How to Redesign Medicare's Part D to Balance Trade-offs?

A trio of health policy experts, writing in The New England Journal of Medicine, recently analyzed 3 proposals to redesign Medicare Part D in an effort to curb the effect of rising drug prices on beneficiaries.

Medicare beneficiaries without low-income subsidies have unlimited out-of-pocket (OOP) costs in Part D, and list prices for specialty drugs averaged $4455 per prescription in 2017. In addition, the authors write, growth in spending in Part D’s catastrophic coverage phase, in which the government pays 80% of spending, nearly quadrupled between 2010 and 2018 and is projected to reach nearly $90 billion per year by 2028.

The 3 proposals do not address drug prices directly; they shift costs among stakeholders, the authors note. The 3 proposals they analyzed are as follows:

Medicare Payment Advisory Commission (MedPAC) proposed redesign

Under this plan, manufacturer discounts would no longer count toward OOP spending limits. It adds a cap on OOP spending at the current catastrophic coverage threshold of $6350. Beneficiaries taking brand-name drugs would take longer to reach this level, but when they did, they would no longer be responsible for additional spending. Beneficiaries with annual total spending on brand-name drugs of $25,000 would have increased spending relative to Medicare’s 2020 design for Part D, but those patients with higher expenditures would have decreased spending. To encourage plans to increase their price negotiation efforts and utilization management tools, their share would increase from 15% to 80% while Medicare’s share of spending in the catastrophic coverage phase would drop from 80% to 20%.

Senate Finance Committee bipartisan proposal

This proposal cuts OOP spending for Part D beneficiaries with high drug spending and reduces Medicare’s share of spending in the catastrophic coverage phase from 80% to 20%. The plans’ share rises as well, from 15% to 60%. Beneficiaries would pay a deductible and 25% coinsurance up to an OOP cap of $3100. Drug makers would give the 20% discount on brand-name drugs filled after the OOP is reached, instead of the 70% discount in the coverage gap.

HHS rebate plan

The authors also discuss a plan proposed by the Trump administration earlier this year to create pass-through rebates if Part D plans share their manufacturer rebates with patients. The administration dropped this idea a few weeks before the NEJM article appeared, but the authors said the lack of an OOP cap in the proposal would continue to expose patients to unlimited OOP spending.

It is not known how Part D plan sponsors will respond to any change that ultimately increases their share. But the authors say there’s probably an incentive for Part D plans to keep premium increases small for competitive reasons so that healthy people continue to enroll.

Part D is failing to protect beneficiaries from catastrophic financial loss when they need expensive drugs, the authors say. And tradeoffs that could come in the form of lower OOP costs in exchange for premium hikes or reductions in other parts of the benefit carry the risk of adverse selection if rising premiums spur those with low drug expenditures to drop their coverage.

The authors suggest 2 ways to get around these issues so that Part D is sustainable, balancing premium cost with protection from catastrophic cost. First, they believe the solution should target beneficiaries with the highest OOP spending with an OOP spending cap that could also be tied to income. In addition, plans could spread the limits on OOP costs throughout the year, instead of front-loading them early in year, which would hit patients with the cost of expensive specialty drugs all at once.

Second, Medicare could negotiate the price of expensive drugs, use inflation-based rebates, and use value-based reimbursement for drugs.

Reference

Dusetzina SB, Keating NL, Huskamp HA. Proposals to redesign Medicare Part D—easing the burden of rising drug prices [published online September 4, 2019]. N Eng J Med. doi: 10.1056/NEJMp1908688.