June 7, 2018

Even with fewer prescriptions filled, Part D spending surged 77%. Here's why.

Daily Briefing

    Increases in prices for brand-name prescription drug covered by Medicare Part D drove up Part D spending on such drugs from 2011 to 2015, according to a report from HHS' Office of Inspector General (OIG) released Monday.

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    Report details

    For the report, OIG examined brand-name drug prescriptions covered by Part D to analyze reimbursements and utilization under the program from 2011 to 2015.

    OIG also evaluated the effect of manufacturer rebates on total Part D reimbursements over the five-year period, and compared the annual rate of inflation with changes in Part D unit costs for individual brand-name prescription drug reimbursements for two consecutive years.

    OIG said it controlled for various factors that might have led to an increase in total Part D reimbursements, such as the emergence of costlier brand-name prescription drugs and increased utilization, by analyzing average unit costs and the number of prescriptions for brand-name drugs reimbursed by Part D from 2011 to 2015.

    OIG also reviewed Part D beneficiaries' out-of-pocket costs for brand-name drugs from 2011 to 2015.

    Findings

    Overall, OIG found total Part D reimbursements for all brand-name prescription drugs increased by 77% from 2011 to 2015. The increase in total Part D reimbursements coincided with a 17% decrease in the number of prescriptions for name-brand drugs filled under Part D, according to the report.

    When OIG accounted for manufacturer rebates, it found Part D reimbursements for all brand-name prescription drugs increased by 62% from 2011 to 2015, even as the total value of the rebates also increased over that time. According to the report, "total rebate dollars for all brand-name drugs in Part D" grew by 155% from 2011 to 2015, increasing from $9 billion to $23 billion.

    According to OIG, Part D unit costs for brand-name drugs increased by 29% from 2011 to 2015—a rate about six times faster than inflation. OIG said the 20 brand-name prescription drugs with the highest price increases—such as antibiotics, many of which had price increases of more than 1,000%—either had few or no generic alternatives. Further, the report noted that one drug, the dialysis drug Dianeal, had experienced a more than 200,000% increase in price from 2011 to 2015.

    In addition, OIG found that the share of Part D beneficiaries who had out-of-pocket costs for brand-name prescription drugs equaling at least $2,000 per year nearly doubled from 2011 to 2015. According to the report, Part D beneficiaries saw a 40% increase in average out-of-pocket costs per brand-name drug from 2011 to 2015, increasing from $161 to $225 per drug.

    OIG concluded "that although there were fewer prescriptions for brand-name drugs in 2015 than in 2011, increases in Part D unit costs for brand-name drugs led to greater overall Medicare Part D spending and higher beneficiary out-of-pocket costs for these drugs."

    David Mitchell, founder of Patients for Affordable Drugs, said the OIG report "makes it clear that list prices on brand drugs are hurting patients." He added, "We need action to lower pharma list prices now."

    OIG added, "Generally, plan sponsors base their pharmacy reimbursement amounts on the prices that manufacturers set for their drugs. Therefore, increasing manufacturer prices for brand-name drugs may result in increasing costs for Medicare and its beneficiaries, especially those beneficiaries who need access to expensive maintenance drugs."

    Reaction

    Niall Brennan, executive director of the Health Care Cost Institute, said the report is "a pretty damning indictment" of the pricing practices used by prescription drugmakers.

    However, Pharmaceutical Research and Manufacturers of America (PhRMA) said the OIG report "paints a misleading picture of medicine spending in the Part D benefit."

    A PhRMA spokesperson said, "Rather than focusing on misleading information, policymakers should be looking at ways to improve affordability and predictability for seniors in Part D." For instance, the spokesperson noted that the report showed rebates from drugmakers more than doubled from 2011 to 2015, but said "Part D plans do not currently pass these negotiated discounts and rebates to beneficiaries at the point of sale." The spokesperson said, "Sharing the negotiated discounts with seniors at the point of sale is just one way policymakers could improve the Part D benefit."

    PhRMA did not provide comments on why prescription drug prices have risen at a faster rate than inflation or why overall spending continued to outpace growth in rebates, Axios' "Vitals" reports (Baker, "Vitals," Axios, 6/5; Sullivan, The Hill, 6/4; Luthi, Modern Healthcare, 6/4; Haefner, Becker's Hospital CFO Report, 6/4; Clason, CQ Health, 6/4 [subscription required]).

    Medicare 101: Cheat sheets for Parts A through D

    Through the years Medicare has grown more complicated, including private supplemental insurance and prescription drug coverage. Download our cheat sheets to learn how each of the four parts of Medicare works, and why they’re so important for provider organizations:

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