Aditi P. Sen, PhD

 Medicare Part B payment methods incentivize the use of more expensive injectable and infused drugs. We examined prescribing patterns in the context of intravenous (IV) iron, for which multiple similarly safe and efficacious formulations exist, with wide variations in price.

 We conducted a retrospective cohort analysis of IV iron utilization and payment in the Medicare population between 2015 and 2017.

 This analysis used a national, random 20% sample of Medicare fee-for-service beneficiaries with Part B claims for IV iron between January 2015 and December 2017—a period before, during, and after a national shortage of iron dextran. This sample included 66,710 Medicare fee-for-service beneficiaries with at least 1 Part B claim for IV iron.

 The greatest increase in utilization occurred in the most expensive iron formulation, ferric carboxymaltose; its market share rose from 27.4% of use in 2015 to 47.7% in 2017. The use of a less expensive formulation, iron dextran, decreased from 26.7% to 18.7% over the same period. An alternative payment model in Maryland hospitals was associated with markedly less utilization of ferric carboxymaltose, accounting for 4.7% of IV iron utilization in Maryland hospitals.

 There was an increase in the dispensing of a higher-priced IV iron formulation associated with a shortage of a less expensive drug that persisted once the shortage ended. These findings in IV iron have broader implications for Part B drug payment policy because the price of the drug determines the physician and health system payment.

When there was flux in the intravenous iron market, higher-cost formulations were adopted, potentially due to financial incentives in Medicare Part B to use higher-priced drugs.

The external shock of a shortage in iron dextran led to shifts in market share, which did not return to baseline after resolution of the shortage.

The market share of ferric carboxymaltose increased markedly, despite being one of the most expensive formulations.

A novel hospital payment system in Maryland avoided the increase in utilization of higher-cost formulations of intravenous iron.

Current Part B payment policies promote the use of more expensive drugs.

For drugs covered under Medicare Part B (physician-administered injectable and infused drugs), payment is based on the average sales price (ASP) for the prescription drug plus a percentage add-on payment.

 Since the Medicare Modernization Act of 2003, the physician or hospital-owned infusion clinic administering the drug is paid the ASP plus 6%, which was reduced to 4.3% under the Budget Control Act of 2011. Although it was intended to cover variability in the purchase price of physician-administered drugs and costs to obtain and store the drugs, this additional payment has been criticized for incentivizing the prescription of more expensive formulations.

There is little research on the impact of payment incentives on clinical practices or the associated cost implications, particularly when multiple alternative drugs are available. Understanding the implications of financial incentives under Part B should inform ongoing policy debates around Part B drug payment policy. During periods of shifting market share due to an external shock (eg, drug shortages, new entrants into the market, expanded label indications), when clinical practice patterns change, payment incentives may be particularly influential.

Drug shortages have occurred with increasing frequency since 2001 and are related to multiple weather, industrial, and corporate factors.

 Drug shortages cause providers to seek alternative medications, resulting in new prescribing patterns. However, it is unclear if drug shortages influence physicians to reevaluate financial incentives favoring higher-cost drugs.

Iron deficiency anemia is the most common cause of anemia worldwide. Patients with poor tolerance or poor absorption of oral iron supplementation require intravenous (IV) iron.

 Five types of IV iron are available in the United States: ferric carboxymaltose, low-molecular-weight iron dextran, ferric gluconate, iron sucrose, and ferumoxytol.

 These formulations are similarly safe and efficacious.

 High-molecular-weight iron dextran was associated with potentially serious infusion toxicity and was removed from the market in the United States in 2009 (“iron dextran” throughout this article refers to low-molecular-weight iron dextran).

Based on Medicare Part B Drug and Biological ASP data, these formulations have markedly different prices (

 Iron dextran is among the lower-cost alternatives, with a January 2016 ASP for iron dextran of $243.80 per 1000 mg compared with $1057.00 per 1000 mg for ferric carboxymaltose.

 A 4.3% add-on payment in January 2016 would have been $10.48 per 1000 mg of iron dextran and $45.45 for 1000 mg of ferric carboxymaltose. Ferric carboxymaltose comes in 750-mg vials, with a cost of $792.75 based upon January 2016 ASP.

 Due to those cost differences and variations in dosage, median payment for the infusion of iron dextran was $73 (including ASP-based payment plus the add-on payment) compared with $782 for ferric carboxymaltose (

]). Practices and hospital outpatient departments (HOPDs) also receive a separate payment to administer IV iron based on the duration of infusion.

A national shortage of iron dextran was identified by the American Society of Health-System Pharmacists (ASHP) from January to May 2016.

 Both the FDA and the ASHP maintain records regarding drug shortages. Shortages recognized by the ASHP represent a spectrum of scarcity, from absolute lack of supply to restricted ability for individual purchasers to consistently acquire new orders.

 The iron dextran shortage from January to May 2016 falls into this latter category of shortage; drug utilization declined with an identified shortage, but supplies did not run out entirely.

We used the case of IV iron to investigate the broader implications of payment policy on drug utilization, particularly when alternatives with different financial incentives are available.

We sought to answer 4 questions using IV iron as a case study: First, what IV iron market share changes occurred between 2015 and 2017? Second, what were the spending implications of any changes in short- and long-term prescribing patterns by physicians? Third, was product selection occurring at the practice group/HOPD level or at the beneficiary level? Finally, to increase our confidence in assessing the role of financial incentives (under the ASP-based payment system) in physician prescribing, we compared utilization trends in Maryland, which implemented an all-payer global budget program for acute care hospitals in 2014, with national trends.

 Under the Maryland global budget, hospitals do not face the same financial incentives embedded in the ASP-based payment system; instead, they are incentivized to choose the least expensive of clinically effective alternatives.

Our primary data source for this study was a national, random 20% sample of Medicare fee-for-service (FFS) beneficiaries. We examined their claims data from the period of January 1, 2015, through December 31, 2017. We included claims from the Outpatient and Carrier files with Healthcare Common Procedure Coding System (HCPCS) codes for ferric carboxymaltose (J1439), iron dextran (J1750), iron sucrose (J1756), ferric gluconate (J2916), and ferumoxytol (Q0138 and Q0139). This resulted in a total of 1,713,068 Medicare claims. Consistent with the Medicare drug spending dashboard, we excluded claims where Medicare was not the primary payer (3754 claims) and claims associated with a critical access hospital (11,133 claims). In our national analysis, we also excluded claims where total spending was $0 (11,366 claims), claims where the IV iron infusion HCPCS code(s) had $0 in payment (1,432,483 claims), and those billed in Maryland (used as a comparison group to examine differences in payment policy in the state) (9420 claims). Claims where IV iron HCPCS codes had $0 spending were related to bundled payments, such as for dialysis services, and were excluded given differences in payment structure and incentives. Our primary analysis included 244,912 claims, covering 66,710 unique Medicare beneficiaries and 16,572 unique providers (based on unique National Provider Identifier numbers).

We first examined the characteristics of beneficiaries receiving different iron formulations during the study period. We then analyzed utilization (measured in grams) and spending by HCPCS code for each iron formulation by month. We scaled estimates from the 20% sample by a factor of 5 to approximate total utilization and spending for all Medicare FFS beneficiaries. Two formulations, iron dextran and ferric carboxymaltose, were included in a detailed analysis because they accounted for most changes in market share during the study period. Changes in prescribing patterns for iron dextran and ferric carboxymaltose were tested for statistical significance using 2-sided 

 tests to compare average claim spending on the formulations in each of the 3 years before, during, and after a shortage of iron dextran (2015, 2016, and 2017).

We estimated spending implications for the Medicare program due to changing prescribing patterns. We calculated the estimated spending based on total units of all IV iron formulations administered from 2015 to 2017 if market share across formulations had remained constant. Using mean ASP plus 4.3% for each quarter, we calculated expected spending and compared this with actual spending to identify excess spending within the Medicare program attributable to changes in formulation market share.

We then examined the percentage of practice groups or HOPDs where a single IV iron formulation was used. We restricted this analysis to practice groups and HOPDs that had at least 5 claims for IV iron in the 20% sample of FFS claims during the beginning and ending periods of the study (January-June 2015 and July-December 2017).

Finally, utilization from the state of Maryland was analyzed separately given the unique payment system for hospital-based services.

 We compared utilization by IV iron formulation in HOPDs vs physician offices because regulated spaces such as HOPDs in Maryland were subject to the global budget whereas physician offices were not.

This study used a retrospective, deidentified, national data set and was exempt from institutional review board review.

In the 20% sample, 66,710 Medicare beneficiaries, after taking into account the exclusion criteria, had at least 1 paid claim for IV iron during the study period. Beneficiaries who received IV iron were more likely to be women than men and had a mean age of 74 years, similar to the overall Medicare Part B population (

). There were no clinically significant differences in mean Charlson Comorbidity Index score between beneficiaries prescribed iron dextran and ferric carboxymaltose (Table 2).

 shows utilization of the various IV iron formulations over the study period, January 2015 to December 2017. In 2015, an average of 14,358 g per month was reported for all formulations of IV iron. In 2016, overall utilization of IV iron increased to 16,772 g per month. In 2017, utilization of IV iron continued to increase to an average of 18,600 g per month. Corresponding with the increase in units administered during the study period, there was an increase in the number of beneficiaries receiving IV iron (

The market share of different formulations of IV iron shifted during the study period. Ferric carboxymaltose, iron dextran, and ferumoxytol had the greatest use during the study period, accounting for 235,512 g (39.5%), 127,276 g (21.3%), and 168,468 g (28.2%), respectively. Iron sucrose represented 55,427 g (9.3%) of claims, whereas ferric gluconate claims totaled 10,071 g (1.7%).

Despite being one of the less costly formulations, iron dextran utilization fell both absolutely and as a percentage of claims. In 2015, an average of 3839 g of iron dextran was administered each month (26.7% of utilization). This utilization dropped to an average of 3293 g per month (19.6% of utilization) in 2016. Finally, absolute usage rose slightly in 2017 to an average of 3474 g per month of iron dextran, but usage as a percentage of total IV iron continued to decline (18.7% of utilization).

Ferric carboxymaltose experienced the greatest increase in utilization during the study period. Use of ferric carboxymaltose increased from an average of 3938 g per month (27.4% of utilization) in 2015, to 6807 g per month (40.6% of utilization) in 2016, to 8880 g per month (47.7% of utilization) in 2017. Use of the other IV iron formulations stayed relatively consistent over the study period, with the exception of ferumoxytol, which had stable monthly utilization but a decline in market share (Figure 1).

Spending on IV iron over this period rose with the overall increase in utilization and the shift toward more expensive formulations (Figure 1). Total observed IV iron spending was $432.7 million from 2015 to 2017. Had IV iron formulation market share remained stable from the beginning of the study period, the total cost for the units of iron used in this sample would have been $393.3 million. Thus, we estimate that shifting prescribing patterns during the study period led to an additional $39.4 million in Medicare Part B spending from 2015 to 2017.

 tests confirm that the increase in ferric carboxymaltose spending over time is statistically significant. When comparing all IV iron claims in 2016 vs 2015, there was an average per-claim increase in spending on ferric carboxymaltose of $90 (95% CI, $85-$94; 

 tests also confirm that there was a statistically significant drop in iron dextran spending in 2016 relative to 2015. The average per-claim spending on iron dextran decreased by $7 (95% CI, $6-$8; 

 < .001). In 2017, spending on iron dextran increased but did not return to earlier levels despite resolution of the shortage. Spending on ferric carboxymaltose continued to rise in 2017 but at a slower rate (

). These increases in per-claim spending for ferric carboxymaltose reflect the increased utilization during this period.

Single-Product Utilization by Practice Groups/Hospitals

To understand the decision-making approach that providers used to select IV iron formulations, we examined the percentage of practice groups and hospitals utilizing only 1 formulation of IV iron (

). From January to June 2015, 78.1% of hospitals and 66.7% of practice groups administered only 1 formulation, decreasing to 52.7% of hospitals and 56.1% of practice groups by July to December 2017. Decreasing use of iron dextran and ferumoxytol accounted for most of the decrease in single-formulation utilization. Single-formulation utilization for the 2 most expensive agents, ferric carboxymaltose and ferumoxytol, were more common in hospital-based systems than independent practice groups (with 45.0% of hospitals and 21.9% of groups exclusively administering 1 of the 2 most expensive agents from July-December 2017).

Effect of Removing Cost-Based Incentives on IV Iron Utilization in a Novel Payment System in Maryland

Because Maryland hospitals are not subject to the same cost-based financial incentives in Part B, we compared utilization of IV iron formulations in Maryland HOPDs with utilization in the rest of the country. In HOPDs, which were subject to a global budget in Maryland, utilization trends in Maryland were distinct from the non-Maryland Medicare Part B population. Compared with other states over the entire period, HOPDs in Maryland were much more likely to use the less-costly iron dextran than the more-costly ferric carboxymaltose (

). Specifically, ferric carboxymaltose accounted for 4.7% of all iron units in Maryland HOPDs compared with 42.7% of the non-Maryland HOPD sample. In physician offices, where payment incentives were the same in Maryland as in other states, utilization trends were similar between the Maryland and non-Maryland providers (Figure 3).

This study has 4 main findings. First, we found that iron dextran’s market share fell during the study period while a more expensive formulation, ferric carboxymaltose, gained in market share. The external shock of the iron dextran shortage catalyzed rapid shifts in market share; however, prescribing did not return to baseline after resolution of the shortage. Second, we found that the shift in prescribing patterns led to an increase in Medicare spending on IV iron by $39.4 million. We also found that more than half of hospitals and practice groups administered only 1 formulation of IV iron and that hospital systems were more likely than practice groups to utilize the most expensive agents.

Finally, we found lower utilization of higher-cost ferric carboxymaltose in HOPDs in Maryland compared with the rest of the country, consistent with the financial incentives that Maryland hospitals face under global budgets. This finding supports the hypothesis that the financial incentives in ASP-based payment promote the use of higher-cost Part B drugs.

This study has several limitations. First, this analysis is limited to the Medicare FFS population, and prescribing patterns in this population may not be generalizable. Second, IV iron is often included in bundled payments, as with end-stage renal disease, and these outpatient infusions are not reflected in the current analysis.

A national shortage of iron dextran from January to May 2016 correlated with a period of rapid shifts in the IV iron market. It is difficult to determine the extent to which this shortage contributed to the changing market for IV iron, although the market share did not return to baseline after resolution of the shortage. The period of shortage in iron dextran would have exposed physicians and hospitals to more expensive options, particularly ferric carboxymaltose and ferumoxytol. Once exposed to the higher add-on payments associated with these more expensive agents, physicians may have been reluctant to return to their previous practice patterns. Maryland’s global budget policy avoided the dramatic increase in ferric carboxymaltose market share, further supporting the role of financial incentives in the IV iron market.

The total usage of IV iron increased throughout the study period, driven primarily by increasing use of ferric carboxymaltose. Several clinical and market factors potentially contributed to this increase. Increased usage may be related in part to increasing confidence in the safety of IV iron after removal of high-molecular-weight iron dextran from the market in the United States in 2009.

 Increased provider awareness of availability of IV iron may have contributed, particularly with marketing for more expensive formulations. During the study period, ferumoxytol had a narrow FDA label limited to iron deficiency associated with chronic kidney disease, whereas ferric carboxymaltose had a broader label, which may partially explain the preferential shift toward ferric carboxymaltose.

Although clinical infusion protocols vary, infusion duration is generally 15 minutes for 750 mg of ferric carboxymaltose and several hours for 1000 mg of iron dextran, which may contribute to patient and clinician preference for ferric carboxymaltose in some situations.

 The observational nature of this study prevents establishing causation, and it is possible the use of ferric carboxymaltose would have increased without payment policies in place under Part B. Additionally, the shorter duration of ferric carboxymaltose infusions may reduce time-based infusion costs compared with iron dextran (eg, for nursing staff, infusion center capacity). Regardless, the significantly lower utilization of ferric carboxymaltose in HOPDs in Maryland indicates that payment policies have a strong role in selection of IV iron formulation. Although clinician and patient preferences for factors such as shorter infusions are present in Maryland, without the same Part B financial incentives, utilization of high-cost IV iron formulations has remained low in Maryland.

The IV iron market provides valuable insights into the role of payment incentives in driving utilization within injected and IV drugs in the Part B system. Although few other drugs have the same number of similarly safe and efficacious alternatives as iron, these incentives likely influence the utilization of other injectable and IV medications under Part B. A recent report highlighted the rapid uptake of denosumab after FDA approval in multiple myeloma, despite higher costs than and equivalent clinical outcomes to less expensive bisphosphonate therapy.

Several policy interventions could be considered to align payment with cost-effective care. A payment system in clinical scenarios such as IV iron, where multiple agents are equally safe and effective but currently billed under separate HCPCS codes, would be to set the add-on payment based upon a weighted average across the 6 HCPCS codes for iron formulations. Such a policy would increase the incentive to use the most cost-effective medications and encourage price competition. Second, delinking payment incentives from drug cost (such as add-on payments based solely upon time and complexity of infusion services) may remove a powerful enticement to use ferric carboxymaltose. Third, policies such as Maryland’s global budget system may contain costs across many different medications by aligning incentives with cost-effective care.

These findings indicate that financial incentives for physicians to use more costly formulations played a significant role in shaping the current market for IV iron. The impact of payment policies within Part B is important to consider as providers and policy makers debate optimal strategies for ensuring a stable supply of generic medications and payment strategies that promote high-value prescribing.

Bryan C. Hambley, MD, MPH, and Kelly E. Anderson, MPP, served as co–first authors, each with equal contribution to the manuscript.

The authors would like to thank Michael Ganio, Erin Fox, and Michelle Wheeler from the American Society of Health-System Pharmacists and the University of Utah for their input regarding drug shortage reporting and database interpretation.


 The Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins (BCH, SPS), Baltimore, MD; Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health (KEA, APS, GA), Baltimore, MD.

 Arnold Ventures and the Agency for Healthcare Research and Quality (grant No. T32HS000029). Neither funding organization had any role in study design or data analysis.

Dr Shanbhag reports consulting for Takeda Oncology and GlaxoSmithKline and grants received from Daiichi Sankyo/American Regent. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

 Concept and design (BCH, KEA, SPS, APS); acquisition of data (GA); analysis and interpretation of data (BCH, KEA, SPS, APS); drafting of the manuscript (BCH, KEA, SPS); critical revision of the manuscript for important intellectual content (KEA, SPS, APS, GA); statistical analysis (KEA); obtaining funding (GA); and supervision (SPS, GA).

 Kelly E. Anderson, MPP, Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, 624 N Broadway, Baltimore, MD 21205. Email: kelly.anderson@jhu.edu.

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Articles

During a period of rapid fluctuation in the intravenous iron market, there was increased use of a more expensive drug that afforded providers additional revenue.

Payment Incentives and the Use of Higher-Cost Drugs: A Retrospective Cohort Analysis of Intravenous Iron in the Medicare Population

 Per capita spending on specialty drugs increased 55% between 2014 and 2018. Individuals aged 55 to 75 years using specialty drugs make the transition from employer-sponsored insurance (ESI) to Medicare Part D coverage. We compared out-of-pocket (OOP) spending across ESI, Medicare fee-for-service (FFS), and Medicare Advantage (MA) prescription drug plans to examine the impact of benefit design on OOP spending.

Analyses consisted of Truven MarketScan and Medicare Part D prescription drug claims from 2013 to 2017 for individuals enrolled in ESI, FFS, and MA drug plans taking at least 1 drug among the top 4 specialty drug classes: rheumatoid arthritis (RA), multiple sclerosis (MS), cancer, and hepatitis C.

 Multivariate regression analyses with fixed effects were used to assess whether there are differences in OOP spending by insurance type and the impact of benefit design differences. A secondary outcome was drug choice within a therapeutic class.

 There were small differences in drug choice between Medicare and ESI but significant differences in OOP spending. Monthly OOP spending for ESI relative to FFS was $108 less for RA drugs, $288 less for MS drugs, $504 less for cancer drugs, and $1437 less for hepatitis C drugs. Spending was slightly greater for beneficiaries in MA plans compared with FFS. Higher Medicare spending was driven by gaps in coverage in the Part D benefit phases because beneficiaries pay a percentage of list price.

 OOP spending was substantially higher for Medicare enrollees compared with ESI enrollees as a result of the Part D benefit structure.

Medicare beneficiaries pay substantially higher out-of-pocket (OOP) costs for specialty drugs than employer-sponsored insurance enrollees, primarily because of the lack of an OOP cap and the “donut hole.”

This study examines differences in OOP spending as individuals age from employer-sponsored insurance into Medicare Part D coverage.

Based on specialty drug class, average OOP spending for Medicare fee-for-service (FFS) enrollees was $108 to $1437 greater than spending by employer-sponsored insurance enrollees. Medicare Advantage beneficiaries had slightly higher OOP spending than FFS beneficiaries.

The benefit structure of Part D results in Medicare enrollees paying substantially higher OOP costs for specialty drugs than employer-sponsored insurance enrollees, primarily due to the absence of an OOP cap in Medicare and the donut hole.

The pharmaceutical pipeline is moving toward more high-cost specialty drugs.

 From 2008 until 2017, CMS defined specialty drugs as those with a monthly cost greater than $600; beginning in 2017, the threshold became $670.

 These drugs are primarily biologics and biosimilars used to treat complex chronic conditions such as rheumatoid arthritis (RA), multiple sclerosis (MS), cancer, and hepatitis C. Patients with these conditions have few other clinical options, forcing them to pay high cost-sharing rates or forgo treatment.

Care for these diseases can begin around age 40 years and continue throughout life, making health insurance coverage likely to span across employer-sponsored insurance (ESI) and Medicare prescription drug (Part D) coverage.

 Few studies have examined whether the financial burden placed on patients who take specialty drugs differs among those with ESI, Medicare fee-for-service (FFS), and Medicare managed care (Medicare Advantage [MA]) drug coverage.

 Given the policy and clinical concerns that high cost sharing may lead to nonadherence and financial burden, it is important to understand the levels of cost sharing across insurance types and the role that benefit design may play.

ESI and Medicare Part D prescription drug plans are administered via private insurance plans and typically involve the same 3 pharmacy benefit managers that have the greatest market share. The design of the insurance benefit, however, may result in differences in out-of-pocket (OOP) spending.

 We examine if there are differences in specialty drug choice and OOP spending across 3 populations: ESI enrollees, enrollees in stand-alone Medicare Part D plans (for FFS beneficiaries), and enrollees in an MA plan that offers prescription drug coverage. First, we compared Medicare spending with ESI spending, and then we examined Medicare FFS and MA populations separately. We analyze FFS and MA plans separately because MA plans are paid an annual, capitated amount to provide a beneficiary’s inpatient and outpatient medical benefits, whereas FFS drug plans do not have inpatient and outpatient benefits under their auspices. Thus, MA plans have an incentive to minimize total health care spending of their enrollees and encourage greater adherence to drug regimens by having lower cost sharing. Although Part D is outside the MA capitated payment, adherence to prescription drug regimens is often a low-cost substitute for medical spending in the management of common chronic conditions.

The standard Part D benefit is the same for beneficiaries in FFS and MA drug plans and typically requires beneficiaries to pay a percentage of a drug’s list price. The Part D benefit has 4 phases—deductible, initial coverage period, coverage gap (“donut hole”), and catastrophic coverage—with varying levels of cost sharing. Beneficiaries are responsible for all costs during the deductible period (a maximum of $400 in 2017), 25% of gross drug costs up to the initial coverage limit ($3700 in 2017), and 40% of their branded drug costs and 50% of their generic drug costs in the coverage gap. Once OOP expenses reach $4950 (2017 limit), beneficiaries enter catastrophic coverage, in which they pay 5% of drug costs. There is no OOP maximum. There is wide variation in the benefit structure of ESI plans and no comprehensive data on the benefit structure for drugs across all ESI plans. Anecdotal evidence suggests that ESI plans do not have coverage gaps like Medicare plans (although some have separate tiers for specialty drugs that can utilize coinsurance, rather than co-payments) and most have an OOP cap.

Per capita spending on specialty drugs increased 55% from 2014 to 2018, driven primarily by a 57% increase in the price of branded specialty drugs and more drugs entering the market.

 High and rising prices of specialty drugs may have adverse implications for patient financial and clinical outcomes because adherence to specialty drugs is negatively correlated to the level of cost sharing.

 This is especially important for a subset of specialty drugs, some of which have list prices above $50,000 and for which the cost sharing can be 25% to 33% of the list price. An improved understanding of how differences in benefit design affect OOP spending is important for patients, physicians, payers, and Medicare policy makers. This study examines differences in OOP costs and drug choice among enrollees with ESI, FFS, and MA.

We analyzed prescription drug claims from 2013 to 2017. We used Medicare Part D claims for a 20% random sample of FFS and MA beneficiaries to capture OOP spending by Medicare beneficiaries. The data included information on beneficiary cost sharing, starting and ending benefit phases for each prescription fill, and the plan’s formulary. Part D claims were linked with age, gender, race, and state and county of residence from the Master Beneficiary Summary File. Individuals receiving low-income subsidies were excluded from the analysis because they have limited cost sharing that does not follow the standard Medicare benefit structure.

To assess drug spending in ESI, we used data from Truven MarketScan, a claims and encounter database encompassing approximately 25% of the commercially insured population (not nationally representative).

 The data come from employers and commercial insurers and include active employees, early retirees, and dependents insured by employer-sponsored plans (including but not limited to Employee Retirement Income Security Act/self-insured plans), but they do not include those insured by individual marketplace plans. We merged prescription drug claims with enrollee characteristics including age, gender, metropolitan statistical area (MSA) of residence, and plan type (eg, health maintenance organization [HMO], preferred provider organization [PPO], FFS, capitated, high deductible).

In both the ESI and Medicare settings, the sample consisted of individuals who filled a prescription for a specialty drug between 2013 and 2017. Based on existing literature, we focused on 16 drugs within the 4 specialty drug classes with the highest per capita annual spending in the United States: those for RA, MS, cancer, and hepatitis C.

 Due to the focus on outpatient drug use, physician-administered therapies for RA and cancer were not examined.

The primary outcome of interest was monthly OOP spending. Both databases define OOP spending as the dollar amount paid by the beneficiary, including co-payments, coinsurance, and the deductible, per prescription fill. We divided OOP spending by days supplied and multiplied the daily amount by 30 to create a standardized monthly OOP cost per drug. The main independent variable of interest was whether an individual had coverage through ESI, FFS, or MA.

First, to test for differences in drug choice among enrollees with ESI, FFS, and MA, we conducted 

 tests for rates of utilization and average OOP costs for each drug within a therapeutic class.

Second, to estimate whether there were differences in OOP spending on specialty drugs among ESI, FFS, and MA enrollees, we conducted multivariate ordinary least squares regressions with fixed effects at the therapeutic class level. We controlled for patient age and sex and included a set of fixed effects: MSA of residence (to account for geographic variation, using a county-MSA crosswalk to identify MSAs for Medicare enrollees), year (to account for unobservable, time-invariant characteristics [ie, changes in drug use because of new clinical studies, the ongoing phase-out of the coverage gap in Medicare, and changes in ESI benefit design]), month (to capture differences in OOP spending over the course of a year because of movement through the benefit phases), and branded drug (to ensure that each drug was being compared with itself across different insurers and results were not affected by differing proportions of drug use across insurers). Robust standard errors clustered at the beneficiary level were used to allow for individual heterogeneity. We conducted several sensitivity analyses to examine the robustness of our results (described later).

The analytic data set included 348,600 individuals and 4,045,564 claims; 80% of the claims were covered by ESI (283,120 enrollees) (

). Among specialty drug users in the Medicare sample, FFS made up the majority of the sample, 63%, compared with 37% enrolled in MA, reflective of national MA enrollment. Additional details regarding the ESI sample are in 

). The gender distribution was similar between ESI and Medicare. The average age difference was 20 years between ESI and Medicare enrollees in the RA, MS, and cancer samples; however, there was only a 13-year age difference for hepatitis C.

) in drug choice for RA but not MS, cancer, or hepatitis C. Among RA drugs, the most commonly taken drug by ESI beneficiaries was Humira, by 60% of patients, but the most common drug taken by Medicare beneficiaries was Enbrel, taken by 54% and 53% of FFS and MA beneficiaries, respectively. Despite differences in drug choice, OOP costs were similar within an insurance type. In ESI, OOP costs for the 2 brand name drugs were nearly identical, $103 for Enbrel compared with $102 for Humira, suggesting that OOP cost was not the primary reason for branded drug choice. For FFS patients, average OOP costs were $219 for Enbrel compared with $225 for Humira, whereas for MA patients, average OOP costs for Enbrel were $218 (not statistically different from FFS) compared with $192 for Humira ($40 lower than FFS; 

 < .01). Compared with Medicare, ESI OOP costs were significantly lower (

Among the other 3 disease groups, differences in drug choice were fewer. The majority of MS patients took Copaxone in both ESI and Medicare. For the cancer population, the most commonly used drug was Revlimid (used by 48% of Medicare beneficiaries and 46% of ESI enrollees). Average monthly OOP spending on Revlimid was $111 for ESI patients compared with more than $700 for Medicare ($734 for FFS patients and $757 for MA patients). Finally, for hepatitis C drugs, drug choices were not substantially different between Medicare and ESI, but average OOP costs were higher in Medicare. The most commonly taken drug was Harvoni, with average OOP costs of $448 for ESI patients compared with more than $1900 for Medicare ($1981 for FFS patients and $1995 for MA patients). Given the limited differences in OOP spending among drugs within a given therapeutic class, we conducted subsequent analyses at the therapeutic class level, rather than the drug level.

Therapeutic Class Utilization and Spending

Table 1 compares ESI and Medicare differences in drug utilization. Across all 4 drug classes, Medicare beneficiaries, both FFS and MA, took a similar number of drugs per year (16.1 vs 15.6), about 25% more than the ESI population. Among all classes, a substantial proportion of Medicare enrollees reached catastrophic coverage over the course of the year, with MA patients being more likely to reach the coverage gap and catastrophic coverage than FFS patients (Table 1). Due to the significant difference between FFS and MA beneficiaries in movement through the Part D benefit phases, we continue to separately assess these 2 populations.

 shows average monthly OOP spending by insurance and disease type. There were substantial differences between ESI and Medicare but little variation within ESI (across plan types [eg, PPOs vs HMOs]) or within Medicare (FFS vs MA). Average OOP spending for all Medicare beneficiaries was significantly higher than in ESI, approximately $200 for RA drugs, $400 for MS drugs, $600 for cancer drugs, and $1700 for hepatitis C drugs (Figure), with spending just slightly higher in MA than FFS. OOP spending was consistent across all types of ESI plans for RA, MS, and cancer, about $100 per month, with differences of $30 or less (except for high-deductible health plans [HDHPs]). The 1 exception among ESI plans was for hepatitis C drugs; average spending varied from approximately $200 in point of service (POS) plans to greater than $1000 in HDHPs.

The main finding of this paper can be found in 

, which shows adjusted differences in OOP spending by insurance type. The large differences in average OOP spending between Medicare and ESI, seen in the unadjusted data, persist after controlling for beneficiary characteristics. Compared with Medicare FFS (the larger of the 2 Medicare populations), individuals in ESI paid, on average, $108 (

 < .01) less per month for RA drugs, $288 (

 < .01) less for cancer drugs, and $1437 (

 < .01) less for hepatitis C drugs. Differences in OOP spending existed between Medicare FFS and MA plans; however, they were smaller in magnitude. Compared with FFS, MA beneficiaries paid, on average, $28 (

 < .01) more per month for RA drugs, $36 (

 < .01) more for cancer drugs, and $75 (

 < .01) more for hepatitis C drugs. Full regression results are shown in 

To understand how variation in Medicare OOP spending occurred, we examined differences between FFS and MA by benefit phase. As shown in 

, we found large variation in OOP spending during the coverage gap. Relative to FFS, MA beneficiaries paid $117 (

 < .01) less for cancer drugs, and $671 (

 < .01) less for hepatitis C drugs. In contrast, MA plans required significantly higher cost sharing than FFS in the initial coverage period (differences ranged from $33 to $106, depending on therapeutic class). During catastrophic coverage, differences were less than $25. It would appear that most of the difference in MA and FFS spending occurs during the donut hole period. Two possible explanations are that MA plans are filling in the donut hole (which has been phased out as of 2020; there is a uniform 25% coinsurance rate in the initial coverage limit and coverage gap phases) and that MA plans have greater use of high, fixed-dollar co-payments instead of coinsurance.

We also examined variation within ESI plan types. Consistent with the descriptive analysis in the Figure, little variation existed among OOP costs in PPO, HMO, consumer-directed, POS, and comprehensive plans, but there was significantly higher OOP spending in HDHPs (

One concern is that the ESI population may be different from the Medicare population, and so we restricted the sample to enrollees aged 55 to 64 years for ESI and 65 to 75 years for Medicare, allowing for increased homogeneity (

). We found that differences in OOP spending by insurance type were consistent with those observed in the full population.

To better understand what was driving observed differences in OOP spending among insurers, we examined annual days supplied to assess whether there were differences in the intensity of drug utilization. As shown in 

, there were no statistically significant differences in the number of days supplied among ESI, FFS, and MA for MS and hepatitis C drugs and differences of 20 days or less per year (

 < .01) for RA and cancer drugs. This suggests minimal differences in utilization.

Finally, we examined gross drug spending, total spending on the prescription claims by all payers, to understand whether insurers were steering patients toward certain drugs. We found that gross drug costs were not statistically different between insurers for MS and cancer drugs and that the differences that existed for RA and hepatitis C drugs were financially small relative to the total cost of the drugs (

). Important to note is that these gross costs do not include rebates and so may not be wholly reflective of the actual cost paid by the insurer or employer.

Our main finding is that OOP spending for specialty drugs treating RA, MS, cancer, and hepatitis C was significantly higher in Medicare compared with ESI from 2013 to 2017. This was likely due to the standard Medicare Part D benefit structure, which determines OOP spending as a percentage of the drug’s list price rather than a fixed co-payment, which is more common in ESI (although some plans treat specialty drugs differently and can use coinsurance).

 We found that the differences between ESI and Medicare arose primarily during the coverage gap (donut hole) phase. Despite a closing of the coverage gap over the course of our study period, the persistent difference in OOP spending between ESI and Medicare points to fundamental differences in design between the 2 insurance types, with implications for enrollees. Small but statistically significant differences were seen between FFS and MA plans, with the MA plans having slightly higher OOP spending.

Current policy debates in Congress around Medicare Part D reform are focused on limiting OOP spending for Medicare beneficiaries: most importantly, an OOP maximum.

 Although an OOP maximum would not decrease OOP spending per prescription fill, it would slightly reduce spending over the course of a year, reducing OOP differences between Medicare and ESI. This is particularly important because the OOP maximums proposed by Congress occur prior to the coverage gap, so implementing such a policy would eliminate cost sharing for the majority of specialty drug fills. It will be important to continue to monitor ESI plan design because commercial plan changes are reported to be occurring in 2020 and 2021.

This study has several limitations. First, standardizing plan design across plans within FFS, MA, and ESI is difficult given the level of variability in both Medicare and commercial plan design. Second, these insurers may make different trade-offs between medical vs prescription drug spending, which could influence OOP spending. Third, we do not know the prices that FFS, MA, and ESI plans actually pay; some of these effects have been mitigated, but some remain.

A significant limitation is the lack of data on patient assistance programs (PAPs) and coupons. For specialty drugs in particular, PAPs often reimburse some or all of beneficiaries’ OOP costs. Thus, it is possible that individuals have co-payments reported in claims data that are reimbursed outside of their insurance. There are no drug- or individual-level data on these programs, and so no data are available to discern how frequently this is occurring and the amount of OOP burden eased by these programs. The incentive to use PAPs is the same for FFS, MA, and ESI, so it should not bias the results in either direction; however, federal guidance makes the use of PAPs different in Medicare vs ESI, and ESI beneficiaries also have the option to use coupons, which could lower their OOP spending further.

Another limitation is that the MarketScan data disproportionately include claims from large self-insured employers, which tend to offer relatively generous benefits. Thus, estimates of OOP spending may not be representative of the entire employer-sponsored market.

Finally, there is far more clinical variation in cancer than in the other diseases being studied, and these differences could be age-related and thus affect the Medicare-ESI comparisons.

We compared prescription drug spending between ESI and Medicare and found that OOP spending was substantially higher among Medicare enrollees compared with ESI enrollees, because Medicare is structured for beneficiaries to pay a percentage of a drug’s list price. Higher OOP spending in Medicare is likely to pose a challenge for individuals as they make the transition into Medicare, with potential implications for management of their diseases and, ultimately, health outcomes. Rethinking the design of the Part D benefit given the growth in specialty drugs to move toward fixed costs, rather than a percentage of drug costs, may be necessary to ensure that Medicare beneficiaries receive seamless care as they enter the program.

Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health (SP, APS, GFA), Baltimore, MD.

 Supported by grants from the Commonwealth Fund and Arnold Ventures.

 Dr Sen has received grants from Arnold Ventures. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

 Concept and design (SP, APS, GFA); acquisition of data (GFA); analysis and interpretation of data (SP); drafting of the manuscript (SP, APS, GFA); critical revision of the manuscript for important intellectual content (SP, APS, GFA); statistical analysis (SP); obtaining funding (APS, GFA); administrative, technical, or logistic support (APS, GFA); and supervision (APS, GFA).

Sonal Parasrampuria, PhD, MPH, Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, 624 N Broadway, Hampton House 302, Baltimore, MD 21205. Email: sparasr4@jhu.edu.

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Out-of-pocket (OOP) spending for specialty drugs is substantially higher in Medicare Part D compared with employer-sponsored insurance because of the Part D benefit design.

Aditi P. Sen, PhD

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