Medicare Part D Sustainability

Medicare Part D and the Affordable Care Act

Medicare Part D first covered Americans in 2005.  The Patient Protection and Affordable Care Act (“ACA” or “PPACA”) of 2010 brought noteworthy changes to health plans that cover prescription drugs.  For example,  starting in 2010 there was a $250 rebate for Medicare Part D enrollees who reach the prescription drug coverage gap, also knowns as a “doughnut hole,”[1] in drug benefit coverage.

Starting in 2011, drug pharmaceutical manufacturers were required to offer a 50 percent discount on the price of brand-name drugs in the doughnut hole. The Affordable Care Act was intended to steadily reduce cost sharing for both generic and brand name drugs in the doughnut hole until it reached 25 percent in 2020.  This was intended to eliminate the coverage gap.   The Centers for Medicare and Medicaid Services (CMS) implemented changes that were expected to cause consolidation of Medicare Part D plan offerings in the future.

Changes to Medicare Part D in 2010 as a result of the Affordable Care Act

With the implementation of the Affordable Care Act there were changes in the prescription drug program. These included an increase in Medicare Advantage plans that bundled Medicare Part A, Medicare Part B, and Medicare Part D benefits.  The data below, with sources cited points out that premiums were increasing prior to the ACA and that less than 50% of Part D insureds who qualified for Low Income Subsidies actually received them.

  1. Ten percent increase in prescription drug programs (1,576 PDPs, with at least 41 PDPs offered in every state)[2]
  2. The number of Medicare Advantage Prescription Drug plans [3] increased by approximately 50 percent between 2006 and 2009, from 1,333 plans to 1,991 plans.
  3. After the effective date of the ACA, Medicare Advantage Prescription Drug plans fell nearly 10 percent to 1,792 plans in 2010.[4]
  4. Premiums increased 44% on average between 2006 and 2010
  5. Some plans had higher premium increases of up to 50% such as United Health Care’s AARP MedicareRx Preferred Plan
  6. Medicare Advantage premiums (Medicare Part C plans by commercial plan sponsors) were $20 below the PDP average.
  7. Those health plans that offered gap coverage for generic drugs, primarily, were more than twice the premium of plans that had no gap coverage. [5]
  8. Medicare Part D provides premium and cost-sharing assistance to low income who qualify for the program’s Low-Income Subsidy (LIS).[6]
  9. Subsidies were consumed by a minority of Medicare Part D at approximately 40% received low-income subsidy in 2009. This increased in 2010.  The number of LIS enrollees increased about 700,000 in 2007 to 2.2 million in 2010

Medicare Part D Enrollment Grew 75% by 2015

Then years after Medicare Part D, by 2015, the drug coverage program enrollment grew from 22.5 million people in 2006 to 39.3 million in 2015 and of Medicare beneficiaries and 88% had drug coverage by 2015.[7]

Innovation and Cost Challenges for Part D

The increase in covered lives provides access to needed medications, but there are two factors, among others, that stretch the resources of Medicare Part D. The first is rapid innovation in genetic tests and resultant need to constantly update coverage policies for drugs and second, the rising cost of drugs.

Medicare Drug Coverage and Innovation in Genetic Testing

New innovations can enable new benefits for insureds. For example, molecular pathology tests can identify conditions that enable beneficiaries to be eligible for new treatments.  For example, molecular biology tests contribute to biomarker research for cancer therapy and multiple sclerosis. (See Zeis T, Howell OW, Reynolds R, Schaeren-Wiemers N. Molecular pathology of Multiple Sclerosis lesions reveals a heterogeneous expression pattern of genes involved in oligodendrogliogenesis. Exp Neurol. 2018 Jul;305:76-88. doi: 10.1016/j.expneurol.2018.03.012. Epub 2018 Mar 27. PMID: 29596844.)

To illustrate, a Medicare LCD amended to elaborate on the coverage policy for gene analysis which can be used to determine coverage for a medication.  The Medicare LCD provides that the test is “…is only considered medically necessary for individuals who have relapsing forms of multiple sclerosis.” The policy elaborates that “… for CYP2C9 states (cytochrome P450, family 2, subfamily D polypeptide 9) (e.g., drug metabolism), gene analysis, is only considered medically necessary for individuals who have relapsing forms of multiple sclerosis, and require CYP2C9 genotyping for dosing in accordance with the FDA prescribing information for Mayzent.  Mayzent from Novartis, is indicated for conditions such as multiple sclerosis.  The drug is used to manage the pathologic course of a particular medical condition, not necessarily resulting in a cure and can be used to control the severity or alleviate the symptoms of a medical condition. (Source: Wolters Kluwer drug database). The policy provides that CYP2C9 testing must include the *1, *2, and *3 alleles that are necessary to safely dose the FDA-approved drug Mayzent.

This is described in Medicare Local Coverage Determination L35000 published by National Government Services.  Without coverage, this medication has a cost per unit of four times the cost of a similar amount of a common statin such as Lipitor. Mayzent’s Average Wholesale Price (AWP) is $80.57 per unit.

Medicare Part D Expenditures Sustainability Challenges in 2022 and Beyond

Yet, fifteen years after Medicare Part D started covering Americans, drug costs continue to increase and spending for Catastrophic Coverage (“Reinsurance”) Now Accounts for Close to Half (45%) of Total Medicare Part D Spending, up from 14% in 2006 and beneficiaries face higher costs out of pocket.[8]  Price negotiation initiatives are viewed as one way to save costs.

  • The Congressional Budget Office (CBO) estimates that spending on Part D benefits will total $111 billion in 2022, representing 15% of net Medicare outlays.
  • The CBO estimated over $450 billion in 10-year (2020-2029) savings from the Medicare drug price negotiation provision in the version of H.R. 3 in the 116th Congress, including $448 billion in savings to Medicare and $12 billion in savings for subsidized plans in the ACA marketplace and the Federal Employees Health Benefits Program. [9]

Therefore, as a result of these savings estimates, in 2021 there are proposals to allow Medicare to negotiate drug costs, but the pharmaceutical industry and some legislators continue to oppose such initiatives. [10]

[1] In 2021 CMS explained the donut hole as follows: “Most Medicare drug plans have a coverage gap (also called the “donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs.

Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Once you and your plan have spent $4,430 on covered drugs in 2022 ($4,130 in 2021), you’re in the coverage gap. This amount may change each year. Also, people with Medicare who get Extra Help paying Part D costs won’t enter the coverage gap.

Once you reach the coverage gap, you’ll pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs. You’ll pay this discounted rate if you buy your prescriptions at a pharmacy or order them through the mail. Some plans may offer you even lower costs in the coverage gap. The discount will come off of the price that your plan has set with the pharmacy for that specific drug.

Although you’ll pay no more than 25% of the price for the brand-name drug, almost the full price of the drug will count as  out-of-pocket costs to help you get out of the coverage gap. What you pay and what the manufacturer pays (95% of the cost of the drug) will count toward your out-out-pocket spending. Here’s a breakdown:

  • Of the total cost of the drug, the manufacturer pays 70% to discount the price for you. Then your plan pays 5% of the cost. Together, the manufacturer and plan cover 75% of the cost. You pay 25% of the cost of the drug.
  • There’s also a dispensing fee. Your plan pays 75% of the fee, and you pay 25% of the fee.
  • What the drug plan pays toward the drug cost (5% of the cost) and dispensing fee (75% of the fee) aren’t counted toward your out-of-pocket spending.” See

[2] In March 2010, CMS announced it was terminating its contract with Fox Insurance Company due to discovered deficiencies.  Fox sponsored 26 PDPs, including 12 benchmark PDPs. Subsequently Fox sued Pharmacy Prescription Drug Benefit Manager (PBM) ProCare alleging negligence and breach of contract and was awarded $3 million

[3] Excludes Special Needs Plans (SNPs)

[4] Kaiser Family Foundation 2010 Medicare Part D Data Spotlight

[5] Jack Hoadley and Laura Summer (Health Policy Institute, Georgetown University), Elizabeth Hargrave (NORC at the University of Chicago), and Tricia Neuman and Juliette Cubanski (Kaiser Family Foundation), as well as previous work by Hoadley, Hargrave and others

[6] Medicare Part D Low Income Subsidy Program (LIS) Experience to Date and Policy Issues for Consideration Prepared by Laura Summer, Jack Hoadley, and Elizabeth Hargrave

[7] 2015.  J Hoadley.  Medicare Part D After Ten Years: Lessons for the Affordable Care Act.  Georgetown University Health Policy Institute

[8] October 2021, Kaiser Family Foundation. An Overview of the Medicare Part D Prescription Drug Benefit

[9] July 2021, Kaiser Family Foundation.  What’s the Latest on Medicare Drug Price Negotiations?

[10] July 2021, Kaiser Family Foundation.  What’s the Latest on Medicare Drug Price Negotiations?

Michael F. Arrigo

Michael is Managing Partner & CEO of No World Borders, a leading healthcare management and IT consulting firm. He serves as an expert witness in Federal and State Court and was recently ruled as an expert by a 9th Circuit Federal Judge. He serves as a patent expert witness on intellectual property disputes, both as a Technical Expert and a Damages expert. His vision for the firm is to continue acquisition of skills and technology that support the intersection of clinical data and administrative health data where the eligibility for medically necessary care is determined. He leads a team that provides litigation consulting as well as advisory regarding medical coding, medical billing, medical bill review and HIPAA Privacy and Security best practices for healthcare clients, Meaningful Use of Electronic Health Records. He advises legal teams as an expert witness in HIPAA Privacy and Security, medical coding and billing and usual and customary cost of care, the Affordable Care Act and benefits enrollment, white collar crime, False Claims Act, Anti-Kickback, Stark Law, physician compensation, Insurance bad faith, payor-provider disputes, ERISA plan-third-party administrator disputes, third-party liability, and the Medicare Secondary Payer Act (MSPA) MMSEA Section 111 reporting. He uses these skills in disputes regarding the valuation of pharmaceuticals and drug costs and in the review and audit of pain management and opioid prescribers under state Standards and the Controlled Substances Act. He consults to venture capital and private equity firms on mHealth, Cloud Computing in Healthcare, and Software as a Service. He advises ERISA self-insured employers on cost of care and regulations. Arrigo was recently retained by the U.S. Department of Justice (DOJ) regarding a significant false claims act investigation. He has provided opinions on over $1 billion in health care claims and due diligence on over $8 billion in healthcare mergers and acquisitions. Education: UC Irvine - Economics and Computer Science, University of Southern California - Business, studies at Stanford Medical School - Biomedical Informatics, studies at Harvard Medical School - Bioethics. Trained in over 10 medical specialties in medical billing and coding. Trained by U.S. Patent and Trademark Office (USPTO) and PTAB Judges on patent statutes, rules and case law (as a non-attorney to better advise clients on Technical and Damages aspects of patent construction and claims). Mr. Arrigo has been interviewed quoted in the Wall Street Journal, New York Times, and National Public Radio, Fortune, KNX 1070 Radio, Kaiser Health News, NBC Television News, The Capitol Forum and other media outlets. See and for more about the company.

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