News & Commentary

Specialty Drugs Boost Medicare Spending

Drug spending for Medicare Part D catastrophic coverage soared in recent years, mostly because of a huge increase in the amount the program pays for specialty drugs, according to a report issued by the Department of Health and Human Services’ Inspector General. Average prices for those drugs range from $1,200 to nearly $34,000 a month for Harvoni and the other drugs that treat hepatitis C. Many of these drugs have come on the market in the last few years.

For the most part, specialty drugs were not available in pill form until just a few years ago. The government spent more than $33 billion on specialty drugs in 2015, triple the $10.8 billion spent in 2010. The largest annual increases occurred in 2014 and 2015, the report states.

The report defines drug spending as the amount paid for a drug to the pharmacy by all payers, including the government, insurer, and beneficiary. Total drug spending for catastrophic coverage was $51.4 billion in 2015, with high-priced drugs (anything more than $1,000 a month) accounting for 65% of it. In 2010, high-priced drugs accounted for 32% of total drug spending for catastrophic coverage.

The proportion of beneficiaries receiving high-priced drugs also increased, from 14% of all beneficiaries in catastrophic coverage in 2010 to 28% in 2015. There were also more beneficiaries in catastrophic coverage: 2.4 million in 2010 and 3.6 million in 2015, a 53% increase.

After a beneficiary spends a certain amount out-of-pocket for drugs a year under Part D (that threshold is $4,950 for this year), catastrophic coverage begins. When that happens, Medicare pays 80%, the insurer (Medicare Advantage plans offer Part D coverage) pays 15%, and the beneficiary pays 5%. Ten drugs, most of them for hepatitis C, cancer, and multiple sclerosis, made up a third of catastrophic drug spending in 2015.

This can have far-reaching repercussions, the study states. “The issue of high-priced drugs is not exclusive to catastrophic coverage; it affects the entire Part D benefit and can lead to higher costs for all beneficiaries.”

The report also notes the various tactics that CMS is considering to handle the problem. They include restructuring the Part D benefit so that there’s more incentive and opportunity to lower costs, more transparency about drug pricing, promoting value-based options, and allowing the federal government to negotiate prices for certain drugs.


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