Medicare Advisory Commission Calls for Major Medicare Changes, More Risk for Plans

Major changes may be in the works for Medicare Part D, should the recommendations of the nonpartisan Medicare Payment Advisory Commission (MedPAC) be accepted.

A report from MedPAC released on June 15th, recommended that, to sustain fiscal sustainability of the Part D Program, beneficiary, insurer, and Medicare shares of the payment should be restructured. One of the main objectives seems to be shielding the beneficiary from extremely high cost sharing over time: Today, even after they exceed the catastrophic cost threshold of the coverage gap or “donut hole,” they are liable for 5% of drug costs. For some specialty medications, this could be well over $5,000 beyond what they had already spent on the deductible ($360) and 25% cost sharing (up to $3,310) and the coverage gap ($4,850 cumulatively). MedPAC recommends capping a Medicare recipient’s cost sharing for Part D drugs at about $4,850. They estimate that some seniors will be on the hook for more than $1,000 above what they presently pay if they reach the coverage gap, because of restructured cost sharing within the donut hole. Patients with low-income subsidies would pay less.

According to the report, “Medicare’s overall subsidy of basic Part D benefits would remain unchanged at 74.5%, but plan sponsors would receive more of that subsidy through capitated payments rather than open-ended reinsurance payments.” To compensate for the average reduced beneficiary contribution, MedPAC proposes that insurers pick up the slack—currently,  Medicare pays for 80% of catastrophic coverage; MedPAC wants to gradually scale that back to only 20%, with insurers covering the remainder. 

This means that insurers will be at greater risk, and their costs will rise, with 3 principal implications: (1) much tougher negotiations with pharmaceutical companies on high-priced medications, (2) higher member premiums, and (3) tighter formulary restrictions (more drug exclusions and greater utilization of utilization management tools). Of note, MedPAC recommends that health plans have more flexibility in using standard utilization management tools to control drug costs.

Furthermore, MedPAC offers greater incentives (i.e., lower cost sharing) for recipients who use generic drugs. This may be applicable to future Part D–covered biosimilars as well.

Although the move is not aimed at saving short-term money, MedPAC believes that its recommendations could save the program as much as $10 billion over 5 years. They noted that spending for Medicare Part D jumped by 60% over an 8-year period ending in 2014 ($73 billion). This is largely the result of the rapid influx of specialty drugs (e.g., hepatitis C agents) and price increases in generic and branded drugs in many categories.

The Commission’s recommendations stop well short of the calls from the Presidential candidates for Medicare to negotiate drug prices directly with manufacturers. 

To better understand the implications of these possible changes to the Medicare payer market, contact us today at stan.mehr@smhealthcom.com.