Medicare Part D, Part I: Key Trends and Pressures

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Tune into the first episode of the Avalere Health Essential Voice miniseries focused on Medicare Part D. In this segment, our Policy and Market Access experts discuss Part D trends and pressures in the currently evolving drug pricing environment.
“With the change in subsidies from CMS going down over time, plans have really had to concentrate on taking drug costs out, whether that comes from the formulary, from greater rebates, or from scaling back on plan designs, and those are all things that have happened, especially in the PDP space.” Neil Lund, Senior Advisor, Market Access


Ryan Urgo , Managing Director, Policy

Ryan Urgo provides strategic advice to drug manufacturers, health plans, and advocacy groups to help them navigate the health policy environment and understand the impact of legislative and regulatory policies on their business goals.

Guest Speaker
Neil Lund , Senior Advisor, Market Access
Neil Lund brings more than 30 years’ worth of actuarial and formulary management experience to the firm; he works with a range of life sciences and health plan clients on issues tied to market access, patient access, and product positioning.

This interview was originally published as a podcast. The audio is no longer available, but you can read the transcript below. For updates on our newly released content, visit our Insight Subscription page.

If you would like to watch the video version, please visit our video page.


Ryan: Hello, and welcome to another episode of Avalere Health Essential Voice. I’m Ryan Urgo, Managing Director in the Policy practice here at Avalere. I’m joined today by Neil Lund, Senior Advisor in our Market Access practice and retired former Chief Actuary for CVS Health.

Our podcast show covers a wide range of healthcare topics. Today’s episode in our Medicare Part D miniseries, is going to be focused on Part D trends and pressures, particularly in the evolving drug pricing environment, which has quite a bit to say about the Part D program.

What are some of the key factors or trends that we should be following in Part D beyond just the premium, particularly if you’re a life sciences or health plan stakeholder?

Neil: Sure, Ryan. I agree this has been a phenomenally successful program, and it has gone through a period of great stability. I think there are 2 key trends that we want to talk about today.

The first is membership and how membership is changing across plans. The second is the drug cost mix itself, which has also been changing significantly. These have very broad implications for the Medicare Part D program.

Ryan: So why is membership so important?

Neil: There’s been strong enrollment growth over time, but a pronounced shift in how the beneficiaries are distributed. On one hand, membership has more than doubled since plan inception. It currently grows at a rate of about 4% a year and has over 49 million members currently enrolled. It’s a very strong program.

However, the membership composition has changed significantly. At inception, about 75% of the membership was in prescription drug plans (PDPs). Today, PDP membership is slightly under 50%. So, PDP and Medicare Advantage Part D (MAPD) membership are very similar to each other.

What has been happening is the PDP membership has been relatively flat to just mild declines, while the MAPD membership has grown robustly. Plan participation has also changed. PDPs are relatively stable with about 65 contracts. Contracts are a way that CMS measures participants. A contract is one CMS contract with a given plan, whether that covers one region or 34 regions.

MA on the other hand has a very robust 895 contracts, so significantly more contracts than PDPs. These grow by about 60 contracts a year. So again, an evolving shift. We’re seeing a very dynamic MA market and a relatively flat PDP market.

Ryan: Very interesting. So even more to the point, with MAPD being such a diverse and growing segment, I’d be interested to hear your take on how MAPDs and PDPs think differently, and how they approach various submarkets in different ways.

Now, I can think of a couple of examples that I know are important, one being that Medicare Advantage has responsibility for the total cost of care, not just the drug spend. As a consequence, they typically have offered richer plan benefits, meaning they cover more drugs and they tend to have more flat copays and lower overall beneficiary coinsurance. Plus, the MA 5-star program puts a tremendous emphasis on quality. So, for an MAPD player, an argument for covering a drug that is perceived to be high value if that drug can lower overall total cost of care is going to resonate much better.

The one other thing that I would mention is the makeup of beneficiaries in utilization patterns can also really vary between PDP and MAPD. So, if you are a plan sponsor with each book of business, you may draw different conclusions about whether a particular drug is attractive on your PDP formulary versus your MAPD formulary. It’s not always a uniform decision. I think that’s also a very key dynamic that we need to take into consideration, particularly if you’re a life sciences stakeholder, when it comes to thinking about the marketplace and this broader shift towards MA.

Neil: I think it’s also important to recognize that it’s not just on-formulary or off-formulary. It’s tier placement, it’s the utilization management that you bring. A PDP may want to have extensive utilization management on a given drug while an MA plan may want none, for example.

Ryan: Neil, we also know that depending upon the composition of the membership in a particular book of business, be it PDP or MAPD, the coverage of certain drugs attracts or discourages enrollment of different membership types in terms of their overall profile. Is it fair to say that the decisions that plans make around the composition of their formulary and the type of enrollment that they are seeking to attract could also vary between PDP and MAPD?

Neil: Oh, absolutely it does, and it has for a good number of years.

Ryan: So fair to say then, if you’re putting yourself in the shoes of a manufacturer, you may want to think about your Part D portfolio strategy in terms of two separate markets as opposed to one market with each having their own set of strategic tradeoffs.

Neil: Definitely, that is where the plans have been for a while, and it is where the manufacturers need to be.

Ryan: So, Neil, you mentioned drug spend earlier. What about drug spend? Say more about that.

Neil: In 2008, about 15% of the spend was for generics. Today, it’s about 20. Spend on traditional brands was about 70% of the spend. That’s fallen nearly in half, about 37% in 2019. The big shift has been in specialty spend.

These have created tremendous pressures on the Part D program that we’re starting to see. This means lower subsidies for members and Medicare Part D is predicated on a CMS subsidy for all members. Those have been shrinking dramatically. For many members, this has resulted in very high out-of-pocket costs. It creates at least the perception of runaway drug costs because people focus on the high-cost drugs. Whether that’s a fair characterization, I would disagree, but it is in fact a perception that’s out there and it creates significant pressures for plans to push for increased rebates for manufacturers.

We’re on this rebate treadmill with the current situation and there’s funding issues for CMS. Congress is looking at this. MedPAC has reported on it. It gets a lot of attention, and it’s probably time for action.

Ryan: Right. So, this brings us to Part D redesign, which we know has been in the news quite a bit over the better part of the past year or two, as well as with respect to the evolving reconciliation effort in Congress. Do you think that Part D redesign is the right approach? Is this what you think needs to be done to address some of these pressures that you’re talking about?

Neil: I absolutely think this is what needs to be done. There are a number of proposals in Congress that will introduce a maximum out of pocket for members, which is good policy and is common on the MA side where there is a maximum out of pocket for medical spend. So, it’s a good move there.

Changing the sharing of catastrophic liability between CMS and the plans is also good policy. It was originally set because no one knew how many plans would participate or what the program would look like. We now have robust data. It is more manageable for plans today.

And, finally, we’ve got to understand how we equitably share the costs between manufacturers, CMS, members, and all parties that are impacted by this, including the pharmacies themselves. I believe it’s time, perhaps past time, to really push for change.

So, Ryan, policy redesign is good policy, but what else should stakeholders, particularly manufacturers, be thinking about relative to this policy?

Ryan: We have seen various competing proposals, though, on how to do Part D redesign, and they have been a bit of a moving target for manufacturers.

When you think about where that new mandatory rebate is going to be set, that really will determine whether or not it’s seen as financially positive for individual manufacturers, or whether it’s something that is going to place even greater pressure on their overall portfolio. So, I think that the key thing is that, depending upon the final proposal that is ultimately introduced through the reconciliation effort, manufacturers really need to be thinking about where those dials are set and how those dials affect the overall financial picture for their portfolio. That’s going to vary depending upon the mix of drugs that you have out in the marketplace, and the extent to which manufacturers can quickly model out how adjustments or modifications to the policy make it better or worse for them is going to be key.

So, Neil, I want to thank you for joining me today, and I want to thank all of you for tuning into Avalere Health Essential Voice. Please stay tuned for our next installment in this miniseries. If you would like to learn more, please visit us at Thank you very much.

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