Medicare s New Adventure: The Part D Drug Benefit

1. 1 Medicare’s New Adventure: The Part D Drug Benefit Jack Hoadley, Ph.D. Research Professor Georgetown University Health Policy Institute Spring 2007 Pharmaceutical Policy Seminar Series, Cornell University April 27, 2007

2. 2 Funding Provided by the Kaiser Family Foundation, MedPAC, and DHHS/ASPE Georgetown/NORC for Kaiser Family Foundation: “Benefit Design and Formularies of Medicare Drug Plans: A Comparison of 2006 and 2007 Offerings – A First Look,” November 2006 http://www.kff.org/medicare/upload/7589.pdf “An In-Depth Examination of Formularies and Other Features of Medicare Drug Plans,” April 2006 http://www.kff.org/medicare/upload/7489.pdf NORC/Georgetown for MedPAC: Cited in MedPAC June 2006 Report to Congress, Chapters 7 and 8 “Part D Plan Offerings” http://www.medpac.gov/publications/congressional_reports/Jun06_Ch07.pdf “How Beneficiaries Learned About the Drug Benefit and Made Plan Choices” http://www.medpac.gov/publications/congressional_reports/Jun06_Ch08.pdf NORC/Georgetown for DHHS/ASPE: “Issues in the Design and Implementation of Drug Formularies and Therapeutic Classes,” September 2005 http://aspe.hhs.gov/health/reports/05/drugformularies/report.pdf

3. 3 General Background

4. 4 Evolution of Part D Original Medicare law did not cover outpatient drugs Competing plans by both parties President limited budget for MMA to $400B over 10 years MMA became law 12-8-2003 First open season: 11-15-2005 to 5-15-2006 Benefit started 1-1-2006

5. 5 Key Characteristics of Medicare Part D First coverage for outpatient prescription drugs Reliance on competing private, stand-alone drug plans Plans offered on a regional basis Managed-care alternative through Medicare Advantage Benefit includes subsidies for low-income beneficiaries Benefit has coverage gap (“doughnut hole”)

6. 6 Shape of the Standard Benefit, 2006 and 2007

7. 7 Sources of Drug Coverage, Medicare Beneficiaries, Before and After the MMA

8. 8 Low-Income Assistance under Part D

9. 9 What Low-Income Assistance is Available? Subsidies for beneficiaries with limited income and resources Reduces or eliminates most out-of-pocket expenses Beneficiaries qualify as a result of participation in Medicaid or by application Automatic enrollment in plans with premiums below a benchmark

10. 10 Eligibility for the Low-Income Subsidy, 2007 Maximum subsidy Full-benefit dual eligibles (Medicare and Medicaid) Qualifying individuals Income below 135% of poverty / $13,784 (individual) or $18,482 (couple) Resources below $7,620 (individual) or $12,190 (couple) Partial subsidy Qualifying individuals Income 135-150% of poverty / $15,315 (individual) or $20,535 (couple) Resources below $11,710 (individual) or $23,410 (couple) Note: Resources include $1,500 ($3,000/couple) allowance for funeral or burial expenses.

11. 11 The Standard 2007 Benefit for Beneficiaries Qualifying for the Low-Income Subsidy

12. 12 Eligibility and Participation in Low-Income Subsidy Program, 2007

13. 13 Educating Beneficiaries on Part D: How Did They Make Their Decisions?

14. 14 Did Beneficiaries Seek Help in Deciding Whether to Enroll?

15. 15 Did Beneficiaries Use and Find Helpful the Tools Provided by the Medicare Program?

16. 16 How Important Were Various Factors in Deciding Whether to Enroll?

17. 17 What Was the Main Reason for Not Enrolling?

18. 18 How Important Were Various Factors in Picking a Specific Plan?

19. 19 “It’s like going to a Chinese restaurant with three pages of entrees. There are lots of choices, and the choices are different, running the gamut from A to Z, covering a little to a lot. It’s too many choices.” “It’s too confusing because there’s a lot of information out there. After you’ve made your decision, how can you know you’ve made the best one?” “There is useful information out there, but it’s not information that my father has access to. He can’t use the computer, and that’s why I had to help him.” “This is like a crapshoot, because you know the meds you’re taking today, but all of a sudden, the drugs can change tomorrow and will not be covered. This is almost a gamble.” Beneficiaries Comments on Their Decisions

20. 20 Has Enrollees’ Experience with their Part D Plan been Positive or Negative?

21. 21 Enrollment in Part D Plans,2006-2007

22. 22 Part D Enrollment Nationwide, 2007

23. 23 Enrollment, among Stand-Alone PDPs Nationwide, 2006

24. 24 Plan Features in 2006-2007: Comparing Offerings by Number of Plans and Number of Enrollees

25. 25 Enrollment and Plans Offered by Type of Organization, 2006-2007

26. 26 Range of Monthly Premiums for All Stand-Alone PDPs, 2006-2007

27. 27 Changes in Monthly Premiums from 2006 to 2007

28. 28 Type of Benefit Design – All Standalone PDPs, 2006-2007

29. 29 Coverage in the Gap – All Standalone PDPs, 2006-2007

30. 30 Plan Premiums, by Type of Coverage in the Gap, All Standalone PDPs, 2007

31. 31 Rules and Classification Systems for Formularies

32. 32 Why Do Formularies Matter? Factor in beneficiaries’ selection of a plan Restriction on beneficiaries’ access to drugs Limitation on what physicians can prescribe Plan management of utilization and costs Tool to encourage appropriate drug use Leverage for negotiating prices Factor in containing plan, beneficiary, and federal costs

33. 33 Basic Rules Plans Must Follow Therapeutic classification system for formulary Nondiscrimination criterion for overall benefit Pharmacy & therapeutics (P&T) committee Actuarial equivalence for cost sharing Exceptions and appeals

34. 34 Therapeutic Classification System USP model guidelines Level 1: Therapeutic categories Level 2: Pharmacologic classes Level 3: Formulary Key drug types Plans may substitute their own system 74% of formularies used USP system in 2006

35. 35 USP Analgesics Category, 2006 and 2007(solid line=category, dashed=class, dotted=key drug type)

36. 36 USP Antidepressants Category, 2006 and 2007(solid line=category, dashed=class, dotted=key drug type)

37. 37 Nondiscrimination Criterion Statute: Disapprove if design and benefits are likely to substantially discourage enrollment by certain beneficiaries Rule: Adequate coverage of the types of drugs most commonly needed by enrollees, as recognized in national treatment guidelines Preamble: Offer complete treatment options for a variety of medical conditions

38. 38 Standards for a Formulary, 2007 2 drugs for each of 133 category/classes 1 drug for each of 141 key drug types “Most or all” drugs in selected classes But not all combination drugs or special formulations (extended-release, weekly dosing) Drugs cited in national treatment guidelines, risk adjustment categories, or in commonly prescribed drug classes Option of “specialty” tier for high-cost drugs

39. 39 Formulary Coverage by Part D Plans

40. 40 Number of National and Near-National Plans Covering Sample Drugs, 2007

41. 41 Number of Sample Drugs Covered by Top 10 Plans, 2006-2007

42. 42 Number of Sample Generic and Brand-Name Drugs Covered by Top 10 Plans, 2006-2007

43. 43

44. 44 Coverage of Cholesterol Drugs, Top 10 Plans, 2007

45. 45

46. 46 Coverage of Anti-Depressants, Top 10 Plans, 2007

47. 47 Tiering Structure by Part D Plans

48. 48 What Tier Structures Are Part D PlansUsing in 2006?

49. 49 Formulary Tier Placement of Sample Drugs, by Drug Class, 2007

50. 50 Formulary Tier Placement of 78 Sample Brand-Name Drugs, 2006-2007

51. 51 Use of Specialty Tier for Sample Drugs, Top 10 Plans, 2006-2007

52. 52 Utilization Management

53. 53 Application of Utilization Management Tools, by Drug Class, 2007

54. 54 Application of Utilization Management Tools, by Top 10 Plans, 2007

55. 55 Cost of Obtaining Drugs in the Initial Coverage Period

56. 56 Typical Cost-Sharing Levels for PDPs, 2006

57. 57 Variation in Cost Sharing Arrangements, 2007, Top 10 Plans

58. 58 Median Monthly Cost for Sample Drugs in the Initial Coverage Period, Top 10 Plans, 2006-2007

59. 59 Monthly Cost in Initial Coverage Period of Popular Drugs, Top 10 Plans, 2007 (I)

60. 60 Monthly Cost in Initial Coverage Period of Popular Drugs, Top 10 Plans, 2007 (II)

61. 61 Coverage and Monthly Cost of Statins for Treating High Cholesterol, By Plan, 2007

62. 62 Coverage and Monthly Cost of SSRIs for Treating Depression, By Plan, 2007

63. 63 What Problems Are Emerging?

64. 64

65. 65

66. 66 The Status of Medicare Part D in 2007 and Beyond

67. 67 What Are We Seeing in 2007? Mostly the same organizations, plus some new ones, offering benefits Modest changes in plan designs Modest growth in on-formulary drugs Modest increases in premiums and in the cost of sample drugs Little enrollment growth Fewer than 10% of beneficiaries switched plans for 2007

68. 68 What Do We Expect for 2008? Potential shakeout of participating organizations Reduced federal risk sharing How long will poor performers continue? Greater shifts in beneficiary enrollment? Some changes in formulary guidance New requirement for key drug types Will there be larger changes in plan designs and formularies? Will plans shift focus from enrollment to cost containment?

69. 69

70. 70 Will Policymakers Make Changes? Potential for policy changes is affected by political forces Presidential election year politics Competing budget and spending priorities Long-term Medicare solvency issues Also by legislative procedures Different perspectives in House and Senate Need for 60 votes in the Senate CBO scoring issues