Specialty Drug Costs Push Part D Enrollees Through Doughnut Hole

Kate Traynor

BETHESDA, MD 02 March 2010—A recently released report from the Government Accountability Office (GAO) states that most Medicare Part D enrollees who use high-cost, specialty-tier-eligible drugs spend enough to become eligible for catastrophic coverage during the plan year.

The GAO report (PDF) was commissioned by Representative Pete Stark of California, who released a statement expressing concern that seniors' out-of-pocket costs for specialty drugs are escalating rapidly.

According to GAO, 55% of Part D enrollees in 2007 who took at least one drug whose monthly costs exceeded $500 eventually spent enough on prescription drugs to become eligible for catastrophic coverage. In contrast, 5% of Part D enrollees who did not use a specialty-tier-eligible drug incurred costs that triggered catastrophic coverage.

Part D enrollees qualify for catastrophic coverage after reaching their initial benefit limit and then spending through that year's coverage gap, also known as the doughnut hole. For 2010, enrollees in a standard Part D plan would incur $2830 in medication costs, including $708 in out-of-pocket costs, to reach the initial coverage limit and enter the doughnut hole.

At that point, the enrollee is responsible for all medication costs up to the annual out-of-pocket maximum of $4550; catastrophic coverage then assumes 95% of drug costs, with the enrollee paying 5%.

The Centers for Medicare and Medicaid Services (CMS) allows Part D plan sponsors to develop utilization controls for high-cost drugs, including assigning them to specialty tiers that have higher copayments than less-expensive drugs.

GAO examined whether the use of specialty tiers affects Part D enrollees' out-of pocket expenses for high-cost drugs. According to the report, Part D plan designs with different copayments or coinsurance requirements for specialty drugs had little effect on enrollees' costs for the products once beneficiaries reached their out-of-pocket maximum and used their catastrophic coverage.

The report explains that Part D enrollees would become eligible for catastrophic coverage after about six months of taking a drug that costs $1100 per month, regardless of whether a plan implemented a $50 copayment, 25% coinsurance, or 33% coinsurance requirement for the drug.

GAO also found that the vast majority of spending on specialty-tier-eligible drugs occurs on behalf of low-income beneficiaries whose Part D coverage is heavily subsidized by the federal government.

According to the report, about 70% of all spending on specialty-tier-eligible drugs was made on behalf of the poorest Medicare beneficiaries. This spending totaled about $4.0 billion of the $5.6 billion spent on specialty-tier-eligible drugs in 2007, GAO stated.

In all, 67% of these low-income specialty-drug users qualified for catastrophic coverage, compared with 31% of other Part D enrollees, according to the report.

For its analysis, GAO examined drug costs and cost-sharing requirements for 20 drugs, including the 10 highest-use specialty drugs for 2007, by 11 Part D plans. GAO also examined changes in the costs of these specialty drugs in 2008 and 2009.

GAO found that manufacturers did not negotiate discounts to Part D plan sponsors for certain specialty drugs, such as the cancer chemotherapy agents erlotinib and imitinib mesylate.

According to the report, Part D plans stated that their average annual per-patient price for imitinib mesylate rose from roughly $31,000 to about $45,500 between 2006 and 2009, an increase of 46%.

The report notes that such changes can affect enrollees' out-of-pocket costs, even when they receive catastrophic coverage, as well as Medicare's overall costs.

The report stated that Part D plan sponsors reported little leverage to negotiate with manufacturers of specialty drugs, in part because of a lack of alternative products.

On average, the cost of specialty drugs increased by 36% from 2006 to 2009, according to GAO.