The Out-of-Pocket Cost Burden for Specialty Drugs in Medicare Part D in 2019

Data collection, plans, and pharmacies

All data were collected from the Medicare Plan Finder website in November-December 2018, using zip code 21201 in Baltimore, MD, which corresponds to prescription drug plan (PDP) region 5, covering Washington, D.C., Delaware, and Maryland—the same zip code used in our previous analysis. Data were collected for the 25 stand-alone PDPs in Region 5, 24 of which are offered by nine firms that sponsor plans on a national or near-national basis (at least 33 of the 34 PDP regions, excluding the territories). Medicare Advantage drug plans were excluded from the analysis because plan participation varies geographically and few plans are offered on a national or near-national basis.

We use one zip code to represent PDP costs nationally because most PDPs (including 24 of the 25 PDPs in Region 5) are offered on a national or near-national basis; 20 of the 25 PDPs in Region 5 are offered in all 34 PDP regions and 4 are offered in 33 regions; one PDP is offered in only four PDP regions. Based on our analysis of January 2019 enrollment data from the Centers for Medicare & Medicaid Services, the 25 PDPs in this analysis have a total of 19.4 million enrollees across all regions where they are offered, which is 76.5 percent of total PDP enrollment nationwide. As such, the analysis is broadly applicable to a majority of PDP enrollees nationwide.

Moreover, it is common for PDPs to use the same formulary and the same formulary tier structure in all regions. Some of the national and near-national PDPs have modest regional variation in cost-sharing amounts for generic and brand-name drugs, and there may be modest variation in the full price of drugs across pharmacies and regions, but there is no variation in the specialty tier coinsurance rate, which is the cost-sharing tier relevant to the drugs in our analysis in the vast majority of cases.

For all drugs and plans in our analysis, cost and coverage data were collected from a Rite Aid pharmacy on Martin Luther King Jr. Boulevard in Baltimore, which was a standard cost-sharing pharmacy for 14 PDPs in Region 5 and a preferred cost-sharing pharmacy for 10 PDPs in this region. For one of the 25 PDPs (Aetna Medicare Rx Select), the Rite Aid pharmacy was out of network; therefore, for this plan, we obtained cost and coverage information from a CVS pharmacy on Charles Street in Baltimore. It is important to note that the standard versus preferred cost-sharing pharmacy distinction is generally not relevant for our analysis, because none of the 25 PDPs in Region 5 vary their specialty tier coinsurance rate by pharmacy type.

Drug selection

Our analysis focused on 30 specialty tier drugs across four health conditions that are commonly treated by specialty drugs: cancer, hepatitis C, multiple sclerosis, and rheumatoid arthritis. The list of 30 drugs includes 12 from our original 2016 analysis, which were available at the end of 2015, and an additional 18 drugs that were approved by the FDA in the intervening years (2016, 2017, and 2018, through November) for the four health conditions in our analysis and which are covered by Medicare Part D (as opposed to Part B) (as verified by the 09/14/18 version of the 2019 Medicare Part D formulary reference file).

For 19 of the 30 specialty tier drugs in our analysis, the dosage, form, and quantity of the medication used per month were taken from the defaults offered by the Medicare Plan Finder. For 11 drugs, the Plan Finder dosage, form, and/or quantity did not match the dosage and administration recommendations in the prescribing information for each drug available from the FDA, so we modified the Plan Finder dosages, forms, and/or quantities accordingly.

Drug cost and coverage information

For each drug, we collected information on the full cost (price), cost-sharing amounts paid by enrollees not receiving low-income subsidies (LIS), tier placement, and utilization management restrictions.

We calculated a drug’s expected full cost in 2019 when covered by calculating the median of the annual total cost for each drug among plans that include that drug on formulary, based on a full year of utilization (or in the case of the hepatitis C drugs, for the recommended treatment duration, which is typically 12 weeks); the full cost of non-covered drugs is the median of the annual total cost for each drug among plans that do not include the drug on formulary. We calculated expected annual out-of-pocket costs for each drug by calculating the median of the total annual out-of-pocket cost that a non-LIS enrollee in each plan would pay for the given drug in 2019, based on a full year of utilization (or in the case of the hepatitis C drugs, for the full treatment duration, which is typically 12 weeks), among plans that include that drug on formulary, excluding the monthly plan premium.

Cost information is presented on an annual basis because the 30 studied drugs are priced high enough that out-of-pocket costs are determined based on all benefit phases (deductible, initial coverage level, coverage gap, and catastrophic coverage).

The full cost of the drug is shown on the Medicare Plan Finder. The amount shown if the drug is on formulary is based on the drug’s unit price and dispensing fee as submitted by the plan. For off-formulary drugs, prices are inserted by CMS using a standard formula to approximate cash pricing: the wholesale acquisition cost (WAC) plus 15 percent for brands and WAC plus 20 percent for generics. The WAC is a publicly available list price that approximates what retail pharmacies pay wholesalers for single source drugs and is taken by CMS from the Medispan database, with First Data Bank as a backup. For the drugs in this analysis, the CMS-supplied price tends to be about 10 percent to 20 percent higher than the median price for plans with the drug on formulary.

Cost sharing is shown on the Medicare Plan Finder for four phases of the Part D drug benefit. Cost sharing in the deductible phase (where applicable) is equal to the full cost of the drug. Cost sharing in the initial coverage phase is determined based on the tier placement and cost-sharing structure for the particular plan; the specialty tier coinsurance rate ranges from 25 percent to 33 percent. Cost sharing in the coverage gap phase is based on a statutory formula that takes into account the statutory manufacturer’s discount for most brand drugs (70 percent in 2019) and a required coinsurance amount (25 percent in 2019). Cost sharing in the catastrophic phase is based on a statutory rule: the greater of 5 percent of the full cost of the drug or a nominal copayment amount.

Tier placement is also shown on the Medicare Plan Finder for each drug, as is the use of utilization management restrictions, including prior authorization, step therapy, and quantity limits.