High-priced drugs drive up Medicare Part D catastrophic coverage costs

Federal payments for Medicare Part D catastrophic coverage have tripled since 2010, exceeding $33 billion in 2015, according to a new report.

The main reason for the increase? High-priced drugs, says the Office of Inspector General, U.S. Department of Health and Human Services in a report released Thursday. Indeed, the costs of high-priced drugs were responsible for nearly two-thirds of the total drug spending in catastrophic coverage.

The OIG conducted the investigation (PDF) because of increasing concern over the prices of certain drugs and the impact the prices have on Medicare beneficiaries and the healthcare systems. Medicare patients pay a 5% coinsurance for drugs under Medicare Part D catastrophic coverage and the federal government picks up most of the remaining costs. The problem is exacerbated because beneficiaries’ out-of-pocket costs aren’t capped and the government’s share of drug spending is the highest.

Ten specialty drugs were responsible for almost one-third of all drug spending for catastrophic coverage in 2015, the report found. The average price for each of those drugs ranged from $1,200 to $34,000 a month.

Two of the most expensive drugs, Harvoni and Sovaldi, for hepatitis C treatment, accounted for $7.5 billion of the spending. Both drugs are new to the market, receiving approval from the Food and Drug Administration in 2013 and 2014.

The rising costs are of great concern because it adds more stress to the program and can lead to higher premiums for all Medicare beneficiaries. “It affects federal payments for the entire benefit and may eventually lead to higher premiums and higher drug costs for all," Miriam Anderson, a lead author on the study, told The Wall Street Journal.

But there are no easy solutions to this complex problem. The OIG called for further analysis to address the future of the Part D program. Some ways to rein in costs are to restructure the Part D benefit and provide incentives to drug manufacturers to lower costs, create more transparency about drug pricing, promote value-based options, and revise the law so the federal government can negotiate prices for certain drugs. The OIG urged the Centers for Medicare & Medicaid Services to assess these options and work with Congress to make necessary changes to the program.