Part D plans could face increased risk under proposed Part D changes: MedPAC

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Trine K. Tsouderos HRI Regulatory Center Leader, PwC US June 21, 2019

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Skip the small tweaks, which could backfire, and re-engineer the entire Part D program, the Medicare Payment Advisory Commission (MedPAC) recommends in its annual report to Congress. With the aim of lowering enrollee costs, shrinking Medicare reinsurance spending and shifting more risk to Part D plan sponsors, the independent commission is proposing dramatic changes to the program, which provides self-administered prescription drug coverage to Medicare beneficiaries.

The proposal includes limiting enrollee cost-sharing, which is now unlimited; shrinking Medicare reinsurance in the catastrophic phase from 80 percent to 20 percent or lower; raising Part D plans’ share of costs in the catastrophic phase from 15 percent to an unspecified higher percentage and changing drugmakers’ discount in the coverage gap to a capped discount. MedPAC’s proposals to Congress are simply recommendations, but they are considered by lawmakers and policymakers alike and inform discussions about legislation and policy.

HRI impact analysis

Lawmakers and policymakers have been eyeing the Part D benefit for some time as costs soar and enrollees complain of ever-growing bills at the pharmacy counter. The benefit design, according to MedPAC, rewards plan sponsors and drugmakers, in some cases, for higher drug prices, all at the expense of enrollees, who pay, at a minimum, 5 percent coinsurance on drugs’ list prices with no out-of-pocket cap. In 2007, the year after the benefit launched, gross spending on all Part D drugs was almost $62 billion for 969 million prescriptions, with an average spend of $64 per prescription. In 2017, gross spending on Part D drugs had risen to $155 billion for 1.5 billion prescriptions, with an average spend of $103 per prescription.

The data are even more dramatic for specialty drugs. In 2007, gross spending on Part D specialty tier drugs was $3.4 billion on 3 million prescriptions for specialty drugs, with an average spend of $1,151 per specialty prescription. Ten years later, that number had risen to $37 billion spent on 8.3 million specialty prescriptions, or $4,455 per specialty prescription. For beneficiaries shouldering all or part of those costs depending on which phase of the benefit they are in, the drugs could mean thousands of extra dollars in spending a month.

Policymakers have proposed forcing rebates on these drugs to be passed along to beneficiaries at the point of sale, instead of being pocketed by Part D plan sponsors after the sale. The problems with that, MedPAC wrote, is that those rebates are used by Part D plans to lower premiums and keep them competitive. Rebates passed along to beneficiaries likely will help thousands, but they will wind up paying in terms of higher premiums, as will the millions of beneficiaries not taking high-cost drugs.

Contact us

Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Alexander Gaffney

Senior Manager, Health Research Institute, PwC US

Tel: +1 (202) 836 1604

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