Regulatory Opportunities that can Improve Medicare Part D

Aug 23, 2016

Pharmacy benefit best practices can help Medicare Part D continue successful management of pharmacy spending and improve care for beneficiaries.

  • Medicare


Over the past 10 years, the Medicare Part D program has emerged as one of the most successful healthcare endeavors in U.S. history, providing millions of older Americans with affordable access to life-saving, and life-enhancing, medication.

Contributing to that success is the program’s focus on health outcomes and an effective private/public partnership that leverages many best practices pioneered by pharmacy benefit managers and insurers to keep medication affordable and accessible.

Yet, some existing, well-meaning regulatory guidelines continue to pose challenges to Part D plan sponsors’ ability to achieve optimal benefit management, which could lead to increased costs for beneficiaries over the next three years as the population expands and costly new medications come to market.

Current and Future Impact of Drug Spending in Medicare

Pharmacy spending among the Medicare population increased nearly 11% between 2014 and 2015, largely driven by significant increases in spending for diabetes, oncology and hepatitis C therapies:

  • Medicare plans spent $309 per member per year (PMPY) for diabetes therapies due to a 15% increase in unit costs for medications in that class.
  • The expansion of indications for cancer therapies, an increase in survival rates, and the FDA approval of 19 new medications drove a 31.8% increase in oncology medication spending.
  • Hepatitis C spend increased nearly 40% between 2014 and 2015, due to increased use of Harvoni, Sovaldi and Viekira Pak.

Conversely, spending increased only 6.4% for the commercially insured population. While diabetes and oncology were major drivers, their impact on overall spend was significantly less due to commercial plans’ ability to quickly adapt to market events.

The 2015 Express Scripts Drug Trend Report forecasts pharmacy spending in Medicare to increase an average of 13% annually between 2016-2018, compared to an average 7.5% annual increase for commercial plans during the same time period. Factors impacting the forecasted increases in pharmacy spend including an aging, expanding Medicare population, a rich pipeline of medication, and an increase in the prevalence of chronic, complex conditions among Medicare beneficiaries.

Regulatory Challenges Impacting Part D Trend

Compounding the effect of the forecasted double-digit increase in pharmacy are several regulatory requirements and proposed changes that could leave Medicare, and Medicare plans sponsors, vulnerable to significant increases in spending over the next few years:

  • Protected Class Drug Requirement: CMS requires coverage for “all or substantially all” drugs of clinical concern in several therapeutic classes. While the measure aims to protect patients’ access to critical medications, it significantly limits a plan’s ability to manage costs by leveraging competition that has grown within those classes. Additionally, drug makers have no incentive to lower prices on medications in these classes because they are protected. Some revisions to the requirement  would  allow plans to leverage competition within the classes and negotiate deeper discounts, which will improve Medicare spending.
  • Limited Formulary Modifications are intended to protect Medicare consumers from a “bait and switch” scenario by limiting a plan’s ability to change the formulary in the middle of a plan year. However, the current regulation prohibits plans from implementing clinical management programs and formulary changes when new, high-cost therapies come to market mid-year and threaten spending, as we saw when high-priced hepatitis C therapies entered the market in the summer of 2014. Providing plans with more formulary flexibility will allow them to respond faster to market events, which in turn could save millions for plans and beneficiaries.
  • The Out of Pocket Cost (OOPC) Model Test ensures plan options available to Medicare members each year are meaningfully different from one another, which makes the process of enrolling in a plan less overwhelming by limiting the number of plans offered by a provider. However, the initially issued outdated 2017 OOPC model, and last-minute update, forced several plans to submit more costly bids for 2017. Leveraging PBM pipeline information and updating the OOPC model well in advance of the bid submission deadline can help plans submit less costly bids, and would provide seniors with more affordable options during open enrollment.
  • Star Rating Performance Expectations incentivize plans to focus on delivering optimal health outcomes and high-quality service for Medicare beneficiaries. However, the increasingly moving 4- and 5- Star cut points on several clinical outcome measures are contributing to higher Medicare drug trend. At particular risk are smaller, regional plans that fulfill an important need in their market, but may not have the financial resources needed to achieve these out-of-reach clinical targets.

Leveraging PBMs

PBMs implement a multitude of tools to manage the drug benefit, and are well-positioned to support value-based care using real-time medical and pharmacy data to promote quality care. Leveraging the established best practices of PBMs, Medicare can improve the sustainability of Medicare Part D plans today and in the future, while still ensuring Medicare consumers have affordable access to high-quality care and service.

Our ability to manage the drug benefit is reflected in our drug trend numbers across all lines of business. With some adjustments to the current regulatory guidelines, giving Medicare plan sponsors similar benefit management abilities as in commercial space we are certain we can continue to deliver value to Medicare for long term success.

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