Life Science Compliance Update

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January 09, 2017

OIG Report Addresses High Federal Spending on Catastrophic Part D Coverage

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The Department of Health and Human Services (HHS) Office of Inspector General (OIG) today released a report examining federal spending on drugs in the catastrophic portion of the Medicare Part D prescription drug benefit. Although the optional benefit is provided by private companies, the federal government pays 80 percent of drug costs in a catastrophic coverage portion of the benefit after a beneficiary’s out-of-pocket costs exceed a certain threshold.

OIG focused on federal spending from 2010 through 2015, relying on federal drug spending data. According to the report, federal spending on the catastrophic portion of the benefit in 2015 was greater than $33 billion, a more than three-fold increase from the $10.8 billion spent in 2010. OIG noted that higher payments in recent years reflect a significantly higher growth in spending compared to prior years of the program, with the highest growth coming in 2014 and 2015.

In the report, OIG noted that “spending for high-price drugs were responsible for almost two-thirds of the total drug spending in catastrophic coverage” in 2015, as compared to only one-third of the spending in 2010. OIG also noted that the increase in spending was also driven by an increase in beneficiaries receiving high-priced drugs and an increase of beneficiaries who received catastrophic coverage.

According to the report, ten high-price drugs accounted for nearly one-third of all drug spending for catastrophic coverage in 2015, most of which cost thousands of dollars per month. These ten drugs treat conditions such as hepatitis C, cancer, and multiple sclerosis, ranging in price from $1,200 to almost $34,000 per month. This leads to high out-of-pocket costs for some beneficiaries in catastrophic coverage. OIG also stated that even for drugs that have been on the market for awhile, steep price increases have happened since 2010.

Some Beneficiaries Face High Out-of-Pocket Costs

High-price drugs mean high out-of-pocket costs for some beneficiaries. In catastrophic coverage, beneficiaries who do not receive the low-income subsidy typically pay five percent of each drug’s price. These costs are on top of the out-of-pocket costs they face before entering catastrophic coverage.

From 2010 to 2015, beneficiaries’ out-of-pocket costs for high-price drugs in catastrophic coverage increased 47 percent. In 2015, beneficiaries paid an average of $257 a month for each high-price drug in catastrophic coverage, up from $175 in 2010.

Some beneficiaries faced even higher out-of-pockets costs, especially if they were taking hepatitis C drugs. For two hepatitis C drugs, beneficiaries paid more than $1,300 a month. For example, beneficiaries in catastrophic coverage paid an average of $1,556 a month for Harvoni. This means that, on average, beneficiaries paid $4,669 for a typical 3-month course of treatment.

Conclusion

OIG concludes that “securing the future of the Part D program while ensuring beneficiaries have access to needed drugs is a complex issue that calls for a multifaceted approach.” CMS recently published information about certain drugs with substantial increases in price, noting that action is necessary to address rising drug costs and asked the industry to partner with the agency to find solutions that allow for both innovation and affordability.

In the future, CMS will likely look for additional tools to address and meet those goals. Some potential tools mentioned include restructuring the Part D benefit so that sponsors have more incentives and opportunities to lower costs, creating more transparency about drug pricing, promoting value-based options, and revising the law to allow the Federal Government to negotiate prices for certain drugs. OIG recommend that CMS “carefully assess these and other options and should, working with Congress, make any needed changes to the Part D program.”

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