Medicare Drug Benefit Shapes Pharma R&D

As the Medicare prescription drug benefit heads into its third year, analysts are applauding the program's success in providing pharmaceutical coverage for millions of elderly patients. Surveys show a substantial expansion of benefits, particularly for low-income seniors. Expenditures are less than anticipated even though formularies are broad. Beneficiaries appear generally satisfied with their plans, and the much-feared "donut hole" has not been a major problem.

Jill Wechsler

The Centers for Medicare and Medicaid Services (CMS) reported earlier this year that almost 40 million Medicare beneficiaries now have prescription drug coverage through a Part D prescription drug plan (PDP) or other program, a substantial increase from 27 million the previous year.

Similarly, a national survey of 16,000 seniors found that 90% had some kind of prescription drug coverage in 2006, up from less than 50% in 2005. Half are in Part D plans, one-third obtain coverage from employers, and about 10% have benefits from the Veterans Administration or military, according to this analysis by the Kaiser Family Foundation (KFF), the Commonwealth Fund, and Tufts-New England Medical Center [published online by Health Affairs, August 21, 2007, www.healthaffairs.org]. Part D plans have higher proportions of low-income members that were automatically enrolled by CMS, and seniors with chronic health conditions and high drug use were more likely to obtain coverage than low-drug users.

Driving utilization

Of importance to the pharmaceutical industry, this big jump in benefits is boosting drug utilization for a key patient cohort. The 24 million seniors enrolled in Part D plans filled approximately 486 million prescriptions in 2006—almost 15% of the total retail prescription drug market, according to IMS Health [see www.IMShealth.com/medicarefirstyear]. About 37 million prescriptions filled under Part D were written for individuals who would have had to pay for the drug out-of-pocket in 2005, generating significant cost savings for those previously uninsured.

The Medicare program has boosted utilization of most chronic therapeutic classes, particularly those for asymptomatic conditions such as hypertension and high cholesterol. Hypertension drugs got the biggest chunk of the pie, accounting for 122 million prescriptions, or one-fourth of all the drugs provided under the program. Lipid regulators came in second with 7.4% (36 million scripts), and antidepressants accounted for 25 million prescriptions for a 5.1% share. Other leading therapy classes with more than 20 million prescriptions include treatments for diabetes, pain, and ulcers. Rounding out the top ten were anti-infectives, thyroid hormones, antithrombotics and seizure treatments.

Providing drug benefits to some 3.4 million seniors who previously lacked coverage also has had a particularly noticeable impact on utilization patterns and compliance. For example, patient use of proton pump inhibitors (PPIs) increased by 2.7% due to new prescriptions, many written for patients with new coverage who switched from over-the-counter drugs to prescription products, IMS notes. Similarly, prescriptions for angiotensin II antagonists increased by 1.5% due to new therapy starts, and by another 2.4% due to improved compliance. CMS also requires formularies to cover "all or substantially all" drugs in six protected categories (antipsychotics, antidepressants, antiretrovirals, immunosuppressants, anticonvulsants, and antineoplastics), which also boosts prescribing for these treatments.

Managing costs

Increased demand for treatments for chronic diseases is likely to boost R&D in drug categories most important to elderly patients. In light of its expanded involvement in prescription drug reimbursement, CMS also is clarifying its policy for covering the cost of routine patient care for seniors enrolled in clinical trials [see sidebar: Medicare Clarifies Coverage for Trials].

Medicare Clarifies Coverage for Trials

However, pharma companies recognize that as participation in Part D rises, program spending is sure to increase. With that will come more aggressive utilization management by Part D plans and increased demand for cost-effectiveness information from industry. Congress and Medicare analysts support strategies for obtaining data that compares the safety, efficacy, and cost of medical products and procedures [see June 2007's View from Washington], and sponsors acknowledge that studies must produce comparative information to obtain favorable coverage decisions from plans and payers.

PDPs already are moving to manage formularies more aggressively in order to improve their position at the negotiating table. Three-fourths of Part D plans have formularies with four or more tiers that set higher co-pays and restrictions on use for more costly brand products, including specialty drugs. CMS wants all PDPs to cover the 200 top drugs used by the elderly, but allows plans to utilize a range of formulary tools that can help them obtain favorable discounts.

A prime strategy for plans is to encourage physicians and patients to use less costly generic drugs. CMS reports that nearly 60% of Part D prescribing is for unbranded generics, slightly higher than for the total retail market. PDPs push generics by eliminating deductibles, reducing co-pays, and requiring pharmacists to notify patients if a low-cost generic is available, according to analysis by Avalere Health. Generic drug use should rise even more as additional popular treatments lose patent protection. The first generic statins appeared in 2006, and more generic versions of major brands are on the horizon.

If plans can't obtain sufficiently low prices from pharma, some members of Congress want the government to do so. Earlier this year, Congress debated legislation to eliminate the "noninterference" clause in the Medicare program, which prevents the federal government from entering drug price negotiations. The bill failed, largely because the Congressional Budget Office and other analysts predicted that public disclosure of drug prices and rebates would save little money and might even discourage deep discounts from manufacturers.

Even without legislation, program critics are keeping a close watch on Medicare drug costs, looking for evidence that plans are overpaying for drugs. PDPs, for their part, now have at least one year of drug utilization data on enrollees to provide evidence that they can move market share. Furthermore, continued consolidation among Part D plans is likely to give insurers more clout in demanding lower drug prices.

Challenges ahead

All these strategies for managing Part D costs have allowed PDPs to maintain relatively low plan premiums for the 2008 open enrollment period this fall. Even so, a certain number of PDP members incur high out-of-pocket costs compared to other retiree benefits. More than one-fourth of all seniors report spending at least $100 a month on medications, and 8% dole out $300 or more, according to the Kaiser survey. Individuals hit with such costs are more likely to ignore or drop a prescription, especially for chronic conditions with no visible symptoms.

In coming years, all parties will look back at the first few years of Part D as the "golden years for enrollees and branded pharmaceutical companies alike," predicts IMS. The future promises higher premiums and cost-sharing for beneficiaries; increased scrutiny of plan benefits and costs by Congress; sharper focus on drug prices in shaping formulary listings; and more competition from generics in important categories. Even without federal price controls or a national formulary, Medicare Part D will set the tone for coverage and payment decisions throughout the U.S. market, which will shape pharmaceutical R&D and information strategies.

Jill Wechsler is the Washington editor of Applied Clinical Trials, (301) 656-4634 jwechsler@advanstar.com