Reducing Out-of-Pocket Cost Barriers to Specialty Drug Use Under Medicare Part D: Addressing the Problem of “Too Much Too Soon”

Medicare claims analyses offer insight into how proposed policy changes would affect out-of-pocket prescription costs for Part D beneficiaries requiring specialty drugs.
Published Online: March 17, 2017
Jalpa A. Doshi, PhD; Pengxiang Li, PhD; Amy R. Pettit, PhD; J. Samantha Dougherty, PhD; Ashley Flint, MPP; and Vrushabh P. Ladage, BS

Medicare Part D specialty drug users not qualifying for low-income subsidies (non-LIS beneficiaries) face high and variable cost sharing during the calendar year. We examined their out-of-pocket (OOP) cost patterns under the existing Part D cost-sharing policies and proposed changes to these policies.

METHODS: Using 100% Medicare claims data from 2012, we examined mean annual and monthly OOP drug costs for Medicare Part D patients who were full-year users of Part D specialty drugs for rheumatoid arthritis (RA) (n = 1063), multiple sclerosis (MS) (n = 2256), or chronic myeloid leukemia (CML) (n = 1135) under existing policy. Using the same data, we simulated costs under both proposed Medicare Payment Advisory Commission (MedPAC) policy recommendations and our own recommendations.

RESULTS: In 2012, our sample faced mean annual cumulative OOP drug costs (for all medications) of $3949 (RA), $5238 (MS), and $6322 (CML). Mean OOP costs were $977 (RA), $1613 (MS), and $2456 (CML) in January alone. A substantial proportion of total annual OOP prescription spending also occurred during the catastrophic coverage phase (RA: $1229 [31%]; MS: $2456 [47%]; CML: $3546 [56%]). Under proposed MedPAC changes, patients would have faced maximum annual OOP spending of $4700, but mean OOP costs in January and February would have been higher compared with the existing policy. Under our proposed strategy, OOP costs would have been spread evenly over 12 months (≤$392 per month). The potential incremental costs of our proposed strategy would have been $23.55 per non-LIS Part D beneficiary per year.

CONCLUSIONS: The existing Part D cost-sharing structure creates a substantial financial burden for specialty drug users, especially early in the year. Implementing both annual and monthly OOP maximum spending limits would result in lower, more consistent OOP costs, potentially increasing patients’ ability to access treatments for life-threatening, chronic, and rare diseases.

Am J Manag Care. 2017;23(3 Suppl):S39-S45
Recent pharmaceutical advances hold the promise of transforming the medical care of serious life-threatening, chronic, and/or rare diseases and significantly improving the lives of those afflicted. Yet, these advances may be out of reach for many Americans because of high out-of-pocket (OOP) costs.1 Financial barriers to treatment access are particularly acute for Medicare Part D patients requiring specialty drug treatments. Since Part D’s creation in 2006, patients who do not receive low-income subsidies (non-LIS beneficiaries) have been subject to highcoinsurance requirements for specialty drugs, which are placed on a “specialty tier.” Unlike co-payments of a fixed dollar amount, coinsurance payments vary based on the cost of the medication. Furthermore, under Part D, the required coinsurance percentage fluctuates across the coverage year (Figure 1), with the highest costs concentrated at the beginning of the year. The cycle resets on January 1 of the following year.2 In addition, because Medicare Part D plans are not required to have an annual maximum OOP spending limit, patients who are prescribed continuous specialty drug treatment continue to face substantial OOP costs, even during the catastrophic coverage phase.3 These fluctuating costs have been characterized as a “cost-sharing rollercoaster.”2

A growing body of evidence links higher cost sharing with reduced utilization of specialty drugs.1,4-8 In the Medicare population, studies of several specialty drug classes have documented that beneficiaries not receiving LIS (ie, those responsible for high cost sharing) have lower rates of treatment initiation, greater incidence of gaps in treatment, and more frequent interruptions in treatment compared with counterparts who receive full LIS (and thus face low, relatively stable costs across the coverage year).9-11 Although further research is needed, it is likely that the high cost sharing for specialty drugs under Medicare Part D may place patients at risk for compromised treatment outcomes due to reduced or delayed initiation, poor adherence, and higher discontinuation rates.

Strategies to address financial barriers must balance access to treatment with very real financial constraints. Based on the accumulating data, and in keeping with our prior recommendations,5 we propose the introduction of 2 key changes to the Part D cost-sharing requirements that would provide additional protection for Medicare beneficiaries. First, the introduction of an annual OOP maximum spending limit—which is commonplace in private insurance plans and in health insurance exchange plans—would protect beneficiaries from unmanageable cumulative OOP costs .Indeed, the Medicare Payment Advisory Commission (MedPAC) recently recommended policy changes that would effectively establish an annual OOP maximum for Medicare Part D beneficiaries.12 Second, more stable and consistent timing of OOP spending requirements—effectively introducing a monthly OOP maximum as well—would avoid the major fluctuations in monthly expenses that characterize the current cost-sharing structure and would be more appropriate for seniors, many of whom are on a fixed income. Previously, we have cited programs that offset the burden of high winter heating bills by distributing energy costs across the calendar year as a model for this approach.5

In order to test the impact of our proposed strategies on real-world OOP costs for non-LIS Medicare Part D beneficiaries, we undertook a 3-part investigation. First, using actual 100% Medicare claims from 2012, we illustrated the real-world OOP cost patterns and burden under the existing Part D cost-sharing structure for continuous users of specialty drugs for 3 chronic conditions that rank among the top spending categories for specialty drugs.13,14 Second, we used the same Medicare claims data on drug utilization and costs to simulate the OOP cost patterns that these specialty drug users would face if recent MedPAC recommendations related to Part D cost sharing were to be implemented. Third, we simulated OOP costs for these patients under our proposed strategies and compared them with those under existing policy and the MedPAC recommendations. Finally, we discuss the incremental costs of our proposed strategies and how they could be funded.


Estimation of OOP Cost Patterns Under the Existing Part D Cost-Sharing Structure

To estimate the impact of current policy, we used a data extract from the 2012 Chronic Conditions Data Warehouse 100% Medicare claims files, which contain data on all fee-for-service (FFS) Medicare beneficiaries. (Part D’s cost-sharing structure has not changed since 2012.) We included non-LIS beneficiaries who had: 1) continuous FFS Medicare and stand-alone Part D plan coverage throughout 2012; 2) a diagnosis of rheumatoid arthritis (RA), multiple sclerosis (MS), or chronic myeloid leukemia (CML); and 3) prescription claims reflecting continuous use of a disease-specific Part D-covered specialty drug (listed in the eAppendix Table [eAppendices available at]) over the course of the coverage year (ie, a prescription fill for the specialty drug in January and total days’ supply for any disease-specific specialty drug ≥360 days in 2012). For example, if an individual switched from one disease-specific specialty drug to another but had no gap in treatment (eg, a CML patient had 180 days’ supply of bosutinib and 180 days’ supply of dasatinib), then he or she was classified as a continuous user. After these criteria were applied, the resulting sample consisted of 1063 patients with RA, 2256 patients with MS, and 1135 patients with CML. Using actual 2012 claims data for these disease samples, we calculated annual cumulative OOP drug costs and OOP costs by calendar month and benefit phase for patients in each disease group.

We opted to restrict our sample to continuous users for several reasons. First, in the absence of specific reasons for discontinuation (eg, intolerable side effects, poor response), consistent treatment is typically recommended for each of the conditions we examined.15-17 Thus, we wished to examine the OOP costs associated with optimal treatment patterns. Second, inclusion of individuals who used the specialty drugs during only part of the year could have artificially depressed our mean estimates of annual and monthly costs. Third, high OOP costs are associated with interruptions in treatment and discontinuation of treatment; thus, including individuals who may have used medications inconsistently due to financial burden would have led to further underestimation of the true OOP costs associated with optimal use of these treatments.

Simulation of OOP Cost Patterns Under Proposed MedPAC Changes to Part D Cost Sharing

Next, using the same drug utilization and cost information from the 2012 Medicare claims data, we simulated the OOP cost patterns for the 3 disease samples if recent MedPAC recommendations were to be applied to the 2012 Part D benefit. This involved simulating the impact of 2 key changes proposed by MedPAC.12 The first involved the elimination of the 5% cost-sharing requirement during the catastrophic coverage phase, resulting in an effective annual OOP maximum equal to the annual true OOP (TrOOP) spending limit that triggers catastrophic coverage. In 2012, the TrOOP was $4700. Second, under existing Part D policies, brand name prescription drugs purchased by Part D beneficiaries during the coverage gap phase include a 50% manufacturer discount that is credited toward beneficiaries’ TrOOP spending. Under the MedPAC proposal, these manufacturer discounts would no longer be credited toward patients’ TrOOP spending. Given that movement through the coverage gap is based on TrOOP costs, elimination of the manufacturer discount credit under the MedPAC proposal would effectively extend the time patients spend in the coverage gap and increase the amount they must spend OOP before reaching catastrophic coverage. Then, only patients whose spending was sufficient to trigger entry into the catastrophic coverage phase would benefit from the elimination of cost sharing during that phase.

Simulation of OOP Cost Patterns Under Our Proposed Changes to Part D Cost Sharing

We estimated OOP costs under our proposed policy changes following the same procedure used for the MedPAC simulation, with 2 key differences. First, our proposal does not include a change to the current policy of crediting manufacturer discounts toward patients’ TrOOP spending; we maintained the $4700 spending threshold that triggers catastrophic coverage as our proposed annual OOP spending limit, counting both beneficiary OOP spending and manufacturer discounts. (As in the MedPAC proposal, this spending limit would mean elimination of 5% cost sharing during Part D’s catastrophic coverage phase.) Second, to spread the OOP costs more evenly across the year, we divided the annual OOP maximum spending limit number (ie, $4700) by 12 months to derive a maximum monthly OOP spending limit. This monthly limit also includes both beneficiary OOP spending and manufacturer discounts, meaning that actual beneficiary spending may be lower than the monthly OOP spending limit during the month(s) of the coverage gap.

Estimating the Incremental Cost of Our Proposed Changes and Financing Strategies

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