Medicare Part D wasn’t built for costly specialty drugs. MedPAC wants to change that 

Woman paying for a prescription at a pharmacy
MedPAC is debating policy changes to make Part D more effective at covering costly specialty drugs. (Getty/Tom Merton)

Medicare Part D was launched before the rapid rise of pricey specialty drugs, so MedPAC is considering recommendations for a significant overhaul of the program to address that change in the market. 

The Medicare Payment Advisory Commission discussed a plan at its meeting Friday that would restructure the Part D catastrophic phase and replace existing discounts in the coverage gap with a manufacturer cap discount that better accounts for these emerging therapies. 

An approach like this, MedPAC’s staff said in a report at the meeting, would align incentives for Part D plan sponsors to manage spending and also put pressure on drug companies in how they’re pricing new pharmaceuticals. 

“The idea is that under this policy option there would be stronger incentives to use generics, [and] an increase in the affordability of high-price products,” said Shinobu Suzuki, a principal policy analyst on the commission’s staff. 

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Commissioner Paul Ginsburg, Ph.D., director of the USC-Brookings Schaeffer Initiative for Health Policy, said that a revamp of Part D is “long overdue” to keep up with changing market dynamics. 

“It’s really amazing how much has changed since 2003, when Part D was developed, until now,” Ginsburg said. 

Part of the problem, the report noted, is that the existing discounts in the coverage gap rarely apply to drugs in specialty tiers. These discounts were instead concentrated significantly in drugs for diabetes, asthma and chronic obstructive pulmonary disorder and anticoagulants. 

By moving to a cap discount model, MedPAC’s staff projects that four specialty classes—antivirals, anti-inflammatories, antineoplastics and drugs for multiple sclerosis—would account for 50% of discounts, compared to 12% under the current model. 

The challenge for policymakers, however, will be striking the appropriate balance between the risk assumed by the plan sponsors and risk assumed by drug companies, MedPAC’s staff said in the report. 

If the plans take on greater risk, there’s greater incentive for them to manage spending and to negotiate higher rebates in therapeutics classes with strong competition. However, it could also lead to higher premiums or benefit costs, and they may lack negotiating power in some non-competitive drug classes, according to the report. 

RELATED: Tweaks to Part D plan design chip away at payers’ incentives to keep costs down, MedPAC says 

By contrast, if the drug manufacturers take on greater risk, that could lower premiums and lead to guaranteed discounts in noncompetitive therapeutic categories but would lead to weak incentives for plans to manage spending. 

Commissioner Amy Bricker, senior vice president of the supply chain division at Express Scripts, said at the meeting that another issue to be weighed in the debate is that there is not, at least a present, a robust pipeline of generics of biosimilars to boost competition for these specialty medications. 

The drug development pipeline is currently “rich with really, really expensive products”—which are only going to continue to get more expensive, she said. 

“We need to think about how we can get manufacturers’ skin in the game,” she said.