Funding Provided by the Kaiser Family Foundation, MedPAC

1
Medicares 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

• 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
General Background
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
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
Shape of the Standard Benefit, 2006 and 2007
7
Sources of Drug Coverage, Medicare Beneficiaries,
Before and After the MMA
Note Before numbers are based on MCBS analysis
by Stuart et al. After numbers are rough
estimates based on CMS numbers. Some
beneficiaries may have retained Medigap coverage
after Part D, but numbers are not available.
8
Low-Income Assistance under Part D
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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

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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.

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The Standard 2007 Benefit for Beneficiaries
Qualifying for the Low-Income Subsidy
NOTE Excludes those eligible for partial
subsidies.
12
Eligibility and Participation in Low-Income
Subsidy Program, 2007
Numbers in millions Total eligible for
low-income subsidies 13.2 million
Source Centers for Medicare and Medicaid
Services, Medicare Drug Plans Strong and
Growing, Press Release, January 30, 2007
13
Educating Beneficiaries on Part D How Did They
Make Their Decisions?
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Did Beneficiaries Seek Help in Deciding Whether
to Enroll?
From Whom?
Source NORC/Georgetown survey of beneficiaries
conducted for MedPAC, FebruaryMarch 2006.
15
Did Beneficiaries Use and Find Helpful the Tools
Provided by the Medicare Program?
Source NORC/Georgetown survey of beneficiaries
conducted for MedPAC, FebruaryMarch 2006.
16
How Important Were Various Factors in Deciding
Whether to Enroll?
Source NORC/Georgetown survey of beneficiaries
conducted for MedPAC, FebruaryMarch 2006.
17
What Was the Main Reason for Not Enrolling?
Source NORC/Georgetown survey of beneficiaries
conducted for MedPAC, FebruaryMarch 2006.
18
How Important Were Various Factors in Picking a
Specific Plan?
Source NORC/Georgetown survey of beneficiaries
conducted for MedPAC, FebruaryMarch 2006.
19
Beneficiaries Comments on Their Decisions

• Its 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. Its too many choices.
• Its too confusing because theres a lot of
  information out there. After youve made your
  decision, how can you know youve made the best
  one?
• There is useful information out there, but its
  not information that my father has access to. He
  cant use the computer, and thats why I had to
  help him.
• This is like a crapshoot, because you know the
  meds youre taking today, but all of a sudden,
  the drugs can change tomorrow and will not be
  covered. This is almost a gamble.

Source NORC/Georgetown focus groups of
beneficiaries conducted for MedPAC, March 2006.
20
Has Enrollees Experience with their Part D Plan
been Positive or Negative?
Source Kaiser Family Foundation, December 2006.
21
Enrollment in Part D Plans,2006-2007
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Part D Enrollment Nationwide, 2007
Total Medicare beneficiaries 43 million
Source Centers for Medicare and Medicaid
Services, Medicare Drug Plans Strong and
Growing, Press Release, January 30, 2007
23
Enrollment, among Stand-Alone PDPs Nationwide,
2006
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Plan Features in 2006-2007 Comparing Offerings
by Number of Plans and Number of Enrollees
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Enrollment and Plans Offered by Type of
Organization, 2006-2007
Source Hoadley et al., Benefit Design and
Formularies of Medicare Drug Plans A Comparison
of 2006 and 2007 Offerings, KFF, November 2006
26
Range of Monthly Premiums for All Stand-Alone
PDPs, 2006-2007
Source Hoadley et al., Benefit Design and
Formularies of Medicare Drug Plans A Comparison
of 2006 and 2007 Offerings, KFF, November 2006
27
Changes in Monthly Premiums from 2006 to 2007
Mean change, 2006 to 2007 3.10 per month or 12
percent
Source Hoadley et al., Benefit Design and
Formularies of Medicare Drug Plans A Comparison
of 2006 and 2007 Offerings, KFF, November 2006
28
Type of Benefit Design All Standalone PDPs,
2006-2007
Source Hoadley et al., Benefit Design and
Formularies of Medicare Drug Plans A Comparison
of 2006 and 2007 Offerings, KFF, November 2006
29
Coverage in the Gap All Standalone PDPs,
2006-2007
Source Hoadley et al., Benefit Design and
Formularies of Medicare Drug Plans A Comparison
of 2006 and 2007 Offerings, KFF, November 2006
30
Plan Premiums, by Type of Coverage in the Gap,
All Standalone PDPs, 2007
Source Hoadley et al., Benefit Design and
Formularies of Medicare Drug Plans A Comparison
of 2006 and 2007 Offerings, KFF, November 2006
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Rules and Classification Systems for Formularies
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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

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Basic Rules Plans Must Follow

• Therapeutic classification system for formulary
• Nondiscrimination criterion for overall benefit
• Pharmacy therapeutics (PT) committee
• Actuarial equivalence for cost sharing
• Exceptions and appeals

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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

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USP Analgesics Category, 2006 and 2007(solid
linecategory, dashedclass, dottedkey drug type)
36
USP Antidepressants Category, 2006 and
2007(solid linecategory, dashedclass,
dottedkey drug type)
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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

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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

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Formulary Coverage by Part D Plans
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Number of National and Near-National Plans
Covering Sample Drugs, 2007
NOTE Our sample of 160 generic and brand-name
drugs (152 for our 2006 analysis) includes drugs
commonly used by Medicare beneficiaries, such as
those treating high cholesterol and high blood
pressure, as well as some less common high-cost
drugs used to treat specific conditions such as
osteoporosis and rheumatoid arthritis. Together,
the sample of drug represents nearly 60 percent
of total prescription volume for Medicare
beneficiaries.
Source Georgetown/NORC for Kaiser Family
Foundation (160 drugs, natl. plans)
41
Number of Sample Drugs Covered by Top 10 Plans,
2006-2007
Source Georgetown/NORC for Kaiser Family
Foundation (152 drugs)
42
Number of Sample Generic and Brand-Name Drugs
Covered by Top 10 Plans, 2006-2007
Source Georgetown/NORC for Kaiser Family
Foundation (152 drugs)
43
Coverage of Cholesterol Drugs, Top 10 Plans, 2007
Number indicates how many of the top 10 plans
list that drug on formulary. Generic drugs are
listed in upper-case font.
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Coverage of Cholesterol Drugs, Top 10 Plans, 2007
Source Georgetown/NORC for Kaiser Family
Foundation
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Coverage of Anti-Depressants, Top 10 Plans, 2007
Number indicates how many of the top 10 plans
list that drug on formulary. Generic drugs are
listed in upper-case font.
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Coverage of Anti-Depressants, Top 10 Plans, 2007
Source Georgetown/NORC for Kaiser Family
Foundation
47
Tiering Structure by Part D Plans
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What Tier Structures Are Part D PlansUsing in
2006?
Source NORC/Georgetown for MedPAC (All drugs,
all plans)
49
Formulary Tier Placement of Sample Drugs, by Drug
Class, 2007
Note Standard-benefit plans excluded from this
table. Source Georgetown/NORC for Kaiser Family
Foundation (160 drugs, natl. plans)
50
Formulary Tier Placement of 78 Sample Brand-Name
Drugs, 2006-2007
Source Georgetown/NORC for Kaiser Family
Foundation (152 drugs)
51
Use of Specialty Tier for Sample Drugs, Top 10
Plans, 2006-2007
Source Georgetown/NORC for Kaiser Family
Foundation (152 drugs)
52
Utilization Management
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Application of Utilization Management Tools, by
Drug Class, 2007
Source Georgetown/NORC for Kaiser Family
Foundation (160 drugs, natl. plans)
54
Application of Utilization Management Tools, by
Top 10 Plans, 2007
Source Georgetown/NORC for Kaiser Family
Foundation (152 drugs)
55
Cost of Obtaining Drugs in the Initial Coverage
Period
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Typical Cost-Sharing Levels for PDPs, 2006
Source NORC/Georgetown for MedPAC (All drugs,
all plans)
57
Variation in Cost Sharing Arrangements, 2007, Top
10 Plans
Higher in 2007 Bold/Red Lower Italics/Blue
Source Georgetown/NORC for Kaiser Family
Foundation
58
Median Monthly Cost for Sample Drugs in the
Initial Coverage Period, Top 10 Plans, 2006-2007
Source Georgetown/NORC for Kaiser Family
Foundation (152 drugs)
59
Monthly Cost in Initial Coverage Period of
Popular Drugs, Top 10 Plans, 2007 (I)
Note Shaded cell indicates off-formulary drug
for specific plan. Source
Georgetown/NORC for Kaiser Family Foundation
60
Monthly Cost in Initial Coverage Period of
Popular Drugs, Top 10 Plans, 2007 (II)
Note Shaded cell indicates off-formulary drug
for specific plan. Source
Georgetown/NORC for Kaiser Family Foundation
61
Coverage and Monthly Cost of Statins for Treating
High Cholesterol, By Plan, 2007
Notes Cost in the initial coverage period
Shaded cell indicates off-formulary drug for
plan. Source Georgetown/NORC for Kaiser Family
Foundation
62
Coverage and Monthly Cost of SSRIs for Treating
Depression, By Plan, 2007
Notes Cost in the initial coverage period.
Shaded cell indicates off-formulary drug. Source
Georgetown/NORC for Kaiser Family Foundation
63
What Problems Are Emerging?
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To What Extent are Seniors Reporting Problems
When Using Their Plans?
Source Kaiser Family Foundation, June 2006
65
Problems Filling Prescriptions by Number of
Prescriptions and by Income
Source Kaiser Family Foundation, June 2006
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The Status of Medicare Part D in 2007 and Beyond
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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
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?

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Do Beneficiaries Favor Changes to Medicare Part D?
Source Kaiser Family Foundation, November 2006
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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