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The American Journal of Managed Care August 2009
Outcomes of Patients Discharged From Pharmacy-Managed Cardiovascular Disease Management
Kari L. Olson, PharmD; Thomas Delate, PhD; Jon Rasmussen, PharmD; Tammy L. Humphries, PharmD; and John A. Merenich, MD; for the Clinical Pharmacy Cardiac Risk Service Study Group
Burden of Alzheimer's Disease and Association With Negative Health Outcomes
Daniel C. Malone, RPh, PhD; Trent P. McLaughlin, PhD; Peter M. Wahl, BA; Christopher Leibman, PharmD; H. Michael Arrighi, PhD; Mark J. Cziraky, PharmD; and Lisa M. Mucha, PhD
Distal Upper and Lower Limb Fractures Associated With Thiazolidinedione Use
Stephen G. Jones, MS; Soyal R. Momin, MS, MBA; Matthew W. Good, MD; Terence K. Shea, PharmD; and Kenneth Patric, MD
Cost Comparison of Peritoneal Dialysis Versus Hemodialysis in End-Stage Renal Disease
Ariel Berger, MPH; John Edelsberg, MD, MPH; Gary W. Inglese, RN, MBA; Samir K. Bhattacharyya, PhD; and Gerry Oster, PhD
Cost Evaluation of a Coordinated Care Management Intervention for Dementia
O. Kenrik Duru, MD, MSHS; Susan L. Ettner, PhD; Stefanie D. Vassar, MS; Joshua Chodosh, MD, MSPH; and Barbara G. Vickrey, MD, MPH
Can a Nationwide Media Campaign Affect Antibiotic Use?
Beatriz Hemo, MA; Naamah H. Shamir-Shtein, MA; Barbara G. Silverman, MD, MPH; Judith Tsamir, MA; Anthony D. Heymann, MB; Sharon Tsehori, MD, MHA; and Nurit L. Friedman, PhD
Cost Minimization of Medicare Part D Prescription Drug Plan Expenditures
Rajul A. Patel, PharmD, PhD; Helene Levens Lipton, PhD; Timothy W. Cutler, PharmD; Amanda R. Smith, MPH; Shirley M. Tsunoda, PharmD; and Marilyn R. Stebbins, PharmD
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Medicare Part D After 2 Years
Geoffrey F. Joyce, PhD; Dana P. Goldman, PhD; William B. Vogt, PhD; Eric Sun, PhD; and Anupam B. Jena, PhD
A Telephone-Based Intervention for Increasing the Use of Osteoporosis Medication: A Randomized Controlled Trial
Jill Waalen, MD, MPH; Amalia L. Bruning, PA; Mark Jason Peters, MD; and Eric M. Blau, MD

Medicare Part D After 2 Years

Geoffrey F. Joyce, PhD; Dana P. Goldman, PhD; William B. Vogt, PhD; Eric Sun, PhD; and Anupam B. Jena, PhD

Coverage under Part D is comparable to that under non–Part D plans with respect to key features likely to be important to Medicare beneficiaries.

Table 2 characterizes the formulary coverage and costsharing arrangements of the 10 largest Part D plans, as well as the 7 comparison plans. For each of the plans, we show the number of covered drugs in each tier (or a single tier in plans where only 1 tier exists), as well as the number of drugs not covered. Among the 10 largest Part D plans, between 147 and 157 of the 300 most common medications were covered in tier 1. Further, the most (least) expansive plans excluded 4 to 6 (24 to 41) medications. There was little variation across plans in the number of drugs assigned to the first 2 tiers. Thus, variation in the number of covered drugs across Part D plans was driven by how many products were assigned to the third tier versus not covered at all. Coverage under the largest Part D plans was comparable to that under many of the non–Part D plans such as Anthem Blue Cross, FEP Basic, CALPERS, and TRICARE, which excluded 0 to 6 medications. By contrast, the Kaiser Permanente and VA plans excluded 75 and 84 medications, respectively.

Because certain drugs are more widely used than others, excluded medications may account for a relatively smaller or larger fraction of total prescriptions. The last column of Table 2 shows the proportion of total national prescriptions accounted for by the list of excluded drugs in each plan. For example, the 84 drugs excluded from the VA National Formulary accounted for nearly one-quarter (24.7%) of all prescriptions dispensed to seniors in 2006 among the 300 most common medications. By contrast, drugs excluded from even the most restrictive Part D plan accounted for only 12.6% of total prescriptions, and drugs excluded from the least restrictive Part D plan accounted for just 4.4% of total prescriptions.

To assess the potential clinical consequences of excluding drugs from the formulary, we also examined how broadly plans cover medications for chronic diseases of the elderly, specifically diabetes, heart disease, hypertension, and high cholesterol. Table 3 shows the number of excluded drugs in each plan. The 10 largest Part D plans covered the vast majority of the drugs in these therapeutic classes, with the exception of angiotensin-converting enzyme inhibitors and angiotensin II receptor blockers (ACEIs/ARBs). The most restrictive Part D plan excluded just 4 of 11 antihyperlipidemic agents, 1 of 13 antidiabetic agents, and 1 of 10 beta-blockers. Although coverage was less generous for ACEIs/ARBs, even the most restrictive Part D plans covered 14 to 18 of the 22 drugs in the class. In contrast, the VA National Formulary excluded 7 of 13 antidiabetic agents, 12 of 22 ACEIs/ARBs, and 5 of 11 antihyperlipidemic agents.

Plans also can place administrative restrictions on specific drugs or classes of medications that can greatly limit access. Table 4 shows the number of drugs in each plan subject to prior authorization requirements, quantity limits, step therapy, and other restrictions. The most common formulary restriction in Part D plans is a quantity limit, where the plan will only cover a drug up to a designated quantity. If prescribing physicians feel it is medically necessary to exceed the set limit, they must get prior approval from the plan. Among the 10 largest Part D plans, the median quantity limit applies to 54 of the top 300 drugs.

Prior authorization is commonly used in state Medicaid programs as a cost containment tool, but is far less common in Part D plans. Half of the 10 largest plans do not impose prior authorization requirements on any drug, while the most restrictive Part D plan requires it for just 7 medications. Step therapy is used in some Part D plans, but is typically applied to a small number of drugs. Although VA does not use any of these formulary restrictions, it imposes other types of restrictions to control utilization. For example, 34 of the 180 formulary drugs in the VA National Formulary (among the top 300 drugs) are only covered for specific indications, dosages, or intake formulations.

Table 5 presents predicted annual out-of-pocket costs (excluding premiums) under each plan for our market basket of claims and decomposes these costs into out-of-pocket expenditures for covered and noncovered drugs. Predicted out-of-pocket spending for the 5 least expensive Part D plans was roughly $1000 annually, which was modestly higher than spending in Anthem Blue Cross, FEP Basic, and CALPERS. With the exception of WellCare Signature, out-of-pocket spending in the remaining Part D plans was between $1300 and $1400 annually, making these plans more comparable in spending to the VA plan.

Changes in Pharmacy Use and Spending

A critical question is how Part D affected pharmaceutical use and spending, both overall and for specific groups of beneficiaries. Our analyses comparing MCBS data in 2004 with Part D claims in 2006 suggest that Part D was associated with a 16% annual decrease in out-of-pocket spending and a 7% increase in the number of prescriptions (results not shown). These estimates are consistent with other findings using 2006 data from a large national pharmacy chain.5,6 Our analysis also suggests that these changes were concentrated among the poor. Average out-of-pocket spending among the dual-eligibles and LIS population declined markedly, but was largely unchanged for the general Part D population. Equally important, Part D was associated with reduced financial risk for low-income populations, as measured by the variance of out-of-pocket spending (Table 6). Prior to Part D, the probability of having out-of-pocket drug spending higher than $1000 in a year was 24% in the LIS population and 3.6% in the dualeligible population. After Part D, those probabilities were less than 1% for each group.


Medicare Part D generated much confusion at the time of its introduction in January 2006. Some beneficiaries did not understand the benefit designs and were not sure how Part D interacted with existing drug coverage or whether they might gain or suffer financially from enrolling.7 However, after more than 2 years of experience, the assessment has changed. Nearly 90% of Medicare beneficiaries have prescription drug coverage at least as generous as the standard Part D benefit. Policies to protect plans from excessive losses in the first few years (through reinsurance and risk corridors) as well as efforts to educate beneficiaries about plan choices led to a large number of sponsors and a wide array of options for beneficiaries to choose from. Despite the large number of plans, it appears that most beneficiaries who enroll in the program are making plan choices that reflect both their health status and the market circumstances.7

Enrollment in Part D was widespread for several reasons. First, the large federal subsidy for Part D plans—74.5% of the premium is paid by Medicare—dramatically reduced the cost of coverage for most beneficiaries. Second, individuals previously covered under Medicaid were automatically enrolled in a private Part D plan. Third, the widespread availability of low premium plans (less than $20 per month), combined with penalties for late enrollment, made coverage more appealing to healthy seniors who might otherwise have been dissuaded from enrolling. However, there remains a substantial core of seniors who need to be educated that enrolling in Part D is in their own interest, and reaching them should continue to be a health policy priority.7

Despite the variation across Part D plans, annual out-of-pocket spending in the 10 largest plans was only modestly higher than that in the other private and public drug plans, with the most prominent differences attributable to out-of-pocket spending on drugs not covered in the plan. Poorer beneficiaries, specifically dual-eligibles and those eligible for additional LISs, have gained the most from Part D in terms of increased access to medications and reduced financial risk.

Despite these successes, several concerns remain.8,9 First and foremost is the doughnut hole or gap in Part D coverage whereby beneficiaries with intermediate levels of spending face full coinsurance prior to reaching catastrophic coverage.10-12 Recent work suggests that more than 3 million Part D enrollees reached the coverage gap in 2007, and about 20% of them either stopped taking a medication, skipped doses, or switched to a different medication in the class.13 Second, given the significant amount of consolidation that has occurred in plans offering Part D coverage (8 organizations accounted for nearly 65% of enrollment in 2007), one must question the future impact of consolidation on competition. Further consolidation is likely inevitable given the sheer number of plans operating. Will competition diminish and prices rise with increased market power in the hands of a few plans? Or will consolidation lead to increased ability of plans to negotiate lower drug prices that ultimately get passed down via lower premiums? These are open questions that warrant careful monitoring in the future, especially given the importance of competition in justifying a privately administered benefit.

Some members of Congress argue that the federal government could provide a simpler benefit at lower cost by negotiating directly with drug manufacturers.13 Currently under Part D, prices are determined through negotiations between drug manufacturers and PDPs. The forces of competition tend to result in larger rebates and lower net prices for drugs that have closer available substitutes and for insurers that establish narrower lists of preferred drugs or are more effective in steering doctors and patients toward those drugs.

By contrast, the government negotiating lower prices for all Medicare beneficiaries would have to be thought through very carefully. The process of choosing which drugs to exclude from a national Medicare formulary would likely be dominated by stakeholders such as manufacturers and patient advocacy groups, and in some cases, might determine whether particular manufacturers stay in business.14 However, in the absence of a formulary, Medicare would be unable to exclude any drug and thus would have no bargaining leverage. It was for this reason that the Congressional Budget Office estimated that the Secretary would not be able to negotiate prices significantly lower than those already achieved by the private plans.15

Our analysis has several limitations. First, we compared pharmaceutical use and out-of-pocket spending from the 2004 MCBS with the use and spending of a large Part D plan in 2006. Because these datasets are not perfectly comparable and there is likely to be some selection into Part D plans, these results are not definitive. However, our estimates are consistent with other findings using 2006 data from a large national pharmacy chain.6,7 Second, our sample consists of the 10 largest Part D plans, which accounted for 46% of total Part D enrollment in 2006. The profiles and out-of-pocket costs of smaller PDPs may be different. Third, it is not necessarily detrimental to offer enrollees a narrower list of preferred drugs as VA and Kaiser do. A narrow, but well-designed, formulary can help steer doctors and patients toward more cost-effective medications, reducing overall drug costs. Finally, we did not examine coverage of specialty drugs, which is a modest, but rapidly growing, fraction of total drug spending.

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