MedPAC is going full Bulworth!

Last month, the pharma and physician communities reacted with a collective gasp when MedPAC announced a 5-year pilot project to cut Part B buy-and-bill reimbursement from ASP+6% to ASP+2.5%+$16.80. Even before the dust has settled on that issue, MedPAC has now recommended a number of drastic changes to the Part D program that are intended to save Medicare $10 billion over the next 5 years. Closer analysis indicates that the savings are likely to come at the cost of the increased cost burden to patients and perhaps poorer health outcomes.

MedPAC’s proposals fall under 3 broad categories:

      1.Changes to Part D TrOOP calculation and patient cost-sharing

      2.Provisions to increase generic and biosimilar use

      3.An update to the protected class of drugs as well as changes to the formulary review process

Our analysis is confined to the first group of changes. At a high level, MedPAC proposes the following:

->Exclude manufacturer discounts in the coverage gap from enrollees' true out-of-pocket spending

 ->Eliminate enrollee cost sharing above the out-of-pocket threshold

Impact of Excluding Manufacturer Coverage Gap Discount from TrOOP Calculation

Currently, the 50% discount paid by branded Rx manufacturers within coverage gap counts towards the enrollee’s true out-of-pocket calculation. In 2016, beneficiaries pay 45% of the Rx cost under the donut hole. As a result of the manufacturer discount counting towards TrOOP limit, they enter catastrophic coverage 2x faster and at a 50% cost saving. By 2020, when donut hole closes, enrollees will pay only 25% of the cost under coverage gap and therefore enter catastrophic coverage 3x faster and at a 67% cost saving. If the MedPAC proposal is implemented, patients will lose the benefit of the manufacturer discount and therefore spend 2x-3x more time within the donut hole and pay 2x-3x than their out of pocket cost under current benefit design.

Impact of Eliminating Enrollee Cost Sharing Above the Out-of-Pocket Threshold

When patients enter catastrophic coverage, they currently pay 5% of the Rx cost even though their TrOOP limit has been reached. As a result, patients could incur additional costs in the hundreds or even thousands for high-cost medications under catastrophic coverage. Eliminating the enrollee cost sharing under catastrophic coverage institutes a hard cap of enrollee out of pocket cost during a beneficiary year and protects patients on high-cost medications.

MedPAC presented the cumulative impact of these two proposed changes as patient-neutral, arguing that the increased patient costs due to the first provision will be counterbalanced by the cost saving effect of the second provision. PhRMA and patient advocacy groups are clearly not buying the argument, with PhRMA responding that “these recommendations will significantly harm beneficiaries by eroding coverage and protections for some of the most vulnerable enrollees in the program. MedPAC’s vote also ignores broad stakeholder concerns”.

We analyzed the quantitative impact of these proposals by modeling out the annual beneficiary out of pocket cost in 2020. We chose the year 2020 since coverage gap cost sharing will remain constant beginning that year. Our simulation assumes that patients are 100% adherent to therapy and that the patient is only on branded single-source drugs throughout the year. There are three group of patients and they are all affected very differently due to the MedPAC changes (see graph below).


Patients whose average monthly branded Rx cost is <$720: For these patients, the total annual out of pocket Rx costs will be roughly the same under current Part D guidelines and also after the MedPAC proposals are implemented. At a total Rx cost of $720, patients will pay ~$2400  out of their pocket in either case. These patients will see no impact from the changes.

Patients whose average monthly branded Rx cost is >$720 & <$5000: These patients will pay more out of pocket in a year under the proposed guidelines. Patients whose monthly branded costs total ~$2000 will incur an additional $1750 in out of pocket expenses.

Patients whose average monthly branded Rx cost is >$5000: This cohort of patients hit the TrOOP limit much earlier in the year compared to the other cohorts, benefiting from the elimination of the 5% catastrophic coverage cost to such an extent that it offsets the increased out of pocket costs under the coverage gap due to the exclusion of the manufacturer discount towards TrOOP.

Our model assumed that the increased coverage gap costs will have no effect on adherence. We know this to be not true given current trends in Part D where LIS patients have higher adherence than non-LIS patients due to coverage gap cost differences. Extrapolating this to the future, even the cohort of patients facing a monthly average branded Rx cost >$5000 will end up paying more since they will be less compliant under coverage gap and spend less time under the catastrophic coverage. As a result, the cost savings under catastrophic coverage may not offset the increased coverage gap costs. In summary, a vast majority of Part D non-LIS beneficiaries will pay more out of pocket and experience worse outcomes due to poor adherence. PhRMA is right to protest these changes and MedPAC should reconsider.