HHS Medicare Drug Shift Plan Could Reduce Costs Overall but Raise Them for Some, Researchers Say

An analysis of HHS’ proposed Medicare Part B drug pricing reform effort on pharmaceutical spending and out-of-pocket (OOP) costs found that although the plan may reduce total drug spending, it could increase OOP costs for some beneficiaries. In an accompanying editorial, the chairman and vice chairman of the Medicare Payment Advisory Commission (MedPAC) wrote that given that many proposals have been put forth to contain rising Medicare costs, any proposals for change “must be carefully coordinated, and all consequences fully understood, something often overlooked in policy proposals.”

HHS should ensure that the proposed reforms benefit both patients and payers, said the authors of the analysis, which was published in JAMA Internal Medicine.¹

In May 2018, HHS proposed to shift coverage of certain drugs from Part B to Part D, drawing criticisms from physicians’ groups, which raised concerns about OOP costs, especially for patients who take biologics. They also raised concerns about patient access. Both programs cover outpatient prescription drugs, but they have different formulary structures and cost sharing. In Part B, Medicare payments are based on the average sales price, which is the price paid (net of discounts and rebates) by most private purchasers, plus a statutory add-on amount.

In Part D, private insurers administer prescription drug plans for Medicare beneficiaries. Individual Part D plans, aided by pharmacy benefit managers, negotiate with manufacturers to determine the amounts they pay for drugs.

In 2016, Medicare Part B drug spending was $29.1 billion; between 2010 and 2016, Part B drug spending rose by approximately 9.8% on average per year, more than the average annual growth rate of 8.2% in Medicare Part D, the researchers wrote.

In this analysis, researchers looked at the 75 brand-name drugs with the highest Part B expenditures among Medicare fee-for-service (FFS) beneficiaries in 2016. Under the standard 2018 Part D benefit, OOP costs for most drugs were projected to be lower in Part D among FFS Medicare beneficiaries, without Medicaid or supplemental insurance in Part B and among those who would qualify for the low-income subsidy program.

However, OOP costs were estimated to increase among beneficiaries with Medicare supplement insurance and among those currently without Part D coverage.

At 2018 prices, Part B spending for the 75 brand-name drugs with the highest Part B expenditures was estimated to be $21.6 billion annually. Under the proposed policy, total Part D drug spending for these drugs would fall to an estimate in the range of $17.6 billion and $20.1 billion after rebates, corresponding to a 6.9% to 18.3% decrease in drug spending in Part D compared with Part B costs.

Of the 75 drugs studied, 33 (44%) drugs were in protected Part D classes, where plans must cover essentially all drugs. Those classes are immunosuppressants for prophylaxis of organ transplant rejection, antidepressants, antipsychotics, anticonvulsants, antiretrovirals, and antineoplastics. The protected classes account for $9.5 billion (43.9%) of Part B spending.

The researchers also looked at prices paid in other countries. In the fall of 2018, the Trump administration also proposed allowing Medicare to base drug prices based on what other countries pay. For 67 drugs with available information, the prices for 65 (97%) were a median of 45.8% to 59.7% lower in comparator high-income countries than Part B drug prices.

Median patient cost sharing in Part B for all 75 brand-name drugs was $4683 (interquartile range [IQR], $1069-$9282) per year.

For Medicare beneficiaries without Medicaid or Part B supplemental insurance, also known as Medigap coverage, shifting Part B drugs to the 2018 standard Part D benefit was projected to decrease OOP costs by a median of $860 (IQR, −$3884 to $496).

For beneficiaries who would qualify for the low-income subsidy program in Part D, cost-sharing would be lower in Part D than in Part B for all drugs. For beneficiaries with Medigap insurance, estimated Part D OOP costs exceeded average Medigap premium costs by a median of $1460 for those with Part D coverage and by a median of $1952 for those without Part D coverage.

In the commentary, the MedPAC members, Francis J. Crosson, MD, and Jon B. Christianson, PhD, the chair and vice-chair, respectively, noted that HHS has also proposed to give Part B the ability to allow negotiation and utilization management within the program, and that the plan is based in part on a June 2017 report from MedCAC. That could achieve the same or even larger cost reductions for both Medicare and beneficiaries, without the OOP increases, Crosson and Christianson wrote.²

References

1. Hwang TJ, Jain N, Lauffenburger JC, et al. Analysis of proposed Medicare Part B to Part D shift with associated changes in total spending and patient cost-sharing for prescription drugs [published online January 14, 2019]. JAMA Intern Med. doi: 10.1001/jamainternmed.2018.6417.

2. Crosson FJ, Christianson JB. Managing the cost of Medicare Part B drugs [published online January 14, 2019]. JAMA Intern Med. doi: 10.1001/jamainternmed.2018.6146.