Reforming Medicare Part D to Improve Access to Medicines

Variety of Medicine in Pill Bottles(A version of this Health Alert was published by Forbes.)

Specialty drugs are typically high-cost prescription drugs used to treat complex chronic and/or life threatening conditions. Many do not have substitutes available at lower costs.  Over the last decade, the Medicare Part D benefit has imposed high out-of-pocket costs as a way to control costs of specialty drugs. This is causing many patients not to fill prescriptions. Some patients may be adding costs to the system by getting drugs more expensively by injection in doctors’ offices, where they are covered by Medicare supplemental insurance.

Prescription drug plans maintain lists of drugs, called formularies, which define their benefits in terms of which drugs are covered by the plan. Over the years, formularies have become tiered, making patients liable for higher out-of-pocket costs for medicines placed on higher tiers.

Most prescription drugs plans offered under Medicare Part D have five tiers, according to research by Jack Hoadley and colleagues at the Kaiser Family Foundation. The fifth tier consists of specialty drugs, which Medicare defines as drugs that cost at least $600 per month.

These drugs are subject to very high coinsurance of up to 33 percent under Part D’s initial coverage period. This year, after having spent $2,960 on drugs, a Medicare patient who does not qualify for low-income subsidies hits the coverage gap (or “doughnut hole”). In the doughnut hole, the patient pays 45 percent of the drug cost. Eventually, the patient’s out-of-pocket liability declines to five percent after the patient. This benefit design is reducing access to medicines used by very sick patients, according to research conducted by Professor Jalpa A. Doshi, of the Perelman School of Medicine at the University of Pennsylvania, and colleagues (and presented at the annual meeting of the International Society for Pharmacoeconomics and Outcomes Research in May).

Doshi and colleagues examined the relationship between out-of-pocket costs and initiation of treatment among Medicare Part D beneficiaries newly diagnosed with leukemia in 2011 through 2013. These cancer patients were prescribed tyrosine kinase inhibitors (such as Gleevec®). Although in clinical use for just a decade and a half, these drugs have transformed leukemia from a death sentence to a chronic condition for many patients.

The average out-of-pocket cost for a 30-day supply was $2,600 or higher for Medicare Part D beneficiaries who did not receive low-income subsidies. This caused many of these patients not to fill their prescriptions. Low-income patients got extra help with their costs, resulting in out-of-pocket payments of just $5 or less. Only 21 percent of the patients with potentially high out-of-pocket costs had initiated treatment within one month of their diagnosis, versus 53 percent of patients with nominal out-of-pocket costs. And this remained a problem in subsequent months. Within three months, the proportions were 36 percent versus 65 percent. At six months, they were 45 percent versus 67 percent. The patients with potentially high out-of-pocket costs may have struggled to pay the high coinsurance for their medicine and hence may have delayed or abandoned filling their prescriptions.

Doshi and colleagues found similar results for Medicare beneficiaries with rheumatoid arthritis, from 2007 through 2009. Although the study design was different, the difference in outcomes between non-poor and low-income patients was similar. During the initial coverage period at the start of a new plan year, the non-poor paid (on average) $484 for a 30-day supply of biologic medicines, while low-income patients paid only $5.  Only 61 percent of the non-poor filled their prescriptions, versus 73 percent of the low-income patients.  Even among those who filled their prescriptions, non-poor patients were more likely to have interruptions in their biologic treatments than the low-income patients.

This problem has arisen fairly recently. Doshi and colleagues have reviewed evidence from 2009 and earlier, finding most studies had examined privately insured patients many of whom faced monthly copayments of $30 or less for specialty drugs. However, there is evidence the private market is moving in the same direction as Medicare has.

The current Medicare policy on specialty drugs does not appear to have countervailing benefits.

First, Medicare part D prescription drug plans do not bear financial risk if patients have more frequent visits to doctors or hospitalizations because they do not take their medicines. In their study of patients with rheumatoid arthritis, Doshi and colleagues found the non-poor were twice as likely as low-income patients to have a biologic medicine administered in a doctor’s office.

Second, this approach is not contain costs of specialty drugs. According to Express Scripts, prices of specialty drugs increased 11 percent in 2015, while utilization increased 6.8 percent. According to IMS Health spending on specialty drugs increased 22 percent last year. Premiums for Medicare Part D prescription drug plans increased 13 percent this year. There has got to be a better way.

Among Doshi and colleagues’ recommendations to improve patient access is to reduce the sticker shock of the initial prescription by smoothing out out-of-pocket costs throughout the year. A well designed benefit would not just whack patients over the head with high out-of-pocket costs at the beginning of treatment or January 1 of a new plan year. We also need to research why prices of specialty drugs are increasing despite insurers imposing high out-of-pocket costs on patients. Fixing this problem requires a far more nuanced approach to designing Medicare Part D benefits.


Comments (9)

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  1. John Fembup says:

    “We also need to research why prices of specialty drugs are increasing despite insurers imposing high out-of-pocket costs on patients”


    And what if such a study reveals that the cost of bringing specialty drugs to market is rising?

    Such a finding might tempt the experts to offer a wild conjecture that prices of medications, and medical treatment in general, are actually driven by their costs. Garsh, they might even begin to wonder whether there is anything to be done about it.

    Or, considering the last half-century of pretending that spending for medical care is synonymous with medical delivery costs, maybe such a finding would change nothing at all.

    • Thank you. I’m sure you appreciate that sentence means “I have a whole other argument to make but not enough space in it for this column.” We’re written a lot here about the increasing burden of FDA regulation and how it increases costs. And there’s more to it than that, too.

  2. Devon Herrick says:

    I oppose caps on cost sharing for a couple reasons. 1) without some pushback from consumers/patients, the sky will become the limit to what drug makers will charge for biologics. 2) Cost sharing is often a function of a drug’s cost and whether or not there is a cheaper substitute available. 3) Advanced drug therapy is costly; if people are to have access to advanced therapies someone will have to help pay for it. Who better than the patient who stands to benefit.

    • However, the status quo does not achieve that. It goes from 33 percent coinsurance to 45 percent coinsurance to 5 percent coinsurance within one plan year. Especially if we are talking about drugs that turn the disease into a chronic illness, the coinsurance rate should be a constant percentage, should it not?

      • Devon Herrick says:

        Actually, I have always like the original plan design of Medicare Part D. When Medicare Part D was first rolled out in 2006, the standard design (which plans were not required to follow, but most did) had $250 deductibles, 25% cost-sharing from $250 to $2,250. 100% cost-sharing from $2,251 to $5,250 (if memory serves me) and 5% cost-sharing above $5,250.

        Why such a convoluted number of tiers? Because that way Medicare drug plans would be affordable and still provide a benefit for seniors at all levels of illness. By having deductibles low, healthy seniors could still benefit (and thus would enroll). But, premiums would not be too high because the coverage-gap reduced some of the risk on plans. But for seniors on chronic medications, they would get 95% coverage after spending $3,750 of their own money out-of-pocket. The so-called donut hole also provided a powerful incentive for seniors to ask about generic drugs. featured online tools to help seniors pick the plan that was right for them. It also allowed seniors to input their drugs and it would estimate if (and when) they might reach the coverage gap. would even advise them of cheaper therapeutic substitutes for drugs they currently took.

        In my opinion, multi-tiered cost-sharing provides for different incentives at various points in spending. If, for example, standard plans had chosen to have a deductible of, say, $3,750 with 5% cost-sharing above that, only sick seniors would have enrolled. That’s not good for a risk pool.

        • dennis byron says:

          You write the following in the past tense:

          “ featured online tools to help seniors pick the plan that was right for them. It also allowed seniors to input their drugs and it would estimate if (and when) they might reach the coverage gap. would even advise them of cheaper therapeutic substitutes for drugs they currently took.”

          This is all still true. Plan Finder is still not quite Amazon but it is better than it was originally. Most important it lets you rank plans available to you by cost and other factors and also compare up to three plans available to you.

        • dennis byron says:

          But I disagree that the donut hole was a good plan design. You do a good job of explaining why they did it however.

          And you should follow it through to the logical conclusion: When the gap is effectively gone (see Note) and the template co-pay for up to up to about $4000 “worth” of drugs at retail (about $2000 more of the retail is given back in the 2009 Obamacare-manufacturer discount deal) is now 25% from the first dollar to the four thousandth dollar, premiums and co-pays will normalize across the whole pool as the drug costs for the moderately and severely ill (the 10% that enter the donut hole and the 10% of them that entered the catastrophic level respectively) will now be paid for by everyone else. This applies of course only to the about 20%-25% of us on Medicare who are on basic Part D. It does not apply to the 55%-60% of us that get private drug coverage, drug coverage through Part C, or additional drug coverage on top of Part D through a state pharmaceutical assistance program, or the 20% of us that get free and almost free premiums and drugs through the Social Security Extra Help program. (As an aside, this latter 20% enters the donut hole way out of proportion to its size.)

          Note: The donut hole does not really go away. It’s just that the template co-pay in the IEP and the gap will be the same. Stand by for the unintended consequences of that little part of PPACA that they had to read to see what was in it.

  3. Allan (formally Al) says:

    “Actually, I have always like the original plan design of Medicare Part D.”

    While the design was interesting and had some unique features Part D should never have been passed. It helped solve some of Merck’s problems placing a floor (not a ceiling on drug costs) so I guess if one owned Merck’s stock it was a good thing. Part D was also inflationary and very costly to the taxpayer shifting costs from one person to another involuntarily. Some might call it collectivist in nature with some free market features.