This is a follow-up to our last post about the affordability of specialty drugs within the Medicare Part D population. First, a quick review:

  • Nearly half of Medicare recipients have annual incomes less than $24,150 and a full quarter of the recipients have annual incomes lower than $14,350
  • Even with catastrophic coverage, annual out of pocket costs for the most popular specialty drugs could be as high as $11,500
  • With specialty drug costs growing at ~30% annually, affordability of these high-cost medications is expected to become a huge issue

Despite these challenges, customers often tell us that Medicare Part D makes up about 25%-50% of their high cost specialty Rx volume. If affordability is a clear problem, what’s driving higher than expected specialty drug volumes?

To answer this question, we turn to the Medicare drug spending data published by CMS. It turns out, most of the Medicare Part D volume for the top high cost specialty drugs comes from the LIS population that obtains subsidies via the Extra Help program. For instance, here is the LIS segment patient share for some of the top high-cost specialty medications (data based on 2014 volumes):

Keeping in mind that the LIS population accounted for only 30% of Medicare Part D enrollment in 2014, it is pretty clear that disproportionate use within the LIS population is ultimately behind the healthy Medicare Part D volumes for specialty drugs (See chart highlighting OOP differences). This makes sense given that:

  • LIS beneficiaries are not subject to the higher donut hole payments for branded drugs (25% for LIS patients vs. 45% for non-LIS patients), and
  • Catastrophic coverage payments for LIS patients ($3.30/$6.60) are much lower than that of the non-LIS population (5% of Rx cost)

Stotle regression analysis of Medicare Part D data shows that for every $500 differential between the LIS and non-LIS OOP cost for the same specialty drug, LIS patient share will increase by ~8% assuming all other things remain equal. In other words, for a $500 reduction in OOP, specialty drug utilization can be expected to increase ~8%.

All of this points to an unexpectedly optimistic future for Medicare Part D patients: As the Medicare Part D donut hole closes slowly but eventually by 2020, specialty drug affordability could improve significantly within the non-LIS population and life changing medications will have a positive impact on more lives than ever before. We can drink to that!