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 Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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