High-priced prescription drugs are driving up the cost of Medicare Part D catastrophic coverage, which is bad news for both patients and taxpayers, according to a new report from the Department of Health and Human Services Office of Inspector General.
Patients on specialty drugs for cancer, Hepatitis C, Multiple Sclerosis and other diseases are seeing higher out-of-pocket costs because of inflated list prices that accelerate their move into a coverage gap known as the “donut hole,” the report says.
Those in the donut hole get about half the cost of their medication covered. Once they’ve spent $4,950 in a calendar year, they enter into a more consumer-friendly tier known as catastrophic coverage, where patients pay only 5 percent of their drug cost.
IN-DEPTH REPORT: What drives prescription drug prices?
But even that can amount to monthly charges of hundreds of dollars for some high-priced prescriptions.
Government investigators warn that as more people fall into catastrophic coverage more quickly, Medicare costs will grow to unsustainable levels.
In 2015 the federal government’s catastrophic coverage payments exceeded $33 billion – triple what was paid just five years earlier.
‘Barrier to treatment’
One group particularly hard-hit are patients with Hepatitis C, a disease that impacts an estimated 3.2 million people in the United States. About 41 million Americans are enrolled in the government’s Medicare Part D prescription drug program.
High out-of-pocket costs and insurance companies’ unwillingness to cover Hepatitis C drugs is leading to many patients going untreated, infecting others and increasing the epidemic, said Phil Pauvlinch, pharmacist at Equitas Health, formerly AIDS Resource Center Ohio.
The center’s Dayton pharmacy sees many Medicare patients who are stuck with high costs and ineligible for the co-pay cards offered by drug manufacturers.
“They say, ‘Sure I would like to get treated and cure my Hepatitis C in the next three months, but it’s going to cost me $12,000 a month in copays,’” Pauvlinch said.
So far, he’s been able to find some payment assistance for every Medicare patient who needs it, but even some of those programs are disappearing as the price of Hepatitis C drugs continues to climb, he said.
Harvoni, one of the most popular Hepatitis C drugs, led all other drugs in Medicare Part D catastrophic coverage spending. At an average cost of nearly $34,000 a month per patient, the federal government spent $6.2 billion on it in 2015.
“Pretty much if anyone gets treated for Hepatitis C or for HIV they hit the catastrophic coverage pretty rapidly, usually within the first six months of the year,” Pauvlinch said. “That’s when the federal government is paying lots of dollars.”
The government’s spending is only going to grow as three out of four Hepatitis C patients are baby boomers who are aging into eligibility for Medicare Part D.
Some health plans have tried to push patients to less expensive treatments, but they are also less effective and can have severe side effects, Pauvlinch said.
Drugs like Harvoni are extremely effective, he said, but are beyond reach for many of those afflicted with Hepatitis C.
“It’s such a huge barrier to treatment,” Pauvlinch said. “The fact that we have these very potent, well-tolerated medications that we can give someone and have a 90 to 100 percent cure rate, is unheard of.”
The donut hole
Medicare patients who take high-priced medications usually aim for one goal — getting past the coverage gap, or donut hole — in which they must pay about half the cost of their medication out-of-pocket.
Thelma Owens of Donnelsville in Clark County takes Eliquis to treat an irregular heartbeat condition and is paying about $400 a month out of pocket through Medicare Part D. She’s also insulin-dependent and takes two medications for diabetes.
And she hasn’t yet hit the coverage gap for the year. When she does her costs will go up even more.
The way Part D billing works, the cost of a prescription drug is split between the patient, the health plan and the federal government in different ways depending on the total spending year-to-date.
Patients pay the first $400 out-of-pocket. From there their health plan pays 75 percent and they pay 25 percent until they hit the donut hole, which currently starts at $3,700 in total drug spending.
In the donut hole or coverage gap, the patient pays about half of their prescription bill until they hit $4,950 out-of-pocket.
Once they hit catastrophic coverage, the federal government is responsible for 80 percent of a medication’s cost, the health plan pays 15 percent and the patient pays 5 percent.
The driving force behind increased catastrophic coverage spending is the rebate arrangements between health plans and drug manufacturers, according to a recent report on Medicare Part D by the Centers for Medicare and Medicaid Services (CMS).
These rebates are negotiated by middlemen called pharmacy benefit managers. They’ve been criticized for driving up the list price of prescription medications as drug makers compensate for having to give larger and larger kickbacks to health plans and their PBMs, who keep a secret cut, according to critics.
PBMs argue that they save their customers — health plans — millions by negotiating down the price paid in the end.
Good or bad, the rebate system has created a disparity between the list price manufacturers charge — $34,000 for a bottle of Harvoni for example — and the price actually paid by health plans, which can be thousands less.
The problem for Medicare Part D is that no matter what the final negotiated price, a patient’s movement into the coverage gap and then catastrophic coverage is determined by the list price, as is the government’s cost-share.
“Beneficiaries’ cost-sharing is calculated based on the drug price at the point-of-sale, without regard to rebates and other price concessions received after the point-of-sale,” the CMS report says.
And the more patients pay out-of-pocket, the faster they move right through the donut hole and into catastrophic coverage, hence the large increases seen in the government’s spending on Part D.
“Higher beneficiary cost-sharing also results in the quicker progression of Part D enrollees through the Part D drug benefit phases and potentially leads to higher costs in catastrophic phase,” the report says.
The CMS report did have one silver lining: Health plans that work with Medicare Part D, like Humana or BlueCross BlueShield, are saving money through rebates and are thus less likely to raise premiums.
But, the report says, the “net effects of these trends on costs for beneficiaries and the government are still unclear.”
For consumers like Thelma Owens, the Medicare Part D system is hard to navigate and frustrating in its complexity.
The 79-year-old who relies on her husband’s Social Security to cover her bills said the cost is manageable for her, but she knows others with far less income who struggle.
“I don’t know how some people manage to pay,” she said.
More from our series on prescription drug prices: