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Drug spending for Medicare Part D catastrophic coverage soared in recent years mostly due to a huge increase in the amount the program pays for specialty drugs, according to a report issued this morning by the Department of Health and Human Services’ Inspector General. Many specialty drugs cost $1,000 or more a month, but that might be low-balling it. For instance, Harvoni, which treats hepatitis C, costs an average of $33,800 a month. Many of these blockbuster drugs have come on the market in the last few years.

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For the most part, specialty drugs were not available in pill form until just a few years ago and that has given beneficiaries more access to the medications. The government spent over $33 billion in 2015, more than triple the $10.8 billion spent in 2010. That represents a 208% increase ($22.4 billion) in that period, significantly higher than the 85% increase ($5 billion) seen from 2006 to 2010. It promises to get worse. "The largest annual increases occurred in 2014 and 2015, first jumping $8 billion and than another $6.1 billion," the study 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-price drugs (anything over $1,000 a month) accounting for 65% of it. In 2010, high-price drugs accounted for 32% of total drug spending for catastrophic coverage.

The proportion of beneficiaries receiving high-price 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, from 2.4 million in 2010 to 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 2017), catastrophic coverage begins. When that happens, Medicare pays 80%, the insurer (Medicare Advantage plans often offer Part D coverage) pays 15%, and the beneficiary pays 5%—but when you’re talking these kinds of numbers, that can be a unbearable burden for people. 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 dramatic growth in federal payments for catastrophic coverage and the underlying issue of high drug prices must be analyzed and addressed to secure the future of the Part D program. The issue of high-price 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. “Potential … tools 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.”

Source: Department of Health and Human Services

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