Recent developments in Medicare Part D 7 things providers should know

Healthcare Financial Management, March, 2007 by Paul L. Grimaldi

The second year of Medicare's Part D benefit began on Jan. 1, 2007, with an updated benefit design and other changes that will have important implications for drug plans, healthcare systems, and pharmacies and other providers directly involved in the provision of outpatient prescription drugs.

About 38 million of Medicare's 43 million beneficiaries had some form of outpatient prescription drug insurance in October 2006. This includes 17 million who voluntarily enrolled in a stand-alone prescription drug plan or Medicare Advantage prescription drug plan and 6.1 million Medicare-Medicaid beneficiaries who were "automatically enrolled" because their Medicaid coverage of outpatient prescriptions ended Dec. 31, 200.5. Apart from some start-up problems, consumer surveys generally show that the vast majority of beneficiaries are satisfied with Part D.

According to the Medicare Payment Advisory Commission, sponsors (i.e., insurers or medical plans with pharmacy benefit managers) offered 1,429 PDPs and 1,303 MA-PDs in CY06, with varying combinations of premiums, deductibles, cost-sharing provisions, and formularies. Multiple choices generally enabled beneficiaries to choose a plan that best suited their needs.

First-year Part D payments were substantially lower than federal actuaries had predicted. Specifically, the Centers for Medicare and Medicaid Services reports that in 2006, Part D cost the federal government 30 percent less than expected. Furthermore, beneficiaries frequently purchased Part D drugs at substantially discounted prices that drug plans and pharmacy benefit managers negotiated with pharmaceutical manufacturers. On the negative side, Medicare's share of Part D payments contributed to the nation's rapidly mounting federal debt.

As the second year of Medicare Part D gets under way, hospitals, physicians, and other providers may be asked questions by patients who are unfamiliar with recent Part D developments or are seeking information about where they can obtain covered drugs at the lowest out-of-pocket costs. Learn more about what the latest developments will mean for drug plans, providers, and patients.

Standard Plan Will Cost More in 2007 As required by federal law, the financial design of the standard Part D benefit package was updated for CY07 to keep Medicare's share of total Part D payments at approximately 75 percent. The update is 6.86 percent, which, after rounding, yields the increases shown in the sidebar on this page.

As for the monthly premium, its update depends largely on the competitive bids that CMS approves rather than on a projected increase in a published index. The bids that the drug plans submitted for CY07 were typically based on limited Part D experience because they were submitted in mid-2006. After most or all of the actual data for CY06 become available, drug plans and sponsors need to verify the utilization assumptions used to prepare the bids. Any discrepancies should be reflected in the bids prepared for CY08.

More Plans, but Coverage Gap Still Large CMS reports that at least an additional 400 drug plans will offer Part D benefits in CY07. A state-by-state outline of the competing plans, monthly premiums, and cost-sharing requirements is available at www.medicare.gov/medicarereform/local-plans2007.asp. On average, the typical enrollee's monthly Part D premium is not expected to increase by more than a few dollars a month, which may be relatively large in the case of drug plans that offered the lowest premiums in 2006.

The coverage gap, or doughnut hole, in the Part D benefit will almost certainly continue to remain a source of discontent during CY07. Only about 15 percent, or 220, of the PDPs offered doughnut-hole coverage in 2006. According to the Henry J. Kaiser Family Foundation, roughly 300 additional plans will offer such coverage in 2007, in response to CMS's request that plans improve gap coverage. However, the coverage will apply primarily to generic drugs, which may prove inadequate for many beneficiaries with chronic conditions that require costly patented or sole-source drugs.

State pharmaceutical assistance programs may be able to help some of these beneficiaries financially. Pharmaceutical manufacturers may be able to address another part of the financial strain, given CMS's clarification that nothing in federal law prohibits them from directly helping financially needy Medicare beneficiaries to obtain particular drugs at reduced prices if (1) the financial assistance and drugs are provided entirely outside the Part D benefit and (2) the beneficiary obtains the drugs without using his or her Part D benefit. This is true even if Part D covers the drug and the beneficiary is enrolled in a Part D plan. However, by paying even a portion of a beneficiary's Part D cost-sharing amounts for its products, the manufacturer could be exposed to additional liability under fraud and abuse laws.

Updated Finder Eases Decision Making Sponsors, drug plans, and pharmacies should verify their portions of the information in the Medicare Prescription Drug Plan Finder, available at www.medicare.gov/medicarereform/local-plans2007.asp. Incorrect information could result in a loss of business and needless arguments about a prescription's cost.