Medicare Part D Puts the Focus on Prices

The prescription drug plan brings affordable benefits to millions, along with increasing scrutiny of costs
Oct 01, 2007

Jill Wechsler
There has been a lot of good news about the Medicare drug benefit in recent weeks. Surveys show a substantial increase in coverage, particularly among low-income seniors. Costs are less than expected; employers continue to offer retiree benefits; major insurers are sticking with the program; and product coverage remains fairly broad. Beneficiaries seem generally satisfied with the program, and the much-feared "doughnut hole" appears less lethal than anticipated (see "A Narrow Gap").

A Narrow Gap
But as participation increases, which is inevitable as baby boomers retire, program spending is sure to rise. Program critics already claim that Part D prescription drug plans (PDPs) pay too much for drugs and that the government could negotiate lower prices from manufacturers. Insurers hope to avoid a government takeover with more aggressive formulary management and tougher negotiating for discounts on listed drug prices. As formularies tighten up and marketers face more pressure for price concessions, the first few years of Part D most likely will be the "golden years for enrollees and branded pharmaceutical companies alike," predicts IMS Health in assessing Part D's first year, 2006. (To read the full report, visit Many challenges lie ahead.

Broad Coverage

As Medicare officials prepare for the 2008 open-enrollment period, which runs from mid-November to the end of 2007, they are highlighting continued access to relatively low-cost plans. The Centers for Medicare and Medicaid Services (CMS) happily announced in August that the average plan premium in 2008 will be about $25—up only slightly over this year and way below original estimates of $40 or more. And premiums for Medicare Advantage drug benefits will average $11 less.

Studies show these low rates have prompted most seniors to sign up for the program. By the beginning of 2007, almost 40 million Medicare beneficiaries had prescription drug coverage, up from 27 million in 2005, CMS reported. More than half (24 million) are enrolled in Part D; private employers continue to provide benefits for 7 million retirees; and 5 million federal government and military retirees have coverage through government health programs.

Similarly, a national survey of 16,000 seniors reports that 90 percent had some kind of prescription drug coverage in 2006, up from less than 50 percent in 2005. Half are in Part D plans, one-third obtain coverage from employers, and about 10 percent have benefits from the Veterans Administration or military, according to this report by the Kaiser Family Foundation, the Commonwealth Fund, and Tufts-New England Medical Center (published online at, Aug. 21). Part D plans have higher proportions of low-income members due to an automatic enrollment process, and seniors with chronic health conditions and high drug use were more likely to sign up than seniors with low drug use.

For pharma companies, the important result is higher drug utilization by this key patient cohort. The 24 million seniors enrolled in Part D plans filled approximately 486 million prescriptions in 2006—almost 15 percent of the total retail Rx market, according to the IMS report. The program drove utilization of most chronic therapeutic classes, particularly those for asymptomatic conditions, such as hypertension and high cholesterol, as well as treatments for depression, diabetes, pain, and ulcers.

More new prescriptions and improved compliance were particularly noticeable among the 3.4 million seniors in Part D that previously lacked coverage (for related content, see "Senior Skip Day"). The formerly uninsured, reports IMS, paid 60 percent less on average per prescription. And new therapy starts boosted demand most noticeably for proton pump inhibitors, statins, and angiotensin II antagonists.

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