Medicare catastrophic drug coverage costs rise by 85 percent in three years

A few key drugs drive significant costs

Federal spending on Medicare's "catastrophic" prescription drug coverage increased by 85 percent over three years, according to data from CMS's Office of the Actuary.

Coverage details

Medicare's catastrophic prescription drug coverage begins once payments made through a beneficiary's insurer and a beneficiary's out-of-pocket spending reach a certain threshold. For 2016, that threshold is $4,850.

The catastrophic coverage pays for 80 percent of a beneficiary's drug costs. A beneficiary's insurer pays for 15 percent of drug costs once the catastrophic coverage begins, while the beneficiary pays for 5 percent of the costs.

As Rx prices soar, here's how hospitals are pushing back

According to the Associated Press, the coverage is intended to help beneficiaries who incur high costs because they take medications to treat multiple chronic conditions.

Data show rising costs

Federal data show that the cost of Medicare's catastrophic prescription drug coverage increased from $27.7 billion in 2013 to $51.3 billion in 2015.

Catastrophic Part D coverage in 2015 spent the most on:

  • The hepatitis C treatment Harvoni, at $6.3 billion;
  • The cancer treatment Revlimid, at $1.7 billion;
  • The hepatitis C treatment, Sovaldi, at $1.2 billion;
  • The multiple sclerosis treatment Copaxone, at $1.1 billion; and
  • The cancer treatment Gleevec, at $1 billion.

According to the data, total catastrophic spending on Harvoni and Sovaldi more than doubled over two years, from about $3.5 billion in 2014 to about $7.5 billion in 2015. In addition, the data show that spending on Revlimid and Gleevec increased by about 50 percent each over three years.

According to the Associated Press, catastrophic Part D spending represents the fastest-growing share of Medicare's drug costs, totaling about $137 billion in 2015. While about 9 percent of beneficiaries reached the catastrophic coverage threshold, federal spending on catastrophic Part D coverage accounted for 37 percent of Medicare's total drug costs. Spending on beneficiaries who reached the threshold increased by 46 percent over two years, from $9,666 in 2013 to $14,100 in 2015.


Experts told the Associated Press that the sharp spending increase for high-priced prescription drugs could threaten the program's financial stability.

Further, some said the data challenges the notion that Medicare Part D fosters a competitive marketplace in which private insurers push drugmakers to keep prices.

Jim Yocum—SVP of Connecture, which tracks prescription drug prices—said, "The incentive is to price [drugs] as high as they can." He said that because Medicare is prohibited from negotiating prescription drug prices, drugmakers "max out [their] pricing and most of that risk is covered by the federal government."

Here's how PhRMA is pushing back against drug price outrage

Sen. Ron Wyden (D-Ore.) urged congressional action on the issue, saying catastrophic Part D coverage soon will cost as much as the entire Part D program did when it was first implemented.

Sen. Chuck Grassley (R-Iowa) said he plans to seek more information on the program from Medicare. He stated, "If the numbers continue to increase like this each year, I worry about how much the taxpayers could afford," adding, "It may be that some drug companies are taking advantage of government programs to maximize their market share, and we need to know whether that's the case."

According to the Associated Press, industry stakeholders said the cost estimates are too high because they do not account for rebates drugmakers provide to Medicare (Alonso-Zaldivar, AP/Denton Record-Chronicle, 7/25; AP/Washington Times, 7/24; Murphy, Becker's Hospital CFO, 7/25).

What is the impact of drug cost on revenue?

Houston Methodist Health System faced high drug costs that drained overall hospital revenue. Executives challenged the pharmacy and business office teams to mitigate the impact. Using Revenue Cycle Compass dashboard, Houston Methodist was able to go beyond traditional analytics to show what pharmacy costs could be reimbursed or covered by copay assistance, significantly offsetting initial drug cost.

Executive hospital leadership also created three new full-time equivalent reimbursement coordinator positions to identify the best payment solutions with patients pre-treatment, discuss out-of-coverage treatments with physicians, and work with the insurance predetermination process to navigate one-off cases. In just three years, Houston Methodist saved over $522K.

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