Unbiased Analysis of Today's Healthcare Issues

Estimating the Effects of Consolidating Drugs under Part D or Part B

Written By: Jason Shafrin - Feb• 15•11

Currently, most Medicare beneficiaries are able to receive coverage for prescription drugs under Medicare Part D. Some drugs, however, are still covered by Medicare Part B, which covers physician services. These drugs are generally those furnished incident to a physician’s service and are administered using durable medical equipment.

To simplify coverage policy, Medicare is considering consolidating certain drugs exclusively under either Medicare Part B or Part D. A paper from Acumen, LLC (disclaimer: my current employer) has conducted a study to simulate the financial impacts of consolidating certain drugs under either the Part B or Part D program. Their key conclusions include the following:

  • Part B and Part D per unit prices vary, affecting the financial impact of consolidation (Part D per unit drug prices are roughly 52% higher than Part B prices).
  • On average, beneficiaries lose with B to D consolidations and gain with D to B consolidations.
  • Beneficiaries in the catastrophic phase experience the opposite effect.
  • Consolidation would have a small affect on Part D plan premiums.
  • Beneficiaries currently do not react to financial incentives by substituting drugs (e.g., substituting metered dose inhalants for nebulizer inhalants, substituting pumped for injectable insulin)
  • Consolidation does not substantially increase incentives to switch Part D plans.
  • Overall, Medicare gains with B to D consolidation and loses with D to B consolidation.

Further information on the drug coverage in Medicare Parts B and D is described below.

“The overlapping coverage of these and other drugs by the Part B and Part D programs leads to two main problems. First, due to the programs’ different payment structures, beneficiary out-of-pocket costs can vary drastically for the same or similar drug, which raises questions about whether prescribing decisions are affected by payment incentives. Second, these coverage rules can cause considerable administrative burden. Pharmacies must determine which program to bill; the Part B program and Part D plans must maintain systems edits to reject inappropriate claims; and beneficiaries may not receive important medications in a timely manner due to process complication….These problems could be eliminated by consolidating drugs with coverage in Part B and Part D under one Medicare program.”

“The financial impact of transitioning a drug from Part B to Part D, or vice versa, depends on differences in the Part B and Part D pricing models and benefit structures. These differences are quite substantial. In the Part B fee-for-service (FFS) program, Medicare decides what services should be covered and how much beneficiaries should pay and providers should be reimbursed for these services. As a result, pricing and benefit structures remain relatively consistent across beneficiaries. Part B employs two main strategies to price a drug, which are defined by a Healthcare Common Procedure Coding System (HCPCS) code. Prices are either 106 percent of the Average Sales Price (ASP) or, for DME-infused drugs (including insulin), 95% of the Average Wholesale Price (AWP). ASP and AWP do not vary by region or pharmacy; therefore, at a given point in time for a given drug, all pharmacies and physicians are reimbursed the same amount by the Part B program. Part B out-of-pocket costs for the beneficiary are also consistent across regions, pharmacies, and for the most part, beneficiaries. Once a deductible is met, Medicare covers 80 percent of Medicare-approved charges, and the beneficiary pays the remaining 20 percent.1 Low-income beneficiaries have their deductible and their 20 percent share covered by Medicaid, as long as they see providers who accept Medicaid. Beneficiaries pay monthly premiums, which combined are required to cover 25 percent of Part B costs. Individual premiums vary by beneficiary income…”

“Part D benefits are administered by private health care organizations through stand-alone Prescription Drug Plans (PDPs) or Medicare Advantage Drug Plans (MA-PDs). Part D beneficiaries can select from a variety of plans with varying premiums, copayments, drug coverage and pharmacy networks. Part D plans are able to negotiate prices for drugs, as defined by National Drug Codes (NDCs), with networked pharmacies, based on manufacturer rebates and discounts. In addition,the structure of beneficiary cost-sharing for Part D point-of-sale costs is designed by the beneficiary’s plan, which can be a standard plan or one of three types of non-standard plans. For the standard plan, beneficiary cost for a given drug is strictly decided by the cost of the drugs and the benefit phase in which the drug falls. Benefit phase, in turn, is determined by the beneficiary’s previous drug utilization. The standard plan has four benefit phases with different copayment amounts. Generally, the beneficiary pays 100 percent in the deductible phase, 25 percent in the initial coverage phase (ICP), 100 percent in the coverage gap, and 5 percent in the catastrophic coverage phase. Each phase has a threshold of utilization that must be hit before the beneficiary moves to another phase. For non-standard plans, the amount the beneficiary pays at the point of sale for a given drug is determined not only by drug cost and benefit phase, but also by drug tier, pharmacy type and status, and days supply. Beneficiaries who are eligible for low-income subsidies also receive some or all of their point of sale costs covered by Medicare. Beneficiaries pay plans monthly premiums, which are supplemented by Medicare’s Reinsurance Subsidy to cover all beneficiary pharmaceutical costs. Premiums are determined by the plan’s bid and thus, vary by beneficiary. Low income beneficiaries have their premiums covered by Medicare through the Low Income Premium Subsidy (LIPS).”


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