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CCH® BENEFITS — 03/16/10

Drug Plan Sponsors Have Little Price Negotiation Leverage With Specialty Drugs

from Spencer’s Benefits Reports: Plan sponsors reported having little leverage to negotiate price concessions from manufacturers for most specialty tier-eligible drugs under Medicare Part D when there were few or no other treatment options, according to a recent report from the Government Accountability Office.

Part D plan sponsors also pointed to CMS that impediments to negotiating price discounts from drug makers include limits on sponsors’ ability to exclude drugs from their formularies in favor of competing drugs, and the fact that the specialty-tier drugs represent a relatively small proportion of the drugs used by Part D beneficiaries. Plans applied more utilization management techniques, primarily prior authorization, for some specialty-tier drugs than for other drugs (99% versus 89%).

The GAO report, Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier, noted that, of variations in negotiated drug prices for prescription drugs that fall in the high-cost specialty drug-tier of Part D plans, the extent of the effect on Medicare Part D enrollees’ out-of-pocket costs varied between different drugs in the same plan, across plans for the same drug, and over time due to price changes.

High-cost drugs eligible for a specialty tier commonly included immunosuppressants, cancer treatments, and antivirals (such as those to treat HIV/AIDS and Hepatitis C). Specialty tier-eligible drugs accounted for 10%, or $5.6 billion, of the $54.4 billion in total prescription drug spending under Medicare Part D plans in 2007. A specialty tier for high-cost drugs, with the median beneficiary in such a plan required 33% coinsurance for those drugs during the initial coverage period.

GAO determined that in 2009 those specialty-tier drugs were more than twice as likely to be in one of the six classes of clinical concern compared with lower-cost drugs. Additionally, among the eight drugs in GAO’s sample of 20 specialty tier-eligible drugs for which the plan sponsors GAO surveyed reported they were unable to obtain price concessions between 2006 and 2008, four drugs were in one of the six classes of clinical concern, the agency reported.

Medicare beneficiaries who received a low-income subsidy (LIS) accounted for most of the spending on specialty tier-eligible drugs—$4.0 billion, or 70% of the total. Among all beneficiaries who used at least one specialty tier-eligible drug in 2007, more than half (55%) reached the catastrophic coverage threshold, after which Medicare pays at least 80% of all drug costs. In contrast, only 8% of all Part D beneficiaries who did not use a specialty tier-eligible drug reached this threshold in 2007.

Spending for prescription drugs under the Medicare Part D program reached $43 million and accounted for nearly 11% of total Medicare spending in 2008, the GAO noted. As of February 2009, 9.6 million beneficiaries received the LIS with more than 80% of those receiving the full subsidy. The balance received a partial subsidy.

Variations in negotiated drug prices for specialty-tier drugs had the following effects on non-LIS beneficiaries’ out-of-pocket costs:

The average negotiated price for Gleevec across GAO’s sample of plans rose by 46% between 2006 and 2009, from about $31,200 per year to about $45,500 per year. Correspondingly, the average out-of-pocket cost for a non-LIS beneficiary taking Gleevec for the entire year could have been expected to rise from about $4,900 in 2006 to more than $6,300 in 2009.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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