johnson) was free. But they could not afford the second-month charge of $3,200 even though each is enrolled in Medicare Advantage with Part D prescription drug coverage.
“This an oral chemotherapy drug that my doctor recommended,” Thompson said. “There’s a trial period for the first month when it’s free, and I have no copay. I thought, wow, that’s very good. But then I found out that was only during the trial period. So, when my pharmacist went to renew it for the second month, he said the copay would be $3,200 a month.”
That budget-busting amount put the Thompsons into a group with more than 5 million other Medicare members who struggle to afford prescription drugs, according to a report issued by January by the federal Department of Health and Human Services titled, “Prescription Drug Affordability Among Medicare Beneficiaries. Their plight has heightened interest in redesigning the Part D benefit so that high-priced drug, many of them cancer treatments, are not out of reach for so many Medicare beneficiaries.
Currently, the Part D program has no cap on out-of-pocket costs for beneficiaries. The bills being considered in Congress would cap beneficiaries’ out-of-pocket costs at several thousand dollars a year.
The details vary, but the bills would also shift a greater share of the cost burden of expensive drugs from the Medicare program to the Part D plans. At the high spending levels in the “catastrophic phase” of coverage, the bills also include a requirement that manufacturers price their products at a discount.
Not designed for specialty drugs
One reason Part D redesign is needed is because the Medicare program has seen spending on expensive specialty medications skyrocket, notes Leigh Purvis, M.P.A., director of healthcare costs and access for the Public Policy Institute at AARP. “When Part D started in 2006, we didn’t have a lot of high-priced specialty drugs,” she says. “But we do now, and those costs are rising.” Hence, Medicare is spending much more in the catastrophic phase.
The Medicare’s spending on Part D drug benefits more than doubled from $44.3 billion in 2006, when the benefit started, to $102.3 billion in 2019, according to a 2021 report from The Commonwealth Fund titled, “Medicare Part D Redesign.” Most of that growth has been for patients who are in the catastrophic phase of coverage that begins after beneficiaries exceed the annual out-of-pocket costs of $6,550, the threshold in 2021. The threshold for 2022 is $7,050.
“The most important elements for Part D redesign are reducing beneficiary costs, which will be achieved primarily by setting an out-of-pocket maximum for seniors,” explains Ryan Urgo, managing director for consulting firm Avalere Health. “That’s a very important primary goal.” Another important goal is to reduce the Medicare program’s spending on prescription drugs, which is on an unsustainable upward trajectory, he adds.
“By giving health plans more liability for the cost of care in what’s called the catastrophic phase, you could reduce the government’s role for spending in that phase by creating more skin in the game for plan sponsors,” Urgo says.
Shifting the cost burden of Part D coverage so that more of it falls on health plans and less on Medicare and beneficiaries could provide an incentive for health plans to be tougher about negotiating lower prices from drugmakers, in Urgo’s view.
“At the same time, you could free the federal government from being on the hook for what is the fastest-growing segment of the Part D program, which is that catastrophic phase,” he notes. “That increase in spending is driven in large part by the proliferation of specialty drugs and newer products for patients with specialty conditions that tend to have high price tags.”
However, shifting costs to health plans raises the prospect of a common trade-off in health insurance: Ask insurers to shoulder more costs or expand coverage, and they will soon be asking for higher premiums. But Urgo says, “Part D is an extremely competitive market, where premium is king.” Rather than increasing premiums, plans may limit access to certain drugs, seek higher rebates from manufacturers or reevaluate their provider networks, he says. There are also other provisions of the Part D benefit redesign proposals that would work against premium increases.
Will drug companies increase their prices? With patients insulated, to some extent, from the cost of expensive medications if there was a “hard” cap on out-of-pocket costs, drugmakers might face less public pressure about setting high list prices.
But Urgo says there might still be some pushback from the Part D plans. “Depending on the details of a final Part D redesign package, some manufacturers’ costs will be higher than others,” Urgo observes. Therefore, some drug companies may try to raise prices, he says, but if they do, the largest Part D health plans would likely push back and seek higher drug rebates.
When the Part D benefit was designed, a relatively small number of beneficiaries had drug expenses that pushed them into the catastrophic phase of the coverage, when Medicare pays 80% of the expense; the Part D plans, 15%; and beneficiaries, 5%.
That 5% share may seem small, but with many drugs priced at $100,000 a year or more, a small proportion of a large expense ends up being a large amount. “For high-cost medications for cancer and other conditions, patient costs in Part D are so high that the lack of a true out-of-pocket cap on spending can create a financial strain on beneficiaries throughout the whole year,” Urgo says. Under this arrangement, health plans, drug companies and pharmacy benefit managers have limited incentives to contain drug costs.
In a Health Affairs article published in April 2022, Stacie B. Dusetzina, Ph.D., a researcher at Vanderbilt University Medical Center, and her colleagues found that many beneficiaries who weren’t eligible for subsidies that offer some financial protection from the 5% coinsurance did not start a prescribed therapy. More specifically, Dusetzina and her colleagues found that 50% did not start drug treatment for either immune system disorders or high cholesterol, 30% did not pick up their first prescriptions for cancer drugs and 22% did not start their medications for hepatitis C.
The fact that so many Medicare beneficiaries with serious illnesses cannot afford their treatments shows that the design of Part D is outdated, Dusetzina noted in a medical center press release about the research reported in Health Affairs. Almost all other health plans in the United States include out-of-pocket limits to protect members from unlimited spending on prescriptions, she added. When Part D members do not start their medications, their symptoms get worse, driving up healthcare costs, she and her colleagues wrote.
Purvis at AARP says it is “a huge source of concern when a Medicare beneficiary with income of about $30,000 a year has to pay upwards of $10,000 for prescriptions. That’s just not sustainable.”
Thompson says that after her chronic lymphocytic leukemia diagnosis, she did not need treatment until 2017, when her doctor prescribed a chemotherapy medication that was infused in the hospital once a month for six months, which was the protocol at the time. The infusions were covered under Medicare Advantage with no out-of-pocket costs. “That went well and when I finished, my numbers were all down and good,” she said. “But now, five years later, I need treatment again.” She’s been prescribed Imbruvica, a drug she may need to take for the rest of her life.
In an opinion piece published in the Dec. 23, 2021, issue of the New England Journal of Medicine Dusetzina noted that the first fill of Imbruvica costs $3,223 and each subsequent fill costs the patient $800 because of the 5% coinsurance during the catastrophic phase of Part D coverage. Thompson’s case is unlike the cases Dusetzina and colleagues identified because since her first prescription, she has been approved to participate in the drugmaker’s financial assistance so that she’ll get medication at no cost this year.
High prices for specialty drugs and the growing number of prescriptions for them resulted in a doubling of Medicare spending on Part D coverage of patients who had hit the catastrophic phase between 2013 and 2017, according to the 2021 Commonwealth Fund report. Even when beneficiaries in the catastrophic phase are required to pay 5% of their drug costs, many do not fill their prescriptions, the report authors added.
Joseph Burns is an independent journalist in Brewster, Massachusetts, who covers healthcare, health policy and health insuranc