OIG: Part D plans sidestepped cheaper hep C generics for pricey brand-name versions

Some Medicare Part D plans did not cover generic versions of pricey hepatitis C drugs in 2019, leaving millions in savings on the table, according to a new watchdog report. 

The report, released Thursday by the Department of Health and Human Services' Office of Inspector General (OIG), said the structure of Part D, including manufacturer rebates, may be incentivizing plans to steer customers to higher-cost drugs. The findings come as Part D plans could be in line for greater liability of drug costs under a landmark reform bill.

“Although rebates from manufacturers reduced overall Part D spending for higher cost hepatitis C drugs (such as Epclusa and Harvoni), they provided little relief to beneficiaries or the Medicare program,” the report said.

The watchdog looked at Part D spending for authorized generics of the high-priced hepatitis C drugs Epclusa and Harvoni. Such authorized generics were approved by the brand-name manufacturer Gilead Sciences to reduce costs. Reliance on the authorized generics could help beneficiaries save thousands, as the list prices for both hepatitis C drugs can cost between $22,000 and $36,000 a treatment.

OIG used prescription drug event data to calculate the proportion of Part D beneficiaries using the authorized generics in 2019 and 2020. 

Gilead launched the authorized generics in January 2019. In that first quarter of availability, less than 10% of Medicare patients and under 25% of Medicaid beneficiaries got the cheaper versions. 

“Through the end of 2020, authorized generic use increased in both programs, though Medicare still lagged far behind Medicaid,” OIG said. 

For example, at the end of 2020, 77% of Medicaid beneficiaries used the authorized version of Epclusa compared with 30% for Medicare. For Harvoni, 41% of those on Medicaid used the cheaper generic compared with 19% of Medicare beneficiaries. 

“Notably, the utilization rate of these two authorized generic versions among Medicare beneficiaries is considerably lower than Part D’s 90% overall utilization rate of generic drugs,” the report said. 

OIG estimated that a lack of inclusion of the generics on Part D formularies was a “primary factor” affecting use of the cheaper versions.

“In 2020, nearly half of Part D plans covered Epclusa or Harvoni but did not cover the authorized generic versions that were specifically launched to reduce patient costs,” the report said. “The lack of coverage may largely explain why so few Medicare beneficiaries received an authorized generic to treat hepatitis C in 2020, and instead so many received the more expensive brand-name version.”

Larger rebates offered by manufacturers could also play a role.

The rebates enable plan sponsors to recoup much of their gross spending, but some experts have “raised concerns that the reduction in net sponsor spending for higher-cost drugs caused by large rebates has weakened sponsors’ incentives to negotiate lower prices,” OIG wrote.

Because the cost of hepatitis C drugs was so high, all Part D beneficiaries that got the treatments wound up the catastrophic coverage phase. Beneficiaries reach the phase after drug spending passes a certain threshold, wherein Medicare then covers most of the costs.

“Medicare’s average catastrophic coverage payment for a beneficiary prescribed a higher-cost drug to treat hepatitis C was more than $20,000—nearly double that of a beneficiary prescribed a lower-cost drug which averaged slightly more than $11,000,” OIG wrote.

In the catastrophic phase, Medicare covers 80% of the cost and plans cover 15%, with the beneficiary covering the remaining 5%.

However, plans are likely to take greater responsibility for catastrophic coverage phase spending if the House passes the Inflation Reduction Act this Friday. The major spending package would increase plan liability for catastrophic spending from 15% to 60%, which could spark a greater desire for plans to control drug costs, experts said.