Medicare Beneficiaries Face Growing Out-Of-Pocket Burden For Specialty Drugs While In Catastrophic Coverage Phase

Abstract

The Affordable Care Act (ACA) includes provisions to reduce Medicare beneficiaries’ out-of-pocket spending for prescription drugs by gradually closing the coverage gap between the initial coverage limit and the catastrophic coverage threshold (known as the “doughnut hole”) beginning in 2011. However, Medicare beneficiaries who take specialty pharmaceuticals might still face a large out-of-pocket burden because of uncapped cost sharing in the catastrophic coverage phase. Using 2008–12 pharmacy claims data from a 20 percent sample of Medicare beneficiaries, we analyzed trends in total spending and out-of-pocket spending among Medicare beneficiaries who take at least one high-cost specialty drug from the top eight specialty drug classes in terms of spending. Annual total drug spending per specialty drug user studied increased considerably during the study period, from $18,335 to $33,301, and the proportion of expenditures incurred while in the catastrophic coverage phase increased from 70 percent to 80 percent. We observed a 26 percent decrease in mean annual out-of-pocket expenditures incurred below the catastrophic coverage threshold, likely attributable to the ACA’s doughnut-hole cost-sharing reductions, but increases in mean annual out-of-pocket expenditures incurred while in the catastrophic coverage phase almost entirely offset these reductions. Policy makers should consider implementing limits on patients’ out-of-pocket burden.

The affordability of prescription drugs has received considerable attention recently. In fact, a recent public opinion poll found that the public’s top health policy priority for the president and Congress is “making sure that high-cost drugs are affordable to those who need them.”[1]

Arguably the most substantial policy change in recent history to address the affordability of prescription drugs was the introduction of the Medicare prescription drug benefit (Medicare Part D). As a result of the Medicare Modernization Act of 2003, subsidized comprehensive prescription drug insurance became available to all Medicare beneficiaries in 2006. However, the standard Part D benefit design included a large gap in coverage between the initial coverage limit and the catastrophic coverage threshold (known as the doughnut hole), in which beneficiaries faced the full cost of prescription drugs, leaving many seniors susceptible to large out-of-pocket costs. To address this issue, the Affordable Care Act (ACA) included a provision to progressively “fill in” the doughnut hole beginning in 2011 via a combination of manufacturer-financed discounts and plan payments, limiting beneficiary responsibility while in the doughnut hole phase to 25 percent of prescription drug prices by 2020.[2]

Despite these cost-sharing reductions, Medicare beneficiaries with very high prescription drug spending who reach the catastrophic coverage phase might still face very high out-of-pocket expenditures.[3] In 2016 once a beneficiary has reached $4,850 in out-of-pocket spending (including any manufacturer-financed discounts even though they are not actually incurred as out-of-pocket costs), they transition from the doughnut hole phase to the catastrophic coverage phase, in which the beneficiary pays 5 percent of the purchase price of covered prescription drugs for the remainder of the year, while the insurance plan pays 15 percent and the remaining 80 percent is financed via a federal reinsurance program. According to Medicare.gov, the catastrophic coverage phase “assures [that beneficiaries] pay only a small coinsurance amount or copayment for covered drugs for the rest of the year.”[4]

However, a small portion of Medicare beneficiaries who take very expensive drugs--often called specialty drugs--to treat complex chronic conditions such as rheumatoid arthritis, multiple sclerosis, and cancer typically incur very high drug spending over the year.[5] The Medicare Part D program defines specialty drugs as those with a negotiated monthly price of more than $600, although monthly prices for some of these specialty drugs can be considerably higher than that.[6] Patients generally take these drugs for a long duration. Specialty drug users not only are likely to reach the catastrophic coverage phase but 5 percent of the purchase price also might represent a considerable out-of-pocket burden for these patients.[7] Rising prices for specialty drugs might exacerbate these concerns.

Recent trends have moved toward limiting patients’ out-of-pocket burden for other types of insurance. The ACA introduced an annual out-of-pocket maximum for essential health benefits--which include prescription drugs--for all nongrandfathered individual and group plans.[8] Some states have recently implemented limits on out-of-pocket spending for specialty drugs; for example, plans sold on California’s health insurance exchange are required to limit monthly out-of-pocket spending on specialty drugs to $250 per prescription.[9] While the traditional Medicare program does not cap out-of-pocket spending for hospital and physician services covered under Medicare Parts A and B, respectively, seniors can limit their out-of-pocket liability by enrolling in either a Medicare Advantage plan or a Medicare supplemental policy (such as Medigap). But no such provisions exist for Part D prescription drug spending. A Medicare beneficiary enrolled in a Medicare Advantage plan with prescription drug benefits faces no more than $6,700 in out-of-pocket spending for hospital and physician services, for instance, but could spend an unlimited amount out of pocket on prescription drugs. While a program is in place to provide financial assistance for prescription drug cost sharing to low-income seniors (the low-income subsidy), the inability of seniors who do not qualify for this subsidy to limit their out-of-pocket liability for prescription drugs raises concern about financial burden for Medicare beneficiaries taking specialty drugs.

The issue is exacerbated by the persistence of high spending among specialty drug users. Whereas there is relatively high turnover among Medicare patients with the highest medical spending from year to year, pharmacy expenditures are generally more persistent, and many beneficiaries taking specialty drugs to treat chronic conditions face high pharmacy expenditures and high patient cost sharing, year after year.[10,11] A growing body of evidence also suggests that higher patient cost sharing for specialty drugs is associated with reductions in use, raising concerns related to patient adherence and potentially broader effects on patient health and other medical spending.[12]

In this article, we highlight recent trends in total spending and out-of-pocket burden among Medicare beneficiaries who take certain high-cost specialty drugs. We evaluate the growth in the portion of expenditures occurring in the catastrophic coverage phase and highlight ongoing concerns related to out-of-pocket burden for specialty drug users despite the ACA efforts to close the Part D doughnut hole.

Study Data And Methods

Data

We evaluated pharmacy claims from a nationally representative 20 percent random sample of Medicare beneficiaries through a data use agreement with the Centers for Medicare and Medicaid Services. The data included pharmacy claims for Medicare beneficiaries enrolled in stand-alone prescription drug plans or in Medicare Advantage plans with prescription drug benefits from 2008 through 2012. For each year, we restricted our sample to beneficiaries who were enrolled in the same plan type for the entire year and did not qualify for extra help with premiums and cost sharing in the form of low-income subsidies.

While Medicare rules allow prescription drugs with a monthly negotiated price of more than $600 to be placed on a plan’s specialty tier, there is variation across plans in terms of which drugs are actually placed on that tier. For the purposes of this study, we first identified the set of National Drug Codes (NDCs) that appeared on a specialty drug claim for any enrollee in any plan in any year during our study period and then applied several exclusion criteria to identify the set of NDCs commonly considered specialty drugs and used on a chronic basis. Specifically, we excluded NDCs if their mean days supplied was fewer than ninety or their mean thirty-day price was less than $600 and the NDC did not appear on the specialty tier in the majority of claims. We then grouped these NDCs into drug classes and identified the top eight drug classes in terms of total spending, representing approximately 60 percent of all specialty drug spending and 11 percent of total drug spending in 2012.

We focused our main analyses on beneficiaries who used specialty drugs in one or more of these top eight drug classes to isolate the small subset of Medicare beneficiaries who were most affected by a growing out-of-pocket burden in the catastrophic coverage phase. However, because these top eight drug classes have higher prices, higher volume, or both than specialty drugs overall, we also present results for spending trends among beneficiaries taking specialty drugs in all classes (subject to the inclusion criteria described above) in the online Appendix.[13]

Approximately 5 percent of beneficiaries who did not qualify for low-income subsidies reached the catastrophic coverage phase, which remained reasonably stable over the study period. Beneficiaries might reach the catastrophic coverage phase by taking high-cost specialty drugs, by taking many less expensive drugs, or both; we focused on the first group. In 2012, 4.2 percent of all beneficiaries used at least one specialty drug, with 1.3 percent of all beneficiaries using at least one specialty drug in the top eight classes. However, the likelihood of specialty drug use is lower among beneficiaries not eligible for low-income subsidies. Among our sample of nonsubsidized beneficiaries, 1.9 percent used at least one specialty drug (n = 84,721) and 0.8 percent used at least one specialty drug in the top eight classes (n = 33,435) in 2012. Nonsubsidized beneficiaries comprised slightly more than one-third of users of the top eight classes of specialty drugs. These utilization rates were relatively flat over the study period.

We present spending trends for total prescription drug expenditures among beneficiaries taking specialty drugs in one or more of these top eight drug classes, including both specialty and nonspecialty expenditures. All spending is presented in nominal dollars (that is, not adjusted for inflation).

Spending Trends

We analyzed trends in total and out-of-pocket prescription drug expenditures among specialty drug users in our study, including evaluating the proportion of these expenditures occurring in the catastrophic coverage phase. To do so, we computed mean per beneficiary measures of total annual prescription drug spending for specialty drug users by summing total prescription drug expenditures among all beneficiaries who had a specialty pharmacy claim in at least one of the top eight drug classes and dividing by the number of specialty drug users in each year. Similarly, we computed mean annual out-of-pocket spending for specialty drug users in our study by summing total out-of-pocket expenditures among all beneficiaries who had a specialty pharmacy claim in at least one of the top eight drug classes and dividing by the number of specialty drug users in each year. Finally, we categorized expenditures (both total and out of pocket) as occurring below or above the catastrophic coverage threshold according to a phase-of-coverage variable included in the claims data.[14]

We also assessed trends in growth of spending, use, and prices for each drug class over the study period. For each drug class, we computed mean annual expenditures per user by summing prescription drug expenditures for specialty drugs in that class among all beneficiaries who had a specialty pharmacy claim in that class and dividing by the number of specialty drug users in that class. We computed mean annual days supplied per user by summing the days supplied across all specialty pharmacy claims in that class and dividing by the number of specialty drug users in that class. We computed average thirty-day price by summing total expenditures for all specialty pharmacy claims in that class, dividing by total days supplied for all specialty pharmacy claims in that class, and multiplying by thirty. We then calculated the percent change for each of these measures from 2008 to 2012.

Finally, we assessed if and when beneficiaries who took specialty drugs for treating multiple sclerosis and rheumatoid arthritis reached the catastrophic coverage threshold by producing a cumulative distribution function of the month that specialty drug users in these classes reached the catastrophic coverage phase. We focused on these two drug classes because they have relatively larger patient populations that generally require ongoing treatment.

Study Results

From 2008 to 2012, mean annual total pharmacy spending among specialty drug users who used drugs from the top eight classes increased from $18,335 to $33,301, or 82 percent (Exhibit 1). Expenditures incurred while beneficiaries were in the catastrophic coverage phase increased from $12,753 in 2008 (70 percent of total expenditures) to $26,495 in 2012 (80 percent of total expenditures). Additionally, the proportion of total expenditures that were for specialty drugs (as opposed to other drugs taken by specialty drug users) increased from 81 percent in 2008 to 89 percent in 2012. By comparison, mean annual total pharmacy spending among nonsubsidized beneficiaries using any drug was quite stable over the study period (at nearly $2,000 per beneficiary).

Exhibit 1.

Mean annual total pharmacy spending among Medicare beneficiaries taking at least one of the top eight classes of specialty drugs, 2008–12

Source/Notes: SOURCE Authors’ analysis of Centers for Medicare and Medicaid Services pharmacy claims data from a 20 percent sample of Medicare beneficiaries. NOTES The top eight classes of specialty drugs are defined in the text under the “Study Data and Methods” section. The sample includes beneficiaries enrolled in stand-alone prescription drug plans or in Medicare Advantage plans that had prescription drug coverage. Beneficiaries who received a low-income subsidy are excluded. The line represents the combined total spending for below catastrophic and catastrophic benefit phases. All spending is reported in nominal amounts--that is, not adjusted for inflation.

Exhibit 2 presents changes in mean out-of-pocket expenditures for specialty drug users in these top eight classes. From 2008 to 2010, annual out-of-pocket spending per specialty drug user increased from $3,761 to $4,482 (19 percent). The majority of out-of-pocket expenditures were incurred while beneficiaries were below the catastrophic coverage limit (83 percent in 2008 and 78 percent in 2010), including spending while in the doughnut hole, as well as spending during the deductible and co-insurance phases prior to reaching the doughnut hole. But we observed a significant reduction in mean out-of-pocket spending prior to reaching the catastrophic coverage phase beginning in 2011, when the ACA’s cost-sharing provisions were first implemented. Mean precatastrophic out-of-pocket spending among specialty drug users in these top eight classes decreased from $3,516 in 2010 to $2,241 in 2011 (36 percent). Over the entire study period, mean annual out-of-pocket expenditures incurred below the catastrophic coverage threshold decreased 26 percent.

Exhibit 2.

Mean annual out-of-pocket pharmacy spending among Medicare beneficiaries taking at least one of the top eight classes of specialty drugs, 2008–12

Source/Notes: SOURCE Authors’ analysis of Centers for Medicare and Medicaid Services pharmacy claims data from a 20 percent sample of Medicare beneficiaries. NOTES The top eight classes of specialty drugs are defined in the text under the “Study Data and Methods” section. The sample includes beneficiaries enrolled in stand-alone prescription drug plans or in Medicare Advantage plans that had prescription drug coverage. Beneficiaries who received a low-income subsidy are excluded. The line represents the combined total spending for below catastrophic and catastrophic benefit phases. All spending is reported in nominal amounts--that is, not adjusted for inflation.

In contrast, we observed persistent increases in out-of-pocket expenditures once beneficiaries reached the catastrophic coverage threshold (Exhibit 2). Mean annual out-of-pocket expenditures incurred by specialty drug users in the top eight classes while in the catastrophic coverage phase increased from $651 in 2008 to $1,250 in 2012 (92 percent). In fact, the reductions in out-of-pocket expenditures incurred below the catastrophic coverage phase were almost entirely offset by increases in out-of-pocket expenditures incurred while in the catastrophic coverage phase. Mean annual out-of-pocket expenditures incurred across all phases decreased only 5 percent over the study period. In contrast, mean out-of-pocket spending among all nonsubsidized drug users (including those who do not use any specialty drugs) decreased by 15 percent from 2010 to 2011 and actually decreased an additional 5 percent from 2011 to 2012.

The significant growth in both total and out-of-pocket expenditures incurred while in the catastrophic coverage phase among specialty drug users raises questions about the underlying drivers of this growth. Exhibit 3 presents changes in mean total annual expenditures, days supplied, and thirty-day prices by drug class. We observed growth in mean total annual expenditures per user for each of these top eight drug classes over the study period, although there was considerable variation in both the level and growth of annual expenditures across drug classes. Mean total annual expenditures in 2008 ranged from $3,790 for blood growth factors to $37,434 for endothelin receptor antagonists used to treat pulmonary hypertension. Expenditure growth from 2008 to 2012 ranged from 38 percent for antiretrovirals to 97 percent for multiple sclerosis agents. Growth in the mean annual days supplied was relatively modest during the study period, while mean thirty-day prices increased notably.

Exhibit 3.

Growth in mean annual total drug expenditures, days supplied, and thirty-day price among the top eight classes of specialty drugs, 2008–12

	Mean expenditures per user			Mean days supplied per user			Mean thirty-day price
Class	2008	2012	% change	2008	2012	% change	2008	2012	% change
Oral cancer agents	$23,450	$43,092	84%	198	213	8%	$3,553	$6,069	71%
Rheumatoid arthritis agents	$12,689	$17,598	39%	229	232	1%	$1,665	$2,278	37%
Blood growth factors	$3,790	$5,905	56%	92	104	13%	$1,231	$1,705	38%
Multiple sclerosis agents	$19,301	$37,952	97%	283	293	3%	$2,044	$3,887	90%
Antiretrovirals	$13,535	$18,668	38%	470	507	8%	$864	$1,106	28%
Bone density regulators	$4,147	$6,650	58%	154	162	5%	$809	$1,215	50%
Immunomodulators	$37,000	$55,293	49%	158	181	14%	$7,026	$9,181	31%
Pulmonary hypertension	$37,434	$60,190	61%	252	288	15%	$4,462	$6,265	40%

SOURCE Authors’ analysis of Centers for Medicare and Medicaid Services pharmacy claims data from a 20 percent sample of Medicare beneficiaries. NOTES The top eight classes of specialty drugs are defined in the text under the “Study Data and Methods” section. The sample includes beneficiaries enrolled in stand-alone prescription drug plans or in Medicare Advantage plans that had prescription drug coverage. Beneficiaries who received a low-income subsidy are excluded. Spending includes specialty drug spending among each of the top eight classes of drugs. All spending is reported in nominal amounts – that is, not adjusted for inflation.

Finally, we assessed trends in if and when beneficiaries taking specialty drugs for two chronic conditions--multiple sclerosis and rheumatoid arthritis--reached the catastrophic coverage threshold. As shown in Exhibit 4, the majority of beneficiaries taking specialty drugs for multiple sclerosis and rheumatoid arthritis reached the catastrophic coverage threshold by the end of the calendar year. In 2012, 96 percent of patients taking specialty drugs for multiple sclerosis and 86 percent of patients taking specialty drugs for rheumatoid arthritis reached the catastrophic coverage threshold. Exhibit 4 also highlights how quickly patients taking specialty drugs for multiple sclerosis reached the catastrophic threshold over the study period. In 2008, 4 percent of multiple sclerosis patients reached the catastrophic coverage threshold by February, and in 2012, 48 percent of these patients had reached the catastrophic coverage threshold by then. Exhibit 3 suggests this acceleration is likely attributable to both high nominal prices and large price increases over the study period.

Exhibit 4.

Acceleration in the proportion of beneficiaries reaching the catastrophic coverage threshold, 2008–12

Source/Notes: SOURCE Authors’ analysis of Centers for Medicare and Medicaid Services pharmacy claims data from a 20 percent sample of Medicare beneficiaries. NOTES The sample includes beneficiaries enrolled in stand-alone prescription drug plans or in Medicare Advantage plans that had prescription drug coverage. Beneficiaries who received a low-income subsidy are excluded.

Patients taking specialty drugs to treat rheumatoid arthritis do not reach the catastrophic coverage threshold as quickly on average nor is the change over time as striking. Nonetheless, in 2012 more than half (58 percent) of rheumatoid arthritis patients taking specialty drugs reached the catastrophic coverage threshold by May. In other words, the majority of patients taking specialty drugs in these two classes spent more than half to three-quarters of the year in the catastrophic coverage phase in 2012.

Discussion

While the Medicare Part D program has generally been quite favorable in terms of popularity among seniors[15] and lower-than-expected federal outlays, [16] the significant cost sharing incurred by seniors with high prescription drug spending is a widely criticized aspect of the program design.[17] Recent policy changes, including the ACA provisions to fill in the coverage gap, have resulted in large reductions in out-of-pocket expenditures for seniors while they are in the doughnut hole phase. Specifically, in 2011 beneficiaries began benefitting from manufacturer-financed 50 percent discounts for brand-name drugs purchased while in the doughnut hole and plan-financed payments that resulted in 7 percent discounts for generic drugs purchased while in the doughnut hole. However, we found evidence of striking increases in pharmacy expenditures incurred by certain specialty drug users while in the catastrophic coverage phase, including increasing out-of-pocket expenditures that have largely offset the benefit of the doughnut hole cost-sharing reductions. While out-of-pocket expenditures below the catastrophic coverage threshold will continue to decrease through 2020 as the doughnut hole discounts are fully phased-in, the striking growth in spending among specialty drug users in the catastrophic coverage phase might continue to offset these reductions.

We believe that policy makers should consider implementing policies that limit seniors’ out-of-pocket liability for prescription drug expenditures, as has recently been implemented in other insurance markets. Senator Ron Wyden (D-Ore.) recently introduced such a bill, the Reducing Existing Costs Associated with Pharmaceuticals for Seniors Act of 2016 (RxCAP), which would eliminate beneficiary cost sharing in the catastrophic coverage phase. In addition, a recent House Budget Committee budget resolution calls for implementing a catastrophic cap on annual out-of-pocket spending for medical costs among beneficiaries enrolled in the traditional Medicare program.[18] We believe that a similar proposal implementing a catastrophic coverage cap on annual out-of-pocket spending for pharmacy expenditures among beneficiaries enrolled in the Part D program should be considered, as well. While imposing overall limits on combined out-of-pocket medical and pharmacy spending for Medicare beneficiaries might be appealing as a simplification for beneficiaries, it would be much more complicated to coordinate because of the distinct structure of how Medicare finances the medical and pharmacy benefit programs.

Of course, there could be unintended consequences to imposing out-of-pocket limits. For one, it could lead to higher insurance premiums if the liability is transferred to the plans, and plans respond by raising premiums. However, because only a very small proportion of beneficiaries take specialty drugs, the net effect on premiums could still be rather small (although the number of beneficiaries taking specialty drugs might increase over time). Moreover, plans would only become liable for the out-of-pocket spending of about one-fourth of beneficiaries who incur spending in the catastrophic coverage phase, as the out-of-pocket expenses for the remaining three-fourths are already covered by the low-income subsidy program.[19] However, while the net effect on premiums of limiting out-of-pocket pharmacy spending across all beneficiaries is likely to be small, the impact could be considerable for those beneficiaries taking specialty drugs to treat chronic conditions.

In addition, reduced cost sharing could result in manufacturers raising prices because they face less restraint on patient demand. In fact, the large price increases in specialty drugs observed over the study period might have been partly a response by manufacturers to more generous coverage in the doughnut hole.

Such concerns might be exacerbated by the fact that insurance plans also face relatively limited risk for expenditures incurred while in the catastrophic coverage phase because of the structure of Part D’s federal reinsurance program. The federal reinsurance program finances 80 percent of prescription drug expenditures incurred by beneficiaries while in the catastrophic coverage phase. Thus, the majority of the expenditure growth in the catastrophic coverage phase highlighted in this study is borne by the federal reinsurance program. Reinsurance spending was the fastest-growing component of federal expenditures on the Part D program during the study period, and, as of 2014, Medicare’s reinsurance payments to plans surpassed low-income subsidy payments to become the largest component of Part D spending.[19] However, policy options for directly addressing federal spending on the reinsurance program are challenging because of the interconnectedness of other Part D program subsidies and risk-sharing mechanisms.

Recently, the Medicare Payment Advisory Commission (MedPAC) voted to eliminate beneficiary cost sharing above the catastrophic threshold in conjunction with several other reforms, including reducing the generosity of the federal reinsurance program.[20] Specifically, MedPAC recommended transitioning Medicare’s reinsurance subsidy from 80.0 percent to 20.0 percent (while maintaining Medicare’s overall 74.5 percent subsidy of basic benefits).[20] Additionally, the president’s fiscal year 2017 budget calls for increasing risk for Medicare Part D plans in the catastrophic coverage phase by 10 percentage points each year for six years, ultimately leaving plans at risk for 75 percent of spending incurred in the catastrophic coverage phase; under this proposal, beneficiaries would continue to be responsible for 5 percent of spending.[21] Such an increase in plan liability could potentially encourage plans to negotiate harder for lower drug prices, particularly for high-cost drugs, and more actively manage use among high-cost beneficiaries.[22] However, the extent to which plans would be able to better negotiate prices with manufacturers is unclear, particularly for many specialty drugs that have few or no therapeutic substitutes, and especially for those that fall into the Medicare Part D protected classes (including oncology), where plans are required to cover all or substantially all drugs.[6] Nonetheless, recent advances in innovative contracting, such as the use of value-based pricing for novel specialty therapeutics, suggest that plans might in fact be able to achieve favorable negotiated prices for specialty drugs, particularly for those that do have therapeutic competitors.[23] In light of the large price increases of specialty drugs that we observed in this study, additional research into the likely drivers of these increases is certainly warranted. For example, the mean thirty-day price increases that we observed, ranging from 28 percent for antiretrovirals to 90 percent for multiple sclerosis agents, could result from the introduction of new, higher-price drugs in the class during the study period; increasing prices of existing products; substitution toward higher-price drugs in the class; or some combination of the three. Additionally, further work evaluating what impact, if any, the structure of reimbursement in the Part D program has on price increases would be beneficial for weighing the potential benefits of current proposals to restructure the reinsurance component of the Part D program.

Absent any significant impact on prices or use, increasing plan liability for expenditures incurred in the catastrophic coverage phase would not necessarily produce overall Part D program savings, particularly if insurance plans responded by raising premiums, which would result in an increase in the direct subsidy payments paid to plans.[24] Moreover, increasing plan risk for catastrophic coverage expenditures could theoretically cause plans to deter high-cost patients from enrolling in their plans, particularly because the Part D risk adjustment algorithm tends to undercompensate plans for enrollees who use specialty drugs and plans cannot charge higher premiums to these beneficiaries.[22] Thus, it would be important to recalibrate the risk adjustment algorithm to better compensate plans for high-cost enrollees in conjunction with any policy change that increases plan risk for catastrophic expenditures.

Finally, increasing plan liability would likely result in decreased plan profitability, which would also reduce the payments from plans to the federal government via the Part D risk corridors program, which has generated revenue from plans to the Medicare program in each year since its inception.[22] In other words, absent any significant changes in drug prices or use, increasing plan risk in the catastrophic phase would likely have little to no financial impact in net on plans or the federal government.

Conclusion

Most Medicare beneficiaries taking specialty drugs to treat complex chronic conditions reach Medicare Part D’s catastrophic coverage threshold. Despite recent reductions in beneficiary cost sharing while in the doughnut hole, increasing out-of-pocket payments while in the catastrophic coverage phase have nearly offset these reductions, leaving specialty drug users with persistent and high out-of-pocket burden. Policy makers should consider imposing limits on out-of-pocket pharmacy spending for Medicare beneficiaries, as has recently been implemented in other insurance markets. While capping out-of-pocket spending is an important and necessary protection for seniors, it does not address the broader issue related to growth in specialty drug prices. Future work is needed to assess how to best move toward sustainable, value-based pricing for specialty pharmaceuticals and ensure access for patients who stand to gain significant clinical benefit from their use.